ESMAP TECHNICAL PAPER 021 Vietnam -Renewable Energy Action Plan : : e < j ~~~~~~~~~~~1 _ F |- S 6- 3 i Energy Sector Management Assistance Programme March 2002 ititv Papers in the ESMAP and EASEG Technlncal Series are discussion documents, not finag project reports. They are subject to the same copyrights as other ESMAP publications. JOINT UNDP / WORLD BANK ENERGY SECTOR MANAGEMENT ASSISTANCE PROGRAMME (ESMAP) PURPOSE The Joint UNDP/World Bank Energy Sector Management Assistance Programme (ESMAP) is a special global technical assistance partnership sponsored by the UNDP, the World Bank and bi-lateral official donors. Established with the support of UNDP and bilateral official donors in 1983, ESMAP is managed by the World Bank. ESMAP's mission is to promote the role of energy in poverty reduction and economic growth in an environmentally responsible manner. Its work applies to low-income, emerging, and transition economies and contributes to the achievement of internationally agreed development goals. ESMAP interventions are knowledge products including free technical assistance, specific studies, advisory services, pilot projects, knowledge generation and dissemination, trainings, workshops and seminars, conferences and roundtables, and publications. ESMAP work is focused on three priority areas: access to modern energy for the poorest, the development of sustainable energy markets, and the promotion of environmentally sustainable energy practices. GOVERNANCE AND OPERATIONS ESMAP is governed by a Consultative Group (the ESMAP CG) composed of representatives of the UNDP and World Bank, other donors, and development experts from regions benefiting from ESMAP's assistance. The ESMAP CG is chaired by a World Bank Vice President, and advised by a Technical Advisory Group (TAG) of independent energy experts that reviews the Programme's strategic agenda, its work plan, and its achievements. ESMAP relies on a cadre of engineers, energy planners, and economists from the World Bank, and from the energy and development community at large, to conduct its activities under the guidance of the Manager of ESMAP. FUNDING ESMAP is a cooperative effort supported by the World Bank, the UNDP and official donors from Belgium, Canada, Denmark, Finland, France, Germany, the Netherlands, Norway, Sweden, Switzerland, and the United Kingdom. ESMAP has also enjoyed the support of private donors as well as in-kind support from a number of partners in the energy and development community. FURTHER INFORMATION For further information, a copy of the ESMAP Annual Report, or copies of project reports, etc., please email at esmapdworldbank.org or contact: ESMAP c/o Energy and Water The World Bank 1818 H Street, NW Washington, DC 20433 U.S.A. http://www.esmap.orq MOI ASTAE/ESMAP EVN Vietnam: Renewable Energy Action Plan Providing dean, cost-effective eletricity to help rural people improve their standard of living and incease their income V Susan Bogach R. Anil Cabraal Ion Exel Pham Nguyet Anh Copyright C 2002 The International Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. All rights reserved Manufactured in the United States of America First pnnting March 2002 ESMAP Reports are published to communmcate the results of the ESMAP's work to the development community with the least possible delay. The typescript of the paper therefore has not been prepared m accordance with the procedures appropriate to formal documents. Some sources cited in this paper may be informal documents that are not readily available. The findings, interpretations, and conclusions expressed in thus paper are entirely those of the author(s) and should not be attributed m any manner to the World Bank, or its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent. The World Bank does not guarantee the accuracy of the data included in thus publication and accepts no responsibility whatsoever for any consequence of their use. The Boundaries, colors, denominations, other mformation shown on any map in this volume do not imply on the part of the World Bank Group any judgement on the legal status of any terntory or the endorsement or acceptance of such boundaries. The material in this publication is copyrighted. Requests for perrmssion to reproduce portions of it should be sent to the ESMAP Manager at the address shown m the copyright notice above. ESMAP encourages dissemination of its work and will normally give permission promnptly and, when the reproduction is for noncommercial purposes, without askmg a fee. "ESMAP Values your Feedback If you have found this report useful, or would like to provide comments on our reports and services, please log on to our website at www.esmap.org and leave your feedback. In this way we can better understand our audience's needs and improve the quality of our knowledge products. Thank you. ESMAP Management" Table of Contents Currency Equivalents ................................................ vii Units of Measure ................................................ vii Acronyms and Abbreviations ................................................ ix Foreword ................................................ xi Acknowledgements ................................................. xUi Executive Summary ................................................ xv A. OVERVIEW OF THE RENEWABLE ENERGYACrION PLAN IN VIETNAM ...................................I 1. Background .................................................1 1.1 International Context .................................................2 1.2 Renewable Electricity inVietnam to Date .................................................4 2. Renewable Energy Action Plan ................................................ 11 2.1 Objective and Indicators ................................................ 11 2.2 Strategy and Principles ................................................ 11 2.3 Program Components ................................................ 12 2.4 Expected Results and Costs ................................................ 13 2.5 Financing Plan ................................................ 14 2.6 Institutional Arrangements ................................................ 17 2.7 Sustainability and Risk Mitigation ................................................ 18 B. DETAILED DESCRIPTION OF REAP COMPONENTS .................................,,,,,.,.21 1. Policy and Institutional Development Component . ............................... 21 1.1 Objective .................................................... 21 1.2 Background .................................................... 21 1.3 Technical Assistance Activities Proposed .................................................... 24 1.4 Component Costs .................................................... 26 2. Individual Household & Institutional Systems Component .................... ................ 26 2.1 Objective .................................................... 26 2.2 Background .................................................... 26 2.3 Investment Subcomponent .................................................... 32 2.4 Technical Assistance Subcomponent .................................................... 34 2.5 Component Costs .................................................... 35 2.6 Economic and Financial Viability of Individual Household Systems ...................... 36 iii 3. Community Isolated Hydro Grid Component ........................................................ 37 3.1 Objective ............................................................ 37 3.2 Background ............................................................ 38 3.3 Investment Subcomponent ................ ............................................ 42 3.4 Technical Assistance Subcomponent ............................................................ 42 3.5 Financial and Econonmc Analyses ............................... ............................. 43 3.6 Estimated Cost of Community Isolated Hydro Grids Component .......... ............. 45 4. Renewable Electricity for Grid Supply ............................................................ 45 4.1 Objective ............................................................ 45 4.2 Background ............................................................. 46 4.3 Subcomponent I: Nonutility Investment for Grid Supply ...................................... 50 4.4 Subcomponent II: Rehabilitation of EVN-Owned Mirn-Hydro Projects ............. 53 4.5 Cost Estimate ............................................................ 55 5. Renewable Energy Assessment and Technology Improvement Component ... 55 5.1 Objective ............................................................ 55 5.2 Background ............................................................ 55 5.3 Study to Accelerate Institutional Market for Stand Alone Renewable Energy ....... 55 5.4 Development of a Public Data Base on Renewable Energy Resources ................. 56 5.5 Renewable Energy Technology Improvement Program .................. ...................... 56 5.6 Preparation of Phase 2: Large-Scale Implementation ............................................. 57 5.7 Estimated Component Cost .................. .......................................... 57 BIBUOGRAPHY ........................................................... 59 Annexes Annex 1 List of Participants at the REAP Workshops .61 Annex 2 Macro-Level Wind Map of Vietnam and Neibormg Countries .63 Annex 3 Renewable Energy Projects in Vietnam Supported by the World Bank Group .65 Annex 4 Overview of Donor-Supported Renewable Energy Projects in Vietnam. 66 Annex 5 Main Barriers to Renewable Electricity Development .67 Annex 6 Implications of Rural Electrification Policy for Renewable Energy . 68 Annex 7 Summnary of Sites and Communes for Inclusion in the Pilot Commune-Based Hydro Program .72 Annex 8 Sumnmary of the Results of the Financial and Economic Evaluations for Eight Selected, Representative Schemes .73 Annex 9 Comparison of SPPA and Tariff Structure among Countries .74 Annex 10 Outstanding SPPA Issues .75 Tables Table 1: Indicative Physical Achievements and Costs of REAP Program Table 2: Sumnmary of Selected Major Renewable Electricity Initiatives Table 3: Potential and Current Use of Renewable Energy in Vietnam Table 4: Indicative Physical Achievements and Costs of REAP Program iV Table 5: Indicative 10-Year Financing Plan for Renewable Energy Program, Lower Boundary Table 6: Estimated Cost of Policy and Institutional Development Component, Phase 1 Table 7: Examples of World Bank Group and GEF-Supported SHS Projects Table 8: Estimated Installations under the Individual Househoid/Institutional Sys- tems Component Table 9: Comparative Service Levels from PV System, Kerosene and Recharged Bat- tery Table 10: Capacity Building for Individual Household/Institutional Comrponent Table 11: Estimated Cost of Individual/Institutional Systems Component Table 12: Economic Least Cost Life-Cycle Analysis of Four Commune Electrification Options Table 13: Estimated Cost of Community Isolated Hydro Grids Component Table 14: Potential and Current Use of Renewable Energy in Vietnam Table 15: Representative Average SPP Tariff Comparison Across Countries Table 16: Comparison of SPP Tariffs and Economic Avoided Costs in Vietnam Table 17: Technical and Financial Characteristics of Selected New Mini-Hydro Schemes for Grid Connection Table 18: Characteristics of Grid Connected Mini-Hydro Rehabilitation Projects Table 19: Cost Estimate for Grid-Connected Renewable Energy Program Table 20: Estimated Cost of Renewable Energy Technology Assessment/Develop- ment Component Figures Figure 1: Significant Decrease in Share of Government Investments in Phase II Figure 2: Suggested Organization Structure for Renewable Energy Program Imple- mentation Figure 3: Least Economic Cost Frontier for SHS and Grid Extension Boxes Box 1: Mr. Hung's Pico-Hydro: Improving Quality of Life Box 2: Solar Electricity Service Models Box 3: Community Hydro Creates Labor Hero v Currency Equivalents and Units of Measure Currency Unit = Vietnamese Dong (VND) VND 1,000 = US$0.06 US$1 = VND 14,522 GW Gigawatt GWh Gigawatt-hour kg Kilogram kW Kilowatt kWh Kilowatt-hour kWp Kilowatt peak m Meter m/s Meter per second m 2 Square meter MW Megawatt MWh Megawatt-hour MWp Megawatt peak tcpd Ton cane per day ton Metric ton W Watt Wp Watt peak vii Acronyms and Abbreviations ADB Asian Development Bank IDA International Development ASEAN Association of South East Asian Association Nations IE Institute of Energy ofVietnam ASTAE Asia Alternative Energy Pro- IFC International Finance Corpo- gram ration BOT Build-operate-transfer IMH Institute for Meteorology and BST Bulk supply tariff Hydrology CDM Clean Development Mecha- IPP Independent power producer nism IREDA Indian Renewable Energy CEB Ceylon Electricity Board Development Agency CEMMA Committee for Ethnic Minori- JBIC Japan Bank for Internation ties and Mountainous Areas Cooperation DANIDA Danish Ministry of Foreign Af- JICA Japan International Coopera- fairs tion Agency EGAT Electricity Generating Author- KfW Kreditanstalt furWiederaufbau ity of Thailand LRMC Long-run marginal cost EIRR Economic internal rate of re- LV Low voltage turn M&E Monitoring and Evaluation ESMAP Energy Sector Management Program Assistance Programme MARD Ministry of Agriculture and EU European Union Rural Development EVN Electricity ofVietnam MNES Ministry of Non-Conven- FIRR Financial internal rate of return tional Energy Sources GEF Global Environment Facility MOF Ministry of Finance GHG Greenhouse gas MOI Ministry of Industry GOV Government of Vietnam MOSTE Ministry of Science, Technol- GTZ Deutsche Gesellschaft fur ogy and Environment Technische Zusammenarbeit MPI Ministry of Plannung and In- HCM Ho Chi Minh vestment hh Household MV Medium voltage HPC Hydro Power Center NEDO New Energy and Industrial HV High voltage Technology Development IBRD International Bank for Recon- Organization (apan) struction and Development NPV Net present value ix NGO Nongovernmental organiza- SEIER System Efficiency Improve- tion ment, Equitization and ODA Official Development Assis- Renewables Project tance SHS Solar home system OECF Overseas Economic Coopera- SIDA Swedish International Devel- tion Fund opment Agency O&M Operation and maintenance SPP Small Power Producer PCF Prototype Carbon Fund SPPA Standardized Small Power Pur- PPA Power Purchase Agreement chase Agreement PPC Provincial People's Committee TA Technical assistance PV Photovoltaic UNDP United Nations Development RE Rural electrification Programme REAP Renewable Energy Action UNFCC United Nations Framework Plan Convention on Climate RECTERE Research Center for Thermal Change Equipment and Renewable US$ U.S. dollar Energy of the Ho Chi Minh VAT Value added tax City University of Technology VBARD Vietnam Bank for Agriculture RERC Renewable Energy Research and Rural Development Center of the Hanoi Univer- VND Vietnamese Dong sity of Technology VWU Vietnam Women's Union RPMD REAP Program Management Board x Foreword Vietnam has made remarkable progress in poverty reduction and economic development over the past decade. Nevertheless, the country remains poor with 78 percent of its popu- lation and 90 percent of the poor living in rural areas. Rural poverty reduction is a high priority in the Government's 5-year plan and 10-year strategy. The Government recognizes that electricity service is an important tool to help rural people improve their standard of living and increase their incomes. Today, 75 percent of rural households have electricity service and the Government intends to provide electricity to 90 "percent of rural households by 2005. It is estimated that about 1 million households in isolated and remote rural areas will not be able to receive electricity from the national grid. For these households, alternative ways to provide electricity service must be utilized, especially renewable energy systems like hydro, wind and solar systems. The Ministry of Industry and the World Bank, together with Electricity of Vietnam, are honored to present to you this Renewable Energy Action Plan, which we have been working on for the last 18 months. The Plan aims to support an acceleration of renewable electricity production, to meet the needs of isolated households and communities that can not re- ceive electricity services from the national grid, and to supplement grid -supply, cost effec- tively in remote areas. The proposed ten-year program laid out in the Plan is ambitious, but achievable if Viet- nam establishes a supportive policy framework, builds the necessary capacity, and financ- ing is made available. Vietnam is richly endowed with renewable energy resources. We are convinced that these resources can be used to meet the growing needs of rural people in an economic and environmentally sound manner. We invite our multilateral and bilateral parners to joint and supportVietnam in its efforts to develop renewable energy resources so that our combined efforts has a far greater impact. MHoang Trung Hai Andrew Steer Vice Minister Country Director Ministry of Industry The World Bank xi Acknowledgements Valuable input to the report was provided by representatives of more than 20 Vietnamese organizations that attended the two participatory workshops that were held in Hanoi (see Annex 1). In the June 1999 workshop, they provided knowledge on the potential of different technology options, the main barriers to accelerated development, and ways to overcome the barriers. In the October 2000 workshop, the participants provided invalu- able information on the REAP goals, the activities to be undertaken and the organiza- tional models to implement the activities. Without their participation, it would not have been possible to produce this report. The Institute of Energy team, under the leadership of Dr. Pham Khanh Toan, is recognized for its excellent organization of the workshops and coordination of REAP activities on behalf of EVN. The report originated with the request of EVN for an action plan for renewable energy development. EVN requested not another master plan, but an output-oriented study that would lead to results on the ground in a relatively short time. Under the insightful guid- ance and professional expertise of Mr. Pham Van Vy and Mr. Trinh Ngoc Khanh of EVN, the study team worked with national and international consultants to do the background work needed to complete the report. This summary report is built on a number of exten- sive studies commissioned as part of this study and for the Rural Energy Project. These include the following: ASTAE. 2000. Options for Renewable Energy in Vietnam, a Report on the June 15-16, 1999 Two-Day Participatory Workshop, Hanoi. ESMAP Technical Paper 001,World Bank,Wash- ington, D.C. COWI. 1998. Rural Electrfication Master Plan Study- Vietnam. Consultant Report to EVN, Hanoi. Entec. 2000a. Investment and Business Plan for Setting Up a Micro Hydro Turbine Manufacturing Business in Vietnam. Consultant Report for the World Bank, Washington, D.C. Entec. 2000b. Package C: Techno-Economic Assessment Model. Consultant Report to World Bank, Washington, D.C. Fichtner and Colenco. 1999. TechnicalAssistancefor Preparation of Proposed Rural Energy Project, Package 2: Pricing Policy for Rural Electrification. Consultant Report for EVN, Hanoi. Fichtner and Colenco. 2000. Technical Assistance for Preparation of Proposed Rural Energy Project, Package 7: Pipeline Developmemt Rehabilitation and Upgrade of Grid Connected Renewable Energy Projects. Consultant Report for EVN, Hanoi. xiii Finucane, J., et.al. 2000. REAP Package D: Program Design for Isolated Households Segment. Consultant Report for the World Bank, Washington, D.C. Hydro Power Center. 2000. Package B: Collection of Basic Information and Mapping Information for Vietnam. Consultant Report for the World Bank, Washington, D.C. Meritec. 1999. Vietnam Renewable Energy Small Power Purchase Agreement. Consultant Report for EVN, Hanoi. Meritec. 2000a. REAP Package E: Feasibility Study of a Program to Develop and/or Rehabilitate Community-Scale Hydro-Based Mini Grids. Consultant Report for EVN, Hanoi. Meritec. 2000b. Turn-Key Micro Hydro-Diesel Hybrid and Battery Charging Station Pilot Project. Consultant Report for EVN, Hanoi., Meritec. 2000c. Vietnam Rural Energy Project Pre-Investment Study Report for Pipeline Develop- ment of New Small Hydro Projects. Consultant Report for EVN, Hanoi. Pham Nguyet Anh. 2000. Background Informnation for Institutional and Policy Aspects of Renew- able Energy Development. Consultant Report for World Bank, Washington, D.C. World Bank. 2000. Project Appraisal Documentfor Vietnam Rural Energy Project. World Bank, Washington, D.C. Substantial funding for the REAP was provided by the World Bank's Energy Sector Man- agement Assistance Programme (ESMAP) and the Asia Alternative Energy Program (ASTAE).'.2 Additional funds were provided by Japan, New Zealand, and Switzerland. Funds were used to conduct consultant studies, organize participatory workshops, and to analyze and to formulate this 10-year strategic Action Plan. The REAP team would like to acknowledge the leadership and guidance provided through- out the course of the study by Mr. Anil Malhotra, the World Bank's Regional Energy Adviser, and the assistance of his team in Hanoi (especially Mr. Van Tien Hung, and Ms. Nguyen Thuy Anh). The World Bank is supporting renewable energy development in Vietnam on a programmatic basis in three parts: (a) support for preparation of the REAP under the Rural Energy 1 Project, through support for studies and the draft report, the Rural Electrification Policy, and inclusion of covenants with EVN as part of the Project agreements; (b) financing of part of Phase 1 of the REAP under the proposed System Efficiency Improvement, Equitization and Renewables (SEIER) Project planned for FY02; and (c) financing of Phase 2 under the. proposed Rural Energy 2 Project in FY04. The report was prepared as a team effort by Ms. Susan Bogach (Task Team Leader), Mr. Anil Cabraal, Mr. Jon Exel, and Ms. Pham Nguyet Anh. Ms. Cristina Hernandez was responsible for word processing of the report. Ms. Rebecca Kary edited the final report. For more information on ESMAP go to http://www.worldbank.org/esmap. 