This chapter examines governance for clean energy finance and investment and power planning in Viet Nam. It provides an overview of Viet Nam’s institutional framework for clean energy and electricity market structure, and identifies areas to improve coordination across institutions, at all levels of government, to ensure effective and consistent goals and policies. The chapter also highlights progress and opportunities to improve the country’s clean energy finance and investment-related targets, strategies and power planning mechanisms with a view to sending credible, ambitious and long-term signals to investors.
Clean Energy Finance and Investment Policy Review of Viet Nam
Green Finance and Investment
2. Planning and governance
Abstract
Viet Nam has already met many of its clean energy ambitions set under the last 10-year socio economic development cycle. Energy savings under the Viet Nam Energy Efficiency Programmes (VNEEP) I and II were achieved, and ambitions for 2030 solar photovoltaic (PV) power have been surpassed. The draft Power Development Plan (PDP) VIII increases long-term renewable deployment targets but signals no significant capacity deployments until after 2030. Although the level of market growth was not expected to be maintained following the recent boom, the length and hiatus outlined may prove disruptive to supply chains, green jobs, and investor confidence.
As the country turns to integrated liquefied natural gas to power projects and additional coal power capacity, unmitigated fuel price risks and implementation delays could be a source of increasing energy insecurity. In this fast evolving energy context, co‑ordination between local and central government actors remains a priority, and the flexibility of planning processes will need to increase.
Viet Nam has signalled its intention to steadily develop a competitive power market and, in line with ongoing electricity market reforms, the role and independence of the Electricity Regulatory Authority of Viet Nam (ERAV) should continue to evolve to ensure effective oversight. In order to integrate the rapidly growing share of variable renewable electricity into the power system, Viet Nam Electricity National Power Transmission Corporation (EVN NPT) has already planned substantial upgrades to the transmission system and this can be further supported by adopting a range of technical and market-based solutions.
Assessment and recommendations:
Viet Nam has set ambitious clean energy targets but co-ordination on planning remains a challenge
Viet Nam should be commended for its clean energy ambitions set out its Nationally Determined Contributions (NDCs) and national strategies, such as the National Green Growth Strategy, the Renewable Energy Development Strategy, the National Environmental Protection Strategy, the National Climate Change Strategy and Resolution 55NQ/TW on the orientation of the National Energy Development Strategy. Under Viet Nam’s system of top down planning, national master plans are currently being drafted in line with the 10-year Socio-Economic Development Strategy. The new master Planning Law No. 21/2017/QH14, takes a positive step in consolidating the existing framework on planning and provides a new structure for policy coherence and co-ordination. However, the multi-layered process requires a significant level of co‑ordination to simultaneously formulate interlinking masterplans, which must be appraised by relevant ministries and authorities, and be put to public consultation.
A number of important planning elements are still in development at the time of this assessment, such as the National Land Use Planning and the National Marine Spatial Planning, which both inform the current Power Development Plan draft, and are important tools for ensuring provincial co-ordination. The master plan cycle runs over 10 years and while the planning law does provide for a review after five years, in light of the extensive formulation, consultation and appraisal process, modifying master plans will represent a significant endeavour. At a time where the context for clean energy is changing extremely quickly, the lack of a flexible planning process may hinder policymaker’s ability to react in a timely manner.
Clarity is needed on the process for supplementing the Power Development Plan VIII
The Government of Viet Nam should be commended for their level of ambition in prioritising the sustainable development of the national energy system, as noted in Resolution 55, and the recently published Draft PDP VIII documents. As mandated by the recently updated planning law, the PDP VIII covers a period of 10 years, with a review every five years. Responsive power development planning will be important in light of rapidly changing circumstances, both in terms of high GDP and energy demand growth, as well as renewable energy technology cost reductions. A 10-year power development plan cannot therefore ensure a cost-efficient and optimal power system development trajectory throughout the period. The draft PDP VIII document does include provisions indicating a possibility for more flexible and frequent updates and revisions throughout the planning period, however, the process, criteria, the extent of possible revisions and timeline thereof still appear to be unclear.
The annual growth rate of power consumption is expected to be 9.1% from 2021-2025 and 7.9 % from 2026-2030. As the dependence on electricity increases due to fuel switching and economic growth, it is vital that the number and scale of energy savings programs also increases. The inclusion of energy efficiency in the PDP VIII is a positive development. It outlines current energy efficiency policies under the National Energy Efficiency programme for 2019-2025 with a vision to 2030 (VNEEP III), and the National Program on Electricity Demand Management programme for 2018-2020 with a vision to 2030, as well as analysing the impacts of rooftop solar on electricity demand. Energy efficiency has also been included as a parameter in the electricity demand modelling.
Oversight and governance will be central to creating a competitive power market
Effective oversight and governance are critical to ensuring that the future power system develops in a manner consistent with the country’s overarching policy goals. Ongoing and planned restructuring efforts under the 2004 Electricity Law, including the greater operational independence of generation and transmission activities, plans to make the National Load Dispatch Center (NLDC) operationally independent, and the introduction of the wholesale market, will profoundly affect the way in which new generation is developed and integrated into the system.
ERAV’s effective oversight of these various interlinking pieces is critical to ensuring success. ERAV already has many tools in place including access to data, analytical capacity, and limited regulatory authority over critical elements such as retail pricing. As the power sector and power markets develop, ERAV’s oversight role will need to be strengthened and potentially expanded. For example, ERAV has limited capacity to model the power system. As a result, it must rely on the technical capabilities of the utility, EVN, and other entities such as the Institute of Energy to assess the need for and benefits of new investments.
ERAV will also need to ensure that the costs associated with the energy transition are passed on to consumers in a fair and equitable manner, carefully balancing the need to keep prices cost reflective while working to minimize the economic burden on the country’s low income households. ERAV’s ability to do so is complicated somewhat by the fact that some significant cost drivers, in particular transmission line development, are outside of its regulatory authority. Other elements, such as the ability to increase tariffs, are constrained by the need to seek the approval of the Ministry of Finance for changes above a certain level.
EVN has strengthened planning and system operation practices
EVN’s planning and operation practices, until very recently, were based on running a power system with very high shares of conventional, dispatchable generation. Given the rapidly increasing share of renewable generation, the NLDC is having to quickly adapt its capabilities. Dispatch plans, for example, have been based around hour-long blocks, but under the wholesale market pilot, this has been switched to 30-minute trading and dispatching cycles since September 2020. Load forecasting is also improving; as well as depending on generator schedules, the NLDC has developed in house forecasting1, and from 2021, uses forecasts from two independent third-party providers2.
EVN should also be commended for its willingness to experiment with new technologies and practices, for example through its energy services company (ESCO) pilot, demand side management program, and demand reduction program, which have trialled demand side measures for load shaping and demand flexibility. A continued focus on integrating demand side measures into EVN’s planning and operational practices can ensure these initiatives can be scaled up to achieve economic benefits. Further modernisation of system operation can also support greater variable renewable energy integration, for example, by further reducing the size of the dispatch windows to 15-minute increments. EVN has improved its capabilities to forecast wind and solar generation but incentives should also be implemented to ensure generators provide regular and accurate forecast updates, especially leading up to dispatch.
Technical and market-based solutions will be required to integrate variable renewable capacity
While investments in new grid infrastructure will be necessary, a range of technical and market-based solutions focused on unlocking and enabling power system flexibility can help ensure that planned solar PV and wind generation is integrated affordably, securely, and in a timely manner. As Viet Nam advances transmission infrastructure planning, the costs and benefits of “non-wires alternatives” such as distributed energy resources, demand-side response, or a range of storage technologies should be evaluated on equal terms with investment in transmission upgrades. These solutions can often provide the same benefits at much lower costs. For example, a New York City utility was able to avoid a USD 1 billion transmission upgrade by investing USD 652 million in a combination of energy efficiency, demand response and distributed generation (Girouard, 2019[1]). While some of these solutions may not yet be implementable under the current policy framework, embedding the assessment of non‑wires alternatives into the planning process can help identify opportunities for greater efficiency or cost saving.
