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Date: July 2015
Date: July 2015
Date: July 2015
Date: July 2015
Date: July 2015

Date:

July 2015

1. Keywords 2 2. Abstract 2 3. Introduction 2 4. Sector overview 2 5.

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Keywords

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Abstract

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Introduction

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Sector overview

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Sub-sector overview

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Regulations

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Opportunities for Danish companies

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Conclusions and recommendations

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10 8. Conclusions and recommendations 10 Energy, environment, Vietnam, energy efficiency, renewable

Energy, environment, Vietnam, energy efficiency, renewable energy, waste recycling, smart grid, wind power, solar energy, waste management, CO2 emission.

wind power, solar energy, waste management, CO2 emission. This report gives a general overview on the

This report gives a general overview on the Vietnamese Energy and Environment sector. Various aspects of the sector are covered with the goal of providing an overall understanding of the industry for both outsiders and insiders of the market, especially Danish enterprises.

and insiders of the market, especially Danish enterprises. Since the introduction of a market-oriented economy in

Since the introduction of a market-oriented economy in 1986, Vietnam has made remarkable socio- economic progress. In this progress, the energy and environment sector has played a vital role. This role is likely to deepen in the years to come as Vietnam strives to achieve even higher levels of economic progress. The rapid economic growth of Vietnam has resulted in a significant increase in energy demand, which is expected to triple towards 2020 and increase eightfold in 2030. However, in many cases Vietnam’s industrial production remains backdated and highly polluting. As a result, there has been an increased focus in recent years on increased investment in the clean-technology sector and particularly energy efficiency, renewable energy technologies and waste management, which provide a number of future business opportunities for Danish clean-technology companies.

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opportunities for Danish clean-technology companies. 4. Overall size of the sector The Embassy of Denmark in

Overall size of the sector

According to the International Energy Agency, in 2014 Vietnam’s total electricity consumption was 131.0 TWh and electricity consumption per capita was 1.415 kWh/capita. Thermal generation had a significant share of the total electricity consumption with 94.242 TWh in 2014. It was followed by hydropower generation with 42.009 TWh, while non-hydro renewables generation only made up 0.223 TWh.

Today, the Vietnamese energy sector is faced with concerns from a growing demand of energy consumption. According to the Ministry of Industry and Trade (MOIT) in Vietnam, Vietnam’s energy consumption grew 12.1% during 2001 – 2010 and 11% during 2011 2014. The rate is expected to be 9.1% during 2016 2020. Forecasts on power consumption indicate that consumption will reach 330 362 billion kWh by 2020 and 695 834 billion kWh y 2030.

Infrastructure The high energy consumption in the industrial sector is caused by inefficient use of energy, old-fashioned production techniques, and a lack of proper energy management. Only 15 per cent of industrial facilities in Vietnam are equipped with modern technology.

Major Stakeholders Vietnam’s Energy market is dominated by a number of major state-owned enterprises (SOEs). In the electricity sector, Electricity Vietnam (EVN) is the largest company and responsible for 46% of electricity generation, 100% of transmission, and more than 90% of distribution. In the coal sector, Vietnam National Coal and Mineral Industry Group (VINANCOMIN) plays a major role with 95% of coal production in Vietnam. Within Gasoline and Diesel, Vietnam National Petroleum Corp. (PETROLIMEX) accounted for 48% of the market. Finally, in the Oil and Gas sector Vietnam Oil and Gas Group is the largest with exclusive right in transport gas and oil and gas resources in the country.

Key strengths (and opportunities) of the sector With a coastline of over 3,000 kilometers and its location in the Southeast Asian monsoon zone, Vietnam is perfectly positioned to develop green and renewable energy. For examples:

Electricity demand has seen double digit growth for all the 2000s and it is expected that power consumption is to increase tremendously over the coming years, due to economic and demographic growth.

According to the Master Plan Development for the Power Sector of Vietnam, the electricity sector needs a total investment of around USD 79.9 billion to 2025. Around USD 52 billion of this will be invested in power generation and the rest in electricity transmission and distribution network.

Severe drought is driving demand for other electricity generation sources besides hydropower.

