Renewable energy, barrier to economic development (Apr 2015)

15 Apr 2015

By: B&Company Vietnam

Industry Reviews

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Vietnam Government has announced a master plan on taking the global trend – transitioning to use renewable energy sources.With a hope that as a long-term strategy, this plan will increase the proportion of renewable energy in the total power generation. In 2013, the capacity of wind energy, solar energy, biomass energy are 55MW, 4 MW, and 150 MW respectively; all adding small scale hydropower account for only 3% of the total national electricity generation, however, the plan sets quite high goal targeting to reach 5.6% in 2020 and 9.1% in 2030.

In reality, has the use of renewable energy in Vietnam improved or not?
Vietnam is a country having lots of natural preferences. Theoretically, with a coastline of 3,200km, 8.6% of the total area is possible for building wind power plants, estimated to generate maximum amount of power up to 24,000MW/year. Regarding solar energy, many regions of the country are lighted by the Sun in an average of 2,000 hours per year. In addition, biomass from many agricultural products also generates yearly 2,500 MW power.
However, the development of renewable energy at the moment is unfavorable. EVN (Vietnam Electricity) has increasedel ectricity prices after receiving support from developed countries through cooperations in technique and low-interest rate loans, the price of wind power increased from 6 cents/kWh to 7.8 cents/kWh, biomass electricity price from4 cents/kWh to 5.3 cents/kWh, but failed to attract investors due to low profit. In order to ensure the interests of investors, it is required to set aminimum price for wind power of 10 cents/kWh. Though solar energy can be used in household, with minimum initial investment of 4,000 USD, even when the awareness of environmental protection tends to rise, it is also very difficult to be widely used. Similarly, biomass energy doesn’t have economic benefits. Power retail prices increasesby 5-10% in average from 1 to 2 times per year. In March 2015,retail electricity prices were up to 7.5%, estimated to reach9 cents/kWh in 2020. Though the increase of purchase price is not out of expect, it is still not enough to make the profit.
Renewable energy has less economic efficiency than other electricity generating methods, barriers to implementation is enormous. For examples, until now 51 wind energy projects have been registered, but only 3 projects were implemented with the support comes from abroad.Thus, in order to attract domestic and foreign investors, implementing sequentially small-scale pilot projects should be considered.
In recent years, demand for electricity is rapidly increasing with an average annual rate of over 10%, in order to cope with power shortages, government is actively studyingenergy sources which are more realistic such as coal-fired power and nuclear energy. For this reason, the issue of effective policies on the implementation of renewable energy master plan still remains questionable. However, many equipment supply companies express their concern if there is any real progress. Foreign companies, though do not expect to much,seems to look forwards to how government can build mechanisms of attracting domestic and foreign capital investment like low-interest loans, grants or not.