Box 2.1. Main policy recommendations on clean energy governance and planning
Increase NLDC’s ability to balance the system efficiently by adopting incentives for renewable generators to deliver accurate and regular forecasts leading up to dispatch.
Improve ERAV’s independence and ensure it is fully resourced to perform its required functions and respond to future regulatory needs. In addition, consider expanding its regulatory authority to cover transmission planning and approval, as well as other areas that impact system costs and which therefore have implications for end-user tariffs.
Increase frequency of the regular PDP revisions and updates to ensure that the most cost-effective and optimal development of the energy system of Viet Nam is continuously ensured. Mechanism for ensuring optimised course-correction (annual or biennial) should have clear and specific procedure, criteria, timelines and other critical elements to ensure alignment and confidence among all stakeholders, both governmental, provincial and commercial. Streamlining and accelerating the development and approval process of the PDP should also be considered through e.g. earlier involvement of critical stakeholders, mandating more operational matters to be decided at administrative level etc.
Clearly define and embed the co-ordination processes between governmental and provincial institutions to support effective and timely PDP VIII implementation (e.g. support favourable for renewable energy development from a resource and transmission system perspective), as well as the development of the annual / biennial plans and updates.
Undertake a strategic review of non-wires-based alternatives within the planning process for transmission infrastructure, such as batteries, demand-side response programs, or other modern technologies. These solutions can help avoid costly investments in transmission line reinforcement throughout the power system, and can be particularly more cost-effective in densely populated areas.
Policy coherence, co-ordination, and monitoring
In the 1980’s Viet Nam embarked on the transformation from a centrally planned economy towards a social market economy under state guidance. Key elements of this central planning remain, particularly in Viet Nam’s approach to agenda setting, which is led across sectors and government levels by the Socio‑Economic Development Strategy (SEDS), decided by the Congress of Viet Nam Communist Party.
Top down planning is the main instrument for policy coherence and co-ordination
Formulated for a 10-year period, the SEDS sets the overarching strategy for economic and social development, which informs a system of master plans that formulate the agenda across all areas of activity. Governance is split between four levels, comprising of a central level, and three sub-national levels, provincial, district, and town. Central and provincial government set and implement policies, and the latter two sub-national levels participate in implementation. National master plans and subsequent budget programmes flow downward to set the agenda for the next sub-national level of master plan and its budget, from regional, to provincial then rural and urban levels (Robiou du Pont and Balanowski, 2018[2]). Information flows upwards from sub-national levels in the form of draft plans, supporting the formulation of national master plans at central government level, and therefore final sub-national plans and budgets. In practice, this will depend on the subnational authority’s planning capabilities and resources, and the alignment with current policy priorities.
In combination with a hierarchical system of decision making authority, Viet Nam’s clean energy sector has a complex institutional structure, directly involving several government agencies. The Prime Minister holds final authority as head of government, and the Ministry of Industry and Trade (MOIT) occupies a central position in energy policy. Fiscal policy and financial markets fall under the Ministry of Finance (MOF) and its subsidiaries: the State Bank of Viet Nam (SBV) and State Securities Commission (SSC). Investment policy falls under the Ministry of Planning and Investment (MPI). Responsibility is shared with other line ministries, in particular the Ministry of Natural Resources and Environment (MONRE), which is responsible for the environment and leads the Climate Change Strategy and the NDC update, and the Ministry of Construction (MOC), which is responsible for building standards, as well as other areas of clean energy policy related to the construction sector. However, the authority for the formulation and implementation of clean energy finance and investment policy and legislation is centralised in MOIT, MOF, and MPI.
Figure 2.1. National system of master planning
Note: MPI = Ministry of Planning and Investment
Source: The National Assembly - Government of Viet Nam (2017) Law No. 21/2017/QH14
MOIT, MPI and MOF are key actors in formulating and implementing clean energy policy
Responsible for the energy sector as a whole, MOIT formulates policy and national plans, subject to the Prime Minister’s approval, and issues circulars and guidelines implementing the Prime Minister and National Assembly’s laws, resolutions and decrees. Moreover, by leading on planning and implementation of energy sector mitigation activities, MOIT plays an important role in achieving Viet Nam’s NDC targets.
Under the former national Power Development Plan (PDP), renewable energy projects under 50 MW are approved by MOIT and anything over that by the Prime Minister. This process is yet to be determined under the draft PDP VIII, which moves from a system of pre-approved pipelines of projects to competitive bidding. Under MOIT, the Electricity and Renewable Energy Authority (EREA), advises on electricity and renewable energy and designs renewable energy support mechanisms including feed-in tariffs. Also under MOIT, the Energy Efficiency and Sustainable Development Department (EESD) advises on energy efficiency and conservation and the Electricity Regulatory Authority of Viet Nam (ERAV) regulates the power sector. As fully funded departments and subsidiaries, all three bodies remain closely bound to MOIT’s decision-making authority.
MOF and MPI hold important positions in not only clean energy finance and investment but in Viet Nam’s governance structure generally. Together the two line ministries coordinate the state budget allocated to the implementation of master plans. Private Public Partnership and investment laws are formulated by MPI, who is also responsible for administrating investment and enterprise registration, leading the implementation of the green growth strategy, and investment promotion activities. MOF has authority over taxation and exemptions, approves changes to electricity tariffs over given thresholds, and through SBV regulates financial market policy and leads the promotion of green banking.
At sub-nation level, the Peoples Provincial Committee play a pivotal role
The governance of clean energy finance and investment is a multi-layered co-ordination process with decentralised planning at sub-national level. The Provincial People’s Committee (PPC) acts as the executive arm, implementing national strategies, regulations and laws at provincial level. They are supported by regional offices of key ministries who provide technical expertise in their respective fields. Although decentralisation reforms have given provinces more planning authority, they remain strongly dependent on central planning where much of the final authority is concentrated. Planning, co-ordination and financing capacity varies across provinces, which has consequences for local implementation capabilities. An example of this is the investment registration certificate, which should serve as a tool to ensure new projects align with sectoral strategy, however, without sufficient resources or competences to fully evaluate projects the registration process becomes less effective and transparent (OECD, 2018[3]).
For renewable energy, the appraisal process has up till now been dependent on the size of the project. For projects over 30 MW MOIT undertakes the appraisal, whereas for projects under 30 MW, its regional office, the Department of Industry and Trade (DOIT) can appraise and grant generation licenses. Equally, depending on the size of the project, appraisal of investments or environmental impacts will either respectively be in the hands of MPI and MONRE, or their regional offices, the Department of Planning and Investment (DPI) and Department of Natural Resources and Environment (DONRE). Provincial authorities will also formulate and execute plans for ground clearance and resettlement compensation for land lease agreements. For energy efficiency, provincial authorities are responsible for developing and implementing provincial action plans, which requires significant data and technical capabilities. Outside of allocated state budget, the respective province will be responsible for raising capital for the plan’s implementation.
Figure 2.2. Governance of renewable energy
Source: OECD (2021) Viet Nam Country Page CEFIM webiste
Figure 2.3. Governance of energy efficiency
Source: OECD (2021) Viet Nam Country Page CEFIM webiste
Table 2.1. Co-ordination bodies
Table 2.2. Line ministries and subsidiaries
Table 2.3. Regional authorities
Long-term goal setting to promote clean energy investment
Viet Nam is particularly vulnerable to the effects of climate change, ranked 14th most climate vulnerable country by HSBC in 2018 (HSBC, 2018[4]), particularly due to its exposure to flooding, tropical cyclones and drought. A number of comprehensive climate change strategies, many of which predate the Paris Agreement, demonstrate a commitment to mainstreaming mitigation and adaptation across socio-economic plans. High oil prices and declining hydroelectric power, linked to adverse weather, contributed to the energy shortages in the early 2000’s. Priority has since been given to opening the energy sector to private investment and increasing the role of clean energy technologies over long and medium term horizons. Initial targets for solar power have been surpassed and progress has been made on energy efficiency, but a clear long term and ambitious strategy for clean energy should remain a priority.