However, to date, the country has not yet taken full advantage of this kind of energy.

Key weaknesses of the sector Vietnamese companies often prefer cheaper short-term technology solutions with technologies already available in the region, mostly China, and at a lower cost. There is a considerable challenge in convincing Vietnamese partners of taking a long(er)-term outlook when investing in new technologies, and to pay the price needed for more efficient and cleaner technologies.

A further challenge is the lack of state subsidy schemes for new technologies and the enforcement of environmental regulations. Hence, access to financing is also a major issue for expensive technologies. Other weaknesses:

Electricity prices are tightly controlled by the government and are below generation costs.

The electricity system is still underdeveloped; there are electricity shortages and the system operates without reserve.

High exposure to weather conditions, specifically rainfall and droughts, due to high reliance on hydropower.

Vietnam Electricity (EVN)'s dominant position has deterred investment.

Growing dependence on coal-fired generation, which in turn is increasing exposure to imports of raw material.

in turn is increasing exposure to imports of raw material. Wind Power With a coastline of

Wind Power With a coastline of 3,000 kilometers, Vietnam has enormous wind power potential and according to a survey by the World Bank, Vietnam has greater wind energy potential than Thailand, Laos and Cambodia. The report says that Vietnam is capable of producing 513,360 MW annually, or 200 times the output of the Son La Hydroelectric plant in northern Vietnam – Southeast Asia’s largest hydro-power plant and ten times the entire national capacity forecast for 2020. The New and Renewable Energy Department estimates Vietnamese wind power potential at 7,000 megawatts. In addition to high average wind speeds, local wind tends to be steady due to the small amount of storms. During the monsoon period, winds reach speeds of six to seven meters per second, which experts consider suitable for building electricity stations with a capacity of 3-3.5 MW.

However, the exploitation of Wind power in Vietnam was not considerable. It is estimated that in 2011 the total gross electricity generation coming from Wind power is only 87Gwh, which is much smaller in comparison with the level of electricity generated from hydro-power of 29820 GWh. Up to 50 wind power projects, ranging from 6 megawatts to 150 megawatts, have been registered over the last three years in Vietnam with the total design capacity of 4876 megawatts.

However, only three wind power plants have gone operational and two of them have connected to the grid in the central province of Binh Thuan and the Mekong Delta province of Bac Lieu.

According to Master Plan VII, the Government of Vietnam sets the target to generate 1,000MW of wind power in 2020 and 6,200MW in 2030 and to increase the proportion of electricity generated from wind power plants from 0.7% in 2020 to 2.4% in 2030. However, the low level of feed-in tariff for wind power plants set by the Government of Vietnam poses as a main issue hampering the development and investments from foreign investors in this sector. The current feed, in tariff of 7.8 US cents per KWh, is significantly lower than comparable tariffs in the region, which makes it impossible for foreign investors to find investments in Vietnamese wind power energy profitably and attractive. It is recommended by investors and researchers that the feed-in tariff level should be raised to over 10 US cents per KWh in 2015 and 12 US cents per KWh in 2017 to facilitate investments in this sector. The Government of Vietnam and the Ministry of Industry and Trade (MOIT) are now planning to put forward more incentives by adjusting the tariff level outlined in Decision No. 37/2011/QD-TTg in 2011.

Solar Energy Solar energy is abundant with average solar radiation at 5kWh/m 2 per day throughout the country. These alternative sources of energy can be harnessed to meet Vietnam’s rapidly increasing demand for energy. While there has been some early success, deployment of renewable energy has not yet reached the country’s full potential.

The New and Renewable Energy Department estimates the Vietnamese potential for solar power to range from 4 to 5 kilowatt per hour per square metre. Solar energy in Vietnam is available all year-round; it is rather stable and could be distributed widely over different geographical areas. Solar energy, especially in the Southern and Central regions, can be used on average 300 days per year. It can be exploited to meet thermal and electrical power demands.