2 For more information on ASTAE go to http://www.worldbank.org/astae. xiv Executive Summary A. Background patory workshop with stakeholders and dis- cussion with international agencies in Oc- Introduction. At the request of EVN, the tober 2000; and (e) revision of the report World Bank has assisted in preparing a plan to take into account all comments received. for international assistance for development of renewable electricity in Vietnam, the Re- The REAP was endorsed by participants newable Energy Action Plan (REAP). The during the Workshop held in October 2000. REAP presents a 10-year program to accel- Subsequently, MOI and EVN agreed that erate large-scale development of renewable the REAP report would provide a frame- energy for rural electrification and grid sup- work for implementation of a program to ply in Vietnam.3 It will be implemented in be led and coordinated by MOI. two phases: a five-year capacity building phase followed by a five-year implementa- International Context. Renewable de- tion phase. The REAP will be used as a velopment is expected to surge internation- framework for coordination of activities by ally over the next decade, in both indus- the Government of Vietnam (GOV) agen- trial and developing countries. Many coun- cies, and mobilization of resources from all tries are introducing strong policies to pro- entities, including international agencies. mote renewable electricity, which are jus- tified by social and economic benefits, in- The REAP was prepared in a series of steps: cluding (a) environmental protection, (b) (a) a participatory workshop with stakehold- provision of electricity on a least-cost basis ers in June 1999 to discuss renewable en- to remote areas, (c) suitability for financing ergy potential, problems and solutions; (b) by local businesses and banks, and (d) cre- preparation of more than 10 consulting stud- ation of economic activity and employmnent ies by teams of national and international in rural areas.4 Europe leads in renewable consultants; (c) synthesis of the study results electricity development where installed into a draft action plan report; (d) presenta- capacity of renewable electricity is expected tion of the draft report at a two day partici- to increase by 50 GW by 2010. 3 The REAP focuses only on the power sector because (a) EVN was the main counterpart; (b) providing electricity service is a high priority for GOV, as shown by the rural electrification program; and (c) the opportunities for grid-connected renewable electricity are significant. 'These countries indude Australia, Belgium, Brazil, China, Denmark, France, Germany, Indca, Italy, Netherlands, Poland, Spain, and the Urnted Kingdom, as well as seven U.S. states, includmngTexas. xv China has already installed 23 GW of small 500 per household), using renewable re- hydropower (4-5 timesVietnam's total elec- sources. Early results from a feasibility study tricity generating capacity), mainly in rural indicate that small isolated hydro-based county grids. Both China and India are in- mini-grids could supply several hundred troducing policles to scale up their renew- thousand households in the north and cen- able energy programs, each aiming at in- ter with electricity. Improved pico-hydro creases of more than 10 GW in grid-con- systems have the potential to supply a simi- nected capacity over the next 10 years. Both lar number of households in the north, while countries are also preparing large renew- solar photovoltaic (PV) systems could serve able-based rural electrification programs, as about 50,000 households in the south and are Argentina, Brazil, Cambodia, Laos, the center, if they could be made affordable. Philippines, Sri Lanka, and Uganda. Many Wind resources, while poorly identified, of these countries are receiving assistance could play a role on coastal areas in the cen- from the World Bank/Global Environment tral regions. Experience has been gained Facility (GEF), which recently began to with these technologies in Vietnam, at least make funding available on a longer-term, at the demonstration scale. programmatic basis. Barriers. While potential is significant, chal- Renewable Energy inVietnam to Date lenges in developing renewable energy are also significant. A two-day participatory Potential. Vietnam has a fast-growing power workshop, in June 1999, discussed the bar- sector and rich renewable energy resources, riers to large-scale renewable energy de- which could be used to generate electric- velopment and the possible solutions.6 The ity. Small hydropower potential (under 10 workshop was attended by 32 representa- MW per site) is estimated at 800 - 1,400 tives of stakeholder organizations. The ma- MW, while biomass cogeneration could jor barriers identified are {a) inadequate supply an additional 250 - 400 MW policy and regulatory framework to encour- age renewable electricity; (b) inadequate Renewable electricity also has considerable awareness about the technologies, their potential to supply isolated rural house- costs, and performance in Vietnam; (c) lack holds and villages. Even with a fast-grow- of commercial businesses to provide renew- ing power sector and an aggressive grid ex- able electricity equipment and services; (d) tension program, more than 1,100 remote lack of access to financing for consumers, or mountainous communes or villages, rep- businesses, and project developers; (e) high- resenting about 750,000 households and 3 quality technology is not available at afford- million people, are outside EVN's plans for able prices; and (f) inadequate resource data connection to the grid by 2010.5 There are to plan a major program. almost an equal number of households in electrified communes that cannot be eco- Since the workshop, steps have been taken nomically connected to the grid. A substan- toward a policy framework for large-scale tial share of these households or commu- renewable electricity development. Deci- nities could be served at a cost similar to sion No.22-1999/CP-TTg by the Prime current costs for grid connection (US$400- Minister (Decision 22) and the Rural Elec- 5 Hydro Power Center 2000. 6ASTAE 2000. xvi Executve Summary trification Policy adopted by the MOI pro- viable; (b) renewable electricity will be sup- vide a foundation for renewable electricity plied on a commercial basis, using busi- development in Vietnam, but the remain- nesses with all ownership forms; (c) com- ing challenges are large. The REAP is pro- munities, individual consumers and inves- posed to address these challenges. tors will actively contribute to and partici- pate in the program; (d) government will act as a market enabler, putting in place the B. The Renewable Energy Action laws, decrees, regulations, and building ca- Plan pacity for large-scale use of renewable elec- tricity; (e) access to long-term credit and Objective. The objective of the REAP is other financial incentives will be increased that renewable energy will provide cost-ef- to improve financial viability of businesses fective and reliable electricity to help rural and affordability to consumers; and (f) lim- people improve their standard of living and ited grant assistance will be provided in rec- increase their income. Renewable electric- ognition of social and environmental ben- ity will (a) supply isolated households and efits, but grants will be used carefully to communities that cannot be reached eco- support sustainability. nomically by the grid and (b) augment grid supply in remote areas. Components. MOI and EVN agreed to five components for the capacity-building Strategy and Phasing. MOI, with sup- phase, which would be scaled up in the port from national and international agen- implementation phase. Following are the cies, will facilitate and coordinate the imple- components in the first phase: mentation of the REAP. Priority will be given to providing energy services in poor (a) Renewable Energy Policy and Institutional isolated communes and villages, with par- Development (TA: US$3 million). Build- ticular attention to stimulating income-gen- ing on the Rural Electrification Policy, erating activities through electricity services. technical assistance (TA) will be pro- The program will be carried out in two five- vided to (i) prepare decrees and regu- year phases, a capacity building phase and lations needed to encourage off-grid an implementation phase. The capacity rural electrification and small power building phase would put in place the de- producers to sell to the grid, (ii) im- crees, regulations and incentives needed to prove access to financing, (iii) investi- create a positive environment for renewable gate tax incentives, and (iv) provide electricity activities to expand. It would also training and business development as- build capacity at all levels, while carrying sistance to businesses and government out pilot activities in particular provinces, at all levels. to test the proposed implementation ar- rangements. Phase 2 would scale up imple- (b) Individual Household/lInstitutional Renew- mentation. able Energy Systems (TA: US$3-5 mil- lion Investment: US$3.5-10 million). The REAP is based on the following strategic aim will be to support the sale and af- principles:7 (a) renewable electricity will be ter-sales service and support of 25,000- used where it is least cost and economically 50,000 systems (improved pico-hydro '7 Developed from Ministry of Industry (2000b). Executive Summary xvn and solar PV) for use by individual cal assistance and investment sup- households, schools, and other institu- port will be provided to EVN to tions that cannot be connected to the rehabilitate up to 13 economically grid. The program would support the viable small hydro plants, with an development of commercial businesses aggregate capacity of 26 MW. EVN to supply high-quality equipment and will later consider equitization of services. these plants. (c) Community Isolated Hydro Grids (TA: (e) Technology/Market Development and Re- US$1-3 million; Investment US$4.5-18 source Assessment (TA: US$5 million). million).' Support will be provided to Other activities will be supported to 20-80 communes in northern prov- strengthen capacity for scale-up, includ- inces to build and operate mini-grids ing activities to support other technolo- based on hydro-hybrid plants. These gies, such as wind power. Indicative ac- grids will serve 10,00040,000 house- tivities are technology improvement of holds, as well as productive loads, which locally manufactured products, accelera- are essential for viability.TA will be pro- tion of institutional markets for renew- vided to develop community electric- able energy, and creation of a public da- ity cooperatives or mini-utility busi- tabase on renewable energy resources. nesses, as well as stimulate income-gen- erating activities. Program Cost and Results. Total cost of the program is estimated to be US$46- (d) Grid-Connected Renewable Electricity. US$69 million in Phase 1.The results would There will be two subcomponents un- be provision of electricity to 35,000-90,000 der this component: households off the national grid, and in- (i) Renewable Energy Small Power Produc- stallation and operation of 41-50 MW of ers (TA: US$1-3 million; Investment renewable electricity generators connected US$18-30 million). TA and invest- to the national grid. The results depend on ment support will be provided to the commitment and resources put into the encourage nonutility small power program by the GOV, as well as support producers to invest in 15-25 MW from international agencies. If the results of of renewable electricity for grid the first phase are successful, Phase 2 could supply, from small hydro, bagasse, scale up the above activities by a factor five or rice husk cogeneration. EVN or more. Preliminary estimates of potential will purchase the power under a scale for Phase 1 and the total program are Standardized Small Power Purchase given in Table 1. Agreement (SPPA) and associated tariff. Long-term financing will be Management and Coordination. There facilitated for these investments. will be a Program Management Unit or (ii) EVN Rehabilitation of Small Hydro- Management Board at the MOI that will power Plants (TA: US$0.5-1 million; coordinate and promote the REAP. An ad- Investment US$12 million). Techni- visory comrnittee will be set up comprised 8The number of the small hydro-based grids for isolated commune electrificaton in the first phase of the REAP was increased from the level discussed during the workshop m October because of knowl- edge gamed about the interest and planned activities of other international agencies (see details in main report). xvii: Executive Summary of representatives of key GOV agencies, in- in the facilities. Grant financing will be cluding the Ministry of Planning and In- sought from the GEF, to the extent that in- vestment (MPI), Ministry of Finance cremental costs result in reduction in green- (MOF); and Ministry of Science, Technol- house gas emissions. The creation of a Re- ogy and Environment (MOSTE) as well as newable Energy Fund at national and pro- provincial governments, the financial com- vincial level is proposed. The proposed munity and private sector. This committee Renewable Energy Fund could be financed will advise on sector development issues and by the GOV and bilateral donors in recog- assist in coordination. Coordination with nition of social development benefits, and other rural infrastructure programs being from payments from commumties that have implemented by the GOV will be particu- renewable energy grids. larly important. International Assistance. Assistance from Financing Strategy. A significant part of international agencies will be actively the financing for REAP would be provided sought by MOI during planning and imple- by households and communities using the mentation of the REAP. To date, staff of the decentralized systems and by developers of Japan International Cooperation Agency grid-connected projects that would invest (ICA) and Swedish International Develop- Table 1: Indicative Physical Achievements and Costs of REAP Program Phase 1 (0-5 years) REAP Component Physical Targets Estimated Cost Households (000) MW Million US$ Policy and Insbtutional Development 3 Individual Household and Institufional 25-50 7-15 Community Isolated Hydro Gnds 10-40 - 6-21 Gnd-connected Renewable Energy - 25-51 25-47 Technology ImprovementUResource Assessment - - 5 Subtotal 35-90 25-51 46-91 Total Program (0-10 years) Physical Targets Total Cost Households (000) MW Million USS Policy and Insttutional Development 6 Individual Household and Institutional 85-150 18-39 Community Isolated Hydro Gnds 90-150 45-74 Grid-connected Renewable Energy 175-251 206-289 Technology ImprovemenUResource Assessment - 10 Total 175-300 175-251 285-418 Executive Summary xix ment Agency (SIDA) have expressed inter- proved pico-hydro systems, the most afford- est in implementing projects within the able off-grid electricity supply sources. For framework of the REAP. The World Bank the commune-based hydro systems, the plans to continue to support REAP by as- approach taken will build on the successes sisting in implementation, in two further and lessons learned from existing projects. phases: Special attention will be given to the orga- * The proposed SEIER Project (FY02) nizational set-up and financial sustainability. will include a renewable energy com- For the grid-connected projects, an SPPA ponent to support some components of is to be adopted by EVN-experience from Phase 1. other countries show that this approach re- * The proposed Rural Energy 2 Project duces transactions costs and risks to inves- (FY04) will support large-scale imple- tors. This will provide an ongoing market mentation in Phase 2. for electricity from independent producers. A temporary support unit will support EVN, Risk and Sustainability. There are sub- financial institutions, investors and project stantial risks in any renewable energy pro- developers. In the long run, similar to the gram, because the technologies are new and off-grid systems, market forces will enhance lesser known. Additional risks in carrying sustainability. out the REAP include (a) the barriers to business, especially private business, in Viet- In designing the REAP, lessons learned nam, including discrimination with respect from the experience of the World Bank and to approvals, licensing, and access to financ- other international agencies have been used. ing; and (b) the fact that renewable tech- These lessons indude the need nologies are directed to isolated communi- * for ensuring a policy and legal frame- ties in Vietnam, which are also the poorest work to guide private sector involve- and least skilled in terms of management. ment; Failures with existing commune hydro fa- a to first build capacity and support strong cilities highlight the risks. institutional set-up before developing larger-scale investments; Nevertheless, the sustainability of the pro- * for understanding the market character- gram is considered strong, despite these istics, including willingness and capa- risks, because of the commitment of the bility of consumers to pay, before GOV to providing rural electricity service implementing an enterprise-driven to all communities, and the step-by-step energy project; approach being taken.The phased approach * to support development of commercial allows for learning through pilots, before renewable energy businesses, which are scaling up. Sustainability will also be ad- the engine for implementing the dressed in the design of each component. projects; and For example, the individual household * for financial intermediation, including component would focus on supporting im- microfinance. xx Executive Summary A. Overview of the Renewable Energy Action Plan in Vietnam 1. Background phases: Phase 1, an institutional and capacity building phase, and Phase 2, an implementa- Renewable energy could play a significant role tion phase. For the first phase, the REAP de- in providing electricity services to rural tails the activities, TA, and institutional and people in Vietnam. In 2000, about 3.9 mnil- financial requirements. For the second phase, hon households and about 18 million people the REAP provides only a broad outline for in rural areas of Vietnam had no access to the scale and scope of implementation be- electricity.To improve this situation, the GOV cause it depends on the achievements of is carrying out an ambitious rural electrifica- Phase 1. tion program that aims to extend the national grid to 90 percent of rural households by The REAP was prepared in a series of steps: 2005.9 Decentralized sources of electricity, es- (a) a participatory workshop with stakehold- pecially those based on renewable energy, of- ers inJune 1999 to discuss renewable energy fer the remaining households the only op- potential, problems, and solutions; (b) prepa- portunity to experience the benefits of mod- ration of more than 10 consulting studies by ern lighting, communication, and appliances. teams of national and international consult- Renewable electricity plants connected to the ants; (c) synthesis of the study results into a grid could cost-effectively supplement grid draft action plan report; (d) presentation of electricity, reducing losses and improving grid the draft report at a two-day participatory stability by providing generation at the far workshop with stakeholders and discussion reaches of the grid. with other international agencies in Octo- ber 2000; and (e) revision of the report to At the request of EVN, the World Bank as- take into account all cormments received. sisted in preparing the Renewable Energy Ac- tion Plan (REAP). The REAP is a frame- After the October workshop endorsed the work for international assistance to scale up REAP, EVN and MOI agreed that MOI renewable electricity development inVietnam will act as the coordinating agency for imple- for rural electrification and grid supply. It pro- menting the REAP. It will use the REAP as poses a 10-year program with two 5-year a framework for efforts by international agen- 'As one element of this program, the GOV, with World Bank assistance, has initiated the Rural Energy I Project, with a total cost of USS201.3 million, to extend the grid to about 430,000 rural households in 32 provinces. cies, thereby creating synergy. MOI and EVN ity. Many countries, including Germany, Ja- will open discussions with other interested pan, Netherlands, and the United States, also international agencies that may be interested provide direct subsidies on capital costs for in renewable electricity development. It is less mature technologies like solar PV. Finally, hoped that other agencies will find the frame- most countries support renewable energy work useful and will participate in its imple- through the tax system, using such measures mentation. as lower VAT, tax credits, and lower rates of income tax, and increasingly taxing use of The report is in two parts. Part A gives an thermal energy. overview of the REAP, while Part B pro- vides details on each component.The over- In the last few years, even stronger"mandated view contains (a) this introduction; (b) a sum- market" mechanisms are being introduced to mary of international developments in re- promote renewable electricityThe European newable electricity; (c) an analysis of the po- Union (EU) has set a target that 12 percent tential for renewable electricity inVietnam; of all energy should come from renewable (d) an analysis of the barriers to its develop- energy, and is negotiating with member coun- ment; and (e) an outline of the proposed ac- tries on compliance. A number of countries tion plan. have introduced a legal requirement on sup- pliers that a certain share of electricity should 1.1 International Context come from renewable electricity." This re- quirement is justified by the failure of the In a growing number of countries, govern- market to recognize the environmental ben- ments are introducing strong policies and pro- efits of renewable energy. grams to promote renewable energy, espe- cially for electricity generation. Policies to China has an impressive history of use of re- promote renewable electricity are justified by newable energy for rural development, with the social and economic benefits, including some of the world's largest programs on small (a) environmental protection; (b) provision hydropower, biogas, and efficient woodstoves. of electricity on a least-cost basis to remote The experience in small hydropower is