Clean energy plays a key a role in Viet Nam’s long term energy security strategy
Climate and clean energy strategies are integrated into the country’s system of planning by informing the 10-year socio-economic development strategy, which in turn informs socio-economic development plans. Key milestones in the clean energy agenda have been the 2004 Electricity Law, which formalised the move away from a centrally planned monopoly to market liberalisation and private sector investment. This was followed by the 2007 National Energy Development Strategy up to 2020 with a vision to 2050 (Decision No. 1855/QD-TTg), which prioritised diversification of energy sources, energy saving technologies, restructuring the electricity market and supporting renewable technologies. Initial targets for clean energy were set through the 2015 Renewable Energy Development Strategy 2016-2030 with an outlook to 2050 (REDS), and the two phases of the Viet Nam Energy Efficiency Programmes (VNEEP) from 2006 to 2015. Clean energy has also been a key feature of the Green Growth Strategy 2011-2020 with a vision to 2050 (Decision No. 1393/QĐ-TTg) and the more recent Resolution No. 55NQ/TW (Resolution 55) which orients the design of the upcoming National Energy Development Strategy of Viet Nam to 2030 with a vision to 2045. Resolution 55 lays out the priorities for an energy system focusing on sustainable energy development, decarbonisation, diversification and competitive energy markets. It reinforces Viet Nam’s intention to increase private participation in electricity generation, with articles around eliminating distorting policies, increasing competition and restructuring state owned enterprises (SOE), as well as improved use of market based instruments
Although these strategies have supported private sector investment and increased supply, Viet Nam is still facing energy security challenges and has remained heavily dependent on thermal power and large hydroelectric resources. Growing energy demands are fast outpacing domestic supply, leading to increasing dependence on energy import. With an average 6.6% GDP growth for 2021-2030, and 5.7% for 2031-2045, forecast by MPI, energy demand is expected to continue to grow significantly. In this context, Viet Nam’s medium and long-term energy efficiency and renewable energy strategy are an opportunity to ensure a secure and affordable domestic supply of energy, whilst also addressing environmental and climate change concerns.
Ambitions set out in renewable energy strategies have met with early success
The Renewable Energy Development Strategy (REDS) to 2030 with a vision to 2050 was established to guide renewable energy development in the country, particularly focusing on biomass, on-shore wind and solar development through 2030, and offshore wind potential thereafter. REDS aimed for generation from solar and wind power to increase from next to nothing to represent 0.5% and 1% of total generation by 2020, and 6% and 2.7% by 2030. In the revision of the Power Development Plan for the period of 2016‑2020 (PDP VII-revised), targets were reflected by a pipeline of new renewable projects with capacity targets for solar and wind of 800 MW and 850 MW by 2020, and 12 000 MW and 6 000 MW by 2030.
By the end of 2020, solar power had overtaken its 2030 targets under the PDP VII revised, after over 17 GW of installed capacity were recorded. Conversely, wind power had fallen short of its 2020 targets with only 538 MW installed (Institute of Energy, 2021[5]). Yet, the overall target set for installed renewable capacity (excluding large hydro) under the PDP VII-revised (of 9.9%) was surpassed. Solar alone represented 25% of total capacity, which is by 2.5 times this target. In terms of generation, according to EVN generation reports, solar power accounted for 5% of total generation, which is eight times greater than the REDS solar target for the same year.
Renewable energy continues to feature prominently in new strategies. Resolution 55, which orients the development of the upcoming National Energy Development Strategy to 2030, confirms an increasing commitment to investment in clean energy. Published in 2020, in the midst of the solar boom, Resolution 55 takes a broader approach by targeting 15-20% renewable energy sources in the total primary energy supply mix by 2030 and 25-30% by 2045. While electricity from renewable sources is prioritised, the strategy notes that wind and solar power development should be undertaken while ensuring the safety of the national power system and reasonable costs. Resolution 55 aims for overall greenhouse gas emissions reductions from energy activities compared to the business-as-usual (BAU) scenario of 15% by 2030 and 20% by 2045. Renewable energy development also features in the new strategy for the sustainable development of Viet Nam's marine economy by 2030, with a vision to 2045, highlighting Viet Nam’s interest in supporting new developments in marine renewable energy and new marine economic sectors.
Energy efficiency features across different strategies but progress has been slower
Viet Nam has a highly energy-intensive economy, ranking amongst the highest in the world. The importance of energy efficiency as a policy goal has been highlighted in numerous economic and sectoral development strategies such as the Green Growth Strategy to 2020 and the Industrial Development Strategy to 2025. Much of this focuses on manufacturing and industry, which has been a core component of economic development strategy and a large factor in increasing energy demand. Energy price policies have not been reflective of costs and rapidly increasing industrialisation has benefited from particularly low energy tariffs by regional standards, and has tended towards inefficient use of power. Viet Nam is aware of this, as highlighted by objectives within both strategies, which aim to increasing the use of energy efficient and energy saving technologies in industry. However, early ambitions set under the 2012 Green Growth Strategy of reducing energy consumption per unit of GDP by 1-1.5% per year have not been met. A review of this strategy is upcoming.
Specific energy efficiency targets have been set through the Viet Nam Energy Efficiency Programme (VNEEP), which have been broadly successful. The VNEEP I and II covering the 2006-2010 and 2011‑2016 periods, respectively targeted a 3-5% and 5-8% reduction in total commercial energy consumption over their periods. Cumulative commercial energy savings in the first phase of VNEEP reached 3 733 KTOE, equivalent to 3.4% of the total final energy consumption, and in the second phase reached 10 610 KTOE, equivalent to 5.65% of the total final energy consumption (RCEE, 2016[6]).
After a short implementation gap, the third phase of the VNEEP programme (VNEEP III) was launched in 2019 and will run through to 2025. Over the period, the VNEEP III aims to achieve 5-7% savings on national energy consumption, power losses of less than 6.5%, and set targets to reduce average energy consumption across certain industrial sectors (Table 2.4) (Decision No: 280/QD-TTg of 2019) (PwC, 2017[7]). Resolution 55 sets longer term targets of 7% ratio of energy efficiency on total final energy consumption by 2030, compared to the business-as-usual scenario, and approximately 14% by 2045.
Table 2.4. VNEEP III energy consumption savings across industrial sectors compared to the period of 2015-2018
Source: RCEE (2016) Evaluation-of-Viet Nam-energy-efficiency-program-phase-ii
A comprehensive climate agenda is reinforced through international commitments
The governance structure is strengthened by a comprehensive set of national climate change policies. The three core climate change strategies are the 2011 National Climate Change Strategy (Decision No. 2139/QĐ-TTg), the Green Growth Strategy 2011-2020 with a vision to 2050 (Decision No. 1393/QĐ-TTg), and the National Environment Protection Strategy to 2020 with visions to 2030 (Decision No. 1216/QĐ-TTg) established in 2012 with the view of limiting pollution and environmental deterioration. The Climate Change Strategy sets a number of targets up to 2050, with the objective of developing a low‑carbon economy, and a focus on sustainability, adaptation and resilience. Established to support implementation of the Climate Change Strategy through fast, efficient and sustainable growth, the Green Growth Strategy aims to achieve a low carbon economy whilst enriching natural capital.
In 2020, Viet Nam became the ninth country to submit a revised Nationally Determined Contribution (NDC) under the 2015 Paris Agreement. The NDC places a heavy focus on the energy sector for mitigation potential, and in alignment with the latest socio-economic development forecasts for up to 2030, emission reductions targets were marginally revised up from 8 to 9% unconditionally and from 25 to 27% conditionally compared to a business as usual (BAU) scenario from a 2014 base (Figure 2.4). The conditional targets are dependent on international support received through bilateral and multilateral cooperation and through mechanisms under the Paris Agreement. Due to the incredible surge of renewable projects since 2019 following the feed-in tariff regulations, Viet Nam is already well on track to meet its mitigation targets. The government has indicated an update of the NDC will be developed, after the PDP VIII for the period of 2021-2030 has been finalised (E3G, 2021[8]).
