23:03 (GMT +7) - Wednesday 19/12/2018

Op-Eds

Keeping energy sustainable

Released at: 15:52, 27/11/2018

Keeping energy sustainable

Photo: WB

Mr. Ousmane Dione, World Bank Country Director for Vietnam, presented an address to the recent 2nd High Level Meeting of the Vietnam Energy Partnership Group.

by Mr. Ousmane Dione, the World Bank Country Director for Vietnam, Sustainable energy

I am honored to participate at the 2nd High Level Meeting of the Vietnam Energy Partnership Group on the sustainable energy future for Vietnam.

Vietnam has been a global success story in developing the power sector over the last few decades. The success of the power sector has been a key contributor to the country’s socioeconomic development and its high and sustained economic growth and excellent performance in terms of poverty reduction and the well-being of its citizens. Two areas need to be highlighted in the success story: rural electrification and power sector reform.

In rural electrification, Vietnam’s access rate increased from 14 per cent in 1993 to over 99 per cent in 2018. Over that 25-year period, more than 14 million households, or 60 million people, have been connected to the grid. What an achievement.

Needless to say, the financing requirements of the sector have been huge. Since only 2010, the sector has invested about $80 billion in generation, transmission, and distribution, and between now to 2030 another $150 billion needs to be raised. Electricity consumption remains comparatively low by international standards. For example, per capita electricity consumption is currently about 1,700 kWh a year, which is one-third of China’s and one-fifth of Australia’s. As the economy continues to grow strongly and as Vietnamese become more affluent, electricity demand will continue to grow at about 8 per cent per year for the next decade.

Electricity tariffs remain below full cost recovery levels and Electricity of Vietnam (EVN) does not receive direct subsidies from the government. Hence, let me stress that EVN and the sector have been highly effective and efficient in using ODA funds. Of course, this was only possible because of the leadership, dedication, and technical capabilities of the Ministry of Industry and Trade (MoIT) and EVN management and all of its staff.

In power sector reform, about a decade ago the government set out a clear roadmap for implementing competition and restructuring the sector. The motivation was to move from a vertically-integrated monopolistic market structure to a fully-competitive power market. The government needs to be complimented on continuing to be fully committed to introducing a competitive power market. We are half way through implementation and by 2020 the wholesale electricity market will be fully operational. Experience with market liberalization has been positive to date, contributing to a well-run power sector public utility in EVN, which is technically and operationally sound, while also allowing private sector participation in generation.

I believe I can speak on behalf of all the development partner community here today that we have been privileged to contribute to that success story. International finance institutions and bilateral donors have provided technical assistance and financing over the last two decades to support the government in its rural electrification agenda, upgrading and expanding vital transmission and distribution networks, developing public and private power generation projects, and supporting the electricity and gas sector reform and restructuring agenda.

The challenge is that the future and the energy sector cannot rest on past achievements. It is widely known that the challenges the power sector needs to overcome over the next two decades are substantial, to ensure it achieves its goals to provide sustainable, clean, affordable and reliable power supply to the people of Vietnam.

One key question is how to meet future energy demand, while also complying with government’s objectives to reduce greenhouse gas (GHG) emissions and meet its climate change targets. That, of course, refers to the contentious issue on the role of coal in the future energy mix.

Another challenge is how to mobilize the large investment requirements, estimated at around $8 billion annually, to meet fast growing power demand. EVN and the public sector cannot raise those funds and the private sector, both domestic and international, will need to play a more prominent role in power sector financing.

To tackle these two key challenges, the World Bank’s strategic energy engagement in Vietnam centers around two initiatives.

First, on Energy Transition, we support the government in identifying and implementing technically, financially, and socially-sound solutions to reduce the future use of coal, primarily for power generation. While there are no quick fixes or a silver bullet to tackle the coal challenge, we believe there are four central activities that need to be implemented in parallel by the government to reduce coal in power generation:

  • Scaling up renewables (especially wind and solar);
  • Promoting natural gas and LNG;
  • Increasing energy-efficient investments; and
  • Promoting regional power trade, especially with Laos and southern China.

Second, public sector and ODA financing will not be sufficient to meet the power sector’s huge investment requirements. Hence, under the World Bank’s Maximizing Finance for Development (MFD) Initiative we are supporting the government to identify and implement solutions to bring in more private and commercial financing for the energy sector. This MFD initiative is particularly relevant in the context of Vietnam’s recent IDA graduation and sovereign borrowing constraints due to the government’s debt ceiling policy. Three key pillars need to be tackled to mobilize more private and commercial finance in the power sector:

  • Developing and launching a competitive IPP program in power generation as part of developing Power Sector Development Plan 8 with a contractual framework that attracts both international and domestic investment at scale;
  • Preparing electricity and gas SOEs to access commercial finance through credit ratings and non-sovereign bond issuance; and
  • Supporting banking and capital market reforms to improve the availability of local currency finance, which is critical for both project and corporate finance for energy investment projects.

We stand ready to support the government on the Energy Transition and Maximizing Finance for Development agenda and coordinate with the VEPG on key policy engagements.

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