espe- areas; (c) creation of economic activity and cially significant forVietnam. China has con- employment in remote areas; and (d) diversi- structed more than 23 GW of small hydro- fication of energy supply. power. These stations supply about 800 of China's 1,800 counties and 300 million In industrial countries, mature renewable en- people with most of their electricity. Elec- ergy technologies are often supported tricity from small hydro plants made an im- through a legal requirement that utilities pur- portant contribution to the growth of indus- chase renewable energy if it is offered below tries in rural China. Most of these stations a certain price. In the United States, this price were built on isolated grids; now 64 percent is the minimum, the avoided cost of conven- are connected to the main provincial grids. tional electricity production. In other coun- Small hydro plants were installed with TA tries, the stipulated price is higher than the from the Ministry of Water Resources and price of conventional electricity, reflecting the financed by grants and loans from govern- environmental benefits of renewable electric- ment, loans from local banks, and commu- '° Including Australia, Belgium, Denmark, Italy, Netherlands (voluntary), the United Kingdom, and seven U.S. states, including Texas 2 Overview of the Renewable Energy Action Plan in Vietnam nity labor and resources. Governments also mass cogeneration, 1,160 MW of small hy- supported small hydro .through exemptions dropower, and 750,000 solar PV systems with from income tax;VAT reduction from 17 per- a total capacity of 58 MWp."3 India had a cent to 6 percent; and provision of a subsidy World Bank/GEF Project, which installed to to buy down the interest rate on a certain date 44 MW of grid-connected small hydro- amount of the loans by 1-2 percent. power, 50 MW of wind farms, and 4.2 MWp systems of solar PV for household and insti- China is initiating new programs to acceler- tutional use. A second World Bank/GEF ate renewable electricity. The World Bank/ project has been approved, aiming to install GEF have approved a project to support in- an additional 200 MW of small hydro capac- stallation of300,000-400,000 solar home sys- ity, with special attention to serving rural tems (SHSs) in Northwest China, and 20 MW communities in hilly areas. of grid-connected wind farms, as well as to improve local solar technology. " China is also Like China, India is embarking on a major developing, with World Bank/GEF support, new policy initiative.While the policy is not a major initiative to introduce a legal require- yet finalized, current information suggests that ment on suppliers that a certain share of all 10 percent of all new power generation ca- electricity will come from renewable sources. pacity will be based on renewable energy It is expected to aim to increase installed ca- (about 12 GW new capacity by 2012), and pacity of renewable electricity by 5-10 GW that renewable electricity will supply 4,500 over the business-as-usual case by 2010. The remote villages and 2 milion additional iso- Asian Development Bank (ADB) and the lated households by 2012. India expects that United Nations Development Programme electricity from wind, bagasse cogeneration, (UNDP) are also supporting renewable and small hydropower will be fully competi- projects in China, along with many bilateral tive with conventional electricity by 2012. donors. Sri Lanka is new in supporting renewable en- India also has strong achievements, including ergy development, comparable to Vietnam. the fourth largest installed wind power ca- The first large-scale inmtiative was the World pacity in the world. India's policies to pro- Bank/GEF Energy Services Delivery (ESD) mote renewable energy include 100 percent Project."4 In 1997 the US$55.4 million project depreciation of the investment in the first began with 3 components: (a) US$49 mil- year;12 reduction of custom duties; sales tax lion for private sector companies and com- exemptions in some states; five-year tax holi- munity organizations that sell PV systems or day for independent power producers (IPPs); develop grid-connected rmini-hydro or vil- assured power purchase at fixed rates by some lage hydro plants; (b) a pilot wind farm for state utilities (about US$0.06 per kWh); fa- US$3.8 milion; and (c) capacity building for cilities for wheeling, banking, and third party US$2.6 million.Today nearly 25 MW in mini sale of power; 10-year financing; grant assis- hydro projects are commissioned or under tance; and low interest loans for PV Using construction, and another 12 MW are under these policies, India has installed more than review by banks; 8 village hydro systems have 1,175 MW of wind power, 235 MW of bio- been financed and 3 are under consideration; " China Renewable Energy Development ProgramWeb site: http://setc-gef.newenergyorg.cn 12 Accelerated depreciation is also applicable for some conventional investments. 3Mimstry of Non-Conventional Energy Sources Web site: http://mnes.nic.in/so3.htm. 4 Sri Lanka ESD Project Web site: http://www.energyservice.lk. Overview of the Renewable Energy Aaion Plan in Vietnam 3 and loans for 7,200 PV systems have been cilities; individual and institutional solar PV approved. Shell Solar has entered the solar systems, for relatively dispersed areas where systems market.The project has catalyzed in- even isolated grids are not viable; and pilots, volvement of microfinance institutions. By such as efficient use of wood fuels by rural developing an SPPA, the project has created small and medium enterprises. Capacity build- the framework for sustained mini-hydro. ing supports sector reform, project develop- ment, low-cost rural electrification designs, Uganda.Today less than 1 percent of the rural and light-handed regulation at the local level. population has access to grid-supplied elec- tricity. The Government has enacted a new Table 2 summarizes the information presented Electricity Law, which encourages private above for selected countries. participation in the power market. In rural electrification, the government is encourag- 1.2 Renewable Electricity inVietnam to ing a commercial approach, with the gov- Date ernment playing the role of market enabler. The main elements of the approach are (a) a Overview of the Power Sector level playing field for private and pubhc sec- tor participants; (b) enablng regulatory frame- Vietnam is well endowed with energy re- work; (c) cost recovery and cost-based tariffs; sources, creating the opportunity to provide and (d) a transparent subsidy transfer and fi- local industries and households with electric- nancing mechanism.The Government has re- ity, and export electricity to neighboring quested World Bank/GEF assistance for a countries. Nevertheless, current per capita use large-scale rural electrification program of electricity is one of the lowest in the world, (US$375 million).The main investment com- at 309 kWh per year or less than 26 kWh per ponents include support for grid-connected month. In 1999, the power sector had- an in- renewable generation; isolated renewable fa- stalled capacity of 5,765 MW, of which hy- Table 2 Summary of Selected Major Renewable Electricity Initiatives Grid-conneded target Rural Elecrification Target World Bank/GEF Region (MW) (000 households) Support Status Europe 50.000 - No Preparaton China - Renewable Energy 20 (Revised) 300-400 Yes Approved Development Project - Renewable Energy Scale-up 10,000 additonal MW by n.a. Yes Preparabon Program 2010 India- - RRDP Project 150 Yes implementation - Proposed Policy 12.000 by 2012 4,500 villages and 2 million Requested Approved by Cabinet of households Secretaries Sn Lanka 26 32 Yes implementabon Uganda 70 100-300 Yes Preparabon n.a Not applicable Source: Team estmates 4 Overview of the Renewable Energy Action Plan in Vietnam dro plants accounted for 53 percent, thermal A new electricity law is under preparation. power plants 22 percent, gas turbines 20 per- Main objectives of the new law are to (a) cent and diesel 5 percent. Power consump- attract domestic and foreign investors; (b) en- tion has been growing rapidly over the last sure equality, fairness and competition in decade at 11.8 percent per year.According to power production and trading; and (c) pro- EVN's forecast, this growth rate will continue tect legal rights and the interests of consum- until 2010,when electricity consumption per ers. The law is expected to make EVN the capita is forecast to more than double to 734 sole buyer of electricity. Competition will be kWh per year. Installed capacity is expected encouraged in generation, with a 20 percent to triple, to about 16 GW, straining the abil- target for private sector generation in the me- ity of the power sector to finance plants. dium term.The electricity law is not expected Hydro is expected to remain dominant, al- to be in place until 2003, and implementing though its share will drop to 40 percent. Coal decrees will be issued only after the law is will play an increasing role in the north, and passed. Until then, there is considerable un- gas resources in the south. certainty as a result of conflicting interim regulations, as well as uncertainty about flu- The key organizations in the power sector ture policies. are MOI and EVN. MOI is responsible for energy policy and planning. EVN is a state- The GOV plans to encourage private invest- owned utility responsible for producton, ment in infrastructure using the build-oper- transmission, distribution and supply of elec- ate-transfer (BOT) model, to avoid using bud- tricity. Under EVN, the seven regional power get resources or sovereign debt to finance all companies in charge of power distribution expansion in the power grid. Nevertheless, and retailing through the country are Power the private investor in a power plant faces Company (PC) Hanoi, PC Ho Chi Minh several difficulties: (a) procedures for initiat- (HCM) City, PC1 (North), PC2 (South), PC3 ing and operating a private sector business in (Central), PC Dong Nai and PC Hai Phong. Vietnam are lengthy, complicated, and not In several provinces, especially in the south, transparent; (b) the legal system remains un- electricity distributon companies exist at developed, creating uncertainty about the le- provincial and district level. gal force of contracts, busmess procedures and agreements; (c) there is not a level playing Tariffs are currendy set at only about two field, private domestic and foreign investors thirds of the long-run marginal cost (LRMC), are at a disadvantage compared to pubhcly indicating that long-term financial situation owned entities in obtaining contracts, icenses may not be sustainable. For example, the av- and approvals, and even bank financing; and erage retail tariff, excludingVAT, in 1999 was (d) the fact that EVN and its subsidiaries are VND 662 (US$0.047) per kWh. This com- monopoly buyers places them in a strong pares to an estimated LRMC including gen- position when determining tariffi. eration, transmission and distribution, of about VND 980-1,120 (US$0.07-0.08). It is EVN and its subsidiaries are making substan- planned to increase the average tariff, exclud- tial progress in rural electrification. In 2000, ingVAT, toVND 896 (US$0.064) in 2001.15 81 percent of the communes (7,245) and 71 15 GOV has agreed with the World Bank and other international agencies to increase the average tariff toVND 896 (see Country Assistance Strategy). 16 Ibid. Overview of the Renewable Energy Action Plan in Vietnam S percent of rural households (9.3 million) had Renewable Resources and the Status of electricity service from the grid. GOV aims Different Technologies to provide electricity to 90 percent of rural households by 2005. Responsibility for The potential of renewable energy for elec- implementing rural electrification is as fol- tricity has been recognized inVietnam, though lows:17 (a) MOI manages overall planning, its promise has not yet been realized.The first provides guidance and supervises implemen- step in the REAP study was a two day par- tation; (b) MPI, together with MOF, prepares ticipatory workshop with 32 representatives an annual investment plan (from State Bud- of agencies and organizations involved in the get, concessional credit, and Official Devel- energy sector, in June 1999.18 The objectives opment Assistance (ODA) funds); (c) MOF of the workshop were (a) to identify the most defines the State Budget, mobilizes and pro- promising options for renewable energy de- vides concessional credits; (d) Provincial velopment; (b) to develop a common under- People's Committees (PPCs) prepare invest- standing of the main barriers for renewable ment plans and manage rural electrification energy development, and ways to address these programs in their territories; and (e) State barriers; and (c) to provide a basis for defin- Bank instructs commercial banks to provide ing the studies to be conducted under the concessional loans for poorest households. REAP. There is a uniform national rural residential The workshop identified the options with retaal tariff ofVND 700 per kWh for com- the most potential as the following: munes connected to the grid. On an excep- * Grid connected mini hydro and biomass tional basis, the GOV allows flexibility in ru- systems ral tariffs, to allow the recovery of distribu- * Mini hydro for isolated community grids, tion costs by the local authorities selling alone or in hybrid systems with diesel power. This has been allowed under a GOV * Household scale pico-hydro systems. decree that permits people's committees to * Household scale solar electricity systems decide on exceptions to the VND 700 per kWh rural residential tariff rule. In 1997, the Assessment by the REAP team confirmed average rural tariff was VND 670 per kWh. that these are the main opportunities in the Nevertheless, about 7 percent of consumers near to medium term, as discussed below. For paid more than VND 900, 32 percent paid a summary of the potential and current use VND 700-900, and 61 percent paid VND of renewable energy in Vietnam, see Table 3 450-700 per kWh. The PCs sell electricity below. to the local rural distribution company at a wholesale price approved by the GOV,VND Small Hydropower.Vietnam is rich in hy- 360 per kWh (US$0.026), which is less than dropower resources. Technical potential for the cost of generation.This implies that there small hydro power (<10 MW per site) is 800- is a cross-subsidy to rural consumers from 1,400 MW.'9 The hydro resources are mainly other consumers. in the north and central areas, near the bor- t7 NguyetAnh Pham. 2000. Background Information for Institutional and Policy Aspects of Renewable Energy Development. Consultant report to World Bank,Washington, D.C. "8 ASTAE. 2000. Options for Renewable Energy in Vietnam, report on the June 15-16, 1999, two-day participatory workshop m Hanoi. ESMAP Technical Paper 001.World Bank,Washungton, D.C. 19 Estimated by Hydropower Department of the Institute of Energy. 6 Overview of the Renewable Energy Action Plan in Vietnam Table 3 Potential and Current Use of Renewable Energy in Vietnam Potential Current Usage Resource MW Thousand hh MW Thousand hh Geographical potential served served Hydro power 800-1,400 110-155 North and center pico-hydro 90-150 200-250 30-75 100 North and center isolated mini-gnds 300-600 300 20 n a. North and center -gnd connected mini hydro 400-600 n.a. 60 n a North and center Off-gnd solar PV systems 2 50 06 5 South and center Biomass bagasse, Tice husks, and so forth 250-400 n.a 50 n a South and center Geothermal -50-200 n a 0 n a Center Wind power TBD TBD 02 1 Central coastal region Total 1,100-1,900 500-600 160-215 106 n.a Not applicable. TBD = to be detenmned. der with Laos and Cambodia. About 70-75 200 kW Most of the systems are installed in percent of the annual runoff is generated in north and central Vietnam (see Section B3 three to four months. There are now about for details). The qualhty of the community 60 MW of grid-connected muni hydro in- systems is poor and about 200 of them are stalled at 48 sites, ranging from 100 to 7,500 not operating. Commercially operated small kW capacity (see Section B4 for details).20 hydro-power-based grids have a much lower Only six out of the 48 have been reported as failure rate than community operated ones. not in operation (13 percent) due to equip- For example, in Dong Nal, of 19 remote area ment failure.Though most of the systems are installations, the 10 community-operated sys- functioning, there is substantial scope to in- tems failed whle nine conimercially oper- crease capacity and generation through reha- ated systems were working. According to es- bilitation.All the grid-connected systems were timates above, there are 300-600 MW of small government financed, either directly or hydropower that could be developed for through international aid.There are estimated community use. to be 400-600 MW of grid-connected mnim- hydro potential (see Table 3). A pico-hydro system is a small family scale gen- erator consisting of a propeller turbine, (1 00- More than 300 commune based small hydro sys- 1,000W) generator, wires and switches. It is tems have been installed. The total installed placed in a stream or river near the home. It capacity of these systems is about 70 MW, is estimated that about 100,000-150,000 with individual systems ranging from 5 to pico-hydro systems have been sold in open 20 Hydro Power Center. 2000. Package B Collection of Basic Information and Mapping Information for Vietnam. Consultant report to World Bank,Washington, D.C. Overview of the Renewable Energy Action Plan in Vietnam 7 markets on a commercial basis (see Section lated capacity of larger industrial sugar mills B2 for details). The further potential for use (>1,000 cane tons per day) was expected to of these systems is considerable. increase from 20,500TCD in 1997 to 98,000 TCD in 2005 according to government plans. Solar Electricity. Vietnam has good con- This was to be achieved by modernization stant solar resources in the south and center and expansion ofat least seven plants and con- but substantial seasonal fluctuations in the struction of 12 new ones. Initial estimates north. Solar radiation levels in the south and show that these modern industrial mills could central regions average just below 5 kWh per generate about 120 MW of excess power that m2 and are almost constant during the year, could be sold to the grid (an estimated 434 ranging from 4.0 to 5.9 kWh per m2. The mnllion kWh). The expansion of sugar mills solar regime in the north exhibits averages has halted because of a current surplus of sugar. around 4 kWh per m2, but has wide varia- However, even without new mills, an oppor- tion ranging from 2.4 to 5.6. Installations in tunity exists as only 3 out of 43 facilities sell the north would be more expensive as they electricity to EVN.There is substantial scope must include extra capacity to compensate for updating the technology and creating ex- for cloudier winter months. Therefore, pri- cess generation. Production ofelectricity from ority for solar development will be in the rice husks is also an important but untapped center and southern part of the country, where resource. rural electrification is very advanced using grid extension. Vietnam has approximately Other Renewable Resources. With more 650 kW21 or about 5,000 installed solar PV than 3,000 km of seashore and 70 percent of systems divided over three market segments: the country mountainous, there is likely to professional applications (50 percent), insti- be potential for wind power. The potential tutional systems like hospitals, community cannot be quantified as no systematic wind centers and battery charging centers (30 per- resource measurements are available. Data cent), and household systems (20 percent). from meteorological stations is of limited use Most of the systems installed inVietnam are as the measurement sites are not appropriate in operation and of good quality. Almost all for wind farms and meters are not calibrated of the panels are imported. regularly.The data show averages recorded of about 5 m/s (at a 10-meter height). A study Biomass Cogeneration.The main biomass by the Institute of Energy ofVietnam (IE) on sources that can be used to generate electric- nune islands shows average annual wind speeds ity are sugarcane bagasse, cane trash, and rice ranging from 4.1 to 7.1 m/s. Potential is in- husks. An estimated 2.5 million tons of ba- dicated by the results of a macro wind map- gasse (1999) and 3.8 million tons of rice husks ping study ofVietnam and neiboring coun- (1996) are available.' Most of the 43 existing tries, showing several pockets of wind speeds sugar mills are located from Da Nang south- higher than 6 m/s, in the mountainous areas ward. Only three sugar mills supply power to that border Laos, and coastal provinces south the grid: Son La sugar mill in the North, La of Da Nang and north of HCM City.Y3 (See Nga sugar mill, and Sucrerie de Bourbon- Annex 2, Macro-Level Wind Map ofViet- Tay Ninh, both in the South. The accumu- nam and neiboring countries). While there 21 Institute of Energy estimate. 22 Ibid. 23Truewind Solutions. 