This chapter examines key trends related to clean energy finance and investment in Viet Nam. It provides a brief overview of key macroeconomic, investment and social developments in Viet Nam over recent decades. It analyses key trends in energy demand and energy efficiency, as well as in the power sector, highlighting progress against clean energy and climate targets. The chapter also provides a snapshot of Viet Nam’s clean energy market, looking at recent trends in the cost of clean energy technologies, as well as finance and investment flows.
Clean Energy Finance and Investment Policy Review of Viet Nam
Green Finance and Investment
1. Introduction and recent trends in clean energy finance and investment
Abstract
Economic and social developments
The economy has grown consistently over the last decade
Following a wave of economic and political reforms launched under Đổi Mới in 1986, Viet Nam has developed rapidly into a lower middle-income economy, shifting from centralised planning towards a market economy. Over this period, the country underwent a structural transition away from agriculture towards foreign direct investment (FDI) driven manufacturing. Viet Nam has seen a remarkable increase in FDI with steep year on year growth since 2000, rising from less than 2 billion USD to 14 billion USD by 2019. As a proportion of GDP, FDI inflows far outpace those of peer countries in the region, such Thailand, the Philippines and Indonesia. After a brush with deflation (-0.19%) in 2015, inflation has held between 1.1% and 4.1% since 2016 and high inflation of over 20% has not been seen since 2011. While Viet Nam's GDP per capita is still amongst the lowest of its regional peers, it is growing at one of the fastest rates in the region. GDP growth has been consistent since reforms, averaging 6.5% per annum between 2000 and 2019, and weathering through global economic downturns (World Bank, 2020[1]).
The economy has demonstrated noteworthy resilience during the ongoing COVID-19 pandemic, compared to the rest of the world. This is due to in part to proactive measures, which limited the health impact of COVID-19, but also solid economic fundamentals and policy buffers. This includes strong foreign investment and current account surpluses, a structurally sound banking system which has decreased its non-performing loans since the 2012 debt crisis and, finally, strict public debt management in the years leading up to the pandemic. Though the economy has suffered during the crisis, GDP growth in 2020 was one of the highest rates in the world, at 2.9%, and growth is projected to bounce back towards near pre-COVID-19 levels over 2021 (IMF, 2021[2]). In a context of trade disputes between the United States and China, and global disruptions to supply chains over the course of the COVID-19 pandemic, Viet Nam has maintained strong performance in export-oriented manufacturing. This has further positioned it as an attractive and reliable location for FDI, supporting ambitions for manufacturing and processing to account for 30% of GDP by 2030 (Resolution No. 23‑NQ/TW), situating Viet Nam as a leading hub amongst ASEAN economies.
Figure 1.1. FDI as a share of GDP, 2006-2019
Source: World Bank (2020) World Bank Development Indicators (database)
Poverty levels are declining and electricity access has reached 99%
Considered to be amongst the world’s poorest countries in the 1990s, after the wave of economic reforms, the World Bank now classes Viet Nam as a lower middle-income country. The country has made strong socio‑economic progress and is experiencing rapid demographic growth with the population reaching 97.3 million in 2020 with a life expectancy of 75 years. Moving from a strategy of import substitution to one of export orientation, Viet Nam has seen a decline in agriculture and an increase in industrialisation. This has influenced poverty levels, with a rise in higher wage non-agricultural jobs in rural areas, such as manufacturing, construction and service sectors, accompanied by an overall rise in real wages. In 2018, 6.6% of the population lived under the national poverty line (3.2 USD a day, 2011 purchasing power parity) falling from 70% in 2002 (World Bank, 2020[3]).
