61153 The World Bank Asia Sustainable and Alternative Energy Program Vietnam Expanding Opportunities for Energy Efficiency March 2010 ©2010 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: (202) 473-1000 Internet: www.worldbank.org E-mail: feedback@worldbank.org All rights reserved This volume is a product of the staff of the International Bank for Reconstruction and Development / The World Bank. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of the World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of the World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. 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The World Bank Country Office Reports disseminate the findings of work in progress to encourage the exchange of ideas about development issues, especially in national languages. Photo copyrights: ASTAE left inside front cover and left inside back cover: iStock photos Contents Acknowledgments.......................................................................................................................iv Acronyms and Abbreviations......................................................................................................v Currency Unit ..............................................................................................................................vi Executive Summary.....................................................................................................................1 ...................................5 1. Needs and Directions for Improving Energy Efficiency in Vietnam. Energy-Use Trends in Vietnam..................................................................................................................................5 Why Promote Energy Efficiency?. .............................................................................................................................9 Target Sectors for Promoting Energy Efficiency.....................................................................................................11 2. Recent Efforts to Promote Energy Efficiency in Vietnam...................................................15 Vietnam’s National Energy-Efficiency Program.......................................................................................................15 Major Energy-Efficiency Partnership Programs. ......................................................................................................17 .....................................................................................................................17 Current Donor Support and Activities. 3. Options for Further Improving Energy Efficiency in Vietnam...........................................23 Making Energy-Efficiency Improvements Happen..................................................................................................23 Putting Regulation and Market-Based Programs Together in Key Sectors.............................................................27 Recommendations for Follow-Up Actions. ..............................................................................................................30 Figures 1 Vietnam Primary Energy Consumption, 1980 and 2007. ...........................................................................................5 2 Total Primary Energy Supply by Country, 2007.........................................................................................................6 3 Vietnam Commercial Final Energy Use, 1998–2007.................................................................................................7 4 Vietnam Industrial Final Energy Use, 1998–2007......................................................................................................7 5 Vietnam Residential Final Energy Use, 1998–2007...................................................................................................8 6 Vietnam Transport Final Energy Use, 1998–2007.. ....................................................................................................8 7 Vietnam Final Energy Consumption by Energy Market Sector, 2007. .....................................................................11 8 Gross Industrial Output in Vietnam’s Key Industries, 1998–2007...........................................................................12 9 Growth in Production of Selected Energy-Intensive Industrial Commodities, 1999–2007. .....................................13 Tables 1 Vietnam Final Commercial Energy Consumption, 2007 (million tons of oil equivalent)............................................9 2 Major Completed and Ongoing Energy-Efficiency and Conservation Programs in Vietnam...................................17 3 .....................................................................18 Matrix of Donor Energy-Efficiency Programs, Ongoing and Planned. iii Acknowledgments The preparation of the report was carried out under the technical assistance project of the World Bank, P105834— Technical Assistance for Vietnam Demand-Side Management and Energy Efficiency Program. The financial and techni- cal support of the Energy Sector Management Assistance Program (ESMAP) and the Asia Sustainable and Alternative Energy Program (ASTAE) is gratefully acknowledged. The report was prepared by a task team that included Robert P. Taylor (Senior Energy Adviser and lead author), Jas Singh (Senior Energy Specialist, ETWES), and Alberto U. Ang Co (Senior Energy Specialist, EASIN). Special appreciation and gratitude go to the World Bank team in Hanoi, Vietnam, comprising Richard Spencer (Country Sector Coordinator, EASVS) and Ky Hong Tran (Energy Specialist, EASVS) for providing local support, guidance, and technical assistance. The report benefited from the suggestions and comments from the following peer reviewers: Gailius J. Draugelis (Senior Energy Specialist and Acting Country Sector Coordinator, China Energy, EASCS), Feng Liu (Senior Energy Specialist, ETWS), Peter Johansen (Senior Energy Specialist, ECSS2), and Lisa Da Silva (IFC Consultant, CESFS). The team is particularly grateful for the support of the Vietnam Ministry of Industry and Trade (MOIT), as an active and enthusiastic counterpart for this study, the Institute of Energy, and other members of the donor community who are involved in energy-efficiency projects in Vietnam. iv Acronyms and Abbreviations ADB Asian Development Bank IEA International Energy Agency AFD Agence Française de Développement IFC International Finance Corporation CEEP Commercial Energy Efficiency Program IMS Vietnam Institute of Material Science CFL Compact fluorescent lamp ISO International Organization for Standardization CNG Compressed natural gas JICA Japan International Cooperation Agency CO2 Carbon dioxide kcal Kilo-calories CPC Clean production center kgoe Kilogram of oil equivalent CP-EE Cleaner production and energy efficiency kWh Kilowatt-hour DANIDA Danish International Development LPG Liquefied petroleum gas Agency METI Japan Ministry of Economy, Trade and DSM Demand-side management Industry ECC Energy conservation centers MOC Vietnam Ministry of Construction ECCJ Energy Conservation Center, Japan MOIT Vietnam Ministry of Industry and Trade EE Energy efficiency MOST Vietnam Ministry of Science and Technology EE&C Energy efficiency and conservation MW Megawatt EE&CP Energy Efficiency and Conservation Program NCST Vietnam National Center for Natural Science and Technology EECO MOIT’s Energy Efficiency and Conservation Office PC Power distribution company EMS Energy Management System PECSME Promoting Energy Conservation in Small and Medium Enterprises EPC Energy performance contracting PROPARCO Promotion et Participation pour la ERAV Electricity Regulatory Authority of Coopération Economique Vietnam Sacombank Saigon Thuong Tin Commercial Joint ESCO Energy service company Stock Bank ESF Vietnam Energy Savings Fund SDC Swiss Development Cooperation EU European Union SECO Swiss State Secretariat for Economic EVN Electricity of Vietnam Affairs FTL Fluorescent tube lamp SIDA Swedish International Development Agency GDP Gross domestic product SME Small and medium enterprise GEF Global Environment Facility T&D Transmission and distribution GOV Government of Vietnam TA Technical assistance GWh Gigawatt-hours v vi Acronyms and Abbreviations Techcombank Technological and Commercial Joint UNIDO United Nations Industrial Development Stock Bank Organization toe Ton of oil equivalent VDB Vietnam Development Bank TOU Time-of-use VNCPC Vietnam Cleaner Production Centre UNDP United Nations Development VNEEP Vietnam National Energy Efficiency Programme Program UNEP United Nations Environment WB World Bank Programme Currency Unit (as of December 31, 2009) 1 Vietnamese dong (VND) = 0.00005 U.S. dollar (US$) 1 U.S. dollar (US$) = 18,346.9 Vietnamese dong (VND) Executive Summary More aggressive efforts to increase the efficiency of an increasing reliance will come at a time of growing energy use are now an urgent imperative for Vietnam. global competition for energy supply, and virtually certain Energy demand tripled over the last decade, and it is large increases in costs compared to the past. likely to triple again over the next decade if economic growth remains robust. Improving energy efficiency is Vietnam’s consumers currently pay some US$14–15 bil- by far the lowest-cost and most environmentally benign lion per year for energy (at international petroleum prod- way to meet energy demand. Potential energy savings uct prices roughly associated with US$65/barrel of crude across the economy remain largely untapped. Realizing oil). Rising consumption, introduction of large-scale steam this, energy savings potential does not happen automat- coal imports, and expected increases in international ically—policies and programs need to be put into place oil prices will only make this cost rise. Costs for stan- to stimulate the capture of energy-saving opportunities. dard, yet unimplemented, renovations and equipment Vietnam has made a good start with the launching of a improvements typically run at one-quarter of the cost of new National Energy-Efficiency Program and the drafting commercial energy supply at today’s prices. By under- of a new Law on Energy Conservation and Efficient Use taking efficiency measures, consumers and the country for consideration by the National Assembly. Following as a whole can gain major cost savings. Industries can through on these initiatives can lay a good foundation for improve competitiveness by lowering production costs, the future. Even greater work, however, will be required families can ease household budget pressures, and gov- to put details in place carefully and begin to roll out imple- ernment resources can be freed up for investment in mentation effectively. The next three years will be critical other socioeconomic areas. for success. The anticipated further large increases in energy supply Completed through the review of readily available infor- and use also bring the potential for serious local envi- mation and discussion with counterparts in Vietnam, this ronmental consequences at levels never witnessed in report seeks to (a) provide a general overview of energy Vietnam before—especially air pollution. Improvement demand trends in Vietnam and needs to promote energy in energy efficiency is a particularly cost-effective way efficiency further, (b) summarize the main current gov- to help mitigate these problems. In addition, energy- ernment and international donor efforts in the area of efficiency improvements can perhaps yield the greatest energy efficiency in Vietnam, and (c) provide the govern- contribution over the medium term in Vietnam’s case to ment with suggestions and recommendations on how mitigating the growth of carbon dioxide (CO2) emissions, to expand energy-efficiency results in the future. The which contribute to global warming. report’s chapters are organized accordingly. Vietnam’s fast rise in final commercial energy demand has been driven by three key factors: (a) increasing The Importance of Promoting Energy industrialization; (b) expansion of motorized transport; Efficiency in Vietnam Today and (c) increasing household use of modern fuels, espe- Meeting the pressure of another tripling of energy cially electricity. These three drivers also are expected demand during the next decade will be a much more dif- to continue to account for most of the energy demand ficult and costly challenge than in the past. Growth in increase over the next decade. About 65 percent of final energy consumption of over 12 percent per year from energy demand is fuel—mainly coal and petroleum prod- 1998 to 2007 was achieved with a net reliance on Viet- ucts. Electricity (including accounting of energy used to nam’s own energy resources and during a period of rela- produce electricity) accounts for about 35 percent. In tively low energy costs. A further tripling over the next addition to energy savings in the electric power indus- decade, however, would be another matter. Vietnam try, the key target areas for energy conservation, which does not have easily developed domestic resources that accounted for 85 percent of Vietnam’s final energy can sustain this magnitude of energy demand growth, demand in 2007, include: (a) fuel and electricity use in and will have to rely increasingly heavily on imports, industry (28 percent and 17 percent, respectively); (b) including imports of steam coal and net oil imports. Such fuel use in transportation (25 percent); and (c) residential 1 2 Vietnam: Expanding Opportunities for Energy Efficiency electricity use (15 percent). Energy use in all four of necessary foundation for instituting and enforcing regu- these target areas has been growing faster than the lations, providing legitimacy to organizations and their gross domestic product (GDP). work, and assigning responsibilities and associated fund- ing. Enactment of the law can send a clear message to However, achievement of meaningful energy savings in society and the market on national intentions. If enacted, these target areas and other economic sectors will not the real challenge of developing and implementing effec- just happen by itself. As is common in other countries, tive regulations will then begin. This will be a huge task, a host of barriers prevent cost-effective savings from and establishing priorities and ensuring implementation being realized, including lack of information, lack of read- of the strategically most important measures will be very ily available expertise, pricing issues, insufficient cost- important during the next several years. Similar to the consciousness in some sectors, assignment of a lower laws enacted in China, Japan, Thailand, and other coun- priority to cost savings compared to expansion in invest- tries, recent drafts of Vietnam’s law include introduction ment, transaction costs, perceived high investment of a new mandatory system for energy management in risks, and market failures in some sectors. As in other large energy-consuming industries and buildings. The countries, specific policies, regulations, promotional pro- system would require large consumers to report on grams, capacity-building efforts, market transformation energy consumption and plans to improve efficiency, and initiatives, financing initiatives, and market construction to designate internal energy managers responsible for activities are needed to achieve large-scale results. energy-efficiency work. Meeting the training, monitor- ing and reporting, and supervision requirements of such a system would be a large and important undertaking. Meeting the Energy-Efficiency Challenge Experience (in Japan and China in particular) shows that Vietnam initiated its first-ever comprehensive national maximum government support is critical to make such a energy-efficiency program in 2006, focusing especially system productive both for enterprises and the country’s on capacity building during 2006–10. A further rollout of long-term interest. a wide range of activities has been planned for a sec- ond, 2011–15 phase. The draft Law on Energy Conser- Unleashing Market Forces. For Vietnam, review and adjust- vation and Efficient Use is currently being reviewed by ment of consumer energy prices to best reflect true costs, the National Assembly. A wide range of international as well as continued state-owned enterprise reform, can donor activities has been launched to help. The key help bring market forces to bear, especially in the industrial for the future is to construct a strong and sustainable sector. However, effort is also needed to foster develop- institutional platform from these initiatives that can ment of effective delivery systems for investment proj- deliver large and measurable energy savings year