Figure 2.4. Viet Nam's updated NDC targets, by 2030
Note: LULUCF reductions represent increase in GHGs sequestration
Source: The Socialist Republic of Viet Nam (2020) Update Nationally Determined Contributions
Energy efficiency planning
In the face of energy shortages in the early 2000s, Viet Nam shifted its focus to improving the efficiency of its exploitation and use of primary energy, prioritised in law through the Decree on Energy Efficiency and Conservation promulgated in 2003, and the Electricity Law in 2004. In 2006, the first national energy efficiency action plan, known as the Viet Nam Energy Efficiency Programme (VNEEP), was approved (Figure 2.5).
Figure 2.5. Viet Nam Energy Efficiency Programme (VNEEP)
Source: Government of Viet Nam (2019) Decision 280/QD-TTg
VNEEP is the main instrument for energy efficiency planning
VNEEP has been the main instrument for planning the promotion of energy efficiency. All energy efficiency and conservation activities across sectors were integrated into the VNEEP programme, which acts as a co-ordination tool for sub-projects and programmes funded by international development partners. Many important legislative milestones were achieved during VNEEP I and II, including Law No. 50/2010/QH-12 on Economical and Efficient Use of Energy (the Energy Efficiency Law) and its implementing decrees (Decision 1427/QĐ-TTg of 2012). Over the period, voluntary and mandatory energy labelling requirements and building energy performance standards were also introduced.
Arguably, the momentum built-up by these early successes suffered due to a delay in approving an updated programme at the end of the VNEEP II implementation period. This led notably to a loss of human resource capacity in government, particularly at the provincial level. VNEEP III was approved in 2019 setting out planned activities over the period 2019-2025 with a view to 2030. VNEEP III seeks to build on the achievements of VNEEP I and II with medium-term energy efficiency targets for both the overall economy and industry sectors, and by further development of the regulatory environment, strengthening monitoring and compliance enforcement, and building the skills in the market through training and certification (Box 2.2).
Box 2.2. Viet Nam National Energy Efficiency Programme 2019-2025 with a view to 2030 (VNEEP III)
Prioritised Activities
Reviewing, developing and finalising mechanisms and policies on efficient use of energy
Providing technical and financial assistance
Building a Viet Nam energy data centre
Enhancing capacity for economical and efficient use of energy
Strengthening inspection and supervision
Communication to raise community awareness
Strengthening international cooperation
Scientific research and technological development
Establishing funds to promote economical and efficient use of energy
Source: MOIT (2018) VIETNAM - NATIONAL ENERGY EFFICIENCY PROGRAM 2019 – 2030
VNEEP III places a stronger emphasis on co-ordination
A review of VNEEP I and II pointed to a need for better central and local co-ordination, as well as co-ordination across ministries and national strategies. In particular, energy efficiency policies did not feature sufficiently in sector master plans. The inclusion of energy efficiency in the PDP VIII is an important tool for ensuring greater co-ordination and prioritisation.
VNEEP has received support from international organisations such as the World Bank, JICA, DANIDA, UNIDO and the IFC, in the form of financial assistance, technical assistance and development human resources training. Low co-ordination of this support over VNEEP I and II led to some overlaps and potential inefficient use of resources. One of VNEEP III’s primary objectives is the co-ordination tool for mobilising national and international resources for policy implementation, technical assistance, research, product development, market transition and capacity building.
VNEEP III involves a number of different actors, including the prime minister, line ministries, associations working on energy efficiency and energy conservation, local authorities and energy groups. Under VNEEP III, a programme steering committee has been set up to co-ordinate this, comprising of participating line ministries and associations, led by the Prime Minster, with MOIT as Standing Deputy. Additionally, an assisting office is located within MOIT, who assume primary responsibility for co-ordinating with ministries and sectoral authorities on the VNEEP programme to determine annual plans and tasks. MOIT coordinates with MOF and MPI to finalise the list of tasks and projects to be implemented.
Within the steering committee, the elaboration of tasks and allocation of responsibilities is split between a number of different ministries and their departments, including MOIT’s EESD, or MOST’s Directorate for Standards, Metrology and Quality, to name a couple. Non-governmental associations also have prominent roles, such as the Viet Nam Energy Conservation and Energy Efficiency Association (VECEA), the Viet Nam Green Building Council (VGBC) or consulting firms, such as the Energy Conservation Research and Development Center (Enerteam) and the Viet Nam Initiative for Energy Transition (VIET), which provide inputs for the design of clean energy policies and regulations.
The steering committee works directly with other energy sector stakeholders such as EVN who consult on the content of plans and implement their own energy efficiency activities under their demand side management programme.
Figure 2.6. VNEEP III Steering Committee
Source: Government of Viet Nam (2019) Decision 280/QD-TTg
Provincial and municipal authorities play a larger role in VNEEP III
Whereas VNEEP I and II consisted predominantly of centrally-led initiatives, VNEEP III places greater emphasis on actions at the provincial and municipal level. MOIT proposes the overall VNEEP III target across provinces based on current implementation of energy consumption, forecast of energy demand according to the local socio-economic development scenario, the potential implementation of energy efficiency through technology solutions, and energy saving potentials in various fields. Provinces are accordingly grouped under seven target brackets ranging from 4.75% to 7.25% energy savings targets from 2020-2025. This approach aims to provide provinces with greater autonomy in determining actions based on their specific and often very different contexts; whereas some provinces may be large industrial hubs, others may be agricultural or rural locations. The PPC develops plans for the implementation of the VNEEP in local authorities, known as provincial energy efficiency action plans (EEAP), sets roadmaps and targets in accordance with their authorities, and allocates funds to implement, inspect, and supervise local programmes. After plans have been approved, MOIT will allocate budget towards the determined activities. In March 2021, 40 out of 63 localities had submitted an EEAP to MOIT for approval for the period of 2020‑2025, with the remaining still under development. At provincial level, MOIT’s regional office DOIT, presides over the supervision and reporting of results. This planning process requires both data and experts, which can be challenging for provinces. The success or failure of VNEEP III therefore is highly dependent on local level capacity both in terms of human and financial resources. MOIT is supporting this by recruiting more experts to these provinces to help develop plans and developing improved data collection procedures where there are gaps. A new unit of MOIT is planned that would act as an additional support facility for this purpose.
Institutional framework for the electricity market
Progress has been made towards a partially competitive power market
The Electricity Law of 2004 formalised Viet Nam’s intention to move away from a centrally planned monopoly, towards a competitive power market with private sector investment in power generation. Since the 1990’s Viet Nam has worked towards reforming the power sector in order to ensure efficient and affordable power and long-term security of supply. To enable the liberalisation of the electricity market, the reform process has required restructuring of the state utility, Electricity Viet Nam (EVN), and importantly, the establishment of the Electricity Regulatory Authority of Viet Nam (ERAV). The electricity law sets out three distinct phases of liberalisation of the electricity market, starting with a competitive generation market, then a competitive wholesale market, and finally the introduction of a competitive retail market. The wholesale market is currently in pilot phase, with 53% of the total installed capacity already participating in 2019 (EVN, 2020[9]). Full operation is planned for 2021. In 2020, 97 power plants participated directly to the wholesale market and 26 plants participate indirectly (ERAV, 2020[10]). When fully introduced, the wholesale market will play a key role in unlocking and incentivising system flexibility, as well as efficient generation based on least cost, allowing emissions and pollution to be minimised due to the lower cost of renewable generation. Prices that reflect actual system conditions can incentivise generation to ramp-up or ramp-down as necessary. This is true not only for traditional dispatchable generation, but also for renewable generation, which can also respond flexibly (for example, by choosing to self-curtail) when incentivised to do so.