2001. Wind ResourceAtlas of SoutheastAsia. Consultant report toWorld Bank. 8 Overview of the Renewable Energy Action Plan in Vietnam are no grid-connected wind energy systems cro-hydro-diesel pilot project in Son La in Vietnam, the Research Center for Ther- Province; identification of an investment mal Equipment and Renewable Energy of pipeline of 15 projects to rehabilitate grid the HCM City University of Technology connected hydro facilities; development (RECTERE) has developed and installed of an SPPA and tariff; and a visit of the household wind power home systems. IE has main Vietnamese stakeholders to village also been involved in government supported hydro, solar and grid connected renew- household scale pilot projects and research able projects in Sri Lanka. and development. * Projects with support from IFC andTrust Fund resources that resulted in a Master No information is available about the geo- Plan for Rural Electrification for Viet- thermal resource potential in Vietnam. One nam (Danish Consultant Trust Fund); developer has estimated that about 200 MW preparation of an investment pipeline for is available in CentralVietnam. Based on their new small hydro sites (New Zealand initial assessment they are pursuing a Government); a macro level wind re- prefeasibility study for three plants generat- source map for Vietnam and neiboring ing at least 50 MW of power. Six sites have countries. (Netherlands Partnership Pro- been identified with total potential capacity gram); renewable energy training and estimated at about 100 MW.24 awareness material for communes (Neth- erlands Partnership Program); investment International Assistance for Renewable and business plan for micro hydro manu- Electricity Development facturing business (Swiss ConsultantTrust Fund); and IFC support for a commer- Supporf for renewable electricity develop- cial solar company that is selling PV sys- ment has been provided to the GOV by in- tems. ternational agencies, such as the World Bank, UNDP, JICA, and SIDA. The World Bank Other renewable energy research and devel- Group has supported the following activities opment projects have been supported by in- (see also Annex 3). ternational agencies (see Annex 4). * REAP Background studies included cre- ation of a data base on more than 1,100 In particular, the Government ofJapan has communes that will not be electrified by provided assistance for renewable energy ac- EVN in the next five years;25 a feasibility tivities including a demopstration project of study for individual systems for house- a hybrid system of PV micro-hydro-power holds and institutions; a feasibility study in Gia Lai Province through the New En- for community isolated hydro grids; an ergy and IndustrialTechnology Development institutional and policy background study; Organization (NEDO); and a rural electrifi- and a techno-economic analysis of op- cation plan for 265 communes of 17 prov- tions. inces in the north through the use of renew- * Renewable Energy activities as part of able resources, such as micro-hydro, solar or the preparation of the Rural Energy 1 wind energy (ICA). Project, included a commune based mi- 24Informal commumcation with ORMAT, USA. i5 Data mcludes population, number of households, per capita income, village spacing, access to seasonal road, perenmnal road, health center, school, market, and small hydro potential. Overview of the Renewable Energy Action Plan in Vietnam 9 Sweden (SIDA) has provided support for a * Lack of commercial businesses to provide Regional Research and Dissemination Pro- renewable electricity equipment and ser- gram on Renewable Energy Technology for vices. More transparency is required on Asia to promote dissemination of technolo- the implementation of the business li- gies through adaptation to local conditions. censing and regulatory frameworks, to This program is coordinated by the Asian In- encourage formation of such businesses. stitute of Technology and implemented by Publicly and privately owned businesses research agencies in 6 countries. SIDA will need to be treated equally with respect consider rural electrification using renewable to project approvals and access to financ- energy technologies in their assistance pro- ing. gram during 2001-2003. * Lack of financing for consumers, busi- nesses and developers. Consumer credit Barriers to Renewable Electricity De- is needed for solar PV household units. velopment Credit is also required for many of the small and medium companies that might Despite the work that is going on, consider- be renewable energy suppliers. Long- able barriers and challenges to developing re- term financing is needed for commumnty newable energy in Vietnam remain. During mini-grids and developers of grid-con- the participatory workshop referred to ear- nected projects. lier, a brainstorming session was held to iden- * Local technology is not yet available. tify these barriers. More than 100 perceived Pico-hydro and small hydro generators barriers were identified by the participants and controls are of lesser quality than sys- (see Annex 5).The main barriers were iden- tems available internationally. Import of tified as the following: high quality equipment or the introduc- * Lack of an adequate policy and regula- tion of joint venture investment to im- tory framework that encourages renew- prove local quality of equipment is able electricity where it is least cost. Poli- needed to support a major program.27 cies, regulations and procedures are re- * Inadequate resource and market data to quired to level the playing field with con- plan a major program and to develop ventional generation. For rural electrifi- projects. For small hydro, a number ofsites cation, a mechanism is required to deter- have been identified, but the level of de- rmine and channel an appropriate subsidy tail is not adequate for planning a de- to rural communities. tailed program. Data is scant and incon- * Inadequate information about the tech- sistent for wind energy. nologies, their costs and effectiveness, for the potential investors in grid-connected Studies were undertaken as part of the REAP plants, community and household sys- to identify a framework for how to address tems, for financing agencies, and for gov- these barriers. The resulting Action Plan is ernment officials at all levels.26 described below. 26 A start has been made by preparing renewable energy traning material for communes through the Renewable Energy for Rural Infrastructure Development project (RERID, see also Annex 1). 27 A start has been made on this through twimung of a Swiss company with RERC. See Annex 1, and Entec, 2000. Investment and Business Plan for Setting up a Micro Hydro Turbine Manufacturing Business in Vietnam. Consultant report forWorld Bank,Washington, D.C. 10 Overview of the Renewable Energy Action Plan in Vietnam 2. Renewable Energy Action The REAP wil be carried out in two phases, Plan an institutional and capacity building phase and an implementation phase, each about five 2.1 Objective and Indicators years long. The institutional and capacity building phase will allow time to put in place The objective of the REAP is that renewable the necessary policy, legislative and regula- energy will provide electricity for economic tory base for renewable energy activities to and social development in remote areas by expand. It would also allow trial activities that (a) supplying isolated households and com- would be focused on particular provinces, munities that cannot be reached economi- which could test the proposed implementa- cally by the grid; and (b) augmenting grid tion activities and arrangements. supply in remote areas. Private and public sector companies, as well as nongovernmen- The program would follow six strate- tal organizations (NGOs), will supply cost- gic principles: effective, reliable renewable electricity equip- ment and services, on a commercial basis, to (a) Renewable electricity will be used when it is households and commumties. least cost and economically viable. There are two areas where decentralized renewable Success in reaching this objective will be mea- electricity systems are cost-effective in sured by the following indicators: Vietnam: * the number of renewable electricity sys- * To provide'electricity services to remote tems operated by households and insti- consumers who will not be reached by tutions; extension of the grid. These include * the number ofisolated grids installed with households in communes too far away renewable electricity, the number of to be reached by the grid, or households households served and the MWh gener- in electrified communes that cannot be ated and sold in such grids; economically connected. * electricity use per household with renew- * To augment electrncity supply to the grid, able electricity; especially in outlying areas.This will help * productive usage of electricity in com- improve grid stability and reduce trans- munities with isolated grids; mission losses, increasingly important * the number of renewable electricity fa- considerations as the grid network ex- cilities selling electricity to the grid and pands. the MWh sold. (b) Renewable electricity will be supplied on a com- 2.2 Strategy and Principles mercial basis, by all types of businesses. Re- newable electricity equipment and ser- The GOV, in partnership with international vices will be supplied by a variety of pri- agencies, will carry out a 10-year program vate and public sector companies, coop- that will enable large-scale supply of clean, eratives and NGOs, on a commercial ba- reliable electricity from renewable energy to sis. The new Company Law issued in rural communities. Priority wllU be given to 2000 is supportive of companies, but the providing energy services in poorer isolated program will also build on Vietnam's communes and villages, with particular at- strong base of local community electric- tention to supporting productive uses and ity umts and cooperatives. The private social development through electricity ser- sector wllU be encouraged. vices. Overview of the Renewable Energy Action Plan in Vietnam 11 (c) Communities, individual consumers and inves- 6I Limited grant assistance will be provided in rec- tors will actively contribute to and participate ognition of the social and environmental ben- in the program All stakeholders will par- efits, but will be used carefully. Grant fund- ticipate actively in program design and ing is needed to build the capacity for implementation and invest their own large-scale renewable electricity develop- funds in the proposed activities and in- ment in government, business and com- stallations.The government and interna- munities. Grant funding is also needed tional agencies will contribute, but there to buy down the costs of preinvestment must be a concept of local community activities and, and to some extent, renew- and investor cost sharing, ownership and able electricity facilities for rural electri- participation in the choice of technol- fication. For grid-connected investment, ogy and management approach. an effective role for subsidy or grant funds is to cover higher risk preinvestment costs, (d) Government will act as a market enabler. Build- such as feasibility and prefeasibility stud- ing on the principles in MOI's Rural ies, information collection, resource as- Electrification Policy (see Section B 1), the sessment, training and capacity building. GOV will issue policies and establish the For off-grid facilities, consideration will legislation and regulation to support be given to subsidizing part of the capi- commercial development of renewable tal costs of the facilities, as is now done electricity. Government assistance will be with grid extension. Grants will be sought provided for capacity building in design, from the GEF and others for global en- engineering, business and finance to sup- vironmental benefits, and from the GOV port the renewable energy sector and and international agencies for local so- management of the renewable facilities cial and environmental benefits. in rural communities. The Government will play an important role in assuring 2.3 Program Components quality and safety, as well as increasing awareness. The program will focus on three potential markets segments for renewable energy: in- (e) Access to long-term aedit will be increased to dividual and institutional consumers that will improvefinancial viability of businesses and use stand alone systems; communities that affordability of services. Financing will be could benefit from isolated grids; and supply needed by renewable energy businesses to the national grid. The program has five for investment in facilities and distribu- main components,which are descnbed briefly tion networks and for working capital. below for Phase 1:11 The program will facilitate provision of credit by commercial banks, so that they (a) Renewable Energy Policy and Institutional gain experience with the renewable elec- Development (TA: US$3 million) Building tricity business and take it on it's financ- on the Rural Electrification Policy, TA ing as a normal activity. The REAP will will be provided to (i) prepare decrees facilitate access to credit for individual and regulations needed to encourage off- households to purchase systems or for grid rural electrification and small power communities or developers to finance producers to sell to the grid; (ii) improve larger scale plants. access to financing; (iii) investigate tax in- 28 The five main components were derived from the workshop with the mam stakeholders and the analysis of potential for expansion (see section 1.3.2) 12 Overview of the Renewable Energy Action Plan in Vietnam centives; (iv) develop the concept of a Re- cogeneration. EVN will purchase the newable Energy Fund; and (v) and pro- power under an SPPA and associated vide training and business development tariff. Long-term financing will be assistance to businesses and government required for these investments. at all levels (ii) EVN Rehabilitation of Small Hydro- power Plants (TA: US$0.5-1 million; (b) Individual Household/Institutional Systems Investment US$12 million) EVN will (TA: US$3-5 million;Investment: US$3.5- rehabilitate up to 13 economically 10 million) The aim will be to support viable small hydro plants with an ag- businesses to sell and provide after-sales gregate capacity of 26 MW EVN service and support for 25,000-50,000 may later consider equitization of systems, (improved pico-hydro and solar these plants. PV) for use by individual households, schools, and other institutions that can- (e) Technology/Market Development and Re- not be connected to the grid. The pro- sourceAssessment (TA US$5 million). Other gram would provide training, technical activities will be supported to strengthen and financial support for the development capacity for scale-up. Indicative activities of commercial businesses to supply good are technology improvement of locally quality equipment and services. manufactured products; acceleration of institutional markets for renewable en- (c) Community Isolated Hydro Grids (TA: ergy; and creation of a public data base US$1-3 million; Investment US$4.5-18 on renewable energy resources. million)' TA and investment support will be provided to 20-80 communes in Each component will be discussed in detail northern provinces to build and operate in Section B of the report. mnini-grids based on hydro-hybrid plants. These grids will serve 10,000-40,000 2.4 Expected Results and Costs households, as well as productive loads, which are essential for viability. TA will Total cost of the program is estimated to be be provided to develop community elec- US$46-91 million in Phase 1. The result tricity cooperatives or mini-utility busi- would be provision of electricity to 35,000- nesses, as well as stimulate income-gen- 90,000 households off the national grid, and erating activities. installation and operation of 41-50 MW of renewable electricity generation by small (d) Grid-ConnectedRenewableElectricity.There power producers connected to the national will be two subcomponents under this grid.The results depend on the commitment component: and resources put into the program by the (i) Renewable Energy Small Power Produc- GOV, as well as support from international ers (TA: US$1-3 million; Investment agencies. If the results of the first phase are US$18-30 million) Small power pro- successful, Phase 2 could involve a scale-up ducers will invest in 15-25 MW of of the above activities by a factor five or more. renewable electricity for grid supply, Preliminary estimates of potential scale for from small hydro, bagasse or rice husk Phase 2 are given in Table 4. 29 number of the small hydro-based grids for isolated commnune electrification was increased be- cause interest and planned activitLes of other international agencies. Overview of the Renewable Energy Action Plan in Vietnam 13 2.5 Financing Plan from multilateral banks, which are increas- ingly interested in supporting renewable en- Indicative sources of financing for the above ergy. Grants would also be sought from the investment and TA program are given below GOV and bilateral agencies in recognition of in Table 5. A significant part of the financing local social and environmental benefits that would be provided by investors themselves, are not recognized in the market. Grant fi- households, communities and developers of nancing will also be sought from the GEF, grid-connected projects in the form of eq- Prototype Carbon Fund (PCF) and the Clean uity. Loans wlll be made by commercial banks, Development Mechanism (CDM) to the ex- but financing to be onlent could be sought tent that activities result in reduced green- Table 4: Indicative Physical Achievements and Costs of REAP Program Phase 1 REAP Component Physical Targets Estimated Cost Households (000) MW Million USS Policy and Instibutonal Development 3 Individual Household and Institutonal 25-50 7-15 Community Isolated Hydro Grids 10-40 - 6-21 Grid-connected Renewable Energy 25-51 25-47 EVN Mini-Hydro Rehabilitation 10-26 5-12 Small Power Producers 15-25 18-30 TA - 2-4 Technology Improvement/Resource Assessment 5 Total 35-90 25-51 45-91 Phases I & 11 (0-1 0 years) REAP Component Physical Targets Total Cost Households (000) MW Million US$ Policy and inshtutional Development - 6 Individual Household and Insttutonal 85-150 18-39 Hydro-based Commune Electraty 90-150 45-74 Grid-connected Renewable Energy - - 206-289 EVN Mini-Hydro Rehabilitabon 26 5-13 Small Power Producers 165-225 198-270 TA - 3-6 Technology Improvement/Resource Assessment - 10 Total 175-300 175-251 285-418 Source: Team estmates 14 Overview of the Renewable Energy Action Plan in Vietnam house gas (GHG) emussions. ticularly for serving consumers not connected to the grid, their financial viability is con- Renewable energy technologies are charac- strained, especially in the early stages of busi- terized by relatively high capital costs and low ness development. Rural consumers have a operating costs. Therefore, long-term credit limited ability to pay the high up-front cost (5-10 years, including 3-year grace) is needed of renewable technologies. Suppliers find it to finance projects, such as mini-hydro power difficult to mobilize adequate financing to plants and mini-grid networks. For pico-hy- produce quality products and offer necessary dro plants while credit sales are not antici- support services. In most countries, grant pated, the supplier companies would need in- funds have been used to: overcome barriers vestment and working capital financing. So- and build the capacity of the public, private lar PV systems are likely to require financial and nongovernmental sectors to deliver prod- assistance to permit some purchasers to pay ucts and services; strengthen the capabilities for the systems over one or more years, in of the financial sector to invest in renewable addition to investment and working capital energy; improve quality of products and ser- credit for the supplier companies. Based on vices; and increase access to information re- Table 5, about US$35-40 million in com- garding technology and resources. Grant mercial loan financing may be required over funds could also be used to create a guaran- the first five years, depending on the amount tee fund to help reduce risks associated with of grant assistance that would be available for factors beyond the developers control (such the off-grid and mini-grid options. Over the as water flow reductlons, water diversions, and next 5 years, an additional US$160-180 mil- oil price fluctuations, which affect avoided lion in financing could be required. cost-based tariffi). Finally, grants are justified for rural electrification on the same bases as Sources of debt financing could be multilat- grants are now given for grid extension, for eral and bilateral loans or funds mobilized in social and economic development. the local capital markets. It is recommended that credit obtained from multilateral sources, such Based on experiences in other countries, GEF as the World Bank or ADB, be made acces- grant assistance for reducing the investment sible through commercial or development costs for off-grid and isolated grid applica- banks rather than via specialized institutions. tions and even grid-connected renewables This permits the financial sector to gain ex- could be justified for 5-25 percent of the perience in investing in the renewable en- investment cost on the basis of overcoming ergy sector and building greater confidence barriers to technologies that mitigate green- in such investments. As noted previously, house gas emissions.20 However, an argument mechanisms to permit microfinance institu- must be made that the GEF subsidy contrib- tions to access such funds is important in de- utes to the sustainability of the technology veloping the market for off-grid systems.The and application. Additional grant assistance, approach of working through the formal fi- justified for social and economic develop- nancial sector helps in further mainstreaming ment reasons, will be required. This would of such investments and encourages greater have to be mobilized from Government or efficiency. bilateral sources. While renewable energy options can be the The PCF is intended to invest in projects least cost option on an economic basis, par- that will produce high quality greenhouse 30 See the GEF Web site: http://wwwgefweb.org/. Overview of the Renewable Energy Action Plan in Vietnam 15 Table 5 Indicative 10-Year Financing Plan for REAP, Lower Boundary (Million US$) Phase I Phase II Component Grants Loans Equity Total Grants Loans Equity Total Policy and Insfitutonal Development 3 - - 3 3 - - 3 Off-gnd Elecnficaton Program 4 1 2 7 3 3 6 11 Capaaty Budding 3 - - 3 2 - - 2 Investments 1 1 2 4 1 3 6 9 Isolated Gnd Program 5 1 1 6 28 7 4 39 Capaaty Building 1 - - 1 3 - - 3 Investments 4 1 1 5 25 7 4 36 Grid-Connected Program 2 17 6 25 1 135 45 181 Capadty Building 2 - - 2 1 - - 1 Investmente 17 6 23 135 45 180 Resource Assess/Technology 5 - - 5 5 - - 5 Total 19 19 8 45 40 145 55 239 Percentage 41 41 18 100 17 60 23 100 Total Govemment induding EVN- 19 4 - 23 40 - - 40 Total non-Govemment - 14 8 22 - 145 55 200 * In Phase I, US$3.8 million of the loans are to EVN; in Phase II, all investment loans are to nonutlity commercal investors - Govemment grants might be partially financed by several sources, for example, Intematonal Development AssDciabon (IDA) loan, bilateral support, GEF support and/or GHG reduction mechanisms induding the Prototype Carbon Fund (PCF) and carbon trading Source: Team esbmates gas emission reductions that could be regis- tating the CDM. The PCF is considering to tered with the United Nations Framework not only invest in projects directly, but also to Convention on Climate Change (UNFCC) assist host countries in setting up funds spon- for the purposes of the Kyoto Protocol.3" The sored by commercial and development banks PCF will mobilize resources from both the and other entities. public and private sectors in developed coun- tries and invest in them in projects in host In order forVietnam to be eligible to access developing countries designed to produce PCF funds, and to implement PCF-assisted emissions reductions fully consistent with the projects, the GOV needs to sign a Memoran- Kyoto Protocol and the Joint Implementa- dum of Understanding and/or Letter of En- tion Framework and the CDM. Half the funds dorsement with the PCF.This will allowVlet- will be spent in developing countries facili- nam to become a member of the PCF Host 3' See the PCF Web site: http://www.prototypecarbonfund.org/. 