Hydropower Vietnam’s average rainfall is high and the combination of high flow density, broadly distributed springs and cut-through relief provides suitable conditions for small hydropower development. At present, hydropower is the main supply source for national power demand and accounts for 40% of total capacity in Vietnam. Hydro power plant produced in 2010 provide approximately 37% of the electricity in Vietnam. The opportunities for expansion are however largely exhausted. It is expected that the hydro power capacity will grow by 4% annually toward 2030, so that the relative share of hydro power in the electricity capacity will decrease in 2030 of around 16%.

The cancellation of nearly half of the 1,108 small-scale hydropower projects in Vietnam's Master Plan once again highlights a lack of opportunities for small-scale hydropower generation. This is largely due to environmental concerns as well as a lack of economic feasibility and progress among these projects. The cancellation of these small-scale hydropower projects also supports the view for a boom in coal-fired generation over the long-term.

A report published by the NA states that there was a lack of investor interest in

hydropower projects due to low profits. This is due to the low electricity prices, the government controls prices, and because the average rate for electricity in

Vietnam is VND1369 (US$0.066) per kWh, one of the lowest in the world. This

means that the country's sole electricity distributor, Electricity of Vietnam, is likely

to purchase electricity at an even lower rate, thus making it hard for hydropower

projects (loaded with high upfront costs) to breakeven within an attractive period

of time.

Environmental concerns - namely deforestation and the destruction of natural landscapes - were the key reasons cited by the Vietnamese Department of Industry and Trade in June 2012 for their decision to reject 52 substandard hydroelectricity projects for the first half of 2012. The NA also stated that only 2.1% of the 51,000ha of forested land that had been used for construction of hydropower projects in Vietnam had been planted with new trees.

Oil and Natural Gas Over the past few decades, Vietnam has emerged as an important oil and natural gas producer in its area with its boosted exploration activities and great investment from foreign sectors. Successful exploration has recently led to a substantial increase in proved crude oil reserves, which grew to 4.4 billion barrels in 2013 from 0.6 billion barrels two years prior.

Vietnam’s government supports exploration of gas and oil and opens up for foreign investors. This has contributed to an increasing production and, today, oil

is responsible for 25% and gas for 10% of the energy consumption. However, the

continued development in a number of these resources is hampered by the territorial disputes in South China Sea.

Regarding the development plan of the Vietnam Oil and Gas Group (PNV), the PVN output in 2014 reached 17 million tons of oil equivalents (TOE), the profit after tax of over 54 trillion, contributing about 20 per cent to the State budget. In parallel with the development of oil and gas resources in Vietnam, PVN has invested $ 4.8 billion to the joint venture, associations with a number of countries around the world such as Russia and Venezuela. In 2014, 37 constructions have been invested and gone operational, including priority constructions such as putting into exploitation of 8 mines, new oil and gas

construction. In the context of world oil prices falling, it has a major impact on the petroleum industry. Because of this, PVN has to consider output adjustment of exploiting oil and gas in the corresponding level.

Biomass The biomass production in Vietnam is based on forestry and agricultural by- products and solid waste. It mainly includes rice husks from paddy milling

stations, bagasse from sugar factories, coffee husk from coffee processing plants

in the Central Highlands and wood chip from wood processing industries. It is

estimated that in 2011, energy generated from biofuels and biomass sources reached 55GWh, with final consumption mainly coming from residential areas with 95% of total consumption, while only 5% come from Industry areas.

Vietnam has a strong potential for generating renewable energy, including biomass. This could not only contribute to electricity generation, but also aid in climate change mitigation. As an agricultural country, Vietnam has huge and diversified biomass resources from firewood, rice, coffee husk, straw and bagasse. Abundant amounts of agricultural waste can be found throughout the Mekong Delta, accounting for approximately 50 per cent of country’s total, while the Red River Delta provides another 15 per cent. Annually, according to a Head of the Ministry of Industry and Trade’s (MOIT) Institute of Energy, it is estimated that Vietnam has about 118 million tons of biomass available in agriculture residues and waste, of which 40 per cent has been utilized for household energy needs and electricity generation.

Coal Coal in 2010 was responsible for 19% of electricity. Vietnam’s electricity production is in the coming years expected to become significantly more coal- oriented. According to government’s plan, coal fired power plants will from 2020 represent 50^of the production capacity. The thermal power sector (chiefly coal- fired generation) in Vietnam is expected to offer opportunities for investors and equipment suppliers.