EVN’s role in generation is evolving as the market liberalisation process continues
While the structure and role of EVN and its subsidiaries is evolving, there remains a significant concentration of power within EVN’s central management and close ties to the state (MOIT) through both legal structure and corporate governance. Under the current structure, the government directs EVN’s investments, and appoints the members of its board of directors and its senior management. EVN management in turn appoints the management board of EVN’s subsidiary. Moreover, EVN owns and sets service and output targets for Power Corporations (regional distribution and retail subsidiaries) and their Management Boards report directly to EVN. Management and control of EVN and subsidiaries, by virtue of the governance structure, is therefore centralised in EVN headquarters (World Bank, 2020[11]).
Today EVN exists as a holding company for a number of its subsidiaries, comprising generation companies (GENCOS), the National Load Dispatch Centre (EVN NLDC), the National Power Transmission Corporation (EVN NPTC), EVN Power Corporations and the EVN Electric Power Trading Company (EPTC). Moreover, at the end of 2018, EVN owned 59 % of total installed generation capacity held either within the three GENCOs, or in the case of strategic hydropower resources under EVN corporate. Consequently, EVN still holds a monopoly over operation, transmission, distribution, and retail albeit in a partially unbundled structure.
Although EVN’s separation into different entities may enhance operational independence, such a structure will not entirely reassure private sector investors, given that EVN’s capacity as owner of generation assets and parent company to crucial electricity market actors. This includes the EPTC and the NLDC who respectively purchases all renewable electricity from independent power producers (IPP), and determines dispatch and curtailment (discussed in chapter 4). As there is no framework for an ancillary service market for frequency regulation, it is primarily EVN’s multi-purpose hydro plants that provide ancillary services.
EVN has played a lead role historically in developing, owning, and operating all electricity system assets, however, the scale of investments required over the PDP VIII to meet energy demand growth surpasses its investment and financing capacity. Attracting private investment to the generation sector will continue to be a priority as seen in sectoral master plans as well as the National Energy Development Strategy. Specifically, it is planned that in the future, EVN’s presence in the generation sector would be restricted to ownership of only strategic assets such as multi-purpose hydro plants, which play a role in irrigation or flood management. In order to help realise this ambition, new investments are supervised by the Commission for the Management of State Capital at Enterprises (CMSC) to ensure compliance with regulations related to the use of capital and assets. Thus far, EVN’s role in investment in non-hydro renewable generation has been limited, leaving this market open to the private sector.
Authorities within the electricity market need to be strengthened
To deliver on these ambitious goals, Viet Nam will need to develop new generation rapidly, securely, and at least cost to consumers. Effective oversight and governance are critical to ensuring that Viet Nam’s future power system develops in a manner consistent with the country’s overarching policy goals and that it effectively and efficiently serves the needs of consumers and society more generally. Crucially, the transformation of Viet Nam’s power sector extends beyond just the generation mix. Ongoing and planned restructuring efforts, including the unbundling of generation, plans to increase the independence of the National Load Dispatch Centre, and the introduction of the wholesale market, will profoundly impact the way in which new generation is developed and integrated into the system.
ERAV’s effective oversight of these various interlinking pieces is critical to ensuring success. Its role includes setting grid codes and standards, issuing licenses, and establishing tariff-setting principles, as well as overall monitoring of the power system. Given the rapid increase in renewable electricity, ERAV’s system planning and system operations capabilities are not yet prepared for a power system with high shares of variable energy. Moreover, ERAV’s authority is at times limited in scope, with clear boundaries on where its mandate ends, and where that of EVN or EREA starts. For instance, although ERAV reviews master plans around the development of electricity sources, transmission and distribution grids, and their financing needs, the focus of its advice is particularly around security of supply (ADB, 2015[12]). Transmission line development falls outside of its regulatory authority. Part of ERAV’s role is to carefully balance the need to keep prices cost reflective while also working to minimise the economic burden on the country’s low-income households. Such limitations to its authority complicate its ability to do so. Its authority to increase tariffs is equally constrained by a structured system. Fixed tariff can only be in accordance with Decision 24/2017/QĐ-TTg, with increases of between 5-10% to be approved by MOIT, and anything above 10% submitted to the Prime Minister for approval.
Given the hierarchical structure of governance, ERAV is very closely bound to MOIT in its decision making, and its activities (World Bank, 2020[11]). ERAV’s mandate includes monitoring and enforcement of compliance with power market regulation and it serves as the main arbitrator for dispute resolution for power purchase agreements. As Viet Nam’s power system continues to evolve, including particularly the move away from the feed-in tariff program to the new, but still undefined, auction system, ERAV’s dispute resolution role is likely to grow in importance. By virtue of ERAV’s budget, which is fully funded by government, there is a structural dependence on MOIT. Given that EVN is also almost entirely government owned and closely tied to MOIT, this will create uncertainty for investors around whether ERAV’s decisions are fair, objective, and free of political interference.
Figure 2.7. Electricity market structure
Source: MOIT
Electricity planning
While the electricity market progresses towards liberalisation, electricity planning remains an immense government undertaking, requiring significant co-ordination between line ministries and government agencies. Within the top down master planning system, electricity planning falls within a national sectoral master plan, known as the Power Development Plan (PDP). This is the most significant planning document for clean energy investors and developers, which defines a prescriptive, medium-term plan for capacity additions across all generation technologies.
PV capacity additions boomed in 2019 far beyond the PDP VII Revised 2020 target
For the period of 2011 to 2020 with a vision to 2030, electricity planning was governed by the PDP VII, which in 2016 was reviewed and re-formulated as PDP VII-revised through Decision No. 428/QD-TTg. The review was in response to global renewable technology cost reduction trends, delays in conventional power plant development, and worsening energy security. The most prominent change in PDP VII was a stronger emphasis on renewable energy development, the removal of planned nuclear power plant capacity for 2020 and a reduction in planned imports over the long term. There is also an increased emphasis on market liberalisation, on providing balanced capacity of power sources among the regions and on ensuring the reliability of the power supply system.
Under the PDP VII-revised, a generation project’s inclusion in the PDP was a key step in the project approval process and as such, is designed not only as a strategic plan but also a tool for top-down control over system planning and capacity additions. Notwithstanding, solar PV capacity additions overtook the 2025 target, highlighting important considerations around co-ordination and flexibility under the PDP process (Figure 2.7, Figure 2.8). Whereas PDP planning is top-down, taking a medium to long term approach, investments decisions arise from the bottom-up under short time spans in reaction to favourable policy conditions. Driven by generous feed-in tariff support that was set to expire, nearly 4 GW of solar capacity were connected to the national grid taking total capacity from 0.86 MW in 2018, to 4.4 GW by June 2019. IPP selected project location and submitted gird integration studies to EVN, who evaluated these on a case-by-case basis, without a full picture of which would reach commercial operation. At the provincial level, a lack of clarity and consensus around evaluation parameters or provincial caps led to a vastly higher than planned number of projects obtaining investment licences (World Bank Group, 2019[13]). Such rapid deployment of variable renewable energy (vRE), within an incumbent model of large centralised base load power, has led to high levels of grid congestion and curtailment. This is particularly the case in the central regions where there is low demand, and in areas with strong potential in the south, such as Ninh Thuan, Binh Thuan, Dak Lak, Gia Lai, and Quang Tri (Vietnam Energy, 2020[14]). This highlights the need for greater planning flexibility in order to adapt to a fast changing environment.
Figure 2.8. Power Development Plan VII revised deployment targets and capacity installed in 2020
Note: GW = gigawatt
Source: Government of Viet Nam (2016), Prime Minister’s Decision No. 428/QD-TTg approving the revised PDP VII EVN (2020)
Figure 2.9. Development of wind and solar sectors (installed capacity) by 2030
Note: GW = gigawatt. Solar includes rooftop solar
Source: Government of Viet Nam (2020) Letter 10052/BCT-ĐL dated 28/12/2020 and Document 196/TTg-CN dated 18/02/2021 on wind development, Government of Viet Nam (2020) Letter 84/BCT-ĐL dated 07/01/2021 on solar development
Co-ordination between master plans remains an issue under the new planning law
In its review of the PDP VII, MOIT highlighted issues around co-ordination and inconsistency between master plans leading to overlaps and poor linkages between infrastructure, energy and electricity plans, which were developed at different times and coordinated by different stakeholders, ultimately leading to an inefficient prioritisation of investments (Institute of Energy, 2021[5]). The current series of master plans are being formulated under the new Law on Planning (No. 21/2017/QH14) and Decree No. 37/2019/ND-CP (Decree 37) on guiding its implementation. In the review of the former PDP, MOIT acknowledges that adjusting and supplementing planning has not been timely, with implications for the development of power system and private sector investment. Although the new planning law provides structure with respect to co‑ordination, the implementation is still unclear at the central level, delaying the development of socio-economic development plans for the period.