16 Overview of the Renewable Energy Action Plan in Vietnam Country Committee. Subsequently, propo- have the primary role in delivering renew- nents inVieenam with PCF eligible projects able energy products and services. The role would need to submut their project proposals of the government is that of market enabler to the PCF for review and consideration. and to heip build the capacity of the entities delivering services.The government also has If Vietnam were eligible to access PCF funds, a fiduciary responsibility for proper use of renewable energy technology, such as, but not grant or loan funds made available to it from limited to, geothermal, wind, solar and small- bilateral and multilateral sources as well as scale hydro energy projects could be financed, from the government's own treasury to sup- No less than approximately 2 percent nor port the sector. more than approximately 10 percent of the Fund's assets will be invested in any one The proposed institutional arrangement for Project. It is likely that initially, some of the managing the Renewable Energy Program is grid-connected renewable energy projects outlined in Figure 2.The lead governmental (small hydro or biomass cogeneration) could responsibility will be delegated to a REAP receive PCF grant funds. Program Management Board (RPMB) at MOI.The Board will be responsible for over- An indicative financing allocation is given in seeing and coordinating all activities under Figure 1 showing the share of government the program. There will be several groups investment decreasing sharply in Phase 2. under the RPMD, include off-grid and iso- lated grid program support group, small power 2.6 Institutional Arrangements producers support group, capacity building and information dissemination, resource mo- The main project implementers are expected bilization and funds coordination (including to be commercially oriented enterprises, the management of Renewable Energy Fund, see private sector, cooperatives and NGOs that below), and accounting and administration. Figure 1: Significant Decrease in Share of Government Investments in Phase 11 200 - 150 Millions of U.S. 0.>.<_ - |3Government, incid EVN dollars 100 -3 Non-govemment 50 Co Phase I Phase ll Overview of the Renewable Energy Action Plan in Vietnam 17 An independent monmtoring and evaluation year period.Arrangements to pilot such a fund unit would ensure that the program meets in one province are currently underway. the government's development objectives. 2.7 Sustainability and Risk Mitigation An advisory committee will be set up com- prised of representatives of key agencies from There are substantial risks in any renewable the government, financial community and energy program, because the technologies are pnvate sector, at both national and provin- lesser known than conventional ones. Special cial level, to advise MOI on sector develop- risks in carrying out the REAP program in- ment issues and assist in coordination and co- clude (a) the remaining barriers to doing busi- operation. ness, especially private business, in Vietnam, including difficulties with respect to approv- EVN will establish a group to oversee EVN- als, licensing and access to financing; (b) the owned small hydropower plants power plant fact that renewable technologies are directed rehabilitation and to support interactions with to isolated communities in Vietnam, which nonutility small power producers. are also the poorest and least skilled in terms of management. Failures of many previous It is planned to create a Renewable Energy Fund, commune hydro plants highlight these risks. that can be managed by one or more com- mercial banks, in order to assist in the provi- Nevertheless, the sustainability of the program sion of longer term credit. If necessary, par- is considered to be strong, despite these risks. tial credit guarantees could be considered to This is because of the strong commitment of provide longer loan terms. The Renewable the GOV to providing rural electricity ser- Energy Fund could also be used as a mecha- vice to all communities, as well as the step- nism to provide subsidies. Such a fund could by-step approach proposed. The phased ap- also be used to provide capital cost grants to proach allows for learning through pilots, be- communities for community isolated hydro fore scaling up. Sustainability will also be ad- facilities, in the poorer communities and in dressed in the design of each component. For mountainous areas. It is recommended that example, the individual household compo- such grant assistance be limited to buying nent would focus on supporting improved down the investment costs but not to cover pico-hydro systems, which are among the operating or replacement costs. The fund lowest cost and most affordable sources of off- could be used to cofinance renewable en- grid electricity supply. SHSs will also be sup- ergy isolated grids and off-grid options. ported, but with particular attention to fi- nancing mechanisms to increase affordability. In the first five years, about US$5 million For the commune based hydro systems a sub- equivalent will be required if a fund like this stantial amount of experience is available in would be established. This arnount of funds Vietnam. The approach taken will build on is small.This fund could be established with the successes and lessons learned of these budgetary contributions from the govern- projects. It has been indicated that there are ment, bilateral donor contributions and pos- two main areas that need attention to en- sibly a small surcharge on the urban electric- hance sustainability: the organizational set-up, ity tariff. For example, the entire amount re- and the financial sustainability. As part of a quired for the first five years could be ob- pilot and consultant studies these two areas tained by only aVND 0.5 per kWh surcharge have been focus of attention and wllE remain (that is, 0.07 percent of the residential tanrf), so during the implementation of the first on electricity sales inVietnam over the five- phase of REAP. Successful models during the 18 Overview of the Renewable Energy Action Plan in Vietnam first phase will be replicated during Phase 2. In designing the activities for GEF supp inVietnam, lessons learned from the experi- For the grid connected projects, an SPPA is ence of theWorld Bank and other donors in to be adopted by EVN under a covenant of supporting renewable energy technologies in the Rural Energy 1 Project.This will provide countries of this region-for example, Cam- an ongoing market for electricity from inde- bodia, India, Indonesia,Laos, and Sri Lanka- pendent producers.To support the introduc- have been taken into consideratnon.These les- tion of this market based standard agreement, sons include the following: there will be a temporary support unit. The * Need for ensuring a policy and legal unit will support EVN, finance institutions, framework to guide private sector in- investors and project developers on a demand volvement; basis to adopt the market driven approach. * Need to first build capacity and support On the long run, similar to the off-grid sys- strong institutional set up before devel- tems, the market forces will enhance oping larger scale investments; sustainability. * Need for understanding the market char- Figure 2: Significant Decrease in Share of Government Investments in Phase 11 A iMinist&y of n | Industry | E ecrctctncSv oe Advisory Committee Vietnam MOIu MPI, EVN MOF, MOSTE, Renewable EnergyP VBA, MARD, MOC, CEMMA, Program_ Chamber of CommePce. Management Board I P[ogram l Renewable EneRgye e MonitonPg and Poogram Evaluation Manage[ ntoOfnice r Resource l | Renewable Energy f h Small Hydro l Mobilization & _Fund(s) and Off- _Rehablhtation _ Funds Coordinabon gnd Supporl Support AdmmcraounSn _ Electncaty Service |Small Renewable L Power Support Small Renewable Energy Pnvate _ Power Promotion I nfbmmation & I Capacity Building r Overview of the Renewable Energy Aa-ion Plan in P'ietnam 19 acteristics including willingness and ca- which are the engine for implementing pability of consumers to pay, before the projects; and implementing an enterprise-driven en- * Need for financial intermediation includ- ergy project; ing providing microfinance options for * Need to support development of com- technologies with high front-end costs mercial renewable energy businesses, like solar PV. 20 Overview of the Renewable Energy Action Plan in Vietnam Detailed Description of REAP Components Each major component of the REAP will 1.2 Background be described below.The description will be- gin with the objective; then background on International Experience. As discussed in international andVietnamese experience; pro- section A2, many countries have introduced posed activities; financial and economic vi- strong policies to support renewable electric- ability of the activities; and the estimated cost ity development. These policies to promote in Phase 1. Following are descriptions of the renewable electricity are justified by the so- components: - cial and economic benefits, including (a) en- 1. Renewable Energy Policy and In vironmental protection; (b) provision of elec- stitutional Development; tricity on a least cost basis to remote areas; 2. Individual Household and Institu- (b) creation of economic activity and em- tional Renewable Energy Systems; ployment in remote areas; and (d) diversifica- 3. Community Isolated Hydro Grids; tion of energy supply. In order to carry out 4. Grid-connected Renewable Elec- these polcies, different countries have devel- tricity; and oped different instruments and institutional 5. Technology/Market Development models. Examples of institutional models are and Resource Assessment given in section A2, and in more detail for India and China below. 1. Renewable Energy Policy and India has a well-developed institutLonal struc- Institutional Development ture for renewable energy with a Ministry of Component Non-Conventional Energy Sources (MNES) for policy and development at national level. 1.1 Objective MNES established the Indca Renewable En- ergy Development Agency (IREDA), to pro- The objective of this component is to sup- mote investment, and provide concessional port (a) implementation of strong policies, loans and grants to developers. One notable programs and regulations to support renew- feature of this structure is that IREDA has able energy development on a large scale; (b) received substantial financing from the World strengthening of leadership and implemen- Bank, ADB, Kreditanstalt fuir Wiederaufbau tation capacity at national, provincial and lo- (KfW), Swiss Development Corporation, the cal level; and (c) development of mechanisms Netherlands Government, and other inter- to mobilize investments through financial and national agencies. India also encourages in- fiscal incentives, improve access to financing vestment through financial incentives for re- and provide targeted subsidies. newable energy at national level, including accelerated depreciation; subsidies for capital be provided to cost-share early investments cost of PV for disadvantaged communities; in technology transfer and development. An low interest loans for PV and long-term loans expanded credit line for long-term credit, for small hydro and wind projects; research maybe concessional, is also under consider- and development expenditures. Several state ation. (provincial) governments provide additional incentives-for example, lower sales taxes, Experience in Vietnam.The GOV has re- provision for wheeling and banking of elec- cendy begun to put in place a policy frame- tricity, mandatory purchase of renewable elec- work for renewable electricity development, tricity at set price (US$0.063 per kWh). A for rural electrification and grid supply. Deci- new policy is under development which pro- sion 22 sets the stage for using renewable en- poses to require that 10 percent of all new ergy by stating that rural electricity supply electricity generating capacity should come will utilize both grid and off-grid systems, from renewable sources, and that 4,500 re- based on least cost criteria. It states that the mote villages and 2 million additional house- Provincial Planning Commission (PPC) is re- holds will receive electricity service from re- sponsible for preparing power development newable electricity by 2012. plans and also for development and manage- ment of renewable energy. Also, the Rural China. The responsibility for planning for re- Energy I Credit provided that EVN (a) re- newable energy development is shared be- view with the International Development tween State Development Planning and State Association (IDA) its action plan for renew- Economic and Trade Commissions. Minis- able energy; and (b) encourage private sector tries are active in implementation, especially investments in small scale grid-connected Water Resources (small hydropower), Agri- renewables through adoption of an SPPA and culture (biomass), and Science and Technol- tariffs by December 31, 2000. ogy (PV and wind). The Government of China authorized aVAT reduction from 17 The Rural Electrfication Policy adopted in early to 6 percent for small hydro and biomass. 2000 by MOI, sets the basic principles of di- Provincial and local governments provide per versifying ownership, providing incentives for system subsidies, as part of technology devel- local electricity supply businesses and encour- opment and/or poverty alleviation efforts, es- aging decentralized power generation (see pecially for household solar PV and wind Annex 6).32 It states that rural electricity sup- systems. For grid-connected small hydro and ply will be based on both grid and off-grid wind, local authorities forego income tax and systems, based on least cost criteria. Rural encourage utilities to buy electricity from electricity companies should have adequate wind and small hydro at a higher tariff.A new financial incentive to continue in business and market-based policy to accelerate renewable maintain an acceptable level of service. For- electricity is now under development, under eign and local investors are encouraged to in- the 10' Five Year Plan. This includes a pro- vest in local electricity supply systems, espe- posed legal requirement on suppliers that a cially in areas that cannot be reached by the share of all electricity should come from re- grid. To encourage investment in decentral- newable energy. The additional cost will be ized plants, the PCs will offer capacity and/ passed on to the consumer. Provinces are ex- or energy payments equal to the investment pected to prepare plans and receive TA from and operating costs that are avoided by the the national government. Assistance will also purchase. 32 Ministry of Industry 2000b. 22 Detailed Desaiption of REAP Components By 2010, the draft Master Plan of Power Devel- project cost. Domestic investors in elec- opmentfor 2001-2010 calls for 1,500 new tricity network for coinmunes in remote, communes to be electrified through grid ex- mountainous or poor areas, including pri- tension and 400 remote communes, which vate investors, can borrow concessional cannot be economically connected to the credits from National Assistance Fund or grid, to be electrified through renewable en- other funds with interest rate reduced by ergy technologies, such as micro hydro, to- 50 percent. gether with solar, wind power or diesel. Northern Mountainous provinces and Cen- Approvals on isolated power systems are to tral Highland are identified as regions for off- be simplified and decentralized to provincial grid renewable energy development.33 authority. All isolated power projects under 5,000 kW are proposed to be approved by Accordlng to Decision 22, financing for ex- PPC or lower levels, depending on scale of tending the grid is as follows: (a) the medium- investment. If the project is to connect to the voltage (MV) network is to be funded from national grid, a Power Purchase Agreement State Budget,EVN Depreciation fund, GOV (PPA) with EVN is also required. annual concessional credit and ODA funds; (b) low voltage network is to be constructed While the Rural Electrification Policy and using local funding; (c) for the poorest areas, the Master Plan for Power Development for the GOV will supplement the local contri- 2001-2010 state a clear intention to encour- butions; and (d) service drops to houses are age off-grid electrification, there are not yet to be funded by households. clear and detailed regulations on financing, management or operation of decentralized The GOV is expected to announce a decree grids or off-grid supply.There are also no clear or decision on investment sources for decen- guidelines for transparent channeling of sub- tralized grids soon.34 It is expected that this sidies to rural communities for off-grid elec- decision will allow the tariff in such projects trification. is to be decided by PPCs, to allow cost re- covery and reasonable profits for distribution. Following are some key lessons that have been The sources of funds for investment in de- learned from different countnes, including centrahzed grids are expected to be India and China: * for the poorest communes, through na- 1. Development of renewable energy tional multipurpose investment programs, requires a long-term, programmatic international support and contributions effort. Pilot and/or demonstration from economic sectors or other prov- projects by themselves will not trig- inces.The contribution from local popu- ger market expansion.To support sus- lation is to be local available materials, tained market development, a long- labor, and so forth; term effort is needed that must be * for other mountainous communes, local supported by all parties, including network is to be funded by local govern- government, banks, private sector, ment budget and other resources mobi- research and development organiza- lized locally.The support from GOV bud- tions, universities, NGOs, consum- get is to be less than 30 percent of the ers, and the utility. 3 See Chapter 2, Mimstry of Industry (2000a). 