after ects. Experience elsewhere shows that effective delivery year. Backed by concrete policies, an effective platform systems for energy-efficiency investment projects are not requires institutional clarity as to who is responsible for likely to develop without some forms of initial public sec- what, a major effort to build capacity in the government tor encouragement, but once they are operational, invest- and its implementing entities as well as in the market at ment can continue sustainably with more limited public large, strategic planning, sufficient funding, step-by-step involvement. Examples of delivery systems for consider- follow-through on implementation, and focus on achiev- ation include development of energy service companies ing measurable energy savings results. (ESCOs), utility-executed demand-side management (DSM), commercial energy-efficiency loan programs, and All countries with mixed or fully market economies that special public resource funds. have had success in promoting energy efficiency use a mix of government regulation combined with policies Some suggestions on putting regulatory and market- and programs to encourage energy-efficiency invest- based program concepts together in the key energy con- ment through the market. Vietnam will need to promote servation target subsectors are summarized in the next new administrative and regulatory measures and, espe- four sections. cially, to ensure that they are implemented effectively. Vietnam will also need to develop and implement a vari- Improving Energy Efficiency in Existing Industrial Plants. Two ety of market-based programs to spur investment and key challenges are the development and implementation behavioral change. of new energy use and conservation reporting, planning, and management systems for large energy-consuming Developing and Implementing Energy-Efficiency Regulations. industries (if the law is enacted), and the development Enactment of the proposed Law on Energy Conserva- and implementation of new financing programs for retro- tion and Efficient Use will be essential to provide the fitting industrial energy conservation projects. Executive Summary 3 Effective implementation of the new designated industry Improving access to financing for more energy-efficient programs will require a huge effort by the Ministry of and environmentally friendly new industrial processes, Industry and Trade (MOIT) and its provincial affiliates to production lines, and equipment is another important provide specific guidance on energy-use and energy con- means to impact positively new industrial development. servation planning requirements, to construct an effec- Adoption of new, more efficient, and less resource- tive data management system, to define requirements intensive technology can yield substantial operating cost for energy managers and supervision of compliance, to savings over the long term. However, upfront invest- launch a wide range of energy auditing efforts and, espe- ment in capital and in learning something new is usu- cially, to plan and deliver a variety of large-scale training ally required. The government can help by working with programs. The human resource requirements within gov- banks to develop new programs to help bank clients ernment agencies to deliver this effort effectively should adopt “greener” technology for operating-cost savings. not be underestimated. Intensive review of experiences gained with such systems in other Asian countries is also Increasing Energy Efficiency in Transportation. Use of petro- recommended. leum products in motorized transportation will continue to be the main driver of Vietnam’s future oil import levels. Several international donors are working with the govern- Broad transportation policies and long-term development ment to prepare new financing programs for industrial plans can have a key impact on overall energy use in retrofit projects. Such programs can be quite construc- transportation, especially where policies and plans affect tive. One suggestion is to try to focus on projects with (a) the role of automobiles versus motorbikes, buses, strong financial viability, with an aim to create project and light rail transport for urban and suburban passenger development and investment mechanisms that are inher- movement; (b) trucks versus coastal and inland waterway ently profitable and hence have strong potential for being freight movement; and (c) automobiles versus buses, sustained after donor involvement is concluded. Another boats, and airplanes for intercity passenger movement. suggestion is to ensure that technical assistance for Fuel pricing policies also have a particularly strong impact project identification and development are blended well on consumer choices and behavior in this sector. together with financing programs. One specific measure that has yielded energy savings Encouraging More Energy Efficiency in New Industrial Plants. in other countries is increasing fuel-efficiency standards A continued industrial growth rate of 10 percent per year for motor vehicles, and strict enforcement of these as in the past would mean that the new industrial capac- standards. Another set of measures includes vehicle ity built over the next seven years will produce more inspection and maintenance programs (serving multiple than all of Vietnam’s industry today. The energy-using objectives) and programs to promote earlier retirement characteristics of new industrial plants will be a critical of old, particularly inefficient vehicles. Promotion of determinant of Vietnam’s future energy demand and vehicles using alternatives to liquid petroleum fuels (for import needs. In 1998, industry accounted for one-third example, hybrid electric vehicles, compressed natural of final energy use. In 2007, it accounted for 46 percent, gas, and biofuels) also have produced noticeable results and in the future it is likely to grow yet further. The key in some countries, including programs to convert publicly questions are (a) what type of industrial capacity will be owned or captive high-use fleets, such as taxis, or pro- developed and (b) how energy-efficient will the adopted grams to provide financial incentives. technologies be? Transforming Markets for Household Electrical Appli- Government planners and policy makers need to weigh ances. Electricity use by household electrical appli- more systematically the energy demand and cost impli- ances accounted for 39 percent of total electricity use cations of developing new energy-intensive industrial in Vietnam in 2007. This includes lights, air conditioners, capacity. As reliance on energy from outside and energy refrigerators, water heaters, washing machines, dri- costs increase, what types and scale of new energy- ers, televisions, fans, and so forth. The sector involves intensive plants are in Vietnam’s long-term comparative millions of consumers. Successful efforts to improve advantage? In addition, the government should consider energy efficiency in this sector have involved concerted review of the energy-efficiency aspects of key processes efforts to “transform markets”—guiding increased pen- and certain key types of industrial equipment as part of etration of more energy-efficient appliances into specific the permitting process for new industrial production proj- appliance markets through regulation and selective pub- ects. Adoption of wasteful, backward, and highly pollut- lic intervention, but still relying on market forces for effi- ing technology can and should be blocked. cient and sustainable market operation. This involves (a) programs to provide customers with commonly available, 4 Vietnam: Expanding Opportunities for Energy Efficiency credible, and correct but simple information about the The Bank study team recommends consideration of a efficiency characteristics of the choices in front of them; number of new or scaled-up initiatives, which are out- (b) government initiatives to work with suppliers to lined below and described further in chapter 3. Many of encourage expanded marketing of reputable and more these can be or already are being discussed as areas of efficient products, and to discourage particularly waste- future World Bank Group support. ful or fraudulent market offerings; and (c) programs to help customers cope with initial higher costs in some Economic Studies. At least three strategic areas appear to cases until market transformation can take hold. warrant more extensive review and analysis: Vietnam has launched a number of initiatives relating to • Review of the energy implications of industrial devel- market transformation, but these efforts need to be con- opment policy solidated and more strategically designed to achieve a • Review of consumer energy pricing sustainable impact over the medium term. Energy-effi- • Review of the energy implications of alternative ciency labels need to be visible, understood, and cred- transportation development scenarios. ible for consumers at large. Systematic surveys need to be completed to understand all aspects of the markets Development of an Energy-Efficiency Promotion System. targeted for transformation, initiatives need to be devel- Three areas where well-targeted advisory assistance to oped to work in concert to meet specific medium-term the government may be especially useful include assis- objectives, and subsidy programs need to be designed tance on the following: so that they can catalyze sustainable change and be withdrawn in due course. • Development of Vietnam’s new industrial energy- use supervision system • Policy development to encourage energy efficiency Recommendations for Follow-Up in new industrial plants The necessary major strengthening of the institutional • Review of fiscal incentive options to promote energy platform for promoting energy efficiency in Vietnam will efficiency. require good planning, upfront public investment, dedica- tion, and time. Planning needs to consider realistic assign- Energy-Efficiency Investment Programs. New energy-effi- ment of priorities for the near term—there is insufficient ciency investment programs that the government may human capacity now to try to achieve everything at once. wish to consider include the following: Responsibilities among different organizations, as well as leadership and coordination mechanisms, need to be • A clean production and energy-efficiency financing clear. It is also very important to systematically monitor program for new industrial capacity and evaluate the actual energy savings achieved by dif- • Expanded commercial financing for energy-effi- ferent programs that compete for management time, ciency retrofit projects expertise, and money. Even training results can be sys- • Expanded development of the third-party energy- tematically evaluated. efficiency service sector • Consolidation and rollout of appliance market trans- formation efforts. 1 Needs and Directions for Improving Energy Efficiency in Vietnam The objectives of this report are to (a) provide a general Commercial energy use1 has grown much faster than the overview of energy demand trends in Vietnam and needs country’s economy overall. During the nine-year period to further promote energy efficiency, (b) summarize the from 1998 to 2007, commercial energy use grew at an main current government and international donor efforts average rate of 12.1 percent per year, while Vietnam’s in the area of energy efficiency in Vietnam, and (c) pro- GDP grew by 7.3 percent per year. The commercial vide the government with suggestions and recommen- energy-use/GDP growth elasticity registered was a very dations on how to expand energy-efficiency results in high 1.7. The energy intensity of Vietnam’s economy the future. Analysis was completed in a short timeframe grew from 387 kilograms of oil equivalent (kgoe) per by relying on readily available materials. Many topics or US$1,000 of GDP in 1998 to 573 kgoe per US$1,000 in types of analytical work could not be conducted because 2007, in constant 2000 prices. systematic information is not yet readily available—for example, on the technical energy savings potential in key 1. The term commercial energy in this report refers to coal, petro- industrial or other economic subsectors. Where further leum products, natural gas, and electricity. Traditional biomass fuels analytical work was considered especially important, rec- are excluded, since data on their use, and especially use trends over ommendations for undertaking it are included. time, are scarce and unreliable. Energy-Use Trends in Vietnam Figure 1: Vietnam Primary Energy Consumption, 1980 and 2007 The Increasing Energy Intensity of Vietnam’s Economy 50 Vietnam’s energy economy has changed radically over 40 Biomass the last several decades with the transformation from an Hydro Million toe agricultural society relying primarily on traditional biomass 30 Gas fuels to a modern mixed economy. As shown in figure Coal 1, commercial energy consumption—including hydro- 20 Oil power, natural gas, coal, and oil—has increased eight- fold from an extremely low base in 1980. This increase 10 has been driven by the increasing popularity of modern commercial fuel and electricity for household use, the 0 development of motorized transport, and the steady and 1980 2007 Year rapid growth of industry to become a key pillar in the economy. Figure 2 shows country comparisons of total Sources: Asia-Pacific Energy Research Centre, APEC Energy primary energy supply. Supply and Demand Outlook, 2006; International Energy Agency, Energy Balances of Non-OECD Countries (2009 edition). 5 6 Vietnam: Expanding Opportunities for Energy Efficiency Figure 2: Total Primary Energy Supply by Country, 2007 100% = million toe 1,957 514 222 191 104 56 40 100 Coal and peat 80 Crude oil Petroleum products 60 Gas Nuclear Percent 40 Hydro Geothermal, Solar, etc. 20 Combustible Renewables and Waste 0 -20 China Japan South Korea Indonesia Thailand Vietnam Philippines Country Source: IEA. Figure 3 depicts the growth in final (commercial) energy growth was concentrated, especially during 1998–2004. consumption by type of energy during 1999–2007 by year. Growth in kilowatt-hours of electricity use averaged 15.1 Final energy consumption is the energy used by final end percent,3 while petroleum product use grew by 8.7 per- users, such as households, commercial establishments, cent per year. industries, and vehicles. In figure 3 and throughout this report, energy used to generate and distribute electricity to final users is included in the energy valuation used for Key Drivers final electricity consumption.2 Final energy consumption Industrial growth has been one key driver of Vietnam’s grew from 10.8 million tons of oil equivalent (toe) in 1998 increasing energy intensity. Industrial energy use to 30.1 million toe in 2007. The main forms of commer- grew from 3.6 million toe in 1998 to 13.9 million toe in cial energy used by final consumers in Vietnam include 2007—almost four times in just nine years (figure 4). In coal, petroleum product fuels, and electricity. (Except for 1998, industry accounted for one-third of final energy a very small amount used in industry, Vietnam’s natural use; in 2007, it accounted for 46 percent. A rapid growth gas has been used in power generation and not by final in industrial value added provided the impetus for this consumers.) Final use of all three main types of energy growth in energy use. Industrial value added in constant grew faster during 1999–2007 than GDP. Direct burning prices grew by 9.5 percent per year during 1999–2007, of coal in industry, households, and commercial establish- and the share of industry in GDP rose from 34.7 per- ments grew the fastest, at 15.7 percent per year, but this cent in 1998 to 41.6 percent in 2007. Because industry is the most energy-intensive main economic sector, this 2. This is a different approach from the methodology used by the increase in the industrialization of Vietnam’s economy International Energy Agency (IEA) for calculating final energy con- by itself contributes to the increase in Vietnam’s over- sumption, where all final electricity consumption is valued at 860 all energy intensity. However, while the industrial value kcal/kWh. Including energy used (or lost) in generating and distribut- ing electricity in the valuation of electricity raises the value to 2,000– added doubled, industrial energy use more than tripled 2,200 kcal/kWh, depending on the year. The adjustment is made over the same period. The energy intensity of industrial so that analysis of electricity use, and especially savings by users, production itself rose very sharply, from 129 kgoe per shows the full energy-use and savings implications for Vietnam. It should also be noted