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19 June, 2018
Now that the United States has retreated from the Paris Climate Accords, and relinquished its leadership role in the fight against climate change, it remains to be seen whether smaller nations will stick to their pledges of greenhouse gas reduction.
Eyes are on countries like Vietnam to see if they keep to their commitments or revert to the pursuit of cheap and dirty coal-powered solutions for their energy needs.
Vietnam, in particular, faces some of the biggest risks. Global warming is a major threat to the country, where rising sea levels are predicted to swallow up nearly half of the Mekong Delta, a crucial area for domestic food production, in coming decades.
Currently, coal-fired plants in Vietnam contribute to thousands of premature deaths and air quality in big cities is getting worse. In 2017, the capital Hanoi enjoyed just 38 days of clean air, with contaminant levels four times those deemed acceptable by the World Health Organization.
Business as usual?
Unlike Obama, the Trump administration seems unlikely to apply any real pressure on other countries to pursue clean energy or combat climate change, and so it will be up to domestic forces to really push for change.
According to the government’s current national plan, electricity generated from coal will rise five-fold between now and 2030, and GHG emissions will increase in lockstep. This is at odds with Vietnam’s pledge to the Paris Climate Accord, which targets 8 percent emissions reduction by 2030, and could rise as high as a 25 percent reduction with international support, such as financing for solar panels and wind turbines.
Energy and environment experts worry that the country’s next national power development plan, which is under revision this year, could hold to those figures or, worse, embrace a more aggressive coal strategy.
The story, however, is not all doom and gloom. Vietnam does have the potential to become a regional clean energy leader, if only the country’s energy development and investment environment can be reshaped. Business involvement in this process will be crucial, as the commercial and industrial sectors consume more than 60 percent of Vietnam’s electricity.
Khanh Nguy Thi, founder of the Vietnamese nonprofit Green Innovation and Development Centre, recently won the 2018 Goldman Environmental Prize for her work convincing state agencies to increase their use of renewable energy. Her efforts were instrumental in halting the construction of two hydropower plants in a national park and securing a 20,000 MW reduction in planned coal expansion.
Government leaders have also demonstrated a desire to utilise Vietnam’s abundant sunlight and over 2,026 miles of coastline in the pursuit of renewable energy.
4 solutions for a sustainable energy sector
Clearly, clean energy opportunities are available, the question is how to encourage more investment. Obstacles persist with the regulatory environment, preventing the country from tapping its potential in this area. Here are four small changes which could bridge the gap between policy and implementation, ensuring the green energy dream becomes a reality:
Streamline regulations regarding Power Purchase Agreements (PPA) and support the use of Direct Power Purchase Agreements (DPPA).
Negotiating standard PPAs with EVN, the sole power purchaser, is time-consuming, which cause rising total project costs. The streamlining of such deals would render them more attractive to power producers and cut lengthy approval time, which often leads to execution delays or complete abandonment of projects.
USAID and Vietnam’s Ministry of Industry and Trade are working together to enable private sector electricity buyers and renewable energy providers to enter into DPPA. This would allow industrial energy buyers to purchase electricity directly from independent renewable energy producers.
Such a mechanism would help companies enjoy constant power prices and ultimately save power costs. By signing a long-term DPPA to buy power from a clean energy generator, businesses can have a constant power price, reducing risk and helping firms establish long-term business plans with no surprises down the road.
Improve the transparency of electricity rate forecasting.
Electricity prices will have to increase in order for Vietnam’s national utility to finance new energy projects, but the schedule for such increases remains vague. Better transparency of expected price increases will allow buyers and investors to more accurately value fixed-cost renewable energy contracts, which can offer some price protection.
Additionally, improving the quality and sourcing of data on renewable energy can help clarify for investors available locations, infrastructure capabilities and government targets, as well as other information to help reduce risk on investment decisions.
Encourage supporting industries.
Supporting industries plays a crucial role in the development and adoption of renewable energy technologies. The government should promote domestic SMEs through capital subsidy and incentives such as tax breaks and preferential loans. A competitive supporting industry will help in reducing the tariff and investment costs for renewable projects, nurturing their development as part of Vietnam’s energy sector.
Develop a renewable energy model for industrial parks.
Given the expectation that industrial areas will continue to play a big role in Vietnamese manufacturing and commerce, these parks are an important place to explore renewable solutions. Aggregating demand from tenants in the parks would help scale clean energy and make it more affordable for all.
Green power pioneer
Renewable energy has the capacity to power Vietnam and with the right policies in place, the country can deliver affordable, safe and clean power for continued economic growth.
Vietnamese businesses and the government could chart an unprecedented course for clean energy, and represent a role model for Southeast Asia — if they can address some key barriers. The changes detailed above would help drive the country’s energy transition toward a sustainable, greener future, and demonstrate that the fight against climate change can continue without American leadership.
For further information, please contact:
Giles T. Cooper, Partner, Duane Morris
gtcooper@duanemorris.com