34 Draft Inter-mrmnsterial Circular on Investment and Construction Management of Power Projects in Rural and Mountainous Areas. See page 13, Pham Nguyet Anh (2000). Detailed Description of REAP Components 23 2. Government involvement is essential. to support international companies To support early development and is detrimental to market develop- overcome market failure (for ex- ment. ample, externalities), the government has an important role to play as a 1.3 Technical Assistance Activities Pro- market enabler.This includes setting posed appropriate policies; putting in place regulations, financial incentives, and The Policy and Institutional Development targeted, transparent subsidies (jusni- Component will provide TA to make rec- fied by environmental and social ben- ommendations to develop pohcy instruments, efits); and carrying out programs to regulations, strengthen institutional capacity, create awareness and strengthen ca- and mobilize resources, especially within the pacity. first two years of the program. It will build 3. Capacity building needs to be done on recendy introduced policy and regulatory in advance of market acceleration. measures, especially the Rural Electrification Some important areas are (a) public Policy. The proposed TA activities are de- awareness and knowledge; (b) market scribed below: and resource information; (c) opera- tional capacities of organizations and Assistance in Development of Policy Instn,ments, businesses; (d) finance mechanisms; Decrees and Regulations. The Rural Electrifi- (e) polcy and legal framework; and cation Policy states MOI's intention to sup- (fJ product quality and pricing policy. port development of renewable electricity for Capacity building must be dosely re- off-grid rural electrification and for grid sup- lated to investment opportunity, or ply It is necessary to develop a number of it will be ineffective. instruments to implement this intention.This 4. Renewable energy systems must first TA activity will assist MOI in developing the be financially viable, before meeting necessary instruments, which will build on social objectives. Renewable energy activities already underway. systems should only be developed where they are financially least cost, Government has an important role to play in or where financial incentives or other creating an enabling environment, because of government policies make them af- the fact that the marketplace does not recog- fordable. Organizational set-up must nize filly the environmental and social ben- be business-like, with accountability efits of renewable electricity. As with rural and good financial management. electrification, the government must facili- 5. Renewable energy benefits from tate investment in renewable electricity in a joint international effort. Technology number of ways. Examples of key policy and development or transfer is important. regulatory requirements include decrees and Also, while local production should regulations, which would set out the follow- be encouraged, the conditions to pro- ing: duce some of the high-technology components may not be favorable Rural Electrification and it may be less costly to import * rights and responsibilities of national and these items (for example PV cells). local governments, service providers, Lessons learned from other countries cormunities, individuals with respect to can accelerate market penetration. rural electrification using renewable elec- Nevertheless, dumping of equipment tricity, 24 Detailed Description of REAP Components * methodology for determining when re- newable facilities: newable electricity is least cost; * facilitation of access to commercial credit; * institutional models for community ser- * assistance to create and operate a Renew- vice provision and appropriate regulations able Electricity Fund to support such in- developed for their operation; vestments.As shown by IREDA in India, * appropriate source, level, amount and this can be a powerful magnet for funds, mechanism for government subsidy of but requires clear operating rules, proce- rural electrification with renewable elec- dures for monitoring and evaluation, tricity, for community grids and indi- good staff capabiiity for appraisal and su- vidual systems; pervision and accountability for manage- * appropriate design and quality standards ment of funds; and enforcement mechanisms for service, * recommendations for fiscal incentives, safety and reliability. such as VAT reduction and income tax benefits, such as accelerated depreclatfon, Nonutility Renewable Power Generation lower tax rates, or tax credits for such in- * rights and responsibilities of governments, vestments. power companies, and project develop- ers, owners and operators with respect Strengthening CapacityforImplementation. Since to nonutility renewable electricity gen- the national and provincial power develop- eration;35 ment and rural electrification plans have to * regulatory review and adjudication of the be approved by MOI, MOI and PPCs will SPPA and tariff, so that implementation coordinate planning for grid-connected and is satisfactory to both EVN and devel- off-grid electricity supply For rural electrifi- opers; cation, MOI needs to ensure that PPCs that * a procedure for setting the tariff that rec- have responsibility for planning rural electri- ognizes avoided capacity, energy and T fication consider all least cost optlons prior and D costs; to rural electrification network planning not * targets for purchase of nonutility renew- only grid options. Since off-grid services able electricity; would not be provided by EVN, it is impor- * appropriate design and quahty standards tant that planning be conducted in close co- and enforcement mechanisms for service, operation with off-grid and isolated grid ser- safety and reliability. vice providers. This cooperation occurred during preparation of the REAP where EVN Facilitation of Investment. Under this activity, shared data on communes to be electrified. assistance will be provided to MOI for the followingTA activities, to enable companies, Each component of the REAP includes in- communities and individuals to invest in re- stitutional strengthening for companies and " Governments encourage renewable small power producers because the projects can be financed by local investors and save foreign exchange; create econonuc activity and employment m remote rural areas; create new industrial acttvity; and contribute to environmnent sustainability. However, power com- panies are often reluctant to buy renewable electricity from small power producers. Renewable electric- ity is seen as inconvenment because the facilities are small and dispersed, sometimes generation is inter-. nuttent, sometimes electricity is expensive, and the soaal and environmental benefits are not recog- nized in marketplace. The benefits are for the whole economy but the perceived inconvemence is for power companies. The interests of the nation must be balanced with those of power compames and project developers, owners and operators. Detailed Descriplion of REAP Components 25 institutions that would be involved in imple- 2.2 Background mentation. Under this component, assistance will be provided to MOI for the following: Individual renewable energy systems for • targeted awareness creation and training households or institutions (for example, for of government officials (including MPI, schools, clinics) are needed when it is not eco- MOI and EVN), the business and finan- nomically possible to connect to the national cial community, and the public about re- grid or develop a local mini-grid, because the newable electricity; entities are too scattered and the loads are * simplifying approval procedures and en- too small. Candidate technologies inVietnam suring that private and public sector com- are pico-hydro units and solar PV systems. panies are treated equally; and Potential customers for pico-hydro systems * helping PPCs to carry out their task of are scattered households and institutions in planning renewable electricity provision the North Mountainous and Central Coastal as part of their rural electrification plans; regions, while for PV, potential customers are * support for a Program Management Unit scattered households and institutions in the to assist in implementing the REAP. Central Highlands and Mekong Delta areas. 1.4 Component Costs Households will always prefer grid supply over individual systems for many reasons.The range The estimated budget for this component is of appliances that can be used is far grea ter. shown in Table 6 below. Electricity availability is not limited (if there are no supply constraints). Grid electricity cost to the rural consumer is low due to subsi- 2. Individual Household & Insti- dized tariffs, householder investment required tutional Systems Component is far less. Specialized agencies, such as the PCs provide operation and maintenance 2.1 Objective (O&M) services. However, if grid electricity is not available, householders will prefer in- Commercial enterprises will supply good dividual systems over keroserne lighting and quality renewable electricity systems (im- battery charging services due to the improved proved pico-hydro and solar PV), on an af- quality of services and convenience. fordable basis, to isolated households and in- stitutions. These enterprises could be coop- International Experience. While there is eratives, or private or public companies. little documented international experience Table 6: Estimated Cost of Policy and Institutional Development Component, Phase I Subcomponent (million USS) Development of Policy Instruments, Decrees and Regulations 0.50 Facilitation of Investment 0.50 Strengthening Capacity for Implementation 2.00 Total 3.00 Source. Team esbmates 26 Detailed Desaiption of REAP Components Table 7 Examples of World Bank and GEF-Supported Solar Home System (SHS) Projects Projed Name Bank/GEF funding & total project cost SHS component description India Renewable Resources GEF: US$26 m Bank (IDA). US$11 5m. Bank 2 5 MWp of PV for commercial use, water pumping and Development Project (1992) (IBRPV US$75m Total US$450 m (US$55 m for household use). Finanang provided for sales of systems. PV component) Small and Medium Scale Enterpnse GEF. Vietnam: US$0.75 m. Bangladesh. US$0.75 Fmance commeraal SHS business ventures Program (1995) m Dominican Republic: US$75,000 Indonesia Solar Home Systems Project GEF: US$24 m Bank (IBRD): US$20 m. Total: 200,000 SHS sold and installed on cash and credit terms by (1997) US$118 m. private dealers and entrepreneurs Sn Lanka Energy Services Delivery GEF: US$5 9 m. Bank (IDA)' US$24 m. 30,000 SHS sold and installed on credit through dealers and Project (11997) microfinanc-e organizations PV Market Transformabion Initiative GEF: USF30 m Total: US$90-20 m Finance commeraal SHS business ventures in India, Kenya,and (1998) GEF US30m Tta: U$9-12 mMorocco Lao PDR Southem Provinces Rural GEF: US$0 7 m. Bank (IDA) US$1.5 m (for off-gnd 20 solar battery charging stations by national ubility and village Electnfication Project (1998) component only) electncity associabons as demonstrabons Argentina Renewable Energy in Rural GEF: US$10 m Bank (IBRD) US$30 m. Total: 66,000 SHS in households through regulated energy-service Markets Project ((1999) US$121 m concessions Cape Verde Energy & Water Sector GEF US$4.7 m Bank (IDA). US$17.5 m Total: 4,000 SHS in households through regulated energy-service Reform and Development (1999) US$48 m. concesstons China Renewable Energy Development GEF. US$35 m. Bank (IBRD). US$100m. Total: 300,000 to 400,000 (10 MWp) of SHS and PV-wind hybnd Project (1999) US$444 m. systems installed through private dealer-mainly cash sales Benin Off-Grid Electrficabon/Traditional GEF: US$1.1 m. Bank US$2.2 m Total US$5.7 m 5.000 SHS through regulated energy-service concessions EneTgy (1998) Source. Marbnot Cabraal, and Mathur 2000 with pico-hydro systems, there are now an tems to rural households in three provinces. estimated 1 million SHSs m use around the For every SHS sold, the company receives a world and the number ofinstallations is grow- grant ofabout US$100 per unit from the GEE ing by about 15 percent per year.36 Since 1992, The project provides loans to dealers through the World Bank/GEF Group has approved commercial banks, to enable the dealers to 12 projects that provide basic "energy ser- finance credit sales or for working capital.The vices" through the use of "solar home sys- project also provides TA to dealers for busi- tems" (see Table 7).3' ness development and quality improvement. Under this project one company sells SHS Three different types of implementation ap- (4OWp typically), on cash or 24-month credit proaches have been used in World Bank/ terms to rural consumers. Credit sales require GEF-assisted projects, as described below: a 20 percent cash down payment (VND 800,000), and the balance is repaid monthly Indonesia: Solar Home System Project. This (VND-1 50,000 per month for 24 months.). Project supports companies to sell PV sys- The SHS products have to meet quality stan- 36 Lorenzo 2000. 37 Martinot, Cabraal, and Mathur 2000. Detailed Desaiption of REAP Components 27 dards and the company has to provide war- tems to 66,000 households and 1,100 public ranties and service. To date, the company has facilities; as well as supplying 3,500 house- set up 2 branch offices, 13 site offices to sup- holds with village power systems (using mini- port sales, service and warranty requirements. hydro or hybrids, such as wind-diesel) through This company is presently selling about 100- province-level energy service concessions. 200 SHSs per month. Concessions are awarded to companies that agree to provide electricity services to rural India: Renewable Resources Development Project. consumers in their service territory for 15 This Project provides low interest financing years. Concessionaires can select the technol- for companies and consumers who wish to ogy for any situation, including diesel village sell or purchase PV systems. Eligible PV sys- power systems. Customers who cannot be tems range from a solar lantern to grid-con- reached by any grid can be served with SHS. nected power plants. One PV system com- GEF grants are given when SHS systems are pany, in association with a savings coopera- used. Concessions can be rebid every 15 years, tive, has established a program to provide so- and held for a total of 45 years.After 15 years, lar lanterns to coop members.The coopera- the government can modify the rules, or may tive obtained a loan at 2.5 percent interest, even decide to abandon the concession sys- repayable in 10 years from IR-EDA. It used tem. During the 15-year period, the conces- the loan funds to purchase solar lanterns from sionaire, provincial government and provin- the PV company and then lease the lanterns cial regulatory agency renegotiate the tariffs to its members.The members pay 10 percent every 2 years. down payment and Rs. 1 per day (VND 350 per day) for 10 years. Since the cooperative Lessons Learned. A recently issued paper ex- already collects Rs. 10 per day from its mem- amined the experiences inWorld Bank/GEF- bers as daily savings, the collection of an ad- assisted SHS projects and drew a number of ditional Rs. 1 per day is not burdensome.The lessons applicable to future project designs.m cooperative also provides service and spare This review suggests that projects need to do parts through technicians based in branch of- the following. fices.The PV company supplies lanterns, trains 1. Use pilot private sector and NGO technicians, gives warranty services. In order delivery models. Projects employ two to meet project quality requirements, the PV basic models for delivery of SHSs: company buys products from quality-certi- "dealer sales" and "energy-service fied manufacturers.The customers who lease company". Both approaches are dif- lanterns are mainly traders who use the solar ficult and require support. Dealers lanterns during peak sales hours of 6-9 P.M. with rural experience and/or distri- Many of these customers have seen their daily bution infrastructure will do better. income increase by 50-100 percent, as a re- Most will benefit from training and sult of lantern use.The cost of lighting is less support in obtaining business finance than half that of using kerosene lanterns.The and other business skills.And all need PV company has sold more than 3,000 lan- flexibility to develop good business terns and is establishing similar programs with models. The "energy service com- several other cooperatives. pany" approach requires substantial time and regulatory capacity for tar- Argentina: Renewable Energy in Rural Markets. iff-setting, bidding and supervision This Project expects to supply individual sys- of operation. Martnot, Cabraal, and Mathur 2000. 28 Detailed Description of REAP Components 2. Implement pilot consumer credit de- theless, enforcement can be difficult. livery mechanisms. For dealer sales, 6. Conduct consumer awareness and consumer credit makes systems more marketing programs. Simple con- affordable to rural households. Credit sumer awareness is usually insufficient risk is a serious concern of both by itself. Dealers benefit from mar- bankers and dealers, making credit keting assistance in early phases of sales particularly challenging. Deal- new market development until a ers are reluctant to extend credit to "critical mass" of customers devel- customers with little credit history, ops that makes marketing easier. and administration may be costly. Partial credit guarantees, and Vietnam Experience.There is already sub- microfinance lending may help re- stantial experience inVietnam with pico-hy- duce risks. dro and solar systems. 3. Pay first-cost subsidies and offer af- fordable systems. Per-system subsidies Pico-Hydro Household Systems. Vietnam has make systems more affordable and perhaps the largest market known for pico- reduce initial and/or monthly pay- hydro systems: 100,000-150,000 pico-hydro ments by households. Using smaller systems have been sold through commercial system sizes or simpler components business channels. Annual sales are estimated can improve affordability. Customers at about 40,000 systems of which half are for desire a range of component options replacement, the other 50 percent are new and service levels and can benefit users. Most of the systems are being used and from even small systems. sold in the northern and central mountain- 4. Support policy development and ca- ous areas. Sixty thousand systems have been pacity to implement policies. Assis- reported in the north, with lead provinces tance is needed to strengthen regu- Yen Bai,Tyen Quang, Son La, Hoa Binh, and latory agencies; influence govern- Lao Cai.39The total potential market for pico- ment policy related to rural electri- hydro units in Vietnam is estimated to be fication and power sector reform; fa- about 200,000 systems.0 cilitate industry participation in policy and planning; and reduce im- Pico-hydro unit capacities range from 100 to port duties for components.The link 1,000W Smaller units are used by households, between rural grid extension and while larger systems are used for productive SHS demand must be recognized. activities and for multihousehold supply. 5. Enact codes and standards and estab- Cheap, low quality systems from China domi- lish certification, testing, and enforce- nate the market, with an estimated 90 per- ment institutions. Establishing rea- cent market share.The retail price of a pico- sonable equipment standards and cer- hydro unit ranges from aboutVND 200,000- tification procedures for SHS com- 700,000 for 100-500W systems, respectively. ponents that ensure quality service With installed prices ranging from 0.7 mil- while maintaining affordability is lion to VND 1.4 million (US$50-100), for needed and is not difficult. Never- systems ranging from 100-500W, the systems 9 Hydro Power Center. 2000. Package B Collection of Basic Information and Mapping Information for Vietnam. Consultant report toWorld Bank,Washington, D.C. 4 Finucane,J., et. al. 2000. REAP Package D: Program Designfor Isolated Households Segment. Consultant report for World Bank,Washington, D.C. Detailed Description of REAP Components 29 Box 1 Mr. Hung's Pico-Hydro: Improving Quality of Life Mr. Phung Sinh Hung hves in Na La village inTuyen Quang province, with his wife and 3 children. His income comes from selling rice, maize, honey, plums, and coffee. He learned about the pico- hydro system from his neighbors and bought a system in 1993 from a shop in the district center for VND 180,000 (US$18). First, he used it only for lighting, then in 1995 added radio, and in 1997TV. He says that the quality of the pico-hydro is not good. It has broken two times, but there is one young villager who can repair it. The power output is not stable, hence the hght bulbs break often. Therefore, he has expenses to buy new light bulbs and repair the generator. However, the benefits are that he can now get more information and knows more about what is happening outside the village. He learned new agricultural production skils through radio and TV programs. His eco- nomic situation improved because he and his wife are applying new knowledge-for example, applying chemical fertilizers and feeding their pigs cooked food. Information on farm commodity prices lets him have more choices when buying piglets and buffilo, or selling maize or honey. Mr. Hung said that his sensitivity to women's issues increased after watching television programs. The children use one light bulb in the evening to study.Almnost ai the households in his vilage now have a pico-hydro systemn. are affordable on a cash basis.4" They provide ing pico-hydro units, which are reputed to sufficient power to meet needs for lighting, be of higher quality. However, these institutes cassette-radios and low wattage televisions and cannot compete with the low-cost products, fans (see Box 1).There is extensive commer- which are coming across from China. cial experience among wholesalers, traders, and local retailers in northern areas. Small Solarphotovoltaics.Vietna began using PV sys- blacksmiths provide support in installation and tems in the mid-1980s when the National maintenance. Center for Scientific Research led a project to set up PV systems around HCM City.Viet- The use of pico-hydro systemns is limited by nam now has approximately 650 kW installed several factors: (a) high maintenance costs, es- solar PV systems divided over three market pecially for bearing replacement for which segments: professional applications (50 per- the annual cost almost equals the initial cost cent),institutional systems like hospitals, com- of the unit; (b) inconvenience of having to munity centers and battery charging centers walk to the stream several times a day to re- (30 percent), and household systems (20 per- move debris from the impeller chamber; and cent).42 It is estimated that about 1,000 solar (c) need to be within 500-1,000 meters from homes systems are in place, mostly installed a stream.The nameplate capacity rating is of- in SouthernVietnam. ten over-rated. They have short life times of one to three years.They have no voltage regu- Some experience has been obtained inViet- lation-voltage is only regulated by the load, nam (see Box 2). Design and installation ex- which can result in appliance damage. Low pertise is available in Selco, SolarLab, and quality wiring creates a risk of electrocution. RERC. BP Solar, Siemens, and Solarex have sales offices or agents in the country. VWhile There are severalVietnamese institutes rnak- 41 Induding distribution lines, indoor wires and switches. 42 Communications with Solar Lab, October 2000 30 Detailed Desmption of REAP Components Box 2 Solar Electricity Service Models Selco-Vietnam. Selco-Vietnam has received assistance from International Finance Corporation (IFC) under the IFC/GEF-assisted Small and Medium Enterprises Program. SELCO-VietLam collaborates with the Vietnam Women's Union (VWU), and Vietnam Bank for Agriculture and Rural Development (VBARD).The project aims to istall 12,000 solar home systems over two- years, through consumer credit sales.The company offers consumers 42-64Wp systems.The 42Wp system, sufficient for lighting, fans, and a black and white TV, costs VND 6.9 million ($493). Con- sumer credit is provided, through VBARD, to make the systems affordable. Consumers make a down payment ofVND 1.7 million (US$123) and monthly payment ofVND 141,000 (USt10) over 4 years for the 42 Wp system. VWU is responsible for marketing and providing support services. Selco-Vietnam is responsible for supplying products, installation, training technicians, and repossessing the PV module in case of default in payment. Recent reports indicate that sales are slower than expected, as VBARD has been reluctant to extend credit and the VWU's marketing efforts are encountering difficulty. Selco-Vietnam's experience to date points out the difficulties of using a comnmercially-oriented credit sales approach because of the reluctance of banks to lend to rural consumers for "consumer" products. Selco-Vietnam is proposing a concession agreement with EVN, based on providing electricity on a fee-for-service basis. SolarLab Energy Solidarity,Vietnam. The SolarLab,in association with FONDEM (Fondation Energies pour le Monde, France), began the Energy Solidarity Vietnam Program an 1991. This program has installed 400 systems (40 kWp) in 50 villages scattered throughout 19 provinces to provide electricity services to schools, health centers, collective services (such as cultural centers and telephone), forest stations, and private dwellings. About half the funding was provided by theViet- namese partners, whuch, in addition to SolarLab, included the National Program of Science and Technology, MOSTE, Ministry of Erugration, and New Economic Zones of the Provinces, DOI of the provirices, CEMMA, and the Peoples Commirttees of the participating communes. there are national capabilities to manufacture battery market in general and a 50 percent balance of system components, the limited market share of small batteries (20 Ah) for demand makes such operations financially un- household use. It estimates that it sells about sustainable at present. 