that, because conversion losses outside the power sector have been negligible in Vietnam, total final energy con- 3. Tons of oil equivalent of energy for power production, transmis- sumption in these calculations is basically equivalent to total primary sion, and distribution to final consumers grew slightly more slowly, energy consumption. at 13.9 percent per year. Needs and Directions for Improving Energy Efficiency in Vietnam 7 Figure 3: Vietnam Commercial Final Energy Use, 1998–2007 35,000 60 Final energy use (thousand toe) GDP, constant Y2000 ($ billion) 30,000 50 25,000 Electricity 40 Gas 20,000 30 Petroleum products 15,000 Coal and peat 20 GDP, constant Y2000 10,000 5,000 10 0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Year Source: IEA, Energy Statistics of Non-OECD Countries (2009). US$1,000 in 1998 to 264 kgoe per US$1,000 in 2007, grew from an exceptionally low base of 8 kgoe per capita in constant prices. This indicates that the types of new nationwide to some 20 kgoe per capita in 2007, with coal industrial production put on line this decade are substan- use in northern Vietnam representing about half the total. tially more energy intensive than what was in place at Per capita household use of LPG and kerosene in 2007 the end of the 1990s. More energy-intensive industries, was only a bit less than in the Philippines (7 kg compared such as cement, have been growing faster than the less to 10 kgoe per person), but only one-third of that in Thai- energy-intensive industries. land (29 kg per person). Household use of modern energy has also grown faster Electricity currently accounts for almost 73 percent of than GDP, at an average of 10.7 percent per year during household modern energy use. Residential electricity 1999–2007. It also contributed to the increase in Viet- grew by 10.2 percent per year over the period, in part nam’s energy intensity (figure 5). Substitution of coal because of a big expansion in rural connections, but even and liquefied petroleum gas (LPG) for traditional cook- more because of increases in lighting fixtures and a wide ing fuels caused modern fuel use in households to triple variety of appliances in homes. Average residential elec- during the period. However, household modern fuel use tricity consumption in Vietnam, at 276 kWh/capita in 2007, Figure 4: Vietnam Industrial Final Energy Use, 1998–2007 16,000 60 Final energy use (thousand toe) 14,000 GDP, constant Y2000 ($ billion) 50 12,000 Electricity 40 10,000 Gas 8,000 30 Petroleum products Coal and peat 6,000 20 GDP, constant Y2000 4,000 10 2,000 0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Year Source: IEA, Energy Statistics of Non-OECD Countries (2009). 8 Vietnam: Expanding Opportunities for Energy Efficiency Figure 5: Vietnam Residential Final Energy Use, 1998–2007 7,000 60 Final energy use (thousand toe) GDP, constant Y2000 ($ billion) 6,000 50 5,000 Electricity 40 Gas 4,000 30 Petroleum products 3,000 Coal and peat 20 GDP, constant Y2000 2,000 1,000 10 0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Year Source: IEA, Energy Statistics of Non-OECD Countries (2009). is now about the same as in China (282 kWh/capita), a bit Total freight service volumes, measured in ton-kilome- higher than in the Philippines (186 kWh/capita), but still ters, increased at an average rate of about 12 percent significantly less than in Thailand (440 kWh/capita). per year from 1999 to 2005, while passenger transport volumes, measured in passenger-kilometers, increased Expanded motorized transportation also occurred during at about 10 percent per year. In 2005, some 65 percent this period. While the choppiness in the annual statistics of the total freight tonnage moved was by road, but suggests some accounting problems with the annual coastal water transport continued to account for by far statistics on petroleum product use by sector, it is clear the greatest freight service volume, with 76 percent of that use of fuel in transportation has also grown faster total ton-kilometers in 2005. Passenger road transporta- than GDP (figure 6). Use of transport fuel grew from 3.6 tion increased to 34 billion passenger-kilometers in 2005, million toe in 1998 to 7.9 million toe in 2007. A little over accounting for about 65 percent of total passenger ser- half of fuel use was diesel oil, while gasoline accounted vice volume. for about 39 percent, and jet fuel and fuel oil combined accounted for about 7 percent. Figure 6: Vietnam Transport Final Energy Use, 1998–2007 9,000 60 8,000 GDP, constant Y2000 ($ billion) 50 7,000 6,000 40 Petroleum products Million toe 5,000 GDP, constant Y2000 30 4,000 3,000 20 2,000 10 1,000 0 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Year Source: IEA, Energy Statistics of Non-OECD Countries (2009). Needs and Directions for Improving Energy Efficiency in Vietnam 9 Energy Use in 2007 Why Promote Energy Efficiency? Table 1 summarizes Vietnam’s final energy use by sector and energy type in 2007, the latest year for which full With a continuation of past trends, energy demand in energy balance data are available. Total final energy con- Vietnam is poised to triple again in the next 10 years. sumption amounted to 30.1 million toe, of which 18.3 Unlike the past decade, however, meeting this demand million toe, or 61 percent, was fuel directly used by final through a tripling in supply in the coming decade will be consumers. a far more daunting challenge than before. Even if supply infrastructure and logistics can be put in place, the costs Electricity (including, in this accounting, the 4.9 million will most certainly be higher in real terms, especially toe of natural gas, 2.2 million toe of coal, and 0.5 million because much more of the required supply will need toe of petroleum product used in thermal power produc- to be imported. Now, more than ever, Vietnam cannot tion) accounted for 11.8 million toe of Vietnam’s energy afford to continue to waste energy. If stronger programs use, representing the remaining 39 percent. Industrial and policies are put in place, current wasteful practices and residential consumers are the two dominant elec- can be reduced, and people can take advantage of more tricity-use sectors in Vietnam, with industry consuming efficient energy-use technology. This can meet a sizable 53 percent of the total and residences 39 percent. Com- portion (typically 20–30 percent) of the business-as-usual mercial and public sector electricity use was reported at demand for increased energy services at costs that are 8 percent. typically one-quarter as much as for additional energy supply. Direct fuel use continues to dominate Vietnam’s com- mercial energy use. Fuel use in industry totaled 7.6 mil- Continuing industrialization, rapid growth in motorized lion toe, accounting for 55 percent of industrial energy transport, and natural increases in the use of modern consumption. This included 4.9 million toe of coal, rep- energy in households can be expected to continue to resenting almost half the country’s total use coal use in combine to drive Vietnam’s energy demands at rates 2007. Industrial fuel consumption also included a large well in excess of economic growth. Despite the cur- amount of fuel oil and diesel use, amounting to 2.7 mil- rent global recession, Vietnam’s prospects for economic lion toe. The second largest fuel-using sector is transport, growth during the medium term are strong. If Vietnam’s which consumed 7.8 million toe of petroleum product GDP grows at some 6.9 percent per year during the fuels in 2007. The last piece of modern fuel consump- decade of 2009–18, and the country’s energy-use/GDP tion, then, is use in the residential, commercial, and pub- elasticity continues at the 1.7 witnessed during the last lic sectors, which totaled 2.9 million toe of both coal and decade, energy demand would grow by about 12.1 per- petroleum products in 2007. Fuel use in this sector is cent per annum. This average growth rate for 10 years growing in importance, however, with a growth rate that would yield another tripling in energy use, with final averaged 10 percent per year during 1999–2007. energy consumption exceeding 100 million toe by 2018. Table 1: Vietnam Final Commercial Energy Consumption, 2007 (million tons of oil equivalent) Petroleum Sector Coal products Natural gas Total fuel Electricity Total Industry 4.9 2.2 0.5 7.6 6.3 13.9 Transport 0.0 7.8 0.0 7.8 0.1 7.9 Commercial and 0.3 0.8 0.0 1.2 0.9 2.0 public services Residential 1.0 0.7 0.0 1.7 4.6 6.3 Total 6.2 11.5 0.5 18.3 11.8 30.1 Note: Nonenergy use and traditional biomass excluded. Source: Based on IEA, Energy Statistics of Non-OECD Countries (2009) 10 Vietnam: Expanding Opportunities for Energy Efficiency The tripling in energy consumption during the previous anthracite coals in the north, which provides for a mix decade of 1997–20074 was achieved with a net reliance of high-value metallurgical coal exports and lower-value on Vietnam’s own energy resources during a period of coal for relatively inconvenient combustion. Domestic, relatively low energy costs. Beginning from a fairly low economically exploitable coal resources are also limited. level of 10.8 million toe in 1998, the development of sup- As a result, internationally priced and sourced coal for ply capacity and logistics, while challenging, was man- combustion will become a larger and larger component ageable. A further tripling over the next decade, however, of Vietnam’s energy balance. would be another matter. Vietnam does not have easily developed domestic resources that can sustain this mag- In conclusion, Vietnam is expected to need to rely nitude of growth in energy demand, and the country will increasingly on energy sources from abroad over the have to rely increasingly on imports, including imports of next decade, raising issues of energy supply security and steam coal and net oil imports. Such an increasing reli- vulnerability to international energy price fluctuations. As ance will come at a time of growing global competition in other countries facing such issues, meeting demand for energy supply, and virtually certain large increases in by improving energy efficiency and utilizing energy that costs. Potential environmental consequences of such is currently wasted is perhaps the best single option for absolute increases in energy supply and use may also be reducing any potential vulnerability. at levels never witnessed in Vietnam before. As discussed in the paragraphs below, more aggressive Energy Costs efforts to improve energy efficiency are key to address The cost of energy to Vietnam’s consumers currently these anticipated energy supply security, cost, and envi- amounts to some US$14–15 billion per year (at interna- ronmental concerns. However, as demonstrated in many tional petroleum product prices roughly associated with examples from other countries around the globe, energy- US$65/barrel of crude oil). Introduction of large-scale coal efficiency improvements will not develop sufficiently imports and expected increases in international oil prices through market forces alone, and require effective public will only make this cost rise. sector intervention. These issues, and how they may be overcome in Vietnam, are further discussed in chapter 3. Capturing the wide variety of most financially attractive energy-efficiency gains is unquestionably the least-cost way to meet energy demand. Costs for standard, yet Resource Constraints and Energy Security unimplemented, renovations and equipment improve- Vietnam has enjoyed a position as a net energy exporter, ments typically run at one-quarter of the cost of commer- with domestic resources more than meeting its over- cial energy supply, at today’s prices. Improving energy all needs. Although petroleum products have all been efficiency increases industrial competitiveness by lower- imported until substantial refinery capacity came on ing production costs, eases pressure on household bud- stream in 2009, crude oil exports have steadily surpassed gets, and reduces government energy bills, which can imports in both volume and value. Total coal production free up government resources for investment in other also has exceeded domestic use severalfold. Domestic socioeconomic areas. hydro and natural gas resources, combined with some local coal, have been the backbone fuels for electricity production. Environmental Concerns Energy-efficiency improvements are an ideal way to Vietnam’s oil production, however, fell steadily during reduce pollution emissions, since they reduce the extent 2005–08, while oil demand grew rapidly. As a conse- of fuel combustion to begin with. Environmental concerns quence, Vietnam is expected to become a net oil importer relating to increasing fuel use in power plants, industry, very soon. On the coal side, Vietnam is also beginning and vehicles will certainly increase in Vietnam as demands large-scale steam coal importation for new coal-fired continue to rise. Air pollution from energy use carries a power plants. Domestic production is dominated by range of socioeconomic costs, including public health concerns that can manifest themselves as respiratory ill- 4. Primary and final commercial energy consumption grew by about nesses and premature death. Energy-efficiency improve- 2.8 times during the nine-year period from 1998 to 2007. IEA data for ments are one of the main mitigation tools. In addition, 1997 are not available, but if it is assumed that energy consumption shifts of technology that provide energy-efficiency gains grew by at least 7 percent from 1997 to 1998, primary and final com- mercial energy use at least tripled during the decade of 1997–2007. often also provide other environmental cobenefits, Needs and Directions for Improving Energy Efficiency in Vietnam 11 increasing the overall value of such shifts, especially over the medium and longer terms. Improving energy effi- Figure 7: Vietnam Final Energy Consumption by ciency is also one of the most cost-effective measures Energy Market Sector, 2007 for mitigating growth in CO2 emissions, one of the key greenhouse gases that contribute to climate change. Commercial and public services electricity, 3.1% Commercial and public Transport electricity, 0.3% Target Sectors for Promoting services fuel, 5.0% Energy Efficiency Industry fuel, Residential fuel, 6.8% 27.8% The energy consumption landscape is often best divided into target market sectors in order to assess priorities and Residential specific energy-efficiency promotion program designs. electricity, 15.1% Target market sectors should be grouped to exhibit com- mon patterns in energy-use technology, common types of energy-user entities, and similar potential institutional mechanisms for promoting energy-efficient behavior and Industry Transport fuel, investment. In Vietnam’s case, a useful grouping of target electricity, 16.9% 25% market sectors may include the electric power industry and four large end-use sectors: (a) industrial fuel use; (b) industrial electricity use; (c) use of petroleum products Source: Based on IEA, Energy Statistics of Non-OECD Countries (2009). for transportation; and (d) residential sector electricity use. As shown in figure 7, these four large end-use sec- tors together account for about 85 percent of Vietnam’s final commercial energy consumption. In addition, rapid growth in loads additional to lighting in urban areas suggests a need to review potential needs for increased power factor compensation. Energy Efficiency in the Electric Power Industry Vietnam’s current power-generating capacity and medium- Industrial Fuel and Electricity-Use Sectors term expansion plan includes hydropower, natural gas and petroleum-fueled thermal power, and coal-fired power. Accounting for about 53 percent of final commercial With growth in generation expected to continue at some energy use in 2007, and growing particularly fast, improv- 15 percent per year for up to a decade, the biggest issue ing energy efficiency in Vietnam’s industry deserves spe- concerning energy efficiency in this sector is to ensure cial attention. This includes attention to cutting energy that new thermal power plant capacity being brought waste in existing industry, where potential savings onstream is as energy-efficient as possible. The plan- of 25–30 percent are likely. However, continuation of ning and investment approval process needs to focus on industrial value-added growth at rates similar to the 9.5 achieving scale economies, maximum use of combined- percent per year growth witnessed during 1999–2007 cycle, natural gas–based plant, and the introduction of means that the most important issue concerning indus- supercritical boiler technology for coal-based power gen- trial energy efficiency is