Vietnam - Power and Energy- Outlook on the European Union Vietnam Free Trade Agreement (EVFTA)

Vietnam - Power and Energy- Outlook on the European Union Vietnam Free Trade
Agreement (EVFTA)

Vietnam has expressed its commitment to turn to clean and green energy while
prioritizing domestic energy in respect with social, economic and energy
security goals. The increasing demand of energy is pressuring Vietnam into
developing local resources which requires attracting private investment.

Up to now, Vietnam is not self-sufficient to provide the energy
corresponding to local demand. Therefore, in order to reach energy
efficiency, Vietnam must put in place a double action: developing the local
sector thanks to private investment, and set up management tools to reduce
electricity waste by users.

A report issued by the "Made in Vietnam Energy Plan" commission, concludes
that Vietnam can continue using indigenous energy resources (gas, coal,
hydro, oil, wind, solar) until a future green energy is developed. As the
fire-coaled sector is expected to be revived, renewal of coal power plants
would slow down the air quality deterioration caused by older mega-power
coal plants. Yet, other measures could be initiated by the Government.

Encouraging natural gas energy

Vietnam is endowed with natural gas whose use should be preferred to coal
use. Indeed, natural gas is a more flexible, cheaper and cleaner fuel than
coal. Pursuant to many international agreements encouraging green energy
development, Vietnam will be more likely to find financing for renewable
energy sector than for coal-fired one.

Investment in exploitation of natural gas should be greatly encouraged as it
follows international treaties and is a good economic and environmental
opportunity. The Government should then prepare policy and regulatory
framework to further enhance foreign and local investment, technology and
experience sharing, and to develop successful markets.

Furthermore, development of offshore gas-to-power appears to be another
beneficial and economical alternative to imported coal. Not only the cost of
natural gas exploitation is less expensive than the cost of clean coal
import or production considering taxes and royalties related to gas pricing,
but it would also attract more investors. In addition, it would release the
State from heavy expenses since the International Monetary Fund estimated
that health and environmental costs, with the current energy development
plan relying on coal, would reach US$15 billion annually by 2030.

Developing Power Purchase Agreements (PPAs)

The German Agency for International Co-operation issued recommendations
regarding wind and solar power purchase agreements (PPAs) for renewable
energy. They include specific evaluation of costs and tariffs for PPAs to be
more bankable. Ensuring their implementation is greatly encouraged to favor
a lasting and sustainable development.

Companies which made public commitment to use renewable energy and any other
large power consumer should be entitled to sign Direct Power Purchase
Agreements (DPPAs) with power suppliers. We find for instance in the cases
of Nike, Coca-Cola, Apple, Google etc., Vietnamese legislation does not
allow DPPA. By changing this policy, there will be more foreign investment
in the value supply chain of green energy.

Controlling electricity use and reducing energy waste

Through a more efficient use of electricity and reduction of energy waste,
Vietnam would be considered a competitive and viable alternative for foreign
direct investment. Granting tax incentives for individual households and
businesses that reduce their energy use, encouraging solar or wind or any
other renewable energy, would depressurize the distribution system and
educate users.

Development of waste to energy system in local communities would allow a
dual benefit: improve health and hygiene as well as increase power supply
and facilitate its distribution. The carbon emissions would be automatically
diminished.

Establishment of a Power Price Roadmap using market based pricing with
variable pricing considering residential, commercial or industrial use,
should prevail. A belief that energy price will remain subsidized by the
Government supplants any efforts to promote energy efficiency investment and
innovation. Then, knowledge of energy cost may induce consumers and
investors to get more efficient equipment and processes.

Recommendations for Government's regulations

In order to help the Vietnamese Government reach environmental goals, credit
enhancement of the state-owned enterprise Electricity of Vietnam (EVN)
should be developed. Guaranteeing that EVN will pay for renewable power
supplies by increasing international donors will help ensure the projects'
feasibility and encourage investment.

A more sustainable plan can be implemented if enacted with proper policy and
regulatory framework. The main recommendation to secure a greener future
environment is to lower the part of coal power plants in the power
development plan to 2030.

A flexible plan could be established to adjust the future demand and to stop
the risk of a higher or lower demand than estimated. This plan should
attract more foreign and local sources of investment and reduce reliability
on foreign governments. However, establishing mandatory energy efficiencies
and construction requirements for housing, office or retail development
would also educate and have a positive impact on the renewable energy
sector.

Outlook on the EVFTA

The EVFTA signed on December 2nd 2015 is expected to enter into force by
January 2018. Relations between Vietnam and the EU will be greatly
intensified, especially since Vietnam is the 2nd to sign such an agreement
with the EU after Singapore, which does not compete in the same fields. Many
investors will flow from the EU to Vietnam and bring new technologies and
techniques.

A chapter in the EVFTA is dedicated to sustainable development and we can
expect that the EU, a firm defender of green and clean energy, will
influence Vietnam to review its power development plan in a foreseeable
future.

Most important issues

- The coal-fired sector is to be revived according to the power development
plan whereas cleaner and more economical alternatives are open to Vietnam.

- The International Monetary Fund has estimated that US$15 billion would be
dedicated annually to health and hygiene costs. Air purification or stopping
air quality deterioration is an issue to be solved urgently and threatened
by the revival of coal energy.

- Allowing DPPAs would boost investment and innovation in green energy
sector and depressurize the distribution system.

- Educating suppliers, users and investors through Power Price Roadmap,
waste-to-energy system and tax incentives is the most effective way to
ensure high observance of the Government's measures regarding environment.

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com