Vietnam – Green Growth – 2015

Overview

Green Growth P

mP is a key pillar of Sustainable Development Strategy for 2011 - 2020 and

aims to ensure efficient and sustainable economic growthP

121P. Vietnam also adopted a National

Green Growth Strategy in September 2012, which covers the 2011 -2020 period with a vision to 2050P

[3]P.

In 2014, we have witnessed further strengthening of the framework for Green Growth in Vietnam. On Central Government level, support mechanisms and action plans have been promulgated, and roles and activities of Government agencies have been defined. In April 2014, the Ministry of Planning and Investment (MPI] announced the introduction of a National Action Plan on Green Growth focusing on reducing greenhouse gas emissions and increasing the use of renewable energy. It was launched in July 2014.

As an active participant in the development of the Green Growth Strategy, We acknowledges that the costs to implement this strategy are substantial. The Government's Green Growth Action Plan requires a capital up to USD 30 billion until 2050. With proper incentives and an adequate regulatory framework, European investors can finance and build projects using reliable European technologies and expertise, including in the sectors of renewable energy, construction and waste orwater management.

Development of Renewable Energy

Relevant Ministries: Ministry of Industry and Trade (MOIT), Ministry of Planning and Investment (MPI), Ministry of Finance (MOF)

Issue description

In 2014, we have seen the approval of support mechanisms for waste-to-energy and biomass power. They contain an encouraging set of measures to promote investment in power generation from these resources and are a positive start. But in the opinion of We, these measures will not be sufficient to attract investment to a level that will help achieving the targets for energy generation in this sector. We are also pleased to learn that the Ministry of Industry and Trade is reviewing the platform of support measures and the feed-in tariff for wind power and expect to issue the new feed-in tariff this year.

Additional pieces of legislation were passed this year, including a steady progress towards a competitive power market, which further strengthen the framework for development of renewable energy.

We encourage the Government of Vietnam to continue the development of detailed guidance for implementing agencies and investors of renewable energy projects. Clear guidelines for

securing incentives such as those for land, tax and (pre)power purchase agreements are essential to secure the financing and development of those projects.

Potential gains/concerns for Vietnam

Vietnam has an excellent potential for the development of renewable energy generation, but at the same time it has one of the lowest power prices in the region. The decentralised nature of renewable energy generation typically also has a beneficial effect on job creation and infrastructure development in the region where the plant is located.

Table 3: Comparison of power prices in selected countries

Country Electricity prices 0T( U S D 0T

cents/kWh)

Year

Australia 22 - 46.56 2013

China 7.5 -10.7 2013

Germany 31.41 2012

India 8 .0 - 12.0 2012

Indonesia 8.75 2012

Japan 1T2 0 - 2 4 2012

Malaysia 7.09 - 14.76 2012

Philippines 30.46 2012

Viet Nam 7.0 2013

Source: UNDP, 20U

Within this context, we can make specific recommendations that will allow comprehensive growth of the application of renewable energy in Vietnam, that do not always require raising the price of electricity for consumers.

We considers that the development of indigenous sources of renewable energy is an important contribution to implementing the Green Growth strategy and contributes just as importantly to a resilient energy supply market, with less risk concentrated in imported coal and hydropower. This dual benefit at a time when energy prices increase can make a positive contribution to the sustainable economic development of Vietnam.

Recommendations

In cases where the Government is working on new guidelines, we recommend to provide more updates about the progress or timeline for publication of those documents, so that project developers can plan accordingly.

In addition, we recommend the following:

1. Support to solar-based energy solutions

Implementing solar-based energy solution, such as solar water heaters and solar panels, allows commercial building owners and industrial users to save more than 60% of energy.

However, high investment costs have so far held back substantial adoption of these technologies.

A robust support mechanism, such as tax incentives during purchase or operation of solar energy solutions, is expected to greatly benefit the sector. One suggested tax incentive is to allow the full cost of solar power and thermal installations to be claimed against taxable profits in the year of installation of the power equipment.

Capital investment costs are currently claimed against taxes by way of depreciation over the lifetime of the asset, based on a schedule determined by the Government and depending on the asset type (typically 10 to 20 years for solar power equipment). Accelerating the tax benefit to the first year of operation would provide corporate power users with an incentive to switch to their own generation of power, reducing the pressure on the grid system and helping to balance energy demand against available supply.

This would also further increase the attractiveness of Vietnam to manufacturing and service industries, and remove one of the significant risks identified by foreign investors, which is the reliability of future energy supply and the potential for significant increases in unit power costs from the grid supply.

2. Promotion of energy services companies

Allowing and regulating decentralised energy supply, such as the ability of energy producers to sell directly to off-takers[ul or concepts such as Energy Service Companies (ESCOs), are additional measures that can support the development of renewable energy in locations where it is most needed. ESCO models may also help to avoid environmental impacts (e.g. locally available biomass resources for energy generation). Regulations to protect ESCOs, including on the risk of non¬payment by off-takers, and on the ownership of ESCO’s equipment installed in the facilities of the end-user, can help to attract more investment in these models.