the efficiency of new plant. A eration. Several additional needs include proper attention continued growth rate of 10 percent per year would to energy-efficiency goals in the development of pricing mean that the new industrial capacity built over the next and dispatch rules in the new competitive power genera- seven years would produce more than all of Vietnam’s tion market, and further, urgent efforts to secure natural industry today. The energy-using characteristics of new gas supply for new capacity designed for natural gas but industrial plant will be a critical determinant of Vietnam’s currently using petroleum fuel as an interim measure. future energy demand and energy import needs. The key questions are (a) what type of industrial capacity will be Averaging 11 percent in the system as a whole, current developed and (b) how energy-efficient the technologies power system losses are not unreasonable for a develop- they use will be. ing country. However, losses in rural systems are often in the 20–30 percent range where medium and low-voltage Changes in the structure of industry play a major role in system development has not kept pace with load growth. determining industrial energy demand and the intensity 12 Vietnam: Expanding Opportunities for Energy Efficiency of energy use per unit of industrial value added. Figure per unit of physical output (for example, per ton of steel, 8 shows how the structure of industry has been evolv- per 1,000 bricks, and so forth). For Vietnam, it is impor- ing in Vietnam since 1998.5 Figure 9 plots the growth in tant to review how the efficiency of existing capacity can production of several key energy-intensive commodities. be improved through retrofits. It is even more important, Each of these has been growing faster than industrial however, to pay attention to the technologies being output value as a whole—indicating a movement toward deployed in new plant, since this will play the biggest role more energy-intensive basic commodity production. Sup- in determining future unit energy consumption levels. A ply of these basic commodities is key to underpinning key task for the government is to assess the nature of new construction and downstream industrial growth. energy-using technologies being deployed by companies However, it is very important for policy makers to con- in new facilities, as well as the potential gaps in energy- sider Vietnam’s comparative position for rapid develop- efficiency characteristics compared to the best available ment of energy-intensive industries versus reliance on and potential means to encourage such gaps to close. imports from elsewhere, because of the implications for Vietnam’s energy balance and sourcing of future energy Improving the efficiency of industrial fuel use involves supply. deployment of efficient boiler technology and its efficient matching with steam or hot water demands, tightening of Aside from industrial structure, industrial energy use is steam use systems, modern kiln development, schemes determined by fuel and electricity consumption levels to use waste heat and gas, and industrial cogeneration, as well as specific process technology advancements and 5. Assessment of the impacts of changes in industrial structure, Energy Management System (EMS) standards. Improv- however, will require subsector energy-use data, which are not cur- ing the efficiency of electricity use involves technologies rently available. Figure 8: Gross Industrial Output in Vietnam’s Key Industries, 1998–2007 450,000 Oil and gas 400,000 Rubber products and plastic Production and repairing other transport means Metallic products 350,000 Leather tanning and processing VND billion at constant 1994 prices Textile products 300,000 Electricity and gas Chemicals Nonmetallic products 250,000 Food and beverage 200,000 150,000 50,000 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Year Source: World Bank, Vietnam Development Report 2009. Needs and Directions for Improving Energy Efficiency in Vietnam 13 Figure 9: Growth in Production of Selected Energy-Intensive Industrial Commodities, 1999–2007 4.0 3.5 Bricks 3.0 Cement Glass products 1999 = 1 2.5 Paper and paper products 2.0 Steel Industry Value Added 1.5 1.0 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 Year Source: World Bank, Vietnam Development Report 2009. such as improved and often variable-speed motors and such as the use of gaseous fuels in buses or high-mileage motor drive systems, efficient matching of equipment automobiles, or the introduction of electric motorbikes. capacities, efficient internal electricity distribution, elec- tric furnace improvements and management, power fac- tor correction, utilization and careful capacity matching Residential and Commercial Electricity Use of cooling equipment, improved lighting technology, and The residential electricity-use sector accounts for about so forth. 39 percent of the country’s electricity use and 21 percent of total final commercial energy demand. Involving mil- lions of individual consumers, this market sector requires Petroleum Product Use in Transport unique approaches to achieve energy-efficiency gains. In Accounting for one-quarter of Vietnam’s final commer- Vietnam, where heating is not a critical load, the key issues cial energy consumption, gasoline, diesel oil, fuel oil, and concern lighting technology; air conditioning technology; jet fuel use in transportation will be the main driver of and the efficiency of household appliances such as refrig- the country’s future petroleum import levels. Measured erators, water heaters, washing machines, driers, televi- in terms of energy used per passenger-kilometer or ton- sions, fans, and so forth. The basic tracks for promoting kilometer of freight, the energy efficiency of transpor- improved energy efficiency are the provision of improved tation is determined in some ways by the specific fuel information to consumers, the introduction and enforce- use of vehicles, but even more so by broad patterns of ment of mandatory energy-efficiency standards for cer- transport modal development. Reducing energy costs tain new appliances, and the introduction of incentives, is of course only one of many important concerns for such as rebate programs, to encourage appliance market transportation development strategy. For Vietnam, three transformation. Typical of East Asian nations, the urban broad transportation development trends that have an areas of Vietnam account for about 70 percent of eco- especially important bearing on fuel efficiency include nomic growth. The Ministry of Construction (MOC) pre- (a) the role of automobiles versus motorbike, bus, and dicted an urbanization level of 45 percent by 2020. With light rail transport for urban and suburban passenger the rapid urbanization accompanied by high economic and movement; (b) truck versus coastal and inland waterway population growth, big cities in Vietnam are subject to cli- freight movement; and (c) automobile versus bus, boat, mate change and its associated problems. Adaptation to and airplane intercity passenger movement. Some of the climate change and the integration of energy-efficiency narrower, more energy-specific issues include vehicle measures to urban planning and “green” building design fuel-use levels (including both vehicle technology and are important elements to be developed and integrated operating practices) and potential interfuel substitution, into Vietnamese codes and standards. 2 Recent Efforts to Promote Energy Efficiency in Vietnam Vietnam’s government launched a series of efforts to In 2007, VND 30 billion (about US$2 million) of state expand its energy-efficiency promotion work during the budget funds were allocated for some 28 projects reg- last decade. In 2003, the government issued the Decree istered under the VNEEP. About a third of these funds on Efficient Utilization of Energy and Energy Conserva- were allocated to support two energy-efficiency lighting tion. In 2006, the prime minister approved the Vietnam manufacturers. In 2008, VND 36 billion (about US$2.25 National Energy-Efficiency Program (VNEEP) for the million) were allocated for some 48 projects, many of period 2005–15, which was prepared by the MOIT. A which were projects initiated in 2007. Of this, about a draft energy conservation law is now under review by third was used to set up an energy-efficiency laboratory the National Assembly. The energy sector has been for air conditioners and refrigerators. receiving support from a variety of international donors since 1990s, also covering a wide range of activities to The program’s energy savings targets are 3 percent to promote energy efficiency. 5 percent of total national energy consumption during 2006–10 and 5 percent to 8 percent of total national energy consumption during 2011–15. The program Vietnam’s National includes 6 components and 11 projects. These, and the Energy-Efficiency Program major achievements of the VNEEP during 2007–08, are highlighted below. The VNEEP is the first-ever comprehensive plan to institute measures for improving energy efficiency and Component 1: conservation (EE&C) in all sectors of the economy in State Management on Energy Efficiency Vietnam. Phase 1 (2006–10) aims to start up actively all components of the program, and Phase 2 (2011–15) aims and Conservation to expand each component, based on lessons learned Project 1 aims to complete the legislative framework from Phase 1. The program includes a set of activities on EE&C in industrial production, construction site man- to encourage, promote, and propagate EE&C with the agement, domestic activities, and energy-consumed public for science and technology research, and for equipment. Achievements during 2007–08 include the the development and implementation of management following: measures needed to carry out synchronous activities on EE&C in the whole society. Through these activities, • Completion of the draft Law on Energy Conserva- the VNEEP aims to reach certain targets of energy sav- tion and Efficient Use ings, reduce investment requirements for energy supply • Issuance of Joint Circular No. 142/2007/TTLT/BTC- system, achieve broad socioeconomic benefits, improve BCT of November 30, 2007, guiding the management environmental protection, help rationalize the extraction and use of nonbusiness funds for the implementa- of energy resources, and foster socioeconomic sustain- tion of the national target program on economical able development. and efficient use of energy 15 16 Vietnam: Expanding Opportunities for Energy Efficiency • Direction and guidance to all localities to carry out • Conducting of pilot EE&C public awareness activi- the EE&C activities ties for households by the Vietnam Women’s Union • Establishment of the EE&C center in Hanoi, which in six provinces and cities will help to coordinate program activities in the • Implementation of two programs to support lighting whole country manufacturers in their technology transition from • Organization of workshops, seminars, and training production of incandescent lamps to productions of on EE&C laws, policies, institutional issues, and compact fluorescent lamps (CFLs). technology and solutions • Development of the VNEEP Web site • Publication of leaflets, handbooks, and technical Component 4: guidelines on EE&C. EE&C in Industrial Enterprises Project 7 develops EE&C management models in Component 2: enterprises. Project 8 supports industrial enterprises in improving, upgrading, and optimizing technology aiming Education and Information Dissemination at energy savings and efficiency. Achievements include Project 2 focuses on raising public awareness about completion in 2008 of an energy-use survey of more than EE&C concerns and opportunities, Project 3 serves to 500 large enterprises to identify energy conservation integrate EE&C into the national education system, and potential and to determine energy consumption rates in Project 4 aims to develop pilot models for the “EE&C the most energy-intensive industrial sectors. in households” movement. Achievements include the following: Component 5: • Broadcast of EE&C news and releases on national EE&C in Buildings television and radio Project 9 aims to improve the capacity for understanding • Development of documentary films on energy-effi- EE&C issues and developing potential projects involv- cient technologies ing EE&C in building design and management. Project • Printing of EE&C information in various newspapers 10 focuses on developing pilot models for uptake of and electronic media EE&C management activities in building operation. Dur- • Organization of contests on energy-efficient build- ing 2007–08, the MOC led implementation of a variety of ings information dissemination activities. • Provision of guidelines for dissemination of EE&C information at all levels of the school education system. Component 6: EE&C in Transportation Component 3: Project 11 aims to foster optimal use of transportation High Energy-Efficiency Equipment facilities and equipment, minimize fuel consumption, and reduce discharge of air pollutants from transport sys- Project 5 focuses on developing standards and energy- tems. Achievements have included undertaking research use labels for selected products, and Project 6 provides activities on how to enhance public passenger transpor- technical assistance to domestic producers on how to tation in cities and the developing fuel-use measurement comply with energy-efficiency regulations. Achieve- equipment for diesel-engine ships to help them improve ments include the following: fuel management. • Completion of demonstration models for solar water The VNEEP has provided a national platform for imple- heaters and industrial biogas menting a variety of EE&C activities in all sectors. • Implementation of labeling programs for three appli- Although the first two years of VNEEP implementation ances—the T8 fluorescent tube lamp (FTL) (36 W), have focused mostly on education, capacity building, and the T5 FTL (32 W), and electronic ballasts study, much work remains to be done. With the progress • Collaboration with the Vietnam Standard Center to achieved, VNEEP is now is a good position for further develop and issue three sets of standards on energy- review of its objectives and targets, and development efficiency and testing methods for refrigerators, air of more detailed implementation plans to achieve these conditioners, and electric fans targets. It would be useful for future programming to Recent Efforts to Promote Energy Efficiency in Vietnam 17 focus strictly on maximizing energy savings results and to local agencies and consultants implementing the proj- the capacity enhancements, which are the highest prior- ects. Some of the larger-scale programs that have been ity for achieving those results. Strict focus on monitor- completed or that are currently under implementation in able energy savings results also can aid the government Vietnam are summarized in table 2. in determining appropriate levels of funding for vari- ous initiatives, allowing for increased competition and accountability among implementing partners, and pro- Current Donor Support and Activities viding clearer roles for private sector participation and leverage. Because there is a wide variety of donor activities, coor- dination of donor support in the future months and years is important. In October 2008, the MOIT and the World Major Energy-Efficiency Partnership Bank cochaired an Energy-Efficiency Donor Coordina- Programs tion Meeting, which included presentations from each participating donor agency on its programs and planned In addition to the government’s VNEEP, a number of par- activities, as well as a roundtable discussion on ideas for allel or supportive efforts have been initiated in direct coordination of efforts and further sharing of information. cooperation with donor agencies. Some of these pro- The participants agreed that an annual donor meeting grams predated VNEEP, while others were developed of this kind would be beneficial in the future. The fol- alongside the national program. Support has not only lowing sections summarize the major donor activities included financial packages, but also technical assistance in the energy-efficiency field in Vietnam, based on the Table 2: Major Completed and Ongoing Energy-Efficiency and Conservation Programs in Vietnam Project name Years Sponsor Implementing agency Energy-Efficiency and Conservation Program 1995–2001 GOV and Netherlands, MOST for Vietnam (EE&CP) EU, SIDA, UNDP Vietnam Demand-Side Management (DSM) 2000–10 WB, SIDA and GEF MOIT, EVN and Energy Efficiency—Phases 1 and 2a The Pilot Commercial Energy-Efficiency 2004–10 WB and GEF MOIT/ERAV Program (CEEP) Compact Fluorescent Lamp (CFL) 2004–07 WB and GEF EVN and PCs Promotion Program Fluorescent Thin Tube Lamp (FTL) 2004–07 WB and GEF EVN Promotion Campaign Swiss Government and UNIDO Activities Clean Production Center (CPC) 1998–2008 SDC VNCPC Energy-Efficient Brick Project 2001–04 SDC and UNIDO Entec (Swiss consultant) Green Credit Line 2008–12 SECO VNCPC and commercial banks Promoting Energy Conservation in Small and 2006–10 UNDP MOST Medium Scale Enterprises (PECSME) Vietnam Energy-Efficient Public Lighting 2006–10 UNDP and GEF NCST, IMS The Study on Master Plan on Energy 2008–09 JICA J-Power Conservation and Effective Use in Vietnam (Japanese consultant) Source: Compiled by author. a. The project also included a number of technical assistance efforts, including building code development (Phase 1); creation of a standards and labeling regime and development of select standards for electrical appliances (Phase 1); DSM planning, program design, and evaluation (Phases 1 and 2); load research (Phases 1 and 2); analysis of time-of-use (TOU) schemes and other load management efforts (Phases 1 and 2); marketing and awareness raising (Phases 1 and 2); and solar water heating and appliance labeling pilot programs (Phase 2). EVN implemented an expanded TOU program with its own financing in 2001. 