Under the updated top-down hierarchy of plans, national sectoral plans, such as the PDP, must be informed by the overall national plan, the national land-use plan, and the national marine spatial plan. National sectoral plans, in turn, inform regional, provincial, and urban and local level plans. The PDP should also align with other sectoral plans, such as the National Energy Master Plan, which oversees energy infrastructure, and the Master plan for seaport system development, which is relevant for LNG and coal imports, and urban and rural system planning which provides direction for power source and grid development to meet power consumption demand. At the time of the draft PDP VIII submission in February 2021, the overall national plan, the national land-use plan, and the national marine spatial plan had not yet been finalised, implying the need for a subsequent update of the PDP in order for plans to align.
PDP development requires extensive coordination between various stakeholders
The development of the PDP still requires a vast a number of stakeholders in different ministries, who are often responsible for overlapping activities. At the national level, this process is led by MOIT who is responsible for coordinating with MPI, MONRE, MOF and EVN, to formulate and implement the plan and then submit it to the Prime Minister for approval. The Institute of Energy (IE), a research institute under MOIT, undertakes system modelling for cost-optimised technology selections to support the overall PDP design. MPI is responsible for regulations and related guidance on investment and planning policies around power supply and grid expansion and its research institute, the Institute of Development Strategy supports the IE on forecasting. MONRE is responsible for matters concerning land use and marine spatial planning for PDP projects, as well as impacts on the environment, including water resources and forests. The MOF leads on matters related to national PDP budget, and regulations on taxes and fees for renewable power projects. At the provincial level, the PPC is a focal point for elaborating provincial power development plans and submitting them to MOIT, where EREA is responsible for appraisal of regional power development plans. The provincial DOIT coordinates the preparation of the plan and budget, consulting DPI, DONRE, DOF and EVN’s subsidiaries before submitting to the PPC for approval (Figure 2.10).
In light of rapidly changing circumstances, both in terms of high GDP and energy demand growth, as well as renewable energy technology cost reductions, an update and revision of the power development plan every ten years cannot ensure the most cost-efficient and optimal power system development trajectory throughout the period. This need for a forward looking, adaptive and responsive planning which can respond to evolving market needs and opportunities was also highlighted in the OECD’s recent Multi-dimensional Review of Viet Nam. The review pointed to the use of tools such as the dynamic adaptive policy pathways (DAPP) approach which can help respond to future uncertainties by using scenario analysis to develop appropriate policy responses (OECD, 2020[15]).
Like all masterplans, the new planning law foresees a review of the PDP after five years. The significant resource commitment required to coordinate the simultaneous update interlinking plans, raises concerns about the ability to adjust policy in a timely manner. This has been recognised by the government of Viet Nam in the draft PDP VIII, which proposes a possibility for more flexible and frequent updates and revisions throughout the planning period. However, the process, criteria, extent of possible revisions and timeline thereof still appear to be unclear.
Figure 2.10. Actors involved in PDP process
Source: The National Assembly - Government of Viet Nam (2017) Law No. 21/2017/QH14
Note: MOF = Ministry of Finance; DOF = Department of Finance; MPI = Ministry of Planning and Investment; DPI = Department of planning and investment; MONRE = Ministry of Natural Resources and Environment; Department of Natural Resources and Environment; MOIT = Ministry of Industry and Trade; Department of Industry and Trade; IE=Institute of Energy; PDP = Power Development Plan
PDP VIII sets power sector development targets over the coming decades
The draft PDP VIII, which was released for public consultation in February 2021, and a revised version released again in September 2021, presents Viet Nam’s strategy for the electricity sector from 2021 to 2030, with a vision to 2045. This plan is notable compared to its predecessors as no prescriptive pipeline of individually approved projects has been included. Such a list had previously been included for all projects with the exception of longer-term, strategic projects such as LNG to power, offshore wind and nuclear. Such a change supports the transition to competitive auctions where projects will be identified and tendered on a rolling basis. Consistent with this approach, the PDP VIII draft sets capacity targets for each province.
The ratio of renewable energy (excluding hydro) in the PDP VIII has increased to 24% in 2030, while in the PDP VII-revised it was lower at 16%. Wind power is set to increase from 0.5 GW in 2020 to around 11.8 GW in 2030 and 48.1 GW in 2045, accounting for 9% and 18% of the total installed capacity in 2030 and 2045 respectively. By 2030, 18.6 GW of solar PV is planned and this will increase to around 51.5 GW by 2045, accounting respectively for 14% and 20% of installed capacity.
The draft PDP VIII features a higher share of renewables compared to the revised PDP VII and a lower deployment of coal power plants. The share of coal power capacity has been reduced to 31% in 2030, down from 43% in the PDP VII-revised and no new coal power capacity is planned after 2035. There is also a large shift to imported LNG to power with gas-fired capacity targets for 2040 more than doubling compared to the previous PDP reaching 62 GW by 2040, and much of this new capacity is set to utilise imported LNG. Comparing the recent draft to the February version, it includes a postponement of some wind capacity (6 GW), biomass, and other renewables (2 GW) until after 2030, and increases coal power capacity (3 GW) over the same period. This is due to a short-term reduction in forecasted demand due to the economic impacts of COVID and concerns in the capacity to integrate higher levels of variable generation over the short term.
The ambitious build out of integrated LNG to power projects and a continuing development of coal power plants brings inherent implementation and fuel price risks (Box 2.3). The level and length of reduction in market growth for renewable energy until 2030 could also prove disruptive to established supply chains and local capabilities developed throughout the FIT period. Moreover, the PDP VIII draft will continue to drive up power sector emissions, in a context where Viet Nam is aiming towards reducing 27% of energy related emissions as outlined under its conditional NDCs under the Paris Agreement.
Table 2.5. Targets set in the draft PDP VIII
Note: values expressed in Megawatt capacity
Source: MOIT (2021) Draft PDP VIII February 2021; MOIT (2021) Draft PDP VIII September 2021
Box 2.3. Energy security and the Power Development Plan VIII
Viet Nam’s upcoming Power Development Plan (PDP) VIII will govern power sector investment over the 2021 to 2030 period and provide a long-term vision to 2045. The approval of this masterplan has met delays since late 2020 pending two rounds of consultations, one in February 2021 and one in September 2021. The current draft maintains a dominant role for thermal generation, more than doubling coal capacity by 2035 (but with no planned capacity additions after this year) and envisioning a significant build out of gas power plants using imported liquefied natural gas (LNG) as fuel. Following Viet Nam’s boom in solar deployment in recent years it is also eye catching that no significant increase to solar capacity is planned until after 2030. Similarly, of the 12 GW of wind capacity planned before 2030, 4.5 GW will start commercial operation in 2021. Such a build out of thermal generation capacity, particularly coal, will not only have adverse environmental impacts but could lead to a disruption of Viet Nam’s energy security if implementation is delayed, as has been experienced in the recent past. Ensuring fuel price risks can be adequately mitigated will also be critical as reliance on coal and LNG imports increases. By 2035 almost 50% of electricity supply will rely on imported coal or LNG, up from 15% in 2021.
Figure 2.11. PDP VIII draft planned capacity and electricity generation by fuel type
Note:‘% import reliance’ is calculated as the sum of electricity imported and electricity generated from power plants wholly utilising imported fuels, divided by total electricity supply. The category ‘domestic and mixed coal’ includes electricity generated from power plants utilising domestic coal or a mix of domestic and imported coal. Plants in this category are excluded from the calculation of ‘% import reliance’.