3. A feasible wind power feed-in-tariff

Having the highest potential for wind power in the region, Vietnam has received much attention from international investors and many projects have been registered. However, the implementation of projects is often hampered by the current feed-in tariff of 7.8 USD cents per kWh, which is not sufficient to recover the costs of investment. As a result, most wind power developers failed to secure financing, because the current tariff is not bankable. In our view, a feed-in tariff of at least 11.5 USD cents per kWh is required to reach the target of 1000 Megawatts (MW) of wind power by 2020, as set forth in the so-called 'Power Master Plan VII” This revised tariff level would allow the development of the proposed 'peritidal' (i.e. near the shore) projects, the functioning of the sites in the central highlands and the majority of the licensed wind sites in Ninh Thuan and Binh Thuan, which have been delayed for many years.

4. Clear and fair standard power purchase agreements

Project developers need more guidance to apply the incentives specified in the wind, biomass and waste-to-energy support mechanisms to their projects. In particular, project developers are unsure about the process of securing feed-in-tariffs and off-take agreements, which are essential for the feasibility and funding of the projects. We recommend that the Ministry of Industry and Trade (MOIT) promptly issues clear and fair standard power purchase agreements for biomass and waste-to-energy projects as defined in Decisions No. 24 and No. 31 , so that currently pending projects can be implemented.

5. Pre-packaged wind power projects

Wind power developers have encountered substantial difficulties in managing the pre-development risks in Vietnam. Despite the efforts of the MOIT, GIZ, Provincial People’s Committees, Vietnam Electricity (EVN) and other agencies to support them, the developers often have little experience with energy projects and have found it difficult to complete the initial project development steps that would help them attract investors and project finance loans. Our recommendation is to develop pre-packaged wind sites, which could be offered to qualified bidders. The same practice has yielded great results in other Asian countries such as Thailand and it has sparked the development of large geothermal projects in Indonesia.

A pre-packaged wind project consists of the following prerequisites:

• Business investment licence and appropriate land lease or ownership documentation for the project area;

• Wind data for a minimum of one-year duration and on the project site following professional international quality standards;

• Initial assessment of the land affected with an estimate of land clearance, compensation costs and timescale for the completion from the Provincial People’s Committee;

• Grid impact study at regional and project specific level; and

• Provisions for transmission line to the appropriate grid junction point (e.g. transmission line completed or preliminary design completed).

To ensure that the efficiency of construction and operation are maximised and to provide the best value power generation to EVN from the available renewable resources, qualified bidders should meet a minimum level of financial, technical and managerial capabilities. In addition, bids could be based on the Power Purchase Agreement Price and the lowest cost bids from pre-qualified bidders would be given strong preference.

Sustainable Building

Relevant Ministries: Ministry of Industry and Trade (MOIT), Ministry of Planning and Investment (MPI], Ministry of Finance (MOF), Ministry of Construction [MOC]

Issue description

Buildings are and will remain one of the largest consumers of electricity. The rapid development of the middle class and its associated lifestyle, which includes air conditioning, use accounts for more than 30% of the energy consumption growth in every main city of Vietnam. Acting on building design can reduce this growth for the next 25 years of a building's lifetime.

Potential gains/concerns for Vietnam

The recent pickup of the real estate market is a chance to take. It would offer a tangible opportunity to act on the design of future buildings, and to limit the growth of energy demand. The Energy Efficiency Building Code (EEBC), published in 2013 by the Ministry of Construction (MOC) is a positive move but its application is challenged by enforcement issues.

Recommendations

Our recommendations are based on four actions:

• Educate building designers about sustainable building design;

• Integrate sustainability of works at the concept stage of the building design;

• Implement a reward/sanction based electricity price policy; and

• Create showcases.

1. Education

Europe has a worldwide leading position in the field of sustainable buildings and human comfort. This know-how can be shared with Vietnamese counterparts, adapted to the Vietnamese market and climate, and spread to the community. It would include building related faculties in the field of architecture, urbanism, mechanical and civil engineering such as the Institute of Tropical Architecture of Hanoi Architecture University, the Vietnam National Institute of Architecture, the Vietnam Institute for Urban and Rural Planning, the Vietnam Association of Civil Engineering Environment, etc.

2. Integrated building design

We recommend a modernisation of the building design method applied in Vietnam. Architects, engineers and the client should work as a team from the first day in order to optimise the design at concept stage, as a sustainable building should be designed before a building is approved by the authorities or by the client. The ideal and most economical results are not obtained by efficient machines, but by buildings that do not need those. For instance, buildings that produce little soiled water will need little water treatment afterward. Buildings that do not need much energy will not need much outside energy, whether it is renewable or not. Such integrated buildings optimisation has a double positive impact on green growth.

S3. Supportive electricity price policy

We recommend EVN to impose to new commercial and residential building owners a tariff scheme that rewards low energy consumption buildings with lower prices and to impose higher prices to high consumption buildings. Such policy could be established on benchmarks based on climatic environment, type of building usage, quality grade and occupation. It would create a bottom-up and large-scale movement that will naturally create more interests in sustainable building design.

4. Showcase

In order to promote sustainable building, nothing is better than to show good examples. Priority should therefore be given to constructing a (near to) zero energy building in every major city of Vietnam that does not consume much electricity, does not cost more than average and that offers the same or a better comfort level than a building that consumes more energy.

Please contact Oliver Massmann under Uomassmann@duanemorris.comU if you have any questions.