18 Table 3: Matrix of Donor Energy-Efficiency Programs, Ongoing and Planned Commercial Donor Policy Industry buildings Residential Public Power sector ADB • Energy-Efficiency • Industrial survey and audits • Carbon financing • Carbon financing • EVN power plant (EE) Law • Training of energy managers, ECCs, ESCOs for CFLs and for lighting in public rehabilitation • Energy Savings solar water buildings (proposed) Fund (ESF) heaters AFD • EE housing • Urban EE • Load credit line strategies management (proposed) (proposed) DSM DANIDA • Energy audits • Training of energy managers, auditors • Economic incentives for investment JICA • EE Law • Concessional loans for high EE equipment • EE Master Plan/ • Energy audits VNEEP Roadmap • Training of energy managers, auditors • EE Database Vietnam: Expanding Opportunities for Energy Efficiency SDC • Creation of VNCPC • Energy and clean production audits • Study of brick making • Green credit line for clean production United Nations EE Law UNDP • Building code • Regional • Public street • Energy audits in SMEs development appliance and lighting • Loan guarantee program for SMEs (proposed) labeling • Lighting in schools • Training of energy auditors, ESCOs • Incandescent • Information dissemination, demonstrations phase-out for EE in SMEs UNIDO • Clean production audits in industry • Energy management system standards WB (IDA) EE Law • Audit and investment grants for electric • Audit/investment • Bulk CFL • Transmission & equipment grants purchase distribution (T&D) • Training of auditors, ESCOs • Training of • Promotion of EE loss reduction auditors, ESCOs FTLs • Load management • DSM programs IFC • Clean production financing and business support • EE financing credit line/enhancement Source: World Bank Study Team. Recent Efforts to Promote Energy Efficiency in Vietnam 19 respective donor’s public documents, as well as notes Danish International Development Agency gathered during the donor coordination meeting. Table 3 The Danish International Development Agency’s provides a matrix of donor energy-efficiency programs, (DANIDA’s) programs in Vietnam are aligned with the gov- both ongoing and planned. ernment’s Socio-Economic Development Plan 2006–10. The Environment Program is intended to focus on three Asian Development Bank thematic areas that include (a) urban and industrial envi- ronmental management, (b) sustainable energy, and (c) The Asian Development Bank (ADB) is now undertak- management of natural resources. Danish programs ing a US$1 million technical assistance program entitled generally aim to build capacity and knowledge in Viet- “Supporting Implementation of the National Energy-Effi- namese institutions and to target key sectors identified ciency Program,” which aims to promote energy conser- by the Vietnamese government. DANIDA has recently vation in the industrial sector in Vietnam. The technical approved a multiyear technical assistance program of assistance includes (a) industrial survey of energy use, about US$15 million to directly support MOIT’s energy- (b) energy manager training, (c) energy audits in select efficiency program. While some details had yet to be large factories, (d) training of ESCOs and energy conser- worked out as of March 2009, the program is expected vation centers, and (e) development of suitable financing to focus primarily on technical training for energy manag- mechanisms. Based on the findings from the technical ers and auditors or consultants (including a certification assistance, the ADB will consider options to create an program with local universities), industrial energy audits, industrial energy-efficiency financing program. The focus and economic incentives for the implementation of audit may be on five subsectors, such as cement, beverages, recommendations. chemicals, plastics, and steel. The ADB also expressed ideas to support EVN power plant rehabilitation and to help mobilize carbon financing for the procurement and Japan International Cooperation Agency distribution of CFLs, solar water heaters, and more effi- Since October 1, 2008, Japan’s Official Development cient lighting for public buildings. Assistance loans provided by the Japan Bank for Interna- tional Cooperation (JBIC) and the grant aid disbursed by Agence Française de Développement the Ministry of Foreign Affairs are being overseen by one agency, the new Japan International Cooperation Agency The support of the Agence Française de Développement (JICA). One development scheme of JICA is the Private (AFD) for Vietnam’s development targets is set out in Sector Investment Finance program, which supports the Partnership Framework Document signed between private enterprises with funds provided as either equity France and Vietnam in 2006. One of the AFD’s support investments or loans. A feasibility study on a possible efforts within the framework of the 2006–10 National energy conservation loan under this program is under- Socio-Economic Development Plan is to develop and way. This is likely to include financing for the purchase modernize financial, banking, and nonbanking sectors. of equipment from a specified “eligible high-efficiency The AFD activities support financial sector reforms equipment list.” The design is patterned after a program and small and medium enterprise (SME) development. being implemented in Japan in which government funds The AFD also undertakes its operations in Vietnam are made available to industrial enterprises. Preliminary through Promotion et Participation pour la Coopération plans call for the project to be implemented by the Viet- Economique (PROPARCO), a development financial insti- nam Development Bank (VDB), which will lend to enter- tution for the private sector. Energy and environment, prises for their purchase of equipment. including climate change, fall within the AFD’s priori- ties in Vietnam. The AFD cosponsored a symposium on JICA also has undertaken a development study entitled energy-efficiency policies in Vietnam, which was held in “Study on National Energy Master Plan in Vietnam.” The Ho Chi Minh City in April 2008 as part of French Week project aims to (a) help establish the National Energy in Vietnam. Other ongoing support from the AFD to the Master Plan up to 2025, including energy security, energy energy sector in Vietnam includes hydropower invest- diversity, power import-export, rural electrification, pro- ments, load management and DSM, CO2 emission miti- motion of renewable energy utilization, CO2 emission gation efforts, and provision of modern energy access for issues, energy conservation, investment planning, socio- all. Early ideas for future activities include development environmental impact analysis, and international cooper- of urban energy-efficiency strategies and perhaps the ation; (b) develop a national database for socioeconomic establishment of credit lines to support energy-efficient and energy data covering electric power, coal, oil and gas, construction in the housing sector. renewable energy, and so forth; and (c) build capacity 20 Vietnam: Expanding Opportunities for Energy Efficiency of the bodies under MOIT. JICA is currently working to United Nations develop a roadmap for the VNEEP to enhance program The UNDP has been supporting Vietnam since 1977. results and help MOIT meet its national targets. Energy and environment is one of the focal areas for the UNDP’s work in the country. One key initiative is The Energy Conservation Center, Japan (ECCJ), has also a UNDP project entitled “Vietnam: Promoting Energy been actively conducting energy conservation training Conservation in Small and Medium-Scale Enterprises,” programs for developing countries, mainly in the Asian with a program period from 2005 to 2010 and budget region and including Vietnam. EECJ also has provided of US$28.8 million, including US$5.5 million of support expert assistance for the development of energy conser- from the Global Environment Facility (GEF). The project vation law, including the transfer of information on suc- aims to address barriers blocking widespread adoption of cessful experiences in Japan. The ECCJ is developing a energy-efficient management practices, operations, and database for MOIT to facilitate the reporting and analysis technologies in SME. The project focuses on five SME of annual energy consumption data, which will likely be production subsectors: bricks, ceramics, textiles, paper, required for all large industrial and commercial custom- and food processing. The project is composed of six ers under the proposed new law. integrated components: (a) policy and institutional sup- port development; (b) communications and awareness; Swiss Development Cooperation (c) technical capacity development; (d) energy-efficiency services provision support; (e) financing support; and (f) In the specific area of energy efficiency, the Swiss Devel- demonstrations. opment Cooperation (SDC) has been collaborating with UNIDO in the establishment of a national focal point Other ongoing activities or activities under advanced for the promotion and implementation of eco-efficient preparation include a US$3.0 million UNDP-GEF public industrial production through the Vietnam Cleaner Pro- lighting efficiency project with the National Center for duction Center (VNCPC) under the Hanoi University of Natural Science and Technology (NCST) and the Insti- Technology. The focus during Phase 1 (1998–2003) was tute of Material Science (IMS); a US$4.5 million UNIDO on training, policy support, and dissemination of informa- national clean production program for Vietnam with tion on pilot demonstration projects. Phase 2 (2005–08) Hanoi University of Technology (cofunded with SDC as sought to operationalize VNCPC fully and make it finan- noted previously); a proposed US$6.8 million regional cially sustainable. SDC has also implemented an energy- energy-efficiency appliance labeling and standards pro- efficiency and environmental management project in the gram, which includes Vietnam among other countries; brick-making industry. The SDC assisted in the identifi- and a proposed US$3.0 million UNEP-GEF incandescent cation and promotion of economic and environmentally lamp phaseout program. Planned UNDP-UNIDO support viable brick production processes within the framework from 2010 and beyond includes possible initiatives on of the Nam Dinh Urban Development Project. The proj- energy-efficiency building codes, capacity building for ect included the upgraded design and demonstration of implementation of the energy conservation law, promo- a local tunnel kiln, which may be further replicated under tion of Energy Management Standards via the proposed the United Nations Development Programme’s (UNDP’s) International Organization for Standardization (ISO) 50001 SME Project. Management Standard, and assistance for the coordina- tion of climate change adaption and mitigation efforts. The Swiss State Secretariat for Economic Affairs (SECO) established a trust fund with the VNCPC that provides partial credit guarantees and incentive grants for cleaner The World Bank Group production (such as pollution prevention, energy effi- The International Development Association (IDA) has ciency, water and material recycling, and so forth). This been supporting energy-efficiency efforts in Vietnam Green Credit Line works with three commercial banks since 1997. Its program began with a US$3.6 million (Techcombank, Asia Commercial Bank, and Vietnam technical assistance grant provided by the Swedish International Bank). The program targets SMEs (under International Development Agency (SIDA) administered US$5 million of registered capital and 500 employees). by IDA, for: (a) DSM planning and pilots with EVN; (b) VNCPC reviews applications and, if approved, provides initiation of load management and research functions, a grant incentive based on the amount of environmental also with EVN; (c) development of initial equipment stan- impact reduction (that is, reduced pollution and resource dards with MOST; and (d) development of a commercial use). Applicants can also request up to a 50 percent guar- building code with the MOC. Based on the results of this antee for associated loans, if needed. Recent Efforts to Promote Energy Efficiency in Vietnam 21 initial technical assistance work, IDA approved a follow- The International Finance Corporation (IFC) has been on Phase 2 project, the Vietnam Demand-Side Man- developing investment projects with Saigon Thuong Tin agement and Energy-Efficiency Project (2003–09). This Commercial Joint Stock Bank (Sacombank) and Techno- US$20 million program, supported with both IDA and logical and Commercial Joint Stock Bank (Techcombank). GEF funds, included support for (a) implementation of The investment project with Sacombank is a credit- several larger DSM programs within EVN and its power linked guarantee, which will back a local currency loan companies (PCs) (including time-of-use metering, and to Sacombank of up to US$50 million-equivalent. Funds CFL and FTL promotion); (b) development and implemen- may be provided through local life insurance companies tation of a pilot commercial energy-efficiency program, or directly. Financing to support Techcombank’s medium- which included training of service providers and audit- and long-term lending activities to local SMEs is also investment grants; and (c) development of some pilot being considered. market transformation programs with solar water heat- ers and air conditioners with MOIT’s Energy-Efficiency As part of its growing Environmental and Social Sus- and Conservation Office (EECO). tainability Program, the IFC recently approved Phase 1 of Vietnam Cleaner Production and Energy-Efficiency While the second phase is still under implementation, Program (VCPEEP). The project will span at least three preliminary results have been substantial, including the years. Phase 1 includes US$1.6 million of financing from following: the Mekong Private Sector Development Facility, a large multidonor trust fund managed by IFC. The objective of • Successful transformation of the CFL market in Viet- the VCPEEP is to promote investment in cleaner pro- nam from less than 1 million lamps a year in 2004 to duction and energy efficiency (CP-EE) projects by Viet- more than 10 million by 2007 namese financial institutions. The program will include • Independent evaluation of EVN’s programs reported (a) advisory and investment services to selected finan- almost 500 GWh in annual energy savings and ~91 cial institutions, (b) technical assistance to develop the MW in peak load reduction to date consultancy market for CP-EE investments, and (c) pro- • Approval and implementation of 100 commercial motion activities to increase awareness among local energy-efficiency projects (aggregate investment of industries. US$5.2 million) with expected energy savings of 34 GWh/year and training of more than 100 service pro- The World Bank Group considered options for new viders (referred to as project agents). investment operations on energy efficiency in Vietnam, involving both IDA and the IFC as other possible donors, IDA is now working with MOIT to conduct an indepen- including the GEF, based in part on the findings of this dent evaluation of the commercial energy-efficiency pilot report. program and is considering options for a third-phase investment program in 2011. 