Over the last decade, basic services have significantly improved. As of 2011, electricity access reached 100% in urban areas, and as of 2016, it has reached over 99% of the whole population, relying on 8 368 kilometres of 500 kV lines and 18 542 kilometres of 220 kV run by the national power transmission corporation, EVN NPT (EVNNPT, 2020[4]) (World Bank, 2019[5]) . Economic growth and urbanisation are putting increasing pressure on Viet Nam’s infrastructure. Despite increased investment from the economic stimulus of the last financial crisis in 2008, there is still a need for large infrastructure investments to expand the current grid and power generation capacity to meet growing per capita electricity consumption. The two extremes of the country, the north around the Red River Delta, home to the country’s capital Hanoi, and the southeast, are densely populated and developed regions, which also have the highest concentration of industrial production and therefore the greatest energy demand. However, Viet Nam has a challenging geography for infrastructure. The territory extends from north-to-south across 1 650 kilometres, in an S shape, spanning 500 kilometres across at its widest, and only 50 kilometres at its narrowest. Moreover, about 75% of the country is made up of low mountains and hilly regions which places constraints on land availability for industry and agriculture and utility scale energy projects (Vietnam Embassy, 2020[6]) (OECD, 2019[7]).
Key energy demand and efficiency trends
Energy demand and energy related emissions are increasing rapidly
Viet Nam has a rapidly developing economy with long-term socio-economic forecasts averaging 6.6% GDP growth a year for 2021-2030, and 5.7% for 2031-2045. Since admission into the World Trade Organisation (WTO) in 2007, the country has been regarded as an attractive destination for low-cost, high-volume manufacturers, a trend that has been strengthened by various free trade agreements (FTAs), most recently the European Union-Viet Nam FTA. Whereas the share of agriculture in the economy is steadily shrinking, higher energy-intensive activities are on the rise. In 2020, the value added of industry (including mining, manufacturing, construction, electricity, water and gas) represented 33.7% of GDP, within which, manufacturing represented 16.7% of GDP (World Bank, 2021[8]) (World Bank, 2020[3]).
Keeping pace with economic growth, energy demand (in terms of total final consumption, TFC) has increased rapidly over the last two decades, driven notably by industrialisation and population growth. Demand for electricity is also growing, nearly doubling its share in energy demand between 2010 and 2018, from 15 to 27%. Fossil fuels have played a large role in meeting Viet Nam’s growing demand for electricity and consequently have caused energy-related CO2 emissions to grow dramatically (Figure 1.2). In 2018, 24% and 34% of energy consumed was from coal and oil. While 27% of energy demand was electricity consumption, power generation relies heavily on coal and natural gas with a decreasing share of hydropower. In this context, the power sector is increasingly contributing to energy related emissions. Given constraints to domestic coal supplies, Viet Nam relies on imports for coal and for a lesser extent oil, contributing towards a situation of energy insecurity. In 2020 coal imports amounted to 31.57 million tons from countries such as Australia, China, Indonesia and Russia, up by 53.8% from the previous year (IEA, 2020[9]).
Figure 1.2. Energy related emissions, 2000 -2017
Note: MtCO2 = million tonnes of carbon dioxide. toe = tonnes of oil equivalent
Source: IEA (2020), World Energy Balances (database)
Promoting greater investment in energy efficiency will be critical to rationalise fast-increasing energy demand, and therefore expansion plans for power generation, increasing energy related emissions and dependence on energy imports. From about 69 GW in 20201, by 2030, the Power Development Plan (PDP) VIII draft aims to increase total installed capacity to 130 GW. However, total energy supply by unit of GDP has remained mostly constant since 2000 and industrial energy demand by unit of GDP has increased in recent years suggesting there remains a large potential for energy efficiency improvements. Moreover, without these improvements, total final consumption could grow over three and half times by 2050, driven not only by industry but also by rapid growth in transport and rising residential demand (Figure 1.3) (EREA & DEA, 2019[10]).
Figure 1.3. Total final energy consumption across sectors
Note: Final energy projections are shown under business-as-usual scenarios. Mtoe = million tonnes of oil equivalent
Source: IEA (2020), World Energy Balances (database), (EREA & DEA, 2019) Vietnam Energy Outlook Report
Industry and buildings are the priority areas for energy efficiency
Viet Nam has a highly energy-intensive economy, ranking amongst the highest in the world. Industry is the largest consumer of energy, accounting for 54% of demand in 2018, a share which has more than quadrupled since 2000 (IEA, 2020[11]). Some of the most important areas for energy efficiency improvements in industry are process heat for cement, iron and steel, pulp and paper, and textiles. Moreover, from low-skilled and labour-intensive industries, such as footwear and textiles, the economy is seeing an increasing share of high-skilled manufacturing such as electrical machinery and equipment, which made up 39% of exports in 2019 (ITC, 2021[12]). Low electricity tariffs by regional standards have provided an added incentive for industry to set up in Viet Nam, but, by the same token, have provided little incentive for energy efficiency practices in the sector. A fast growing economy and population are also driving energy demand in the residential sectors, with cooking, air conditioning and lighting representing important priorities (EREA & DEA, 2019[10]). Additionally, rising household incomes are contributing towards an emerging middle class, which is expected to increase from 13% of the population today to 26% by 2026. This in turn is leading to a rising number of dwellings, growing floor area and increasing ownership of household appliances (World Bank, 2021[13]).
