The Potential of Renewable Energy in Vietnam
Vietnam Renewable Energy Week’s workshop on “Green Finance for Renewable Energy for Industries in Vietnam” proved that there is a considerable future for renewable energies in Vietnam.
On the 18th of September 2019, CECAD attended the “Green Finance For Renewable Energy For Industries in Vietnam” workshop organized by WWF Vietnam, Vietnam Sustainable Energy Alliance (VSEA) and the Climate Change Working Group (CCWG), in order to gain more insights on the current situation and potential of renewable energy (RE) development in Vietnam.
A glance of renewable energy and the role of stakeholders
Simon James, a WWF Climate and Energy Advisor, made one glaring fact clear— Vietnam’s demand for energy is forecasted to double from 2015 to 2035. Though overwhelming, he continued, this can be seen as a great opportunity for renewable energy to power Vietnam’s future. In his overview of the country’s energy consumption and renewable energy potential, James emphasized the need for cooperation and action in both the public and private sector, particularly between policymakers, investors and industries, for an efficient and effective energy transition. $48 billion USD is required to deliver on Vietnam’s growing energy demand, however only $23.7 billion USD investment is required for total RE development by 2030. Thus, the economic as well as environmental sense that renewable energy makes within this burgeoning energy market deserves significant attention. Though there are various environmental policies in place for the energy sector, challenges for RE include lack of capital/funding, competition with fossil fuels, high investment costs with certain technologies, lack of qualified human resources and expertise, underdeveloped supporting industries, weak grid capacity, conventional business practices and various other hindrances. RE nonetheless offers much potential to meet growing demand if there is adequate policy and financial support. WWF’s Power Sector Vision shows that 80% RE energy generation is feasible by 2050 with current technologies.
Vietnam’s banking and finance sector: giving “green credit” a chance
A panel discussion covered many topic areas regarding financing renewable energies. Currently, given the magnitude of investment needs into low-carbon power generation, the availability and cost of capital is crucial for a successful energy transition in Vietnam. There are numerous incentives for RE investors, including preferential credit loans, land use/rental tax exemption, import duty exemption on fixed assets, among others. According to Andrew Affleck, founder and managing partner of Armstrong Asset Management, RE finance is relatively new in the world of the Vietnamese banking sector, and investors have been skeptical with financing RE projects as it strays from “business as usual” commercial practice. Since the idea of green credit is new, project assessment capacity within the banking sector is currently quite weak. “Green credit” refers to lending dependent on environmental criteria for the planned use of funds and is part of sustainable investing that aims to reduce the impact on the environment of new lending activities. Local commercial banks have limited capital resources and need to look for finance from international sources, making cooperation to seek funds and training a necessity for the growth of green credit in Vietnam.
International organizations such as the International Finance Corporation (IFC) and the World Bank have begun working with local banks to provide training sessions for project assessment of renewable energy. These foreign sources are integral to the building up of capacity and expertise within the local investment market, namely for banks to become skilled in making their own assessments. Ms. Nguyen Thanh Son, the Director of the Vietnam Banks Association stated that the banking sector implemented an action plan in 2015 to boost green credit in order to facilitate sustainable growth, though there needs to be more collaboration between banks and the finance system in order to sustain this initiative. Banks like Vietcombank have also created renewable energy programs to help facilitate credit to renewable energy projects and help finance the “greening” of the industry. However, much more needs to be done in terms of funding, support and education. In addition to international and internal cooperation, the education and the training of the next generation is essential to help facilitate a smooth and prosperous energy transition that benefits both society and our surrounding environment.
Investing in the future
Ms. Trinh Quynh Chi from the Clean Energy Investment Accelerator confirmed that so far, Vietnam has received more foreign investments in RE than other South-East Asian country. This is because Vietnam provides attractive incentives to investors through its clear policies, relatively quick project permissions, and positive relational experiences. Stating that RE development in the country was faster than expected, Trinh cited Jones from WWF when saying that there is a limited capacity for continued growth due to the existing infrastructure i.e., the existing grid capacity is too weak. However, Vietnam’s annual 1,600-2,700 hours of sunlight holds great potential for the expansion the solar industry which is expected to be the major contributor to the country’s RE capacity. Renewable infrastructure, such as solar panels and wind farms, do require a large initial investment, but once it is built and dependency on fossil fuel decreases, the energy-return-on-investment for renewable sources will go up and eventually surpass that of fossil fuels. Moreover, RE project costs are dropping. According to Mr. James, by 2020, building new solar PV will be cheaper than building new coal plants and by 2021, building new onshore wind farms will also be cheaper. Thus, RE must be considered for future policy and energy infrastructure investments decisions, not only to meet climate change mitigation commitments but to ensure Vietnamese society continues to have access to the energy it needs.
Urgency for action
Described as a “nation most prone to climate change,” Vietnam must choose the path of a cleaner, and altogether cheaper energy future. The discussion was concluded by calling to set up and strengthen an alliance in Vietnam and ASEAN-wide that involves all stakeholders, particularly those in the private sector who can take part of their revenue to handle climate situations and build a more sustainable future.