3 Options for Further Improving Energy Efficiency in Vietnam Previous chapters reviewed energy demand trends required. Government leadership is needed to put stan- in Vietnam, discussed the need to expand efforts to dards and regulations in place where there are market improve energy efficiency, and outlined Vietnam’s cur- failures, to promote economic policies that encourage rent efforts to ramp up energy-efficiency initiatives. investment in operating cost savings as much as pos- This chapter briefly discusses the overall challenge of sible, to help provide information and raise awareness, to implementing effective energy-efficiency initiatives and nurture the development of a domestic energy-efficiency explores options and priorities for the future to overcome service industry, to launch and nurture market transfor- those barriers. The chapter then describes how a com- mation initiatives for key energy-using equipment or bination of regulation and market-based initiatives might appliances, and to promote and foster the development be applied to realize improved energy efficiency in each of financing mechanisms and public-private alliances that of the four strategic sectors in Vietnam identified earlier. can effectively help deliver increased energy-efficiency A final section provides recommendations for action dur- investment. The need for strong and sustained govern- ing the next three years. ment leadership is especially evident in Vietnam, espe- cially at the current time. Making Energy-Efficiency Barriers to Achieving Energy Efficiency Improvements Happen Lack of Information. Perhaps the most basic requirement Achieving greater energy efficiency has become a central for achieving greater energy efficiency is for energy tenet in the energy policy of many countries for a good users to be aware of potential energy savings and their reason: it helps enhance energy supply security, it is financial benefit, and how to attain them. Although a environmentally friendly, and it is substantially more cost good start has been made and the VNEEP recognizes its effective than energy supply. In most cases, it also yields importance, Vietnam is still a long way from meeting this profitable life-cycle financial returns to energy users. requirement. Many consumers, especially in commercial or industrial establishments, actually have little concrete However, experience across the globe has shown that idea of the potential for energy savings in their busi- the huge potential for cost-effective, energy-efficiency nesses, and how much money could be saved through investment is difficult to capture. Relying on mar- improved management or modest investment. Despite ket forces alone is insufficient. Even where market some progress of late, there remains little reliable and economies are very advanced, many energy-efficiency comparable information on the actual energy-use pat- investments with strong life-cycle returns remain unim- terns of different types of appliances or new equipment plemented. Although the use of market forces is impor- that consumers can readily see and properly consider. tant and critical for sustained progress on improving Business enterprises are typically not very knowledge- energy efficiency, strong government leadership is also able about the types of retrofit projects that could save 23 24 Vietnam: Expanding Opportunities for Energy Efficiency them on energy costs, new and more efficient technolo- payoff in operating cost savings may be assigned lower gies, or even where they might find out more about these priority for the time being. things. As VNEEP progresses in future years, consumers will also need more specific information on implementa- Lingering Generic Problems with Energy-Efficiency Projects. tion and financing options. Even if consumers are aware of opportunities, expertise is available, and the economic environment is support- Insufficient Readily Available Expertise. A related issue ive, problems inherent in these types of operating cost concerns the availability of expertise. Clients need to saving projects still remain and, unless addressed, con- be able to tap appropriate expertise to advise on energy tinue to hinder realization of the available potential. Ben- savings options, complete customized energy-use audits efits in the form of calculated cost savings streams, as on site, identify projects and sources of financing, and opposed to highly visible new production assets, appear assist in developing and implementing complex projects. nebulous and inherently risky to many. At micro decision- Such expertise needs to be readily available locally and making levels, energy cost–saving characteristics of new easy for clients to contact and engage. Clients also need equipment may be relatively insignificant compared to some way to gauge whom they can trust. Experts with other concerns. When purchasing new refrigerators, for established track records in actually implementing proj- example, buyers are unlikely to push energy-efficiency ects are especially valuable for providing advice derived demands on producers hard enough to cause market from actual experience rather than theoretical calcula- transformation, relative to other demands, such as refrig- tion. Expanding and improving the qualifications of local erator appearance, convenience items, layout, and so expertise is another area where Vietnam needs to make forth—the energy expenditures involved in operating one major improvements if a meaningful share of the poten- refrigerator are just not big enough (although the energy tial for energy efficiency is to be captured. Vietnam’s gov- costs are large in the aggregate for the country). In some ernment has made this a priority, but it takes concerted cases, for example, where office or living space is rented, effort over a sustained period to achieve real results. one party may be responsible for purchasing equipment while the party responsible for paying energy bills is dif- Energy Pricing. In any market economy, higher energy ferent, causing a problem of split incentives. Then there prices are an exceptionally powerful force to attract is the problem of transaction costs. Unless addressed, attention to energy efficiency and to increase incentives the efforts required by an energy user on his own to find for action. In Vietnam, prices paid for energy are low rela- good information, obtain advice, consider options, design tive to those in most other countries. The actual level of projects, and then implement the measures may add up electricity tariffs has fallen in real terms over the past to too much effort and cost for the many small projects several years, despite an increases in January 2007 of typical of the energy conservation business. If projects an average of 8 percent to VND 873/kWh and a further require substantial outside expertise or outside financ- increase of an average of 9.1 percent to VND 948/kWh in ing, the contractual hurdles involved increase transaction 2009. Domestic coal prices are well below levels in other costs and implementation difficulties even more. Unless countries. Although solid returns on a wide range of specific programs and packaging mechanisms are put in energy-efficiency investments still exist, incentives and place, benefiting from scale economies in aggregation, investment results could be sharply improved if energy these problems cause potential energy-efficiency inves- prices better reflected international levels. tors to require exceptionally high implicit discount rates or to forgo the potential savings altogether. Cost-Consciousness. Even if price signals are strong, con- sumers need to be interested in reducing operating costs, Behavioral Inertia. There are also inherent behavioral although this is not always the case. Where enterprise issues associated with the acceptance of change. For operation culture in a planned economy remains strong, some, there is comfort in doing what you know even as in some state-owned enterprises, reducing operating if other ways may be better. Others perceive the adop- costs, such as energy or water utility costs, may not be a tion of new practices as having unforeseen risks. Engi- priority to managers, even if quite profitable. In addition, neers design in ways in which they are accustomed, when economic growth is robust, commercial and indus- procurement officers like to work with existing suppli- trial establishments may naturally place greater empha- ers that understand their needs, and technicians prefer sis on the expansion or introduction of new products to to work with equipment they know how to operate and increase market share, and investments for long-term maintain. Options for Further Improving Energy Efficiency in Vietnam 25 Overcoming Barriers to Energy Efficiency law in the 1990s; however, it is also useful for the law to provide clear authority for the enforcement of regulations All countries with mixed or fully market economies that and assessment of penalties for noncompliance. have had some success in overcoming barriers to improv- ing energy efficiency use a mix of government regula- Development and especially implementation of the first tion combined with policies and programs to encourage set of regulations based on the law, if enacted, will be improved uptake of energy-efficiency investment through a very large undertaking over the next three years. It is the market. Some common regulations include require- important for the design of specific regulations and their ments to provide monitorable information on energy rollout to be carefully aligned with the government’s use, requirements for standardized energy consump- capacity to assist in their implementation and to enforce tion labeling on energy-intensive equipment, enactment them. Overambitious, all-encompassing regulations that of mandatory energy-efficiency standards for certain cannot be practically implemented with existing staff and equipment (such as refrigerators), implementation of organizational capacity may undermine credibility and be programs for either voluntary or mandatory government- counterproductive. industry agreements on improving industrial plant energy efficiency, and outlawing of specified particularly energy Unleashing Market Forces. While regulation is important inefficient equipment models or subscale industrial pro- cesses. Some common public programs to help spark for drawing attention to energy waste, ensuring unbiased greater market investment include public support for information flow, and overcoming certain specific market public-private partnership financing schemes, provision failures, the use of market forces is critical for realizing of targeted concessional finance or tax breaks, programs large-scale, efficient, and sustainable investment in more to develop and launch an energy-efficiency performance efficient energy-use systems. For Vietnam, from an over- contracting industry by ESCOs, and more. In countries all policy perspective, the review of consumer energy where information and expertise are basically available prices and adjustment to best reflect true costs, as well and economic environments are generally supportive, as continued state-owned enterprise reform, can make a forceful and sustained government action on both regu- major difference in helping bring market forces to bear, lation and promotion of market-based solutions is still especially in the industrial sector. However, effort is also needed to overcome the more generic energy-efficiency needed to foster development of effective investment investment barriers described above. project delivery systems. Experience elsewhere shows that effective delivery systems for energy-efficiency Developing and Implementing Energy-Efficiency Regulations. investment projects are not likely to develop without ini- The most important measure that Vietnam can take in tial government encouragement, but once operational, the short term to address current barriers to energy investment can continue sustainably with more lim- efficiency is enactment of the proposed Law on Energy ited public involvement. Given the scale of investment Conservation and Efficient Use. The law is especially needed, reliance on market-based mechanisms is essen- important because it can provide the foundation for the tial to achieving long-term energy-efficiency goals. Some regulations that are needed to address specific problems of the more common energy-efficiency investment deliv- undermining Vietnam’s ability to achieve greater energy ery systems are outlined below. efficiency. The law can bring stronger legitimacy to orga- nizations and their work, and provide for assignment of Energy Service Companies. For the energy-efficiency invest- responsibilities and associated funding. Enactment of the ment market to function, entities that understand the law can send a clear message to society and the market technology and cost-saving potential are required to help on national intentions. The law can mandate new relation- identify opportunities, complete good feasibility studies, ships among the government, industry, and large com- and assist in project implementation. Such companies or mercial enterprises to encourage more efficient use of institutes may be called “third-party service providers,” energy, mandate improved systems to provide consum- “project agents,” or other terms. For Vietnam, continued ers with objective information, and lay a foundation for development of a local industry of these types of compa- developing minimum energy-efficiency standards for key nies will be critical if energy-efficiency investment is to types of equipment. It is important to maintain flexibility increase sharply. for adjustments based on evolving experience, and hence leave many specifics for associated regulations. Based Many people reserve the term ESCO for energy ser- on China’s experience with its first energy conservation vice companies that engage in energy performance 26 Vietnam: Expanding Opportunities for Energy Efficiency contracting (EPC). EPC is a specific type of energy- this option aggressively, a major and fairly difficult regula- efficiency investment model involving an ESCO and an tory scheme for requiring end-use efficiency DSM, with energy-consuming client in which the ESCO provides appropriate utility compensation and its financing, would technical service (for example, identifying, designing, and need to be developed and enforced, especially given the implementing projects in the client’s facilities), finances ongoing power sector restructuring program. Barring or helps arrange financing for the capital cost, and is that, a practical option would be to concentrate on utility compensated from the resulting energy savings, based implementation of several specific, relatively short-term on a performance contract. This business proposition programs, with the provision of funding external to EVN can be highly attractive to customers who might other- or the regional PCs, especially in cases where electricity wise be unable or unwilling to concern themselves with use coincides heavily with peak load. Vietnam’s MOIT the technical details or finance the project themselves. also could contract one or more PCs for specific broader The model can be profitable for the ESCO if it is able government program implementation functions, as it has to replicate projects without excessive transaction cost. done with the HCMC PC for solar water heaters under However, it is a complex business, requiring an effective the World Bank-GEF Project. mix of financing, technical, and entrepreneurial skills on the part of the ESCOs, and familiarity on the part of cli- Commercial Energy-Efficiency Loan Programs. One of the ents. The business also relies on the effective execution most common reasons cited by large energy users for the of a unique type of commercial contract, which can be a failure to invest in energy efficiency is the lack of access particular challenge in an untried setting. to financing. Because many energy-efficiency invest- ments are actually quite profitable, energy-efficiency loan EPC is a promising business model for Vietnam, but its businesses also can be potentially attractive to banks. development is a long-term proposition, involving many Commercial bank development of self-sustaining, mar- challenges and a process of service company develop- ket-based energy-efficiency lending operations is very ment, contract piloting, adjustment, increasing market much in the public interest. However, such energy-effi- sensitization, and gradual rollout. Steady government ciency lending operations rarely develop without active support is essential to get development off the ground encouragement. For most banks, energy-efficiency lend- and to gain traction. ing is at most a special, niche-type business. Loans to reduce operating