20,000 batteries for household use per month. Battery charging prices currently are about Battery Charging Services. There is widespread VND 2,000-3,000 per charge. Batteries are use of rechargeable lead acid batteries for op- recharged every 7-10 days. erating televisions, radios and lights. For ex- ample, in non-grid connected communes in SolarLab has installed 65 community oper- Ha Tay province (70 Km south of Hanoi), ated battery charging stations in Vietnam. Binh Long province (100 km west of HCM These are not commercial, since full costs are City), and Hoa Binh province (70 Km west not recovered. SolarLab also has developed a of Hanoi), most families had radio, or radio solar PV battery charging station design that recorder, or AC-DC televisions powered by would be a possible option for community rechargeable batteries or pico-hydro units. infrastructure investments under government Pico-hydro units were used in some cases to supported programs. The installed costs of charge batteries of neighbors. Pinaco Battery these systems are approximatelyVND 84 mil- Company, has a 70-85 percent share of the lion (US$6,000) for a 500 Wp system and Detailed Description of REAP Components 31 double that for a 1,000Wp unit, not includ- that are (a) transparent, rule-based and clear, ing batteries. The costs include training, a (b) linked to commercial performance rather building and one-year warranty. On a perWp than cost (for example, a subsidy per unit sold); basis, these are higher cost than the Selco units, and (c) linked to adequate product quality to which include deep discharge batteries. assure a reasonable level of consumer satis- faction. The subsidies would be gradually 2.3 Investment Subcomponent phased out, in line with expected in econo- mies of scale, reductions in technology sup- The REAP proposes to mobilize commer- ply costs and rising consumer incomes. cial companies to provide stand-alone systems to (a) communes that are not to be served by The component will support installation of the EVN grid within the next 10 years; and 25-50,000 units in the first five years (see Table (b) isolated households in electrified com- 8). Most would likely be improved, locally munes. Eligible systems would include pico- made, pico-hydro units of which about 50 hydro and solar PV Preliminary market esti- percent would replace cheap Chinese units. mates show that of the 750,000 households A smaller volume of PV systems would be that will not be connected to the grid, about sold. Aggregate capacity would be about 4 to 200,000 can best be served by isolated sys- 12 MW. In the subsequent 5 years, about 60- tems. Institutional users,such as schools, health 100,000 units may be installed with a corre- centers, water supply, telephone services, sponding capacity of 15-33 MW. It is ex- would be additional. pected that as rural incomes rise and product prices decline, consumers will seek larger ca- Financial support would be provided to com- pacity systems to provide higher levels of ser- panies through provision of"smart" subsidies vice. to companies for marketing outreach and de- velopment of after-sales service networks; and The range of estimates reflects the uncertain- access to working capital. Subsidies would be ties inherent in predicting markets. They are provided to companies through mechanisms affected by the pace of adoption of commer- Table 8: Estimated Installations under the Individual Household/Institutional Systems Component 0-5 Years 5-1 0 Years Tbousands of Units low High Low High Individual Householdllnstitubonal Systems 25 50 60 100 PV 5 10 10 20 Piw-Hydro 20 40 50 80 Total MW Individual Householdllnstitutonal Systems 4.2 12A 15.5 33.2 PV 0.2 0.4 0.5 1.2 PtCm-Hydro 4 12 15 32 Assumes 30-40 Wp unit PV system and 200-300 W pico-hydro unit in Phase I. Unit sizes m Phase II are 50-60 Wp SHS and 300-500 W pilC-hydro units. Saurce Finucane 2000 32 Detailed Description of REAP Components cial practices byVietnamese companies, avail- key challenge for businesses is to use the sup- ability of commercial financing, donor sup- port provided during phase I to expand sales. port, and technology development and cost They must convince customers that the im- reduction trends. proved pico-hydro unit provides better qual- ity electricity services than the larger Chi- The main implementers would be the enter- nese units that are presendy in the market. prises that would develop the products, ser- vices and distribution networks to sell im- While some PV systems will be sold on a proved pico-hydro and solar PV systems, and cash basis, credit or installment sales are ex- possibly set up battery charging stations.The pected to be essential to develop large-scale particlpating enterprises could be public or markets. Grant assistance to companies is ex- private sector companies or NGOs.The en- pected to buy down the capital cost. For ex- terprises must be free to adopt busmess models ample, if a 4OWp system costsVND 5.6 mil- that best suit the market. One model is the lion (US$400) and if the businesses pass on approach used in selling pico-hydro units 50 percent of a US$2 per Wp grant to cus- presendy, where hardware dealers sell prod- tomers, the final cash price would beVND 5 ucts to customers on a cash basis after ob- million per unit. For credit sales, the grant taining products from wholesalers. Another would reduce the down payment from 1.1 model would involve dealers of complemen- toVND 1 million and monthly payment from tary products, such as batteries, that would VND 125,000 to 111,000."4 Similarly, a 20 sell and serve the renewable energy products. Wp PV system costing VND 3.5 million Other possible models indude the credit sales would require a down payment of VND approach used by Selco-Vietnam (if difficul- 700,000 and a monthly payment of VND ties can be overcome), as well as the conces- 80,000 after the grant. sions approach used in Argentina. Even with the proposed grant, these payment Improved pico-hydro units are expected to arnounts during the loan repayment period be purchased on cash basis. Businesses mar- are three to four times higher than the aver- keting improved pico-hydro units must meet age household expenditures in ruralVietnam standards (to be specified) in order to qualify for kerosene and battery charging.45 There- to receive a grant, for example, of $0.15 per fore, the purchasers of PV systems are likely Watt during the first phase. No grant is to be richer households or institutions. Cus- deemed necessary during the second phase.43 tomers will purchase PV systems only if they If the businesses pass on 50 percent of the recognize and are willing to payment for the grant to customers, an improved 200W unit higher level and quality of electricity services will have a retail price ofVND 350,000. In from a PV system.As noted inTable 9 below, contrast, a Chinese-made unit with a norni- even a small PV system can provide far greater nal 500 W rating retails atVND 400,000. A service levels compared to kerosene and re- " The exact amount of the grant must be specified after assessing the incremental costs of developing and supplying improved quality products and the willmgness of consumers to pay for higher quality products. 44 The assumed grant amount of US$2 perWp is based on grant level used in comparable PV projects in other Bank and GEF-assisted projects. Credit sales assumes a 20 percent down payment, 48-month loan repayment and 20 percent per annum interest rate. 4 Kerosene expenditures averageVND 30,000-40,000 per month, exduding cost of lanterns and thelr maintenance. Recharging a 20 Ah battery costs aboutVND 12,000 per month. Detailed Description of REAP Components 33 Table 9: Comparative Service Levels from PV System, Kerosene and Recharged Battery Service Provided Kerosene 20 Ah Baflery 20 Wp PY (10 liters per month) (Recharged 4 times per month) Lighting 8 TV Lightng (lumen-hours per month) 2,700 0 32,000 12W B&WTV Viewing 0 55 72 (hours per month) Assumpbons Kerosene consumpton 35 gm per hour for wick lantem produaing 12 lumens Black & White TV requires 14 watts. DC Fluorescent lamp produces 30 lumens per watt Peak useful sunlight hours is 3.5 per day. Source: Team estmates chargeable battery use. In other countries, A technical standards agency would be rural households have shown a wilingness to strengthened, to guide product development pay for high quality service for PV systems. and improvement efforts. This entity would support standards development and enforce- 2.4 Technical Assistance Subcomponent ment, offer grant assistance to encourage qual- ity improvement in products and services and Experience internationally with both Bank- support quality testing and awards of"seals of supported projects and commercial efforts approval." have shown that it takes considerable time and effort to develop businesses that offer af- Finally, a Management Support Group (MSG) fordable and reliable products and services.46 would be supported to effectively administer TA will include support to commercial re- the program, address policy and institutional newable energy enterprises for (a) increasing issues and improve the business environment. awareness and providing information, (b) Given the limited experience inVietnam with strengthening the sales and service infrastruc- commercial market approaches, it is recom- ture, (c) increasing access to financial services, mended that an independent group be as- and (d) improving equipment quality and signed the responsibility to oversee and co- safety (see Table 10). ordinate implementation support.The group's responsibilities will include program admin- TA would also be provided to financial insti- istration, management and monitoring grant tutions, including commercial banks and disbursements, equipment testing and certi- microfinance organizations, which would fication, consumer protection information ac- provide credit and other financial services to tivities, training and capacity building, coor- enterprises and consumers.ThisTA would in- dination with EVN and other agencies re- crease the banks ability to appraise loans. Ef- sponsible for rural energy services delivery, forts would be made to involve microfinance reporting to government and other partici- institutions, which are expected to be more pating donors, information dissemination, and effective in deliverng credit to rural consumers. ensuring the grants are used properly. I' Cabraal, A., Cosgrove-Davies M., and Shaeffer L. 1996. Best Practicesfor Photovoltaic Household Electri- fication Programs: Lessons from Experiences in Selected Countries. World Bank Technical Paper 324, Asia Techmcal Department Series,Washington, D.C. 34 Detailed Description of REAP Components Table 10 Capacity Building for Individual Household/institutional Component Target groups Adivities Consumers,isand oDmmunes that are Market promoton to increase awareness, knowledge and confidence in the technologies Consumers. institutions, villages and communesthatareExamples indude exhibitons, radio and TV advertsements, product demonstrabons, potental purchasers of systems community meetngs Rural enterprise-retailers, traders, installers, and repairers at Business development for rural distnbuton networks-induding building skills in areas such district, commune, and village levels who parbiapate in as direct sales to rural households, creatng links with suppliers and credit services, and distnbuton comparabve studies with other enterprises Business development for equipment and service supply induding business planning, Urban enterprses-suppioers, importers, workshops, product development, market, technical and distnbuton network development Actvites build wholesalers, distributors skills in managing the supply chain, credit finanang, technology and distribubon in rural areas Urban-based providers of support services-NGOs, Informaton and training would be provided to increase capabilities to provide professional universites, other educatonal insttutons, enterprise and technical suport services for ico-hydro and solar PV. Some, such as SolarLab. VIAE, associaions, consultng firms, and insttutes, such as RERC and HPCspl a h ydr o and syla r ainsnb. SolarLab, VIAE, HPC. RERC, HPC, may have dual role of receiving and supplyig taining. Finanang insttutons, including banks and official and NGO Workshops and other actvibes to increase understanding and lower perceptons of nsk of microfinance organizatons financing these technologies at consumer or business levels Opinion leaders, enterprise assoaatons, policy makers, donor Investment promobon activities Studies, analysis and disseminaton to increase representatives understanding and support aimed at improving micro business environment Source: Team estmates 2.5 Component Costs 4.2 million to cover the cost of TA and to buy down a smaller portion of the cost of the The proposed program will require about PV systems. VND 90-210 billion (US$7-15 million) in the first five years, of which 33 to 46 percent The unit investment costs are aboutVND 2- would be for TA (see Table 11). Grant assis- 2.8 million per consumer (US$140-200 per tance required is US$3-5 million, to cover consumer) during Phase I. Unit cost is un- the cost ofTA and to buy down a portion of likely to decline in Phase II as consumers are the cost of the systems (to increase expectedto demandlarger,higherpricedunits affordability and help develop the market).47 that provide higher levels of service. How- The balance offunds are from, consumer pay- ever, this estimate can be compared to ments, loans to consumers, and equity con- US$400-500 per consumer for rural electri- tributions of enterprises. fication grid extension and household con- nections under the World Bank-Assisted The indicative estimates for the second five- Rural Energy Project. Given that the renew- year phase areVND 160-330 billion (US$11- able energy system include generation costs, 24 million), of which only 16-20 percent is these costs are reasonable given the levels of for TA. Grant assistance required is US$2.5- service to be provided. 47 Grant assistance for system sales is assumed to be USS2 perWp for a PV system and US$0.15 per watt for an improved pico-hydro urnt in the first five years. Grant amount drops to US$1 per Wp for PV systems in the subsequent years. No grants are needed for improved pico-hydro units after five years. Detailed Description of REAP Components 35 Table 1 1 Estimated Cost of Individual/institutional Systems Component Phase l: 0-5 Years Phase II: 5-10 Years 0-1O Years Low High Low High Low High Million US$ Investnents 49 140 130 291 179 431 PV 21 56 56 134 77 190 Pico-Hydro 28 84 74 157 102 241 Technical Asststance 42 70 28 42 70 112 Total 91 210 158 333 249 543 Million US$ Investments 3.5 10.0 9 3 20 8 12 8 30.8 PV 1.5 4 0 4.0 9.6 5.5 13.6 Pico-Hydro 2 0 6.0 5.3 11.2 7.3 17.2 Technical Assistance 3 0 5 0 2.0 3.0 5.0 8 0 Total 6.5 15.0 11.3 23.8 17.8 38.8 Unit Investment Costs Million VND per Unit 2.0 2.8 2.2 2.9 US$ per Unit 140 200 154 208 Assumes thaI dunng Phase I, PV costs US$10 per Wp and the cost drops to US$8 per Wp in Phase II Pico-hydro unit cost is estmated to be US$500 per kW dunng Phase I and US$350 perkW in Phase It. Phase I technical assistance (TA) costs include 50 percentfor business and market development, 10 percentfor business envirnment improvement 20 percent for quality improvement, and 20 percent for implementation suppor Source Team estmates 2.6 Economic and Financial Viability Individual systems can be very cost-effective of Individual Household Systems compared to grid supply at low levels of elec- tricity use. Economic cost-effectiveness analy- To provide service levels represented inTable ses show that at a consumption level of 15 9, a PV system would have an economic in- kWh per month per household, solar PV is ternal rate of return (EIRR) of about 17 per- the lowest econormic cost option if grid ex- cent, based on the willngness to pay for kerm- tension cost is US$400 per household (VND sene lghting combined with battery-pow- 4.2 million) or more.49 If average consump- ered TV viewigne even ignoring the supe- tion level is 30 kWh per month per house- rior quality and quantity of light from a PV hold, SHSs should be used only if grid cost is system. The EIRR for a pico-hydro unit greater than US$600 per household. Simi- would be hlgher. larly, if consumption is 60 kWh per month " Assumes that the household spendsVND 40,000 per month (7-8 hours per day use) on kerosene and VND 30,000 every 3 years for lantern replacement;VND 140,000 per year on battery charging; and VND 280,000 every 4 years for battery replacement (2 hrs/day of radio or B&W TV). A household using a 20 Wp PV system would spend VND 3.5 million imrtally and then 150,000 every 4 years for battery replacement and 30,000 every year for lamp replacement. The PV system life is assumed to be 1O years. 36 Detailed Description of REAP Components Figure 3: Least Economic Cost Frontier for SHS and Grid Extension LeastCantFronierforGrid ,ectilkaton and SolarPV 1100 - - - _ _ _ _ _ _ _ _ __ _ _ 1000 - - - _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 900 olr-_ Solar home osystems are least i70 cost - i Soo Gid extension is least cost S 500 - _ 00 0 3Ai = = = =-ium sapbons 20: G - Snd rural suppty so 07IOWO -SoIarHfme0Sstnms S10-112hp t 20 D0 . - Crad eltariria coJstG FC2 data tS 20 25 30 35 40 45 50 55 60 65 Monthl Consumption per Household ikWh/household) Source: Team estmates per household, grid supply is preferred if grid where it is not possible to extend the national connectaon cost is less than US$1,200 per grid and where there are potential produc- household. The cost effectiveness boundary tive uses. The systems will be operated by is depicted in Figure 3.Where perennial wa- rminiutilities, cooperatives, and communities ter resources are available nearby, pico-hydro using good business practices with active in- units have even lower economnc life cycle cost volvement of local organizations. compared to solar systems.This has led to their widespread use in Vietnam despite the poor Based on topographical and hydrological con- quality of electricity service delivered. ditions, it estimated that some 700 communes not-to-be electrified before 2005 have snall hydro resources that could be suitable for ei- 3. Community Isolated Hydro thercommune based hydro generation. How- Grid Component ever, not all of the small hydro resources as- sociated with each commune will be techni- 3.1 Objective cally and/or economically viable. It is esti- mated that about 45 percent of the 700 com- The component will support the develop- munes (that is, 300 communes) have hydro ment of community isolated hydro grids, resources that can be technically and eco- 4 Grid extension costs indude MV and low-voltage (LV) lnes, meters and connection. A solar PV system of 50 Wp offers similar levels of service to i5 kWh per month of grid electricity. It provides electricity for three fluorescent lights and a black and white TV for about 5 hours per day. The system correspondmg to 30 kWh per month is a l0OWp PV system and a 200Wp PV system offers equivalent service to 60 kWh per month of grid service. Umt costs are USS12 perWp for the small system and US$10 perWp for the large system. Detailed Description of REAP Components 37 nomically developed within 10 years to pro- fied by EVN including a list of existing and vide electricity to about 110,000 households potential isolated hydro sites; a turnkey mi- in about 220 communes.50 cro hydro-diesel hybrid pilot project at Na BoVillage in Hua Pang Commune; and a fea- The REAP component to support the de- sibility study of a program to develop com- velopment of these Hydro-Based Commu- munity-scale hydro-based mini grids.This has nity Electricity systems has the following tar- resulted in prefeasibility studies for 25 com- get profile: munes, allowing rapid start-up of the com- * Phase 1 would aim to provide service to ponent.The community isolated hydro grids 10,000-40,000 households in about 20- component will be expanded if the JICA 80 sites.5" Aggregate capacity would be funded investigation identifies additional sites. 2-6 MW * Phase 2 would aim to provide service to 3.2 Background an additional 80-110, 000 households in about 160-220 sites.The aggregate ca- Hydro-based community isolated grids are pacity would be 14-19 MW needed when it is not economically possible to connect to the national grid, but a suffi- The range of estimates reflects the uncertain- cient cluster of loads exist to justify a stand- ues in the extent of support from govern- alone network. A commune based network, ment, local communities and international in comparison with the individual systems agencies.At least three substantial international discussed in the previous section, has the ad- initiatives are under consideration.JICA wlll vantage of providing sufficient electricity for finalize in 2002/2003 a Renewable Energy productive and income generating activities. Master Plan in the Northern part ofVietnam Typically, a small hydro network will provide which lays out financing and technology enough electricity for productive loads (for transfer plan to provide electricity to 276 example, irrigation, milling, sawing), public communes, mainly using hybrid isolated grid loads (for example, schools, health centers, systems. JBIC will consider supporting fol- street lighting), and households.An additional low-up implementation as well. SIDA has in- advantage of these systems is that they can be dicated that a substantial part of their energy designed, installed and maintained by local program will support rural electrification over companies. A typical range of generator size the coming years.TheWorld Bank has agreed inVietnam would be 1,000-1,200 kW. Such with MOI to support a Hydro-Based Com- systems can have strong economic and social munity Electricity component under the pro- benefits, as shown by the experience of Duy posed SEIER Project (2002), aiming to pro- Son 2 commune (see Box 3). vide service to about 8,000 households in about 20 communes. International Experience with Cornrnu- nity Hydro Grids. Village- and commune- Phase 1 will build on preparatory activities based hydro electricity is not a new way of that have already taken place these include electrifying rural areas, it is one of the oldest. data based on communes not-to-be electri- More than 100,000 commune- or village- 50 Meritec, 2000.'REAP Package E: Feasibility Study of a Program to Develop and/or Rehabilitate Commu- nity-Scale Hydro-Based Mini Grids Consultant report to EVN, Hanoi. 