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McKinsey: Renewables a low-cost energy option

Released at: 13:07, 24/01/2019

McKinsey: Renewables a low-cost energy option

Photo: Minh Do

Latest research assesses renewables' potential to drive Vietnam's energy future.

by Minh Do

Renewables could become Vietnam’s lowest-cost option to meet its energy needs, according to a McKinsey & Company white paper released on January 23.

Entitled “Exploring an alternative pathway for Vietnam’s energy future”, the white paper from the global management consulting firm evaluated how the country could meet its growing energy demand at the lowest cost, with the best opportunity for capital formation, the least impact on public budgets, and with the least risk.

“As one of the 18 outperforming emerging economies we identified globally, Vietnam needs more capacity to meet the rapidly growing energy demand it requires for sustained growth,” said Mr. Marco Breu, Managing Partner, Vietnam, at McKinsey & Company. “The path Vietnam chooses to build this capacity will have far-reaching implications on GDP growth potential, trade, environmental performance, and energy security.”

The research found that Vietnam’s significant natural endowments of solar and wind power, combined with a significant drop in the capital costs of solar and wind over the past five years - 75 per cent in solar costs and 30 per cent in wind costs - strongly positions renewables as a more affordable source of electricity than traditional thermal generation in the long run.

The research suggests that a renewables-led pathway could help Vietnam’s power sector perform better than the current trajectory along three critical dimensions:

Cost: Overall power costs between 2017 and 2030 would be reduced by 10 per cent, primarily driven by savings in fuel costs resulting from a move away from high levels of fuel-intensive thermal generation.

Cleanliness: Greenhouse gas and particulate emissions would be reduced by 32 and 33 per cent, respectively, between 2017 and 2030. This would also boost health and economic productivity.

Security: The renewables-led pathway relies on 28 per cent less total fuel and 60 per cent fewer imports. This would significantly reduce Vietnam’s reliance on fuel imports and fossil fuels. Investments in renewables could also create up to 465,000 additional jobs.

“There is no silver bullet that will solve Vietnam’s energy challenges,” said Mr. Antonio Castellano, Partner and Co-lead, Electricity and Natural Gas Practice, Southeast Asia, at McKinsey & Company. “The ability to meet rapidly-growing demand while keeping costs low will depend on the creation of financial and regulatory infrastructure that make the market attractive to capable renewables developers.”

The white paper also discusses the keys that could unlock a renewables-led pathway. These include creating suitable market conditions for renewables development, building the country’s capabilities to deliver large-scale renewables projects in partnership with capable international developers, and expanding natural gas generation’s role in the country’s power plan.

“This is a watershed moment for the country,” Mr. Castellano said. “Renewables are potentially the lowest-cost option for Vietnam to meet its energy needs. Actions taken today to help lay the groundwork for renewables development would offer the country the prospect of a less expensive, cleaner, and more secure future.”

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