costs are not common in most banks Utility-Executed DSM. Utility DSM involves programs in most developing countries, with their seemingly less implemented by utilities to change the consumption tangible assets and additional challenges in developing patterns of their customers. For electric power, the appropriate collateral. Provision of such loans for more focus includes both load management programs to fos- than a one-year term also may be a challenge. Banks will ter shifts in power use away from costly peak demand need to develop partnerships with third-party energy-effi- times and programs to save electricity use by customers ciency service entities for help in identifying, appraising, overall. Electric power DSM programs have a big advan- and monitoring projects. Developing efficient businesses tage in that they can use the strong institutional platform that keep transaction costs down requires clever design, of electric PCs for program implementation. However, farsightedness, and good management. a disadvantage is that some type of incentive system needs to be set up for utilities to implement programs A number of commercial banks in Vietnam have begun that reduce customer electricity use. The main revenue to explore energy-efficiency lending possibilities, with of electricity companies is from the sale of electricity, support from IFC and others. Again, achieving sizable and reductions in sales of electricity are lost revenue. investment results through this mechanism is a medium- While shifting electricity use from on-peak to off-peak or long-term proposition, but one that is important to can save utilities money (and improve electricity sys- launch and steadily support. In cases where Vietnamese tem efficiency), implementation of consumer electricity banks are, in effect, being assigned and compensated savings programs by commercially oriented PCs usually as implementing agents for placement of international requires specific regulations and their enforcement, and/ donor or other public energy-efficiency loan funds, the or compensation for costs and lost sales. banks may gain some familiarity with the business. For lasting results, however, focus must be placed upfront on Electricity of Vietnam (EVN) has successfully implemented the development of customized lending businesses that short-term DSM programs, especially for electric light- meet the strategic objectives of the given bank, and pro- ing, since about 2000, but the long-term future of DSM in gram designs and implementation procedures that fit that Vietnam is uncertain. If the government wishes to pursue bank’s existing business models as much as possible. Options for Further Improving Energy Efficiency in Vietnam 27 Special Public Resource Funds. Some governments estab- for organizing greater attention in enterprises to poten- lish special-purpose funds, parastatal energy-efficiency tially profitable opportunities for energy-efficiency invest- investment companies, or other long-term special pro- ments and operational modifications, and for instituting grams designed to catalyze energy investment in the improved energy management practices that can have a market with the use of public funds. Two examples that big payoff over the medium term. However, implementa- involved the creation of new legal entities include India’s tion will be a major effort requiring focused attention at Renewable Energy Development Agency (a national para- many levels for quite a few years. Countries with strong statal company that also engages in energy-efficiency experience in recent years in these particular regulatory loans) and the development of Energy-Efficiency Utili- and monitoring areas include China, Japan, and a num- ties by several state governments in the United States. ber of European Union countries. China also began to Objectives best focus on maximum monitorable results in achieve good results in 2006–08 in its banning of particu- increased energy-efficiency investment per unit of public larly energy-wasting, subscale industrial technologies, resources. While some programs have clearly been suc- but its experience has shown that rigorous enforcement cessful, there are many inherent challenges, including at local levels is critical. maintenance of program stability because of continuing financing uncertainties, complex and sometimes uneasy Regulatory measures can attract needed attention within or unhealthy relations with the banking industry, and pro- industrial enterprises, but measures to help make it gram management capacity requirements. If Vietnam easier for them to implement money-making energy- chooses to consider such an option, it may be best to efficiency projects in line with market forces are needed define upfront (a) very clear and narrow objectives, and a to then deliver concrete energy savings in existing plants sophisticated system for how results will be measured; (provided that the plants continue to operate). This (b) specifics of program management and implementa- requires additional information programs, steady and tion, including the contracting of capacity from outside major capacity-building programs for energy managers the government; and (c) medium-term dedicated financ- and third-party service providers, and efforts to expand ing sources. project financing channels and amounts. Programs to provide enterprises with information on opportunities— for example, through the dissemination of case studies, Putting Regulation and Market-Based technical resources, and analytical tools; delivery of train- ing courses; and so forth—often get the best results if Programs Together in Key Sectors the focus is on how enterprises can save money from Improving Energy Efficiency in Existing energy conservation. Training and increasing hands- Industrial Plants on experience is needed, especially among third-party service groups, to help efficiently identify and package While many cost-effective energy-efficient technologies financially attractive technology choices and renovations. and process improvements are available and appropri- Financing for energy-efficiency projects is typically dif- ate for existing Vietnamese industry, informing industry ficult to arrange through standard channels. Although managers, incentivizing owners, packaging projects, the business can be profitable for banks in due course, and identifying and implementing them have been more efforts are needed to help jump-start loan programs that problematic. On the regulatory side, some important and can efficiently accommodate good energy conservation useful measures listed in recent drafts of the energy retrofit projects. conservation law include new mandatory energy-use reporting systems, requirements for developing internal A number of international donors are working with the energy management programs in designated enterprises, government to prepare new programs for preparing requirements for designated enterprises to implement and/or financing industrial energy-efficiency retrofit proj- five-year energy-efficiency improvement plans agreed ects, and such programs can be quite constructive. One with and monitored by the government, and provisions suggestion is to try to focus exclusively on capturing allowing the government to ban particularly wasteful a good share of the available financially attractive proj- equipment and energy-use practices. The reporting, ects, avoiding less economic investments, and aiming energy management, and energy-efficiency planning to create and link project development and investment requirements can provide a critically needed platform for mechanisms that are inherently profitable for the financ- increasing information on the specific energy-efficiency ing and host entities and that can be sustained after opportunities, both in industrial enterprises and in govern- donor financing is exhausted. Another suggestion is to ment entities. They can also provide a powerful impetus ensure that technical assistance for project identification 28 Vietnam: Expanding Opportunities for Energy Efficiency and development is blended well together with financ- intensive technology can pay off well over the long term ing programs. Stand-alone technical assistance projects in operating cost savings. It is more cost-effective to often fail to achieve good energy savings results if they build efficient plants right the first time than to retrofit are not well associated to financing programs and if they them later. Industrial plants that are designed inefficiently do not meet the concrete needs of potential financiers. at the outset are more costly to operate. Typically, how- Similarly, programs that create financing without strong ever, achievement of the operating cost savings requires technical assistance to raise awareness and help identify a higher upfront investment, at least in terms of learning and package projects tend to suffer from poor deal flow. something new, but often also in terms of more upfront capital. Solving this problem is a banking function. The government can help by encouraging banks to adopt new Encouraging More Energy-Efficient programs to help their clients adopt “greener,” operating New Industrial Plant cost-saving technology, which can pay off for both the As described earlier, the characteristics of new indus- banks and their customers. In general, other supportive trial plants will determine much of Vietnam’s future measures include low-interest loans, tax incentives, and energy-use and import needs. However, the policy and subsidies. market-based tools available to influence this dynamic constructively are in many ways different from those for Transportation encouraging energy efficiency in existing industry. Long-term planning and specific development policies Medium- and long-term national industrial development also play a key role in determining energy efficiency in planning is essential to ensure that both industrial sub- the transportation sector. Efficient energy use is only sector growth trends and major new industry projects one of many concerns in transport sector planning, but are aligned with plans and policies for national macro- many broad initiatives aimed at improving transportation economic balance, balance of trade, and infrastructure efficiency in general (such as urban mass transit develop- development, and are not shaped solely by local aspira- ment, traffic planning, and promotion of intermodal bal- tions for specific new projects. Big future increases in ance, and so forth) also foster energy-efficiency gains. industrial energy needs from new projects will shape much of the country’s energy economy, and will impact One specific measure that has yielded energy savings the energy import bill. Now would be a good time to inter- in other countries is increasing fuel-efficiency standards ject energy concerns more stringently into the broader for motor vehicles, and strict enforcement of these industrial planning process. Especially important are poli- standards. Another set of measures includes vehicle cies concerning which subsectors to promote for growth inspection and maintenance programs (serving multi- and which to restrain, and efforts to tighten review pro- ple objectives) and programs to promote earlier retire- cesses for large new projects. ment of old, particularly inefficient vehicles. Promotion of vehicles using alternatives to liquid petroleum fuels The main tool the government has for influencing indus- (for example, hybrid electric vehicles and vehicles that trial growth trends on the ground is regulation. This use compressed natural gas or biofuels) have produced includes project permitting, environmental regulation, and noticeable results in some countries, including programs approval of access to necessary infrastructure. Adoption to convert publicly owned or captive high-use fleets such of wasteful, backward, and highly polluting technology as taxis, or programs to provide financial incentives. can and should be blocked. As in all countries, balance between national and local government regulation is an The motor vehicle transport sector is also a sector important concern, since interests and perspectives are where the level of energy prices really matters. Experi- not quite the same. ence across the world has shown that increasing fuel prices has a marked effect on both the choices consum- Improving access to financing for more energy-efficient ers make when purchasing vehicles and the efficiency and environmentally friendly new industrial processes, of their vehicle use. Conversely, gasoline and motor production lines, and equipment is another important diesel subsidies are particularly damaging for efforts to means to impact new industrial development positively. meet national energy-efficiency or interfuel substitution Adoption of new, more efficient, and less resource- objectives. Options for Further Improving Energy Efficiency in Vietnam 29 Electrical Appliances government to establish promotional programs that can build on recent gains and be sustained over the long term Electrical appliances in residences used 39 percent of all through local retail outlets, and for renewed efforts on electricity consumed in Vietnam in 2007. The IEA esti- FTLs and electronic ballasts. It also is a good time to put mates that electricity savings of some 25–38 percent in more aggressive and comprehensive programs in place residential appliances could be achieved internationally.6 for larger household appliances. For the future, Vietnam However, capturing the savings potential involves some needs to develop more consolidated and deliberate pro- different challenges from those in industry or transpor- grams focused on ensuring long-term results. tation. In industry, energy-efficiency initiatives focus especially on helping enterprises identify and implement Good market transformation programs require upfront relatively customized solutions. With household electri- public investment to gain understanding of the specific cal appliances, however, a limited number of appliance target markets before attempting to transform them. types dominate electricity use (for example, lamps, Consumer purchase behaviors and concerns when buy- refrigerators, air conditioners, water heaters, and rice ing new appliances, the realities of retail systems and cookers), but a very dispersed supply and use chain that locations, consumer financing patterns, supplier chains involves millions of customers, many retailers, and quite and selling strategies, and the characteristics and prices a few different product suppliers. of the main products currently on the market are all important to understand before embarking on major mar- Because of the nature of the market, programs to improve ket transformation initiatives. Unless built on such spe- efficiencies for electrical appliances are usually done on cific understanding, program designs are likely to result a national scale and often by individual appliance. Many in too much wasted effort. countries aim to “transform existing markets,” that is, to guide the increasing penetration of more energy-effi- Expansion and upgrading of programs to provide readily cient appliances into specific appliance markets through available and credible information to consumers about var- regulation and selective public intervention, yet they ious appliance products on the market is especially impor- still rely on market forces for efficient and sustainable tant now. Many poor-quality products are on the market, market operation. This involves (a) programs to provide and unsubstantiated claims about energy efficiency and customers with commonly available, credible, and cor- critical product characteristics abound. It is difficult for rect but simple information about the efficiency charac- consumers to know with confidence which claims are teristics of the choices in front of them; (b) government correct and which are bogus, and hence when payment initiatives to work with suppliers to encourage expanded of higher costs upfront will pay off. To solve this problem, marketing of reputable and more efficient products, and however, will require greater public investment, planning, discourage particularly wasteful or fraudulent market and time to develop and institute testing programs, to offerings; and (c) programs to help customers cope with develop well-designed appliance labels and other informa- the initial higher costs of some more efficient appliances tion, and especially to increase the visibility of such infor- until market transformation can take hold. Good results mation and consumer confidence that it is correct. require careful planning, a mix of tools, and long-term dedication. Development and implementation of either voluntary or mandatory energy-efficiency standards for key appli- The main initiatives undertaken in the appliance market ances has been effective in a number of countries and is transformation arena in Vietnam so far are on the dis- being considered in Vietnam. However, standards must semination of CFLs and some initial activities on market be strictly enforced or they lose their meaning. If compli- labeling, establishment of appliance testing protocols, ance is voluntary, consumers must still have confidence establishment of a local testing facility, and some devel- from the compliance system that products claiming to opment of several national standards (see Chapter 2). meet voluntary standards actually do. Compliance moni- EVN’s program for bulk purchase and distribution of CFLs toring systems also require public investment and time has been quite successful in terms of volumes achieved to develop and implement properly. and increasing awareness. Now may be the time for the Energy-efficient appliances typically cost more than inef- 6 IEA.