What’s Driving Vietnam’s Renewable Energy Boom? – The Diplomat

Pacific Money | Economy | Southeast Asia

In 2014, the put in capability of non-hydroelectric renewable vitality in Vietnam (akin to photo voltaic, wind and biomass gasification) stood at 109 megawatts (MW), about one third of 1 p.c of the nation’s whole put in capability of 34,079 MW. On the time, Vietnam’s electricity mix was dominated by hydropower (46 p.c), coal (29 p.c) and pure fuel (22 p.c). By the top of 2019, wind and photo voltaic accounted for 5,700 MW of installed capacity, about 10 p.c of the entire provide. Which means Vietnam has seen wind and photo voltaic go from basically zero to 10 p.c of its provide in solely 5 years. What’s driving this renewable vitality growth?

The first mover is Vietnam’s explosive charge of progress. In line with the Asian Development Bank, Vietnam’s financial system has grown at 6 p.c or extra yearly since 2014, reaching 7 p.c in 2018 and 2019. This fast progress is driving up vitality consumption at a rare charge. The state-owned electrical utility, Vietnam Electrical energy (EVN), has seen the quantity of vitality offered rise from 128.6 terawatt hours (TWh) in 2014 to 209.four TWh in 2019. Consumption of electrical energy has been rising at greater than 11 p.c per yr, rising at a charge significantly quicker than GDP. That is fueling an almost insatiable demand for extra electrical energy technology and funding.

Vietnam’s historic reliance on hydroelectricity locations it at an obstacle right here, because the sustainability of producing  vitality by damming rivers is limited, and the geopolitics of shared hydropower assets within the area are already fraught. Definitely Vietnam can’t energy this degree of financial progress indefinitely by hydroelectricity. So what about coal and pure fuel, its different principal sources of electrical energy manufacturing? As of 2015 Vietnam became a net importer of coal, importing 43.7 million tons in 2019. Imports of pure fuel and crude oil have additionally been rising sharply since 2014.

The underside line is that home manufacturing of fossil fuels can’t maintain tempo with consumption, forcing Vietnam to show to world markets to safe enough uncooked supplies to energy its grid. As in the case of Thailand, as soon as a rustic begins to depend on imports to energy its electrical grid it’s usually when the political class will get severe about transitioning to renewable vitality. Vietnam has thus far adopted this sample fairly carefully.

In 2017, Vietnamese regulators authorized EVN to pay a lovely charge of 9.35 cents/kilowatt hour to buy solar energy from unbiased producers. A majority of these feed-in-tariffs have proven to be efficient inducements for jump-starting progress in renewable vitality, under certain conditions. A excessive tariff alone is not going to usually get the job performed. It should be accompanied with institutional and political help, particularly from the implementing company which on this case is the state-owned utility EVN. By way of its subsidiaries, EVN has a monopoly on the transmission and distribution of electrical energy in Vietnam and has traditionally managed round 60 p.c of the producing market. Why then did EVN get onboard with these renewable vitality ambitions, which require it to cede market share to photo voltaic and wind energy firms?

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Except for the truth that importing coal and pure fuel is driving up the price of manufacturing (which can’t be simply recouped by increased retail charges, as the patron worth of electrical energy in Vietnam is rigorously managed by the federal government), it’s a part of a much larger effort to push by market reforms with the intention to make Vietnam extra funding pleasant. This includes lowering the state’s position in key sectors, and demonstrating that Vietnam is a spot the place non-public capital can generate wholesome returns.

The federal government of Vietnam is conscious that the nation would require massive capital inflows to proceed underwriting its breakneck tempo of financial progress. Within the electrical energy sector alone, EVN’s 2017 Annual Report estimated they would want $22 billion in funding by 2020 to maintain tempo with demand. In the end, that is what has pressured such a dramatic shift within the vitality sector in such a short while interval.  On the one hand vitality imports are driving up manufacturing prices for EVN, and jeopardizing vitality safety by putting the utility on the mercy of worldwide commodity costs.

On the identical time, the nation’s political class is keen to develop the position of personal capital as a driver of progress, and it is aware of that so as to take action it should push by reforms in vital sectors traditionally dominated by state-owned firms. The pace with which EVN has used feed-in-tariffs to onboard renewable vitality from non-public producers ought to ship a optimistic sign to markets. But it surely additionally underscores the truth that relating to renewable vitality transitions, it’s crucial to look past mere technical or coverage options and think about all of the political and financial forces that in the end form the destiny of the sector.