In this context, electricity demand is growing at an astounding rate, rising by 59% between 2015 and 2018 to 227.21 TWh. Industry accounts for nearly 60% of electricity consumption, having more than doubled since 2010. The residential sector accounts for another 33%, with electricity consumption fast replacing the use of biofuels in buildings. For residential users, growing demand for appliances and other electrical equipment, such as air conditioners, will further increase electricity demand, particularly at peak hours (Figure 1.4). Yet, there remain many cost-effective opportunities for energy efficiency measures. A 50% penetration rate of least cost-efficient technologies could cut as much as 12% of energy demand growth to 2030 (EREA & DEA, 2019[10]).
Figure 1.4. Total final consumption by sector and fuel type, growth since 2000
Note: Mtoe = million tonnes of oil equivalent
Source: IEA (2020) World Energy Balances
Progress has been made in energy efficiency through the VNEEP programmes
Energy efficiency has been prioritised in Viet Nam through the National Energy Efficiency Program (VNEEP I and II) for the period 2006-2015, which provided a number of targets and guided the development of a legal and regulatory framework for energy efficiency. VNEEP II set the overall objective for 2011 to 2016 of 5-8% savings of total energy consumption compared to energy demand forecast, equivalent to 11-17 million TOE. This target was met, and at the end of the programme the overall energy savings amounted to 5.81%, equivalent to 12.61 million TOE, with sector specific targets in industry surpassed (RCEE, 2016[14]). Energy intensity in 2015 reduced as compared to 2010 by 10.9% in the cement industry, 24.5% in iron and steel, and 19% improvement in textiles and leather (Ha Dang Son, 2020[15]) (discussed in chapter 3). A delay in between VNEEP II, which ended in 2016, and VNEEP III which started in 2019, led to break in momentum in pushing forward the energy efficiency agenda. The third phase of VNEEP promises to reinvigorate the programme, by strengthening regulation to keep pace with market conditions, and by prioritising the monitoring and enforcement capacity of provincial governments, who are responsible for implementing energy efficiency policy.
Power sector trends
Fossil fuel generation continues to play a key role in Viet Nam’s power sector
Hydropower was the dominant generation technology up until the early 2000’s. In 1995 it accounted for 72% of generation, dropping to 55% in 2000, and 32% by 2005 (IEA, 2020[11]). Whereas electricity demand has rapidly increased driven by industrialisation and economic growth, the availability of cost-effective hydro resources has decreased as Viet Nam has developed much of its exploitable potential. The development of coal and gas generation therefore became a priority for meeting growing electricity demand, albeit at the cost of increased emissions and public health concerns over air pollution. Coal and gas respectively represented 47% and 17% of power generation in 2018 (Figure 1.5).
In the last years, capacity has struggled to keep up with rapidly growing demand, and concerns have been raised over increased risks of power shortages. Whereas, generous concessions helped attract foreign developers, under build-operate-transfer (BOT) models, tighter controls on state budget have led to less readily available guarantees (Law on State Budget 83/2015/QH13 of 2015). This in turn has led to longer negotiations with developers and significantly delayed projects. In some cases, negotiations have lasted up to 8 to 10 years. The Ministry of Industry and Trade (MOIT) noted that during the 2016-2020 period, only 58% of planned coal-fired capacity came into operation (IEEFA, 2020[16]).