A shift to coal-fired generation is expected in the coming years with coal-

generation accounting for 20% of total electricity generation in 2013. According to the National Master Plan for Power development in the period of 2011-2020 with considerations to 2030 and approved by Prime Minister in Decision No. 1208/

QĐ-TTg dated 21 st July 2011, in order to meet the domestic requirements of electricity (of about 330 billion kWh in 2020 and 659 billion kWh in 2030) the Government of Vietnam plans to develop 61 coal-fired thermo-power plants, with the total capacity of 71.710 MW, consuming 67.3 million tons of coal by 2020 and 171 million tons by 2030. However, according to the same Master Plan on Development of Vietnam’s Coal, the outputs of salable coal produced in the whole industry are 60-65 million tons and 75 million tons by 2020 and 2030 respectively. Because of the serious

imbalance in supply and demand, recognition on the basis of the said master plans, the shortage of coal for the power sector has no choice but to import.

General Director of Vinacomin (TKV) said in 2014 that the output of coal is estimated at 37.4 million tons. Clean coal reached 35.3 million tons, 1.1 million tons higher than planned. Coal consumption is estimated at 35.5 million tons, 101 per cent higher than planned, contributing to the overall growth of national economy.

Geothermal With more than 300 hot streams with temperatures ranging from 30 °C to 148 °C, mainly situated in Northwest and Central Vietnam, there is an estimated geothermal power potential of 1,400 MW. While so far only limited data is available on geothermal reserves for power generation, rough estimates indicate that a capacity of 400 MW could be reached in 2020.

Vietnam also has showed some interest in developing its geothermal potential, potentially standing at 400MW, as plans for a 25MW geothermal power plant were approved in September 2012. The plant is the first of its type in Vietnam and located in Quang Tri Province's Dakrong District.

Nuclear Power In the coming years, Vietnam also plans to place investment in nuclear power.

According to Decision No. 1208/QD TTg approving national Master plan for power development for the period of 2011 to 2020 with vision toward 2030 (Master plan VII), from 2020 to 2013 5 nuclear power plants will operate with total capacity of 10,700 MW. This include:

- Ninh Thuan I: 2x1000MW (2020/2021) located at Thuan Nam, Ninh Thuan Province

- Ninh Thuan II: 2x1000MW (2020 2021) located at Ninh Hai, Ninh Thuan Provice;

- Nuclear power plant III: 2x1000MW (2022/2023), location not determined;

- Nuclear power plant IV: 2x1000MW (2026/2027), location not determined

- Central region’s nuclear power plant 2x1350MW (2028/2030), location not determined.

The Government’s main purpose in developing nuclear power is to ensure the stability of production capacity and a higher degree of self-sufficiency. The Government of Vietnam has already joined in cooperation agreements with governments of Russia and Japan for the developments of Ninh Thuan I and Ninh Thuan II nuclear power plants.

1. Prime Ministerial Decision 26/2006/QD-TTg (January 2006) establishes the basis for the development of a

1. Prime Ministerial Decision 26/2006/QD-TTg (January 2006) establishes the basis for the development of a competitive electricity market that could attract investment from foreign and domestic companies. Under this legislation, Vietnam’s power market will be established and developed in three stages:

Stage 1 (20052014): an end to subsidised prices and generation monopoly. Generation companies compete to sell electricity to EVN.

Stage 2 (20152022): the establishment of a competitive wholesale power market. Competition in generation is intensified, power companies and large customers participating in the market have a choice of whom to buy power from.

Stage 3 (after 2022): the realization of a competitive electricity retail market. Retail distribution companies compete to sell power, and all customers will have a choice of whom to buy power from.