5' In dozens of communes, multiple sites have been identified. The REAP program will initially focus on supporting the development of the best site in a commune.Therefore, the number of communes is the same as the number of sites. 38 Detailed Description of REAP Components based hydro systems have been installed households).Even with these high tariff, there around the world. Four relevant models from is demand growth of 10-15 percent per year, different countries are described below. and an estimated 30,000 households are cur- rently waiting to receive connections. At the Sri Lanka: a cooperative/business approach.About moment, without regulation, many of the en- 100 village hydro systems have been installed, trepreneurs operate unsafe systems and pro- of which about 11 have been supported vide low quality of electricity service com- through the World Bank/GEF ESD Project. pared to international standards. Government These systems have an installed capacity from involvement in rural electrification is very 4.5 to 40 kW and serve an average of 800 limited. A new electricity law has been pro- households each.Average investment costs are mulgated in the first quarter of 2001, which US$2,500 per kW and US$465 per house- will create a regulatory body and support fur- hold. Village Electricity Consumers Coop- ther expansion of private sector involvement. erative Societies operate the village hydro projects as businesses.They have legal status, China: a government rural development approach. accounting and financial management sys- In China, more than 23 GW of small hydro tems, and a reward system for their employ- power systems have been installed, originally ees. Several private firmns and NGOs play a as isolated grids. Most systems are owned and key role in mobilizing communities and de- operated by county power companies, and veloping facilities.They identify suitable sites, were financed by a combination of govern- discuss project development with villagers, ment grants and loans combined with local and support the village in developing and labor. During 1996-2000, the national gov- operating the facility. Appropriate technical ermient provided 10 percent of the funds as specifications were adopted to reflect the low subsidy, and 38 percent in loans; provinces, capacity of the systems, without compromis- regions and counties provided about 30 per- ing safety, resulting in lower investment costs. cent of the funds as loans, and about 2 per- The World Bank/GEF financial support is cent came from foreign investments and other offered in three ways: (a) a credit line on com- sources.To encourage development, the Gov- mercial terms for the cooperatives and soci- ernment offered technical support and finan- eties; (b) grant funding of maximum cial incentives. For example, the hydro power US$9,000 to cost-share project development; projects have an exemption of income tax and (c) grant funding of US$400 per kW for and lowerVAT, and profit can be retained in capital subsidy up to US$20,000 per installa- the company. While government support is tion.This financial support complements the expected to be reduced as China shifts to a funds from the Government, private sector market economy, small hydr-based grids have and village.While some grant funds have been played a major role in creating prosperity and provided by Provincial Authorities, the role industrial development in rural China. of the government in village hydro develop- ment is limited. Guatemala: a community infrastructure lending ap- proach. Guatemala Genesis Empresarial (GE) Cambodia: a private sector/commercial approach. financing organization established a credit line In Cambodia, more than 100 rural electric- for rural electrification. GE has an extensive ity entrepreneurs supply rural areas using die- network and is a provider of microcredit. It sel based mini grids.These entrepreneurs op- offers infrastructure loans to rural commurn- erate for profit, selling electricity for high tar- ties, and provides TA and training to borrow- iffs (US$0.22-0.53 per kWh) to about ers.The infrastructure loans support a pro- 133,000 households (7 percent of all rural gram whereby rural communities initiate Detailed Description of REAP Components 39 electrification projects and must contribute systems have been mstalled with mixed re- to the project costs to qualify for public sub- sults. Operation of some systems has had ex- sidies. All members of the community must emplary results, where communities were contribute equally toward these costs. GE pro- committed and management strong. Never- vides loans to groups of poorer households theless, it is estimated that more than half of providing them with the needed funds. All the systems are not operational for several rea- group members are jointly liable for repay- sons. First, in many cases the systems were ments, which helps to ensure repayment- installed with donor funds and it was unclear less than 8 percent ofloans are nonperforning. who owned and who was accountable for The loan amounts are up to US$450 per the operation of the system. Systems were household for up to four years. GE makes a built, tested, installed and funded by the GOV, number of group loans in each community, then transferred to local authorities for daily with households grouped by incomes. Local operation. This transfer was made without commercial banks handle disbursements and clearly defining responsibility for mainte- repayments and interest rates are on corrimer- nance, securing funds for major repairs, and cial basis. GE began offering community elec- accountability for financial management. Sec- trification loans in 1993. In its first five years, ond, there were inadequate reward and train- it disbursed almost 1,000 group loans with a ing systems for operators and employees. value of approximately US$35 million to Third, constraints on funds resulted in lower 8,700 families in almost 200 communities. quality equipment as quality compromises were accepted during the selection and in- Vietnam Experiences5u InVietnam, more stallation of the systems. At the same time, than 350 hydro-based commune electricity contractors were minimally supervised. Box 3 Cornmunity Hydro Creates Labor Hero Duy Son 2 in Quang Nam province had no electricity despite its proximity to the Chop Xoi mountains and various streams. On the initiative of the head of the cooperative, a 400 kW turbine was installed in 1984, and increased to 1,200 kW by 1990.AIT 2,800 households in the cooperative were served with electricity. By 1995,the power plant earnedVND 1 billion annualTy and supplied water to enable 2-3 rice crops per year. Rice production increased from 1,946 to 3,560 tons between 1984 and 1996.A garment workshop was set up, which employed 250 female workers, exporting to other Asian countries. Seeing this success, the cooperative bought 20 weaving looms and provided loans to members for another 80 looms, and set up a rattan workshop employing 120 workers and a shoe production unit employing 70 workers. In 1996, the cooperative made a profit of aboutVND 200 million, and its fixed asset value has increased toVND 8.6 billion.As a result of his efforts, Mr. Lu Ban, the former head of the cooperative who had dreamed of harnessing the waters for electricity, was awarded the tide of"Labor Hero." 52This section is based on studies comnuissioned to prepare the Rural Energy 1 Project and the REAP, including (a) data collection of communes not to be electrified by EVN, including potential and exist- ing isolated hydro sites; (b) feasibility study of a program to develop community-scale hydro-based mnini-grids; and (c) a tumkey micro hydro-diesel hybrid project at Na BoVillage, in Hua Pang Com- mune. 40 Detailed Description of REAP Components Fourth, operation of the system was often lim- was higher and financial contribution ited to a few hours per day, and sometimes was greater and more reliable. only during the rainy season.This resulted in 2. The community should be commit- potential users installing other systems like ted to make a financial contribution small generator sets or pico-hydro systems. to the capital cost to ensure owner- ship. This can be done in by provid- Plants that were operated successfully had the ing a certain percentage of the in- following characteristics.The plants were op- vestment capital, and/or m kind con- erated under strong community leadership, tribution of labor and material. and sufficient management skills were avail- 3. A blend of financing is required, in- able in the commune. End users and owners cluding subsidies, contribution from of the plant were actively involved in project the community, and commercial design. And there was an appropriate finan- loans. Subsidies should be provided cial management system that at least covered in a transparent way. O&M and ma- the cost of operation and repair. In one case, jor repair costs must be covered by operators were offered technical training and the revenues from selling electricity a salary comparable to those in major cities at an affordable rural rate. 4. The commune or cooperative should EVN together with the World Bank has sup- be responsible for the continued op- ported a pilot hydro-based commune elec- eration of the power plant.At a mini- tricity scheme in Na BoVillage to test some mum, the tariff must cover the op- of the best practices including organizational erational cost including funds for re- set up, an adequate financial system and par- pairs and spare parts.At the same tume, ticipatory capacity building approaches. Ini- the tariffmust be affordable for a sub- tial experiences with this pilot confirm the stantial part of the end users (at least difficulties and risks of promoting commu- 60 percent). This should be agreed nity hydro systems with inadequate commu- and formalized in a legal document. nity commitment and insufficient support 5. There should be a clear organiza- from county and provincial level. tional set-up following good business practices.This includes the establish- Summarizing Experiences. Summarizing ment of a legally independent entity the international andVietnamese experiences like an electricity cooperative.Also, a with Hydro-Based Commune Electricity sys- sound accounting and bookkeeping tems the following key elements should be system and financial management addressed in the design of a community iso- should be adopted; and training and lated hydro-grid component.53 an appropriate reward system for the 1. Strong community commitment is employees established. a precondition for sustainability of 6. Productive loads should be available projects. It was observed in various from the first day of operation of the communes in Vietnam that where plant. If no productive loads exist, it community members were part of is more cost-effective to provide the the design process in its early stages, households with individual systems. routine maintenance was better per- Productive load development and in- formed, the willingness to maintain come generating activities must be 5 For synthesis of recent best practices see also ITDG. 2000. Best Practicesfor Sustainable Development of Micro Hydro Power in Developing Countries. ESMAP Technical Paper 006.World Bank,Washington, D.C. Detailed Description of REAP Components 41 promoted through a targeted dis- tial program will most probably be Son La, seniination program. Ha Giang and Lai Chau as indicated in An- 7. Access to technology andTA is nec- nex 7. It is recommended that a competitive essary. For repairs and replacement selection of the provinces and of the com- of parts, support from district and/ munities be used. Selection would be based or provincial level should be avail- on presentation of business plans that will able building on existing infrastruc- show the viability of the project and the com- ture. munity contribution. Assistance to cornmu- 8. The system should operate year nities will be needed, including a commu- round. If the water resources are not nity awareness program and support for prepa- sufficient, a combination with a die- ration of the business plans. sel system should be adopted. Detailed Design, Procurement, Construction, In- 3.3 Investment Subcomponent stallation and Commissioning of Systems. Survey, investigation, detailed design of the schemes In the Phase 1, MOI will support investment will be carried in close consultation with each in community isolated hydro grids to pro- Commune Electrification Committee. Envi- vide service to 10 to 40,000 households in ronmental, social, land acquisition and resettle- about 20 to 80 communes or sites. Aggregate ment aspects will be considered. Labor and capacity would be between 2 to 6 MW. A materials will be provided as a community feasibility study has identified 25 sites in 3 contribution to project construction, includ- northern provinces, Son La, Ha Giang and ing clearance of vegetation; excavation of Lai Chau (see Annex 7) .This list will provide trenches for the penstock pipe; building plat- a starting point for selection of communities, forms for the powerhouse; poles. Procure- but will be augmented. The 20 community ment, construction, supervision of installation systems to be financed are expected to and commissioning of each scheme or sys- * Have an aggregate installed capacity of tem will be carried out. 2,000 kW, comprising 1,650 kW of mi- cro hydro generation and 350 kW of die- Additional support will be provided through sel back-up generation. TA, to the community, and the renewable en- * Serve 8,100 consumers. ergy fund at the provincial level, as described * Cost US$4.4 million to construct, below. US$80,000 per year to operate and main- tain, and produce US$200,000 per year 3.4 Technical Assistance Subcomponent worth of electricity sales at a tariff ofVND 1,100 per kWh (includingVAT). TA will be provided for the following activi- * Require 60 to 70 percent of an invest- ties. ment subsidy financed by community contributions and direct grant. The re- Community Mobilization Program. A commu- mainder of the investment costs would nity mobilization program will be undertaken be funded by a loan to be repaid by the in likely communes. The communes will be community. offered assistance to prepare business plans, and the opportunity to bid for grant funds. The following activities will be carried out The business plans will demonstrate that the as part of the investment subcomponent: proposed tariff would meet requirements for operations and maintenance, plus an annual Site selection. Candidate provinces for the ini- fee to be paid to the renewable electricity 42 Detailed Desaiption of REAP Components fund. It is planned that at least 60 percent of common contributor to failure of micro-hy- the consumers in the commune must agree dro systems in the past.Accordingly, intensive in writing to take a metered electricity sup- O&M training and support will be provided ply, pay the connection charge, pay the coop- during commrissioning (when it will be most erative orjoint stock company for electricity effective).Access to management and techni- consumed and provide the agreed quantities cal advice and support will be provided dur- of labor and materials for project impleme ing operation. ntation. Monitoring and Evaluation (M&E) Program. The OrganizationalArrangements. Appropriate op- M&E program will monitor and evaluate the tions for commune organization are likely to social and economic benefits as well as the include a cooperative management model, a physical implementation, performance, O&M miniutility (company) model, and ajoint stock of the program, The M&E program would company. The commune-level cooperative monitor the projects during the construction model, with support from district and or pro- and commissioning stage, and for a minimum vincial level, may represent the best option period of 2 years after commissioning. for management and operation of the sys- tems. This system is well understood down 3.5 Financial and Economic Analyses to the commune level. Particular attention will be paid in piloting the models to defin- Financial and economic evaluations have been ing management responsibilities at commune carried out for 8 representative schemes (see and provincial levels, operations and mainte- Annex 8 for details).The results indicate that nance frameworks, technical and safety speci- the EIRR ranges from + 9.6 percent in fications (see O&M requirements below), and DuongAm to + 17.3 percent in Ngoc Chien, monitoring and evaluation of performance, based on an estimate of willingness to pay of costs and benefits. US$0.138 per kWh, including a consumer surplus.54 The three sites that require diesel Productive Uses Promotion Program. A produc- back-up have lower EIRRs than the sites that tive uses promotion program will be carried can service the demand from the hydro out in each commune, in conjunction with scheme alone.This is caused by the additional the community mobilization program. The capital cost of the diesel generator and the aim of the program will be to identify and cost of operating the diesel during the dry assist in the establishment of productive uses season (when hydro outp'ut is constrained by that consume electricity during the daylight low water flows) .The ElRRs and net present hours and do not contribute to the evening values (NPVs) for equivalent transmission grid peak load. The productive uses are likely to extensions and equivalent diesel generation be agricultural processing, timber working, were calculated, and compared with those of water pumping, battery charging and refrig- the community-scale hydro-based systems. eration, including replacement of diesel-pow- This confirms the results of the screening, that ered processes with electric motors. in all cases, the cost of the selected commu- nity-scale hydro-based systems are cheaper O&M Support Program. Lack of post-imple- options than either grid extension or diesel mentation service and support has been a generation. Sensitivity analyses were carried I The economic analysis uses willingness-to-pay values taken from Annex A of the Project Appraisal Document for theVietnam Rural Energy Project, the econornic price of diesel, and a shadow factor of 0.85 on local costs. Detailed Description of REAP Components 43 Table 12: Economic least Cost Life-Cycle Analysis of Four Commune Electrification Options56 Commune Hydro Grid Extension (15 km) Diesel Commune Solar PV US$ per hh US$ per hh US$ per hh US$ per hh Household only 610 740 590 450 18 kWh per month per hh Household plus produclve uses 70 1,100 1,310 n.a 37 kWh per month per hh n a Not applicable Source: Team estmates out for one representative scheme, and indi- able, this picture changes.55 The hydro-based cate that with changing development cost, isolated system would be the least cost op- and changing sales of electricity, approximately tion (evelized life-cyde cost of US$770 com- proportional changes in scheme viability oc- pared to US$1,100 for grid extension, and cur. US$1,310 for an isolated diesel system, see Table 12). Economic cost-effectiveness analyses show that without productive load during daytime The financial analysis was done assumning that it is not justifiable to install a Hydro-Based the tariff would be VND 1,100-2,200 per -Commune Electricity system for a typical kWh (see Annex 8).Without subsidy, the fi- Vietnamese commune. Without productive nancial internal rate of return (FIRR) ranges load, the cost for providing electricity for a from + 0.6 percent in Ngam Li to -4.9 per- typical commune would be US$610 per cent in Dai Son.7 An additional analysis was household on a life cycle cost basis, which is conducted to estimate the capital subsidy re- substantially higher than the US$450 per quired to achieve a FIRR of 10 percent that household for a solar PV system (see Figure will cover O&M costs, provide a margin for 3) or even a diesel based commune system. unexpected repairs, expenses, and service However, if small productive loads are avail- debt.'8The required subsidy level ranges from " Doubling the electricity use from 18 kWh per month per household to 37 kWh per month per household equivalent mainly caused because of usage during day time. S6 Based on REAP studies, a typical not-to-be-electrified cornmune by EVN is more than 15 kilome- ters away from the national grid. It has 500 households, of which 60 percent will be connected to the rmini grid.Average consumption per household in year l is 18 kWh per month with a peak capacity of 200W; increasing to 23kWh per month year 10. Productive loads include irrigation pumps, mills, sawing machines, etc.A peak capacity for productive systems of 20kW is necessary, of which 30 percent is used during daytime m the base scenario. 57 The financial analysis is from the viewpoint of the cooperative that operates the hydro-based system. The cost of dcesel is the price that would be paid in rural towns plus delivery to remote rural com- munes. 55 The analysis calculates the level of subsidy, assummng the remainder of the development cost is funded with a loan bearing an interest rate of 10 percent.The capital subsidy indudes the total subsidy required, and includes both a communmty contribution (10 percent) and grant funding.Thus a 70 percent capital subsidy would comprise a 10 percent community contribution and 60 percent grant. 44 Detailed Description of REAP Components 58 percent of imtial investment in Muong erty Alleviation Program; the JBIC (formerly Lan to 