Phuc’s green energy aspirations for Vietnam

The Vietnamese Prime Minister has set national targets for renewable energy. It is a sign the Vietnamese government is ready to end Vietnam’s reliance on coal.

Editorial

Vietnamese Prime Minister Nguyen Xuan Phuc laid out his country’s ambitions to boost renewable energy usage. Phuc outlined plans to triple Vietnam’s renewable energy production by 2030. He also called for a 12% increase in household solar energy use by 2020, rising to 26% by 2030.

Coal fuels the fires of Vietnamese growth

The announcement could not have come sooner. Air pollution in Vietnam has become a silent killer. Hanoi’s air pollution level is approaching those in Beijing. Ho Chi Minh City only fares slightly better.

Despite rising pollution levels, coal consumption is rocketing. Vietnam is fuelling its strong economic growth by burning coal. In the first five months of 2018, the Vietnam National Coal and Mineral Industries Group (Vinacomin) put national coal consumption at 17.6 million tons. This is a vast increase on 2017 levels, which reached 2.8 million tons in the same period.

(Source: Danish Energy Agency)

Over the last decade, Vietnam has increased its reliance on coal. In 2005, 35% of Vietnam’s energy came from biomass sources. By 2015, it accounted for less than 17% of its energy. Coal and oil sources soared from 49% to 63% in the same period. For this reason, Vietnam was the largest greenhouse gas emitter in ASEAN over the last ten years.

It is time to turn to renewables

Vietnam is running out of options. The country has almost reached its maximum potential for hydropower production. Vietnam’s oil and gas supplies are running low. Territorial disputes have also put a stop to new drilling activities in the South China Sea.

Vietnam has plenty of room for expansion into renewables. It has the capacity to generate 500-1,000 kWh/m2 annually from wind farms. It also enjoys between 2,500 and 3,000 hours of annual sunshine.

Companies are interested in making the switch…

Phuc’s renewable goals are achievable if Vietnam can bring all of its proposed renewable projects to fruition. As of April 2018, there were 245 planned renewable energy projects in Vietnam. However, only 19% had reached the construction stage, and only 8% were in operation.

The volume of planned projects indicates companies are interested in transitioning to renewables. But government policy is not designed to encourage the switch.

…but government policy does not create an environment which favours renewables

Under Decision 11, solar power projects are exempt from paying import duty on goods. They also receive corporate tax income incentives. But the government has not legislated to allow the sale of excess solar energy back to the national grid.

There is also a lack of government transparency regarding energy price hikes. The government still subsidises industrial energy. Prices remain artificially low for now, but there will be future price increases to finance new projects. The government has offered little information regarding future hikes, leading to investor uncertainty.

Phuc needs to bring his policy in line with his targets

A clear roadmap on future energy price increases would ease investor uncertainty. More government transparency would allow renewable energy companies to offer attractive fixed-price contracts.

Renewables would also benefit from the introduction of a power purchase agreement. A direct power purchase agreement would enable firms to buy energy directly from renewable energy providers.

Drawing up a renewable energy model for Vietnam’s new special economic zones (SEZs) would also give an immediate boost towards Phuc’s renewable aspirations. The government’s planned industrial parks occupy 85,000 hectares across Vietnam. 66% of this land is industrial land available for leasing. It would be a significant victory if the government could get all SEZ occupiers running on renewable energy.

Government backing would bring more projects to completion

The government has been reluctant to guarantee loans for renewable projects. Bui Vinh Thang, a business developer at Mainstream Renewable Power, said that the government had not backed any projects from the Vietnam Electricity Group in 2018. As a result, financial institutions are reluctant to lend to renewable investors.

Government backing would make it far easier for renewable projects to raise capital. This would go a long way towards getting more of the 245 projects to the construction stage.

Phuc must align his government’s policy with his renewable energy aspirations. Vietnam only has to look to its neighbour to see the dangers of overreliance on coal. Chinese cities are paying the price for fuelling economic growth by burning coal. Poor air quality and smog clouds are propelling Chinese citizens towards an early grave.

Vietnam has an opportunity to learn from China’s mistakes. There are excellent renewable opportunities, and the private sector has already shown a willingness to change. It is now up to the government to modernise its policies to favour renewables. China offers a glimpse into what reliance on coal looks like. Vietnam has the opportunity to show what can be achieved when a government takes meaningful action to usher in a new era of renewables.