The Power Development Plan (PDP) VIII draft cancels or postpones one-third of its coal power capacity currently in the pipeline, until after 2030, due to lengthy delays, growing reluctance amongst lenders, and negative public opinion. In recent years, there has been increasing socio-environmental concern over pollutants from coal plants, with provincial authorities and communities pushing back against potential plant locations, for instance in Long An, Tien Giang, Bac Lieu, Thua Thien Hue and Quang Ninh (IEEFA, 2020[16]). Nevertheless, with coal-fired thermal power, gas-to-power and oil-fired power coal will jointly represent 52% of installed capacity planned by 2030. This increases the risk of locking into a high emission pathway and investment in stranded assets, as well as reliance on fuel imports given limitations to domestic coal supply.
Beyond meeting greenhouse gas emissions reduction targets set out in Nationally Determined Contributions (NDC), diversifying power generation through renewable energy can help improve the sustainability of Viet Nam’s power system. In the face of growing risks of power shortages, renewable energy provides an additional option to keep pace with rapidly increasing electricity demand, and can increase energy security through domestic renewable resources.
Figure 1.5. Power generation mix, 2008-2020
Note: TWh = terrawatt hour
Source: EVN (2020) Electricity Annual Report
Renewables deployment has increased substantially over the last years
Viet Nam has become a leading regional solar market, with 17 126 MW of installed capacity at the end of 2020 accounting for 22.9% of total installed capacity (EVN, 2021[17]). Wind capacity represented 537 MW in 2020 with a further 4 480 MW to start operation for 2021. This is an incredible increase since 2017, when Viet Nam had only 8 MW of solar and 205 MW of wind (IRENA, 2018[18]) (Figure 1.6). A first rush of investments was particularly driven by the feed-in tariffs (FIT) regulation on solar which expired in June 2019, benefiting from attractive tariffs by regional standards and a standardised power purchase agreement (PPA) (discussed in chapter 3). Generation targets for solar set through the Renewable Energy Development Strategy and the revised PDP VII were, in fact, surpassed, with MOIT noting that that during the 2016-2020 period, 205% of planned non-hydro renewable capacity came into operation (IEEFA, 2020[16]) (discussed in chapter 2).
A priority moving forward will be to ensure sustainable market growth in the face of challenges around the safe integration of such a rapid increase in variable renewable energy (vRE) capacity over the last two years. Utility scale solar increased from 86 MW in 2018 to 8 852 MW by the end of 2020. In an even shorter time span, from only 378 MW of rooftop solar in 2019, 8 274 MW were installed by the end of 2020, 101 996 rooftop solar power projects were installed and put operation by 31 December, with a total installed capacity of up to 9 296 MWp, just before the solar rooftop feed-in-tariff expired (Tuoi Tre, 2021[19]).
Figure 1.6. Increase in installed solar capacity between 2018 and 2020
Note: MW = megawatt
Source: Institute of Energy (2021) draft PDP VIII; EVN (2021) CEFIM Review
Comparing 2018 to 2020, the share of solar and wind generation has increased from next to nothing to 5% of total power generation. Yet, over the same period, the share of hydropower generation has decreased (by 5%) and while the share of gas generation has also decreased (by 3%), more emissions-intensive fossil fuel generation from coal and oil has increased (by 3% and 1%). Overall, this means that the share of fossil fuel generation has marginally increased from 64% to 65% (Figure 1.7). This is largely due to difficulty integrating large shares of vRE, a mismatch between periods of electricity demand and solar generation, and lower than expected demand due to COVID-19. At midday, which is a time of low electricity demand, vRE would be equivalent to about 40% of generation, however sufficient solar generation is not available in the evening when electricity demand is at a peak, requiring conventional power plants to remain at hand throughout the day (EVN, 2021[20]).
This is leading to the need for strategic curtailment of generation assets, particularly renewable independent power producers, in low demand periods. The impact of the COVID-19 pandemic on economic activity and suppressed electricity demand has exacerbated this challenge. Even as demand picks up as the economy recovers, significant investments in new grid infrastructure are needed in the near-term, in order to address congestion of the transmission system. In the long term, a range of technical and market-based solutions will be required to enable power system flexibility and the affordable, safe and timely integration of further vRE capacity additions (discussed in chapters 2 and 3) (EVN, 2021[20]).