“Experience with Energy Efficiency Regulations for Electrical ficient ones, even if they pay off through savings later, Equipment” IEA information paper, OECD/IEA, August 2007. and the issue of higher upfront costs needs to be dealt 30 Vietnam: Expanding Opportunities for Energy Efficiency with as programs are launched. Government-supplier for human resource investment in program delivery. negotiations can often help to bring down costs, with Results then tend to be poor and fizzle out. It is certainly technology transfer agreements, and/or bulk procure- not the case that all programs must wait for complete, ment or other discount deals in which suppliers offer full-scale planning before anything can be started. Small- lower prices for arrangements resulting in larger-scale scale piloting and trial efforts are excellent ways to test sales. Still, consumer subsidies may be justified to jump- ideas and begin to adapt them to realities on the ground. start market transformation to more efficient appliances, It is often useful, however, for pilots to have a strategic at least until the market penetration begins to see fur- focus set in a broader, deliberate plan and, if evaluations ther economies of scale and/or consumers more clearly show promise, for scale-up efforts to be designed with see the longer-term payoffs. Common subsidy mecha- deliberate focus on long-term sustainable results. nisms include partial rebates for the purchase of speci- fied more efficient models, or the provision of low-cost Although donor funds may provide some large financing financing for large appliances. Such subsidies are best sources for a few years for some activities, the current designed from the beginning with plans for their gradual public fund budget of US$2 million per year for imple- phaseout. Most countries rely on existing appliance retail mentation of the VNEEP means that the government systems for distribution, although electricity utilities may must prioritize its activities carefully. Increasing leverage collaborate with the programs (for example, in market- is also critical—for example, to use public funds as seed ing and distribution of rebate coupons and so forth) as money for ideas that can be scaled up by others, espe- part of DSM program agreements or under specific gov- cially the private sector. ernment contract. Because appliance markets are large and diffuse, government programs must be designed to In prioritizing among competing program requests for minimize unintended distortions in the market, especially public funds, the Bank study team strongly recommends competition with and undermining of existing supply greater attention to evaluation of the actual energy sav- channels. Waste by providing incentives to those con- ings results that may be achieved. The success of the sumers already planning to purchase efficient equipment VNEEP should be assessed with respect to the spe- on the market also needs to be minimized. cific, quantified role it has played in helping to meet the government’s energy savings goals. It is true that many public investments in the early years may need to con- Recommendations for centrate on human resource capacity building, although Follow-Up Actions assessment of direct energy savings from capacity build- ing investment is difficult. However, even in this case, With the new energy conservation law up for consid- greater rigor is possible. For example, what specific pro- eration by the National Assembly, growing experience grams are staff to be trained for and expected to contrib- through the implementation of the VNEEP, and a sup- ute to, and how much energy savings might evolve from portive donor community, the overall environment for a specific program if successful? After the training, did scaling up the government’s efforts to promote greater those staff really apply the skills they learned in the spe- energy efficiency is very good. What is most important at cific program? What other factors must be addressed for this point is laying solid foundations for institutional sys- those skills to produce concerted, new energy savings, tems and programs that can make major energy savings and have those factors been addressed? contributions over the long haul, and grow stronger and stronger over time. However, achievement of real and With the new law moving forward and new implementa- sizable energy-efficiency gains is not easy. While some tion regulations in the preparatory phase, it would also “quick gains” may occasionally be achieved, the best appear to be a good time to review how government and most lasting results usually stem from programs institutional responsibilities and the coordination between that are built with sufficient and growing local capacity different parties can be further crafted to best serve the for delivery. This requires good planning, upfront public long-term needs. A common observation expressed by investment, dedication, and time. Some countries have foreigners reviewing Vietnam’s energy-efficiency pro- grabbed onto program ideas introduced from elsewhere, gram is that it is too fragmented institutionally, with which sound simple and easy, and introduced them with overlapping or unclear responsibilities and insufficient high expectations without sufficient groundwork, adap- coordination and direction. While there are many issues tation to local circumstances, consideration of possible and factors to consider, the current juncture may provide unintended consequences, or consideration of the need a good opportunity for adjustments. Options for Further Improving Energy Efficiency in Vietnam 31 A variety of good, new energy-efficiency initiatives are considerations (such as quality of service and overall now being launched in Vietnam. Comments and sugges- cost reduction). tions on some of these have been provided in previous sections. In addition, the Bank study team recommends consideration of a number of new or scaled-up initia- Energy-Efficiency Promotion System tives, outlined below, many of which can be or already Development are being discussed as areas of future World Bank Group Three areas where well-targeted advisory assistance support. might be especially useful include advisory assistance for government efforts on the following: Economic Studies • Development of Vietnam’s New Industrial Energy-use At least three strategic areas appear to warrant more Supervision System. Vietnam’s draft new energy con- extensive review and analysis, which should then lead to servation law requires all designated enterprises to more specific policy recommendations: report on energy use, institute new energy man- agement systems, and complete plans to achieve • Review of the Energy Implications of Industrial Devel- energy saving results. The government or its agents opment Policy. The structure of Vietnam’s industrial will need to provide detailed guidance; ensure com- development over the next decade will have a major pliance; compile, review, and analyze large amounts impact on the country’s future energy imports and of information; help enhance the quality of sub- energy supply security. Countries in East Asia have missions; and provide required approvals. This will followed different paths—with some such as the require massive investment in human resource Republic of Korea in the 1970s investing strongly capacity and expanded institutional systems. Advice in the development of a heavy industry to capture has been requested on how to undertake this in the a significant share of international markets, and most practical and realistic way. Piloting and gradual others, such as Thailand, placing more emphasis but steady rollout may produce the best results. on developing high value-added light industry. The Integration of evolving international industrial enter- implications for the energy needs of different indus- prise energy management concepts and systems trial growth paths can be dramatic. An initial review (for example, those relating to the proposed new could analyze the energy supply and import impli- ISO 50001) is also relevant. Proper application of an cations of different scenarios of industrial structural industrial energy management system has a strong growth, and outline the government policy options linkage to compliance with the basic requirements that might best influence outcomes. under the energy conservation law to report on • Consumer Energy Pricing Review. Energy price levels energy consumption, assign energy management clearly have a major impact on consumer attitudes teams within the enterprise, prepare and implement toward saving energy and will be an important factor energy-efficiency improvement plans, and adhere in determining the size of Vietnam’s future energy to the equipment and process standards issued by import bill. Special focus needs to be devoted to the government. In Japan, strict enforcement of how pricing policies for domestic coal, and then the energy conservation law—administered by the petroleum products, might be adjusted to best Ministry of Economy, Trade and Industry (METI), encourage improved energy efficiency without particularly the Energy Efficiency and Conserva- undermining industrial competitiveness or creating tion Division—has been pivotal to the success of social hardship. Japan’s energy-efficiency programs. The ECCJ was • Review of the Energy Implications of Alternative Trans- established in 1978 with Japanese government and portation Development Scenarios. The transport sec- corporate support to assist with (a) research on and tor is increasingly important in Vietnam’s energy implementation of energy conservation programs, balance and central in determining net petroleum (b) accreditation or licensing of energy managers import requirements. A review of the energy-use under the energy conservation law, and (c) dissemi- implications of different scenarios of transportation nation of information on energy conservation. planning and development would help to identify • Policy Development to Encourage Energy Efficiency in specifically where potential energy-efficiency gains New Industrial Plants. Although retrofitting current may be most significant, and where energy-effi- plants is important, the characteristics of equipment ciency concerns overlap well with other key planning and processes installed in new industrial plants will 32 Vietnam: Expanding Opportunities for Energy Efficiency almost certainly have a greater bearing on energy- government support will be needed to jump-start efficiency levels in industry over the next decade. programs, but if successful and developed on sound The government should undertake a detailed stock- commercial principals, such programs could expand taking review of the energy-using technology and and yield sustainable results independently. Such an equipment adopted in new industry during the pre- initiative could be combined with the program for vious three years, as well as an assessment as to new industrial capacity outlined above, or under- how energy-efficiency levels match up with the best taken separately. technologies readily available. Results could then • Expanded Development of the Third-Party Energy-Effi- feed into a practical review of specific policy and ciency Service Sector. Initial IDA, GEF, and govern- regulation options to encourage efficient and more ment investments through the second IDA/GEF environmentally friendly technology choice and to energy-efficiency projects for the development of limit the use of backward equipment. third-party energy-efficiency service companies • Review of Fiscal Incentive Options to Promote Energy or project agents have yielded good results. Also Efficiency. Vietnam is considering what types of fis- building on IFC’s current VCPEEP program, further cal incentive options might be most appropriate to investment and support are needed to help this new help promote energy efficiency, among the common commercial industry to gain its footing and grow, menu of tax incentives, direct subsidies, border tar- since it will be essential for the future. In addition iff adjustments, interest rate subsidies, and so forth. to creating explicit linkages with financing initiatives A review of the concrete experiences of other coun- involving local banks that will need the assistance of ties, including fiscal financing pitfalls, the extent of this industry (for example, recommendations 1 and practical results from different options, and lessons 2 on Energy-Efficiency Investment Programs), some learned—all with a focus on the main options that possibilities include (a) support for more advanced are actually relevant for Vietnam—could greatly help training on energy technologies and systems, the decision making on this complex topic. use of more complex financial and contracting mechanisms, and more sophisticated use monitor- ing and verification systems and methodologies, Energy-Efficiency Investment Programs and so forth; (b) an expanded financing program to In terms of the new, proposed energy-efficiency invest- project agents for audits and investments to include ment programs, the following provide indicative program both electrical and thermal measures and allow for ideas that the government may consider: larger project sizes; and (c) creation of an energy- efficiency service company association that could • Clean Production and Energy-Efficiency Financing Pro- help further organize the energy-efficiency market, gram for New Industrial Capacity. A program to help train members, and discuss policy issues with the banks operating in Vietnam to offer and expand government. financing for upfront costs of enterprise investment • Consolidate and Roll Out Appliance Market Transforma- in cleaner and more efficient technology, especially tion Efforts. Residential electricity use plays a large for new production facilities, could bring positive role in the country’s energy balance, and the effi- results far into the future. Donor assistance, includ- ciency of appliances can be substantially improved. ing concessional finance, could support program Dedicated, multiyear, multitool programs are needed start-up, help incentivize the use of new technol- for the highest-priority appliances (for example, ogy, and help mitigate banking risks. Government refrigerators and air conditioners, in addition to regulatory policy support, including renewed efforts lighting, followed perhaps by pumps and hot water to foster selection of environmentally sound and heaters). Provision of readily available and credible energy-efficient investment in new plants permit- information on appliance energy-efficiency charac- ting (see recommendation 2 on Energy-Efficiency teristics should be an important element. Market Promotion System Development). transformation initiatives for each product should • Expand Commercial Financing for Energy-Efficiency Ret- consider existing supply chains, available technolo- rofit Projects. Development and marketing of financ- gies, customer classes, costs and benefits, and so ing products for investments resulting primarily in forth, with market surveys and supplemental analy- operating cost savings is not a mainstream activity ses, followed by development and implementation for local banks. To develop energy-efficiency lend- of appropriate strategies to encourage increased ing into attractive business lines generally requires and sustained adoption of high-efficiency models. upfront, dedicated effort. Donor assistance and The World Bank The World Bank Group Energy Sector Management Asia Sustainable and Assistence Program Alternative Energy Program www.esmap.org 1818 H Street, NW Washington, DC 20433 USA www.worldbank.org/astae