Source: VIET based on PDP VIII draft.
In principle, natural gas-fired power plants, fuelled with imported LNG, offer a cleaner and more flexible source of firm generation capacity than coal-fired (or oil-fired) plants. However, the ambitious scale of development presents two sets of challenges related to project implementation and price volatility. Viet Nam’s plans to develop LNG import infrastructure date as far back as 2008, and the first floating LNG terminal (with an expected start date in 2012 at the time) was proposed in 2010 but never came to fruition (International Oil Daily, 2008[16]) (Reuters, 2010[17]). In the intervening years, and particularly since 2017, investor interest grew substantially in LNG-to-power schemes, and as of September 2021 an estimated 140 GW of LNG-fuelled generation capacity (spread across more than 40 power projects) was in various stages of planning and development (ACSV Legal, 2021[18]). Of this, only nine projects with a combined capacity of about 18 GW were formally endorsed in the amended PDP VII, the plan in effect until the adoption of the final PDP VIII, although more is under review by the government (Thu Vu, 2021[19]). So far, only two projects with a combined capacity of 2.7 GW have reached the construction phase and are expected to come online in the coming year: the Hiep Phuoc and Nhon Trach 3 and 4 power developments, which are expected to be supplied via the Hai Linh and Thi Vai LNG terminals, respectively. This relatively slow progress towards the government’s 18 GW target by 2030 outlined in the amended PDP VII speaks to the complexity of structuring and financing LNG-to-power projects in general, and to certain features of Viet Nam’s investment framework in particular.
Global experience with integrated LNG-to-power infrastructure is limited to a handful of projects, which are primarily located in South America and the Caribbean. Only two projects have been completed in the Asia Pacific region to date. LNG-to-power projects include two main infrastructure components: an LNG import facility and a gas-fired power plant. Additional elements can include connecting pipelines and transmission lines, for example. This increases complexity, requiring additional permitting and approvals and the management of project-on-project risk. In the case of Viet Nam, the LNG and power components are subject to two different national master plans, two different sets of laws and two different regulatory authorities (Freshfields Bruckhaus Deringer, 2021[20]). Financing such projects with non-recourse project finance debt also involves lengthy negotiations on risk allocation. Guaranteed offtake under a PPA is often a pre-requisite for project financing, but this is not readily offered by EVN (Watson Farley & Willams, 2021[21]). In addition, some elements of Viet Nam’s legal framework for LNG-to-power investments, especially provisions on sovereign guarantees, currency convertibility and applicable law fall below bankability requirements of project finance lenders. These challenges mean that the rollout of LNG-fuelled power generation in Viet Nam could continue to progress slowly and fall short of government targets, potentially leaving a gap in the country’s electricity supply.
Figure 2.12. Asian spot LNG prices and forward curve
Source: ICIS, CME Group
The second challenge is related to Vietnam’s potential exposure to excessive price increases on the spot LNG market. Asian spot LNG prices have spiked twice in 2021 and have recently reached all-time highs as a robust post-COVID recovery, extreme weather patterns and supply shortfalls have led to an unprecedented tightness in the global gas market. Under such circumstances, price sensitive emerging economies (where utilities have limited ability to pass through surging fuel costs to customers or shoulder the financial burden themselves) may be forced to curtail fuel purchases on the spot market. During the earlier price spike in January 2021, for example, India, Pakistan and Bangladesh each registered sharp year-on-year declines in LNG imports (down by 15%, 5% and 32% in January, respectively) as price-sensitive buyers left several spot LNG tenders unawarded due to astronomical bid prices. This, in turn, contributed to gas shortages and a mix of load shedding and fuel switching away from gas in each countries (IEA, 2021[22]). It is possible to hedge against excessive spot LNG price spikes by locking in volumes under term contracts. These can smooth out volatility by indexing prices to oil or gas hub benchmarks (or a hybrid formula combining several price references), by using 3 to 6-month moving averages and s-curves in the formula, and by introducing upward and downward volume flexibility to enable greater optimisation between contracted supplies and spot market purchases. The majority of LNG sold into the Asia Pacific region is, in fact, purchased under long-term oil-indexed contracts and have limited exposure to today’s volatile spot prices. However, EVN’s wariness to assume market risk (e.g. in the form of PPAs with a high share of guaranteed power offtake) could limit the ability of project sponsors to lock in the majority of their fuel supply with long term contracts. This, in turn, would raise the risk of periodically being priced out of the spot LNG market and unable to generate electricity.
Coal projects also face significant uncertainties particularly related to the availability and cost of finance. Important regional partners for infrastructure lending, namely South Korea, China, and Japan, have all recently pledged net zero climate commitments and have signalled their intention to end coal financing in overseas markets. The cost of financing upstream coal extraction and power generation is also on an upward trend with analysis by Oxford Sustainable Finance Programme showing increased loan spreads for the period 2011-2020 compared to the previous decade. Data from emerging markets in Latin America, China, and Southeast Asia, show spreads for coal mining rising by 56%, 32% and 12% respectively, and a steeper trend is witnessed in OECD markets with spreads in Europe, North America and Australia up by 134%, 80% and 71%. The same applies to the cost of financing coal power plants, which has increased by 63% in Southeast Asia over the same period (Zhou, Wilson and Caldecott, 2021[23]). The tightening financing landscape for coal infrastructure will create inflationary pressure on the levelised cost of electricity from coal sources, which will likely intensify as global action accelerates to meet the Paris climate commitments.
Analysis by the Rocky Mountain Institute shows that the share of coal plants worldwide, which are uncompetitive with renewable alternatives will reach 56% by 2022 and 78% by 2025 (Benn et al., 2018[24]). Such a tipping point could be seen in Viet Nam too, with utility-scale solar experiencing a 55% cost reduction over recent years with LCOEs estimated at 0.082 USD/kWh in 2020 (IRENA, 2020[25]). This is approaching the average LCOE of a coal generator utilising imported coal, which stood at 0.074 – 0.076 USD/kWh in 2016. At the same time, the cost of Viet Nam’s domestic coal is increasing, as more costly extraction is required in the face of declining reserves. In deregulated electricity markets, the risk of such price trends is that a wave of fossil generation assets could become stranded, unable to compete on cost terms with cheaper renewables. In the case of Viet Nam with regulated markets and long-term power purchase agreements, there is a significant risk that scarce capital could be similarly locked into long-lived, uneconomic assets.
Due to the issues highlighted above, the implementation risks associated with the PDP VIII draft are judged to be high, putting the country at risk of supply deficits if delays and bottlenecks materialise. Viet Nam’s planning system does not currently have the flexibility and nimbleness to quickly adapt to changes in market realities. Implementing processes to enable more timely and reactive changes to the PDP, as has been recommended in this review, will go some way to mitigate these risks. There should also be a recognition that the long delays experienced in the development of privately financed power sector infrastructure to date has stemmed in part from the hesitancy in providing risk allocations aligned with international investor and lender requirements. Providing such assurances would support a more frictionless implementation and will likely lower the cost of capital. These benefits should be fully evaluated against the additional costs and contingent liabilities that EVN and the government would need to shoulder as well as the overall economic risk of deployment delays and supply shortages. Lastly, significant progress has been made in recent years in the development of a thriving renewables market. PDP VIII draft continues to prioritise renewables over the long-term but with a decade-long hiatus between 2021 and 2030 when only limited deployment is planned. Although it has been anticipated that the explosive rate of deployment witnessed over the last two years will slow down, the level and length of reduction signalled in the PDP VIII draft is dramatic and could well prove detrimental to local supply chains, green jobs, and investor confidence.
