Renewable Energy in Vietnam: Current plans and Policy Recommendations

Forewords

Despite the commitment of the Vietnamese Government in climate change mitigation policies, fossil fuel-based technologies heavily dominate the internal energy market and major investments are still made in new thermal coal power plants during the last two decades. In these conditions, ambitious CO2 reduction objectives of the country at the COP 21 will be difficult to fulfill because all scenarios show increasing emissions in the future. Despite their apparent environmental and even technological advantages, renewable energies (REs) and other low carbon technologies do not take off. There are some main barriers to the development of renewable energy in Vietnam identified, particular on immature and expensive low carbon technologies, the inadequate financial incentives, and the low grid capacity. It is necessary to propose some solutions for the country to overcome the main identified barriers.

Increasing coal consumption in the current power development plans and its environmental concerns

Given that coal and natural gas are still so cheap and plentiful in Vietnam and technologies to convert them into usable mechanical energy are mature, they are expected to maintain hold on a large share, up to about 60 percent of the total power capacity by 2030 (The Government of Vietnam 2016).  In coming decades the Vietnamese government aims at focusing on clean and efficient fossil fuel technologies. However, to catch the common development trend worldwide in the energy sector, reducing GHG emissions of electricity generation in Vietnam requires faster transitioning from high emissions fossil fuels to those with lower or net-zero CO2 emissions, such as renewable energy technologies.

In early 2016 the Government of Vietnam approved the adjustments of 7th Vietnam Power Development Planning (PDP7-A) in the period 2011 – 2020 with an outlook up to 2030 in which low carbon technologies will play more important role compared with the original version of PDP7. In addition, the total electricity generation required in Vietnam would reduce about 20% and 18% by 2020 and 2030, respectively (MONRE 2015).

Hydropower sources, including pump-storage hydropower plants, remain the largest share in the total renewable power capacity and slightly increase to 25.4 GW in PDP7-A. There is a big move in development of power sources from solar energy, in the PDP7-A, raising the total capacity of the solar power projects from the current negligible level to about 850 MW by 2020, 4 GW by 2025, and 12 GW by 2030.

Joint land-use between wind farm and agricultural activities in Vietnam
Joint land-use between wind farm and agricultural activities in Vietnam

Despite the commitment of the Vietnamese Government in climate change mitigation policies, fossil fuel-based technologies heavily dominate the power industry and major investments are still made in new thermal coal power plants during the last two decades. In these conditions, ambitious CO2 reduction objectives of the country in its Intended Nationally Determined Contributions (INDCs) at the COP 21 will be difficult to fulfill and all scenarios show increasing emissions in the future.

There are some main barriers, which are determined by the author through various methods and events: literature review, expert interview, and stakeholder and consultation workshops, to the development of renewable energy, such as immature and expensive low carbon technologies, the inadequate financial incentives, and the low grid capacity. To adopt more renewable energy technologies in the Vietnam’s power sector, the author suggests some policy recommendations and incentives to overcome the barriers for a faster development of renewable energy share in the sector.

Policy recommendations

REs are in many cases worldwide not yet cost-competitive in the markets. As subsidies for fossil fuels pose a direct barrier to the deployment of RE technology, it is highly advisable to phase out such subsidies or even replacing with RE.  Before forming fully competitive markets for electricity, RE still requires some forms of subsidization or in other word, the government is asked to facilitate the introduction of RE.

The feed-in tariffs

There are a variety of instruments through which renewable energy can be subsidized. The feed-in tariffs (FIT) are generally characterized by guaranteed access to electricity grids for RE stations and the guaranteed long-term demand at a price reflecting both the costs of production and a specified return for the producer. In Vietnam, Electricity of Vietnam (EVN) and its units, such as power distribution companies and grid operators, are forced under a FIT to buy electricity from renewable. Currently, FIT for on-shore wind power in Vietnam is 7.8 US cents per kWh. It is expected to increase to 8.8 US cents per kWh soon. FIT scheme for solar power is still under consideration of the Government.

Tax incentives

For generators of renewable electricity, tax reductions can effectively increase their after-tax earnings. Electricity users, tax reduction can trim down their bill of power consumption, letting them to give more interests in RE over fossil fuels. Tax incentives can also help to stimulate the development of a local manufacturing capacity. There are different tax incentives that can be used to promote the larger deployment of RE. They include investment tax incentives, production tax incentives, property tax reductions, value-added tax reductions, equipment import duty reductions, accelerated depreciation, land-use tax, and revenue tax. The broad variety of instruments allows for an extremely flexible application of tax incentives according to the respective local needs.

External costs

Another effective option would be the introduction of an energy-pricing scheme that can reflect all costs associated to the production and use of each energy carrier. In the case, that price for energy can reflect the social and environmental costs of fossil fuels production and consumption and thereby greatly advance the cost-competitiveness of RE. Studies show that if all externalities were in the total price for electricity, price of fossil fuels would be higher. In consequence,

National Authorities & Strategies and Regional collaborations

All subsidy and incentive schemes and political measures ought to be chosen based on Vietnam’s particular circumstances and each type of RE technology. Vietnam should develop its national RE strategies that are implemented by national authorities with all competences and means necessary to ensure the greatest success. Along with efforts and co-operations inside the country, Vietnam should propose more inter-regional and intra-regional collaborations that bring the valuable sharing of experiences Vietnam and other ASEAN countries and partners.

Conclusion

RE is in performance of an important role Vietnam to meet increasing demand for electricity thereby protecting the environment, and helping the country to achieve its emission targets as in its INDCs. Based on the analysis of Vietnam’s existing RE policies and stakeholders, it is suggested that these barriers could be dealt with by introducing a new type RE policy that aimed at exploitation of RE market and based on the positive interaction between the government, investors, and other stakeholders. It is clear that the transition from fossil fuels to REs is still underway, with further rapid, towards to an effective and sustainable development of REs in Vietnam in coming years.

 

About the author:

Dr. Nguyen Trinh Hoang Anh is an ASEAN-U.S. S&T Fellow and recently worked as a lecturer and researcher at Clean Energy and Sustainable Development Lab at the University of Science and Technology of Hanoi (CleanED/USTH). His teaching and research activities focus on energy and environmental economics, energy modeling, energy policy, and assessment of renewable and low carbon energy technologies. Dr. Nguyen Trinh’s works in this Fellowship are related to national strategies for clean energy development with consideration of institutional and technological change.  Dr. Nguyen Trinh holds a Bachelor’s Degree in Electric Power Systems from Hanoi University of Technology, Vietnam, Master’s Degree in Energy and Environment Management from the University of Flensburg in Germany, and Ph.D. in Energy Economics from Paris Diderot University in France.