Figure 1.7. Electricity generation 2018 and 2020
Note: Non-hydro renewables includes solar, wind and biofuels
Source: IEA (2020) World Energy Balances, EVN (2020) Electricity Annual Report
There remains significant untapped wind and solar potential in the country
Viet Nam has high quality solar resources, which until recently had not been exploited for electricity generation. The recent increase in solar deployment has barely scratched the surface of Viet Nam’s potential. An economic potential of 380 GW of solar capacity has been identified, mostly concentrated in the South, South Central, and Highland regions (EREA & DEA, 2019[10]). However, the concentration of potential in the southern and central regions has been a significant source of congestion in the transmission network, given low demand in central regions, and high demand in the north, where solar resources are of lower quality.
Viet Nam has some of the best wind resources in Southeast Asia; 217 GW of onshore wind potential has been identified, also located in the South, South Central, and Highland regions (EREA & DEA, 2019[10]) (Netherlands Enterprise Agency, 2018[21]). Viet Nam also benefits from 3 260 kilometres of coastline, excluding islands, with several attractive locations for offshore wind in the north and south. While estimates of the technical potential2 of fixed and floating offshore wind projects vary, they remain extremely favourable, ranging from 160 GW to as high as 309 GW (Danish Energy Agency, 2020[22]) (Global Wind Energy Council, 2019[23]).
Hydropower has been a cornerstone of economic development for Viet Nam since 1964, with the construction of the first large hydro plant, Thac Ba hydropower plant, with a capacity of 108 MW, supported by the Soviet Union. In particular, the Hoa Binh hydropower plant, with a capacity of 1 920 MW built in 1989, close to the capital Hanoi, was instrumental in accelerating Viet Nam’s economic growth (IHA, 2014[24]). Of the roughly 20 GW of economically exploitable resource potential for large hydro, nearly 17 GW was already in operation in 2019 (EVN, 2019[25]). Although technical potential is thought to be around 35 GW, in terms of current economic feasibility, there is already a high utilization rate, leaving limited scope for additional capacity additions. Further potential remains for small hydropower which has a total potential of about 6.7 GW, of which 3 GW is already in operation (EREA & DEA, 2019[10]). Another potential for Viet Nam’s hydro resources is pumped hydro storage, which could help integrate renewable generation by providing an important source of flexible, dispatchable power and storage capacity to help balance supply and demand (OECD, 2020[26]). While Viet Nam has notable off-river pumped storage potential, there are also a number of constraints such as costs and proximity to renewable generation and transmission. The Bac Ai pumped-storage hydropower project, the first of its kind in Viet Nam, is currently under development by EVN with a capacity of 1 200MW and expected to be completed by 2029.
Biomass in the form of wood, bagasse, rice husk, or straw is commonly used in households and industry. With respect to bioenergy, a technical potential for power production of 7 GW is identified for biomass resources and 1.5 GW for solid waste power of which currently only 0.3 GW is utilised (EREA & DEA, 2019[10])
Table 1.1. Renewable potential
Note: Values are expressed as economic potential, which is economically viable renewable generation according to studies. Offshore wind* is expressed as technical potential which establishes an upper-boundary estimate of development potential, given system performance, topographic, environmental, and land-use constraints.
Source: EREA & DEA (2019): Vietnam Energy Outlook Report 2019; Global Wind Energy Council (2018): Global Wind Report 2018; International Hydro Association (2017): Hydropower Status Report 2017
Figure 1.8. Renewable resource potential and utilisation rate
Note: GW = Gigawatt. Based on installed capacity (2020) and economic potentials, except for offshore wind which is expressed in technical potential.
Source: EREA & DEA (2019): Vietnam Energy Outlook Report 2019; Global Wind Energy Council (2018): Global Wind Report 2018; International Hydro Association (2017): Hydropower Status Report 2017, EVN (2021) CEFIM Review, IRENA (2019), Renewable capacity statistics 2019
Viet Nam’s market for clean energy
Public investment has supported the bulk of power through large hydropower and coal
The majority of generation in Viet Nam is publicly owned through EVN, PetroVietNam and Vinacomin, who together made up 59% of installed capacity in 2020, down from 70% of large-scale installed capacity in 2018 (VIET, 2021[27]). The decreasing share of installed capacity owned by SOEs is due to the development of new solar and wind capacity, the vast majority of which is privately owned (Figure 1.9). Prior to this, local private investment had principally targeted hydropower, while thermal power plants had attracted foreign investment through BOT models under the country’s public private partnership laws (Samantha Campbell and Long Huynh, 2018[28]).