2. The National Energy Development Strategy for the period up to 2020, with an outlook to 2050, was approved by the Prime Minister on 27th December 2008 (Decision No. 1855/QD-TTg). The strategy set the following targets:

Ensuring sufficient supply of energy to meet the demands of socio- economic development, in which primary energy is expected to reach 47.547.9 Mtoe in 2010, 100110 Mtoe in 2020 and 310320 Mtoe in 2050

Developing power plants and power networks, ensuring sufficient supply of electricity for socio-economic development and ensuring the 99.7% reliability of electricity supply in 2010

Ensuring the phased development of refineries to meet domestic demand for petroleum products, and increasing the capacity of refineries to roughly 2530 Mt of crude oil in 2020

Ensuring strategic oil stockpiling adequate for 45 days in 2010, 60 days in 2020 and 90 days in 2025

Achieving a share of renewable energy in the total commercial primary energy supply of 3% in 2010, 5% in 2025 and 11% in 2050

Completing the energy program for rural and mountainous areas, and increasing the proportion of rural households using commercial energy to 50% in 2010 and 80% in 2020 (by 2010, 95% of rural households will have access to electricity)

Changing the electricity, coal and oilgas sectors to operate in competitive markets with state regulation; establishing a competitive electricity retail market after 2022, in addition to establishing a coal and petroleum product business market by 2015.

3. Decision No. 1208/QD - TTg approving the national master plan for power

development in the 2011 2020 period with consideration toward 2030 on July

21 st , 2011 (Master Plan VII). The Master Plan VII sets out objectives of the master plan, master plans for developments of (1) electricity source (2) electricity grid (3) plan for connection to electricity grid of regional countries (4) total investment capital for the whole electricity sector and solutions for implementation of master plans.

4. Decision 24/2014/QD-TT on the Support Mechanism for Development of Biomass Power Projects in Vietnam, approved by the Prime Minister on May 2014, regarding: planning and development of biomass electricity and support mechanism for development of biomass power projects.

support mechanism for development of biomass power projects. There is strong potential for energy efficiency and

There is strong potential for energy efficiency and energy savings in Vietnam. High energy consumption in the industrial sector is caused by inefficient use of energy, old-fashioned production techniques, a lack of proper energy management and an inefficient pricing mechanism for electricity. There are particular energy efficiency potentials within textiles, cement, chemicals, pulp and paper and the food industry.

Vietnam is experiencing an increase in waste from households, untreated waste water from industry production, and large emissions from industry. This creates a need for better treatment and handling of the environment and waste products.

The government and the private sector look back on a peculiarly successful path of cooperation in turning the economy around and incentives from the government have stimulated the birth of many innovative Danish companies focusing on clean technology within wind, water, solar, biomass energy… production. Besides, Denmark was the first donor to support the Vietnamese National Target Programme to Respond to Climate Change in 2009, thus supporting the Vietnamese efforts to combat global warming and improve energy efficiency.

In 2013, Denmark and Vietnam signed a Comprehensive Partnership Agreement, strengthening and broadening our flourishing cooperation.

strengthening and broadening our flourishing cooperation. The general business environment in Vietnam is very good,

The general business environment in Vietnam is very good, although it is important to carefully consider approval procedures, loan arrangements, and regulation guidelines. However, the market is there and the potential for clean technology is growing. Over the last few years some international companies have entered the market, but it is still early days. The Government supports energy efficiency in general, and is well aware of the environmental concerns, and has

developed a range of regulations governing the energy market including clean energy production and efficient use. As Vietnam’s economy grows and with it industrial production, the need for climate and environment friendly knowhow and technologies will increase substantially in the years to come.

The Trade Council is a part of the Ministry of Foreign Affairs and is the official export and investment promotion agency of Denmark. The Trade Council benefits from around ninety Danish Embassies, Consulates General and Trade Commissions abroad. The Trade Council advises and assists Danish companies in their export activities and internationalisation process according to the vision: Creating Value All the Way. The work in the Trade Council follows specific procedures and quality guidelines. In this way our customers are secured the best possible quality under the varying working and market conditions at any given point of time.

Ministry of Foreign Affairs of Denmark

Embassy of Denmark in Vietnam 7 th Floor, BIDV Tower, 194 Tran Quang Khai Hoan Kiem, Hanoi Tel: +84 4 823 1888 Fax: +84 4 823 1999 E-mail: hanamb@um.dk www.vietnam.um.dk