Source: OECD and IEA analysis
Energy efficiency features in the PDP VIII
Given that annual growth rates of electricity demand are expected to be 9.1% from 2021-2025 and 7.9 % from 2026-2030, the PDP VIII draft takes an important and necessary step in recognising the multiple benefits that energy efficiency offers. The draft PDP VIII outlines current programmes, which includes targets of the Viet Nam Energy Efficiency Program (VNEEP). Also featured is the National Program on Demand Side Management 2018-2020, with a vision to 2030 (Decision No. 279 / QD-TTg 2018), which aims to reduce the national power system’s peak load capacity of compared to the power load forecast in the national electricity development plan (300 MW by 2020, 1 000 MW in 2025 and 2 000 MW in 2030). It also includes Viet Nam’s strategy for rooftop solar PV, as a solution for reducing grid loss, increasing power supply, and contributing to reducing local electricity consumption.
Forecasting electricity demand in the period of 2021-2030 takes both a top down and bottom up approach, combined with the synthesis and review of electricity demand at national, regional, provincial and EVN power corporation levels. In line with previous PDPs, the top-down approach forecasts electricity demand for the period of 2021 to 2030, for the whole country, for regions and for EVN’s power corporations. The bottom-up approach reviews the electricity demand of provinces in the country from 2010 to 2019 based on provincial electricity consumption plans prepared by the EVN’s power corporations, and information from large electricity consumers for the period until 2025.
A greater focus on mechanism for integrating a higher share of renewable is needed
The increased share of variable renewable generation already has significant implications for how the power system is planned and operated. Meeting long-term demand growth and targets for new generating capacity – especially variable renewable generation – will require significant amounts of new transmission development. Transmission planning processes were developed with a centralised electricity system architecture and large centralised power plants. The north and the south use up most of the power while the central part acts mainly as a transmission corridor and production site. As renewable capacity is mostly located in the south and central zones of Viet Nam, with only a very small amount of solar in the north, the transmission between the central and southern zones has been put under a lot pressure.
In the short-term, Viet Nam will need to address the oversupply in generating capacity that has resulted from COVID-19’s impact on economic activity, in particular suppressed demand for electricity. The relative oversupply of capacity has led to increased congestion of the transmission system during low-demand periods such as weekends and holidays and, therefore, increased curtailment of renewables. This is particularly the case in the central and southern part of the country, where most of the deployment of solar PV is concentrated. Though part of the cause of this current state of oversupply is temporary, the current situation nevertheless provides a valuable preview of Viet Nam’s higher renewables future.
Equally, a range of technical and market-based solutions, implemented in particular by EVN, focused on unlocking and enabling power system flexibility can help ensure that existing solar PV and wind are integrated affordably and securely. “Non-wires alternatives” such as expanding demand-side response, energy efficiency and distributed generation programmes, as well as use of batteries or other modern technologies can offer many of the same benefits of transmission development at much lower costs. As a notable example of this, the New York City utility was able to avoid a USD 1-billion transmission upgrade by instead investing USD 652 million in a combination of non-wires alternatives (Box 2.4). Aspects of these technical and market-based solutions can already be incorporated into long-term planning, investment decisions and consideration around increased resource flexibility.
Box 2.4. Consolidated Edison Company Brooklyn Queens DSM program
In 2014, Consolidated Edison Company (Con Edison), a regulated utility providing electric and gas services in New York, highlighted that by 2018, 69 MW of demand growth above existing distribution capacities in Brooklyn and Queens would lead to capacity constraints on a portion of its grid, overloading existing infrastructure and leading to reliability concerns. The proposed solution had an estimated cost of 1 billion USD for upgrading infrastructure, including a new distribution substation, expanding an existing 345 kV switching station, and constructing a sub-transmission feeder to connect the two stations. Instead, the New York Public Service Commission (PSC), ordered Con Edison to look at non-traditional investments as a way to manage demand growth, and offered innovative incentives to encourage their adoption. This led to the Brooklyn Queens Demand Management (BQDM) programme, which aimed to reduce 52 MW of peak demand, from noon to midnight by the summer of 2018.
While traditional capital investments in infrastructure can earn a rate of return, non-traditional solutions are often treated as operating expenses which are passed on to customers. PSC set up a number of performance incentives designed to encourage the utility to contract third-party services that could lower project costs. Con Edison was able to earn an authorized rate of return on BQDM programme costs, and receive up to 100 basis points above their authorized rate of return in performance incentives on BQDM investments. During the programme, an additional shared savings mechanism was designed to let the utility earn 30% of the annual net benefits accrued.
The BQDM programme aimed to defer the need for traditional infrastructure investment for at least seven years and was approved by the PSC with a USD 200 million budget in 2014. It sought to obtain 41 MW of customer-side electricity demand reduction solutions, and 11 MW of utility-side electricity demand reduction solutions such as distributed energy generation and voltage optimization. The utility achieved 52 MW peak load reduction target for summer 2018, but through a different mix, with 34 MW of peak load reduction from customer-side and about 18 MW from utility-side solutions, indicating further opportunities for load reduction. Through 2017, Con Edison spent USD 70 million, leaving USD130 million remaining in its budget. Based on its initial success the utility continued the BQDM programme beyond 2018, without additional funding or changes to the incentive mechanisms. One of the traditional investments, the Glendale substation project, planned for 2018 was postponed to after 2026
This BQDM programme offers an example of how the utility, third-party companies and customers can each benefit from “non-wires alternatives”. The traditional utility revenue framework discourages utilities from investing in non-traditional solutions, such as demand management programs and distributed energy resources. Without the proper incentives, these are treated as operating expenses, passed through to customers, whereas traditional "poles and wires" solution, provide an opportunity to earn a rate of return. While investments in new grid infrastructure will be necessary in Viet Nam, expanding “non-wires alternatives”, such as Viet Nam’s demand-side response programme, battery storage, or other modern technologies can offer many of the same benefits of transmission development at much lower costs, whilst also enabling system flexibility to accommodate for vRE generation.
Source: Girouard (2019) BQDM program demonstrates benefits of non-traditional utility investments. AEE and Rocky Mountain Institutes (2019) Brooklyn Queens Demand Management Program-Employing Innovative Non-Wire Alternatives
Following the IEA’s (IEA, 2020[26]), six phases of variable renewable electricity (vRE) integration (Figure 2.13), Viet Nam jumped from phase I to phase II to III between 2019 and 2020. According to this breakdown, phase I, where there is less than 3% of generation from vRE, there is little or no impact on the power system. In phase II, which is between 3% to 15% vRE, there is a noticeable effect on power system operations, which is manageable through upgrading planning and operations practices, particularly in terms of forecasting capabilities in order to balance flexible resources along with electricity demand. From phase III, which is between 15-25%, vRE has a greater influence on system operations requiring additional investments in flexibility. In Phase IV which is between 25-50% of generation, structural surpluses of vRE generation lead to curtailment, and thereafter, sector coupling is required to adjust for structural imbalances in energy supply at seasonal and inter-year periods. Given the rapid increase of vRE, Viet Nam is already experiencing high levels of curtailment. In low demand periods, such as public holidays and weekends, driven yet lower by the economic slowdown caused by COVID-19, the share of solar generation, at peak, could rise to the equivalent of 40% of total generation. However, given the difficulties integrating this sudden increase in variable renewable electricity, much of this solar power has been curtailed, and over the year, renewable generation amounted 5% of total generation. As more of this generation is integrated, Viet Nam will face greater technical challenges for the stability of the power system’s operation in very short timescales.
Figure 2.13. Key characteristics and challenges in different phases of system integration
Note: vRE = variable renewable electricity
Source: IEA (2020) Introduction to System Integration of Renewables
USAID highlight seven criteria for assessing readiness for integrating vRE in power systems, in which Viet Nam has quite low to moderate preparedness considering the high share of renewables it already has to integrate (USAID, 2020[27]). Viet Nam has little operational experience integrating wind and solar power and the transmission infrastructure has not kept pace with the development of electricity production. While good progress has already been made on strengthening planning and system operation practices, Viet Nam still needs to develop a number of different areas in order to fully prepare for integrating high shares of vRE (Table 2.6). The rapid strengthening across areas particularly around dispatch rules, storage and ancillary services, will be essential.
Table 2.6. Preparedness for integrating vRE in Viet Nam
Source: USAID (2020) Grid Integration Series: Impact of variable renewable energy on system operations
References
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