To attract international finance and low cost financing from export credit agencies, over the last decades, BOTs have benefited from Government Guarantees and Undertaking (GGU) which could mitigate against certain risks such as non-performance of offtake and supply, Vietnamese Dong convertibility and inflation adjustment, and termination payment obligations. More recently, Viet Nam has had to balance the need to attract overseas financing with tightening fiscal space. Through the Law on Public Debt Management and Resolution 55, which orients the National Energy Development Strategy, much more stringent requirements have been placed on the issuance of state guarantees for power generation projects.
Conversely, investment in gas-fired power plants is increasing. With a declining supply of natural gas from domestic sources, Viet Nam is expected to become an LNG importer, which will require significant international private sector investment and expertise across the LNG to power chain. From 9 GW in 2020, the PDP VIII draft sets a target of 27 GW for 2030, which will increase Viet Nam’s dependence on energy imports.
Figure 1.9. Share of installed capacity owned by state owned enterprises in 2020
Note: Private investment includes capacity procured under independent power producer or public-private partnership models
Source: VIET (2021) State management role in power sector; EVN (2020) Electricity Annual Report
Viet Nam is now the 7th largest renewable energy market
Viet Nam has taken the limelight with two large waves of renewable investments under its FIT programmes, in 2019 and 2020 for utility scale solar PV and again in 2020 for rooftop solar, driving almost all of the 17 126 MW of installed solar capacity. The 8 274 MW of solar rooftop developed in 2020 pushed Viet Nam into the place of third largest solar market in 2020 and 7th largest renewable market, just after France (Bloomberg, 2021[29]). Before this, Viet Nam had remained a small player, with low levels of investment vastly outpaced by neighbours such as Malaysia, the Philippines and Thailand (ADBI, 2018[30]). A review of climate expenditures estimates that over 2011 to 2015, the private sector invested around 9.75 billion USD into renewable energy projects, a majority of which went into 150 small-scale hydropower projects (GIZ, 2019[31]). In 2019 alone, 3.9 billion USD was invested, increasing drastically to 7.4 billion USD in 2020 (Bloomberg, 2021[29]).
The strong interest in the solar market has given MOIT confidence that Viet Nam can attract investment to develop its clean power generation at a faster rate than previously experienced with conventional power plants. Still, this first wave of investment has taken place primarily through domestic and regional investors, and with a lesser proportion of international developers and financiers. For these, concerns have been raised over permits, land availability, the bankability of PPA terms, as well as high risks of curtailment of renewable projects without take or pay agreements, and most recently, market uncertainty over the planned transition to an auction system (discussed in chapter 5). As Viet Nam moves towards larger or riskier projects such as offshore wind, a number of these elements, and in particular the risk allocation between the state utility, EVN, and the renewable developer, may need to be revisited in order to mobilise sufficient investment.
Renewables are increasingly becoming cost competitive
From a new market for utility-scale solar PV, with around 86 MW installed in 2018, Viet Nam has rapidly gained maturity with 5 351 MW installed by the end of 2019, and a further 3 530 MW in 2020. The global weighted-average of the total installed cost of utility-scale solar PVs commissioned in 2019 fell below the USD 1 000/kW mark for the first time, to just USD 995/kW. Thanks to market growth in Viet Nam, average installed costs were already very close to global averages in 2019, amounting to USD 1 054/kW, more than halving since 2016. In line with falling installed costs, over the same period, the levelised cost of electricity (LCOE) of utility-scale solar PV in Viet Nam fell by 55% to 82 USD/MWh (IRENA, 2020[32]).
Although the offshore wind sector is still in its early stages, the Danish Energy Agency has already estimated the LCOE for 24 projects of 500 MW potential offshore capacity distributed throughout a number of shortlisted sites. This exercise determined LCOEs of between 81 EUR/MWh and 120 EUR/MWh, with the best sites located along the South‑Central coast. These costs are comparable to early estimates of the LCOE for offshore wind projects in countries such as the UK (Danish Energy Agency, 2020[22]) (BVG, 2015[33]).
