Viet Nam has made impressive progress in economic growth and poverty alleviation in recent decades. Energy expansion has been a major contributor to this success and demand is expected to continue growing strongly.
National authorities understand that the country now faces important choices regarding its energy mix. Viet Nam made an ambitious climate change pledge in 2015 and aspires to expand renewable energy to 21GW by 2030 (PDPVII-rev), and to 42GW with international support. At the same time, this falls short of what is needed to enable Viet Nam to move away from its current trajectory for the deployment of over 40 coal-fired power stations, which could make it the third or fourth largest user of coal for power generation in the world. If the Business as Usual trajectory is followed, Vietnam is expected to increase emissions by over 200% by 2030, making this the largest increase among its peer countries.
Shire Oak International is developing a portfolio of renewable energy projects across Viet Nam to meet the fast-growing demand of its emerging economy. The opportunity for renewable energy is a very viable proposition because Viet Nam, has high solar irradiance (particularly in the South) and good wind speeds in the Central Highlands and off its eastern seaboard. However, there are land use and grid capacity issues that must to be addressed early on in any project development pipeline process in order to ensure that projects are viable.
The Government of Viet Nam acknowledges the climate and environmental imperatives of moving away from coal-fired electricity generation, yet they also emphasise that this can only be possible within realistic fiscal and development strategies. In consultation with Viet Nam stakeholders, Shire Oak International identified three threshold issues inhibiting renewable energy uptake that are top-of-mind:
- Limited sovereign fiscal capacity: All energy utilities and governments in the world are restricted in their investment decisions by their (usually limited) fiscal space. This impacts upon renewable energy investments by reducing the competitiveness of renewable energy compared to fossil fuels. In Viet Nam, the Government will not provide sovereign guarantees for independent power producers, because to do so would jeopardise fiscally prudent regulations which limit debt/GDP to 65%.
- High cost of capital: International capital markets have set high costs of capital in response to real and perceived risks in Viet Nam, such as: (i) low creditworthiness of the off-taker, EVN; (ii) limited certainty of connection; (iii) renewable energy PPAs are un-bankable by international standards; (iv) low capacity of Local Financial Institutions (LFIs) to evaluate projects.
- Socio-economic issues: Traditionally the coal sector has provided jobs and tax revenue across the value chain from mining to transportation, making a low carbon transition difficult (whether in reality or perception).
There are many other reasons why fossil fuel deployment is high. These include (i) limited capital for new technologies, including renewable energy, in Vietnam’s domestic financial markets; (ii) lack of visibility over project pipelines; (iii) issues related to access to land; (iv) financial risks; (v) cross-government policy misalignment; and (vi) technical issues such as intermittency, grid quality, curtailment.
The combination of these issues has create a situation where renewable energy investments are not happening at the rate needed to enable Viet Nam to deliver a decisive shift away from coal.
Shire Oak International is able to offer a full finance, project development, EPC and O&M capability to both private off takers or in partnership with national or local Government in Viet Nam and across SE Asia.
Please contact us for further details.
Copyright © 2019 Shire Oak International - All Rights Reserved