Despite the suppressed electricity demand caused by economic impacts of the COVID-19 pandemic, the need for more generation remains a priority to keep up with the demand growth forecast in the socio‑economic development strategy. The availability of a diversified pool of investors and new and more affordable renewable technologies has boosted the government’s confidence that Viet Nam will be able to develop clean energy generation in a timely manner. Ongoing innovation in renewable technology has made renewables increasingly cost competitive. Attracted by high quality solar and wind resources and stable economic growth, international developers, equipment suppliers and financiers have shown their interest in the Vietnamese market. While it is expected that by 2030, the LCOE for renewable power will fall below that of coal power in most Asia-Pacific markets, this is now forecast for 2021 in Viet Nam, along with China, South Korea, and Thailand, given the falling cost of renewable technology (Wood Mackenzie, 2020[34]).
The domestic market for energy efficiency has ample room for expansion
The energy savings targets established under VNEEP I & II were both achieved despite limited public budget mobilized for the programme, which amounted to approximately 24 million USD (VND 518 billion). However when considering the potential for economic benefits, private investment in energy efficiency has not scaled up sufficiently, particularly in industrial and residential sectors where it is most needed. This is due to several reasons, including low industrial electricity tariffs by regional standards, the need for strengthened institutional capacity for monitoring and enforcement of energy efficiency regulations, and greater technical expertise and understanding by industries, potential service providers, and local financial institutions. For households, the energy performance of appliances, and enforcement of building codes will be increasingly important as Viet Nam’s emerging middle class continues to grow. During the VNEEP III phase, there is a need for further strengthening of policy frameworks and regulations, to create an enabling environment for energy efficiency investment. In order to promote energy efficiency across industries, an MOIT assessment on energy efficiency potential in Viet Nam identifies investment needs of 3.6 billion USD (World Bank, 2020[35]). According to a UNDP study, private sector investments in energy efficiency projects in areas such as equipment replacement, energy circulation and technological renovation only amounted to USD 630 million between 2011 and 2015, which is very low for the size of economy (GIZ, 2019[31]).
The Government of Viet Nam is taking a number of steps within VNEEP III to support investment in energy efficiency, including action at the provincial level through the implementation of provincial energy efficiency action plans and increased focus on regulatory enforcement. Existing ESCOs in the market face challenges in accessing finance, given high collateral requirements from commercial banks. Although local banks still have limited experience with energy efficiency projects, the action plan for green banking aims to address these challenges, by making credit available for environmentally sustainable projects including energy efficiency (discussed in chapter 6).
Building certification has increased since 2012. A key milestone has been the revision of the Building Energy Efficiency Building Code (QCVN09:2017/BXD), under the Ministry of Construction, which provides mandatory technical standards for the design, construction and retrofit of buildings with floor areas equal or greater than 2 500m2. Currently, several green building certification systems exist in Viet Nam, the most popular being, LOTUS which was developed in 2009 by Vietnam Green Building Council, LEED (Leadership in Energy and Environmental Design) developed by the US Green Building Council which has been in the Vietnamese market since 2008, and EDGE (Excellence in Design for Greater Efficiencies) developed by the International Finance Corporation (IFC) for emerging markets and present in Viet Nam since 2015. The number of certified projects is increasing and by 2021, 179 buildings were certified under these systems, accounting for 4 141 266 square metres (Figure 1.10). Since the building code came into force in 2013, government reports of compliant buildings indicate that 130 000 tons of CO2 a year have been saved, equivalent to approximately 28 million USD in annual savings for building owners. The government of Viet Nam has yet to produce a plan for increasing the efficiency of its own building stock, despite being a large owner and investor in real estate. Policies and incentives at both central and provincial level to encourage new green building development remain limited ( (IFC, 2021[36]).
Figure 1.10. Growth in green building certification, 2010-2020
Note: 000 Sq m = thousand square meters
Source: IFC (2021) CEC Workshop Paper: Developing Land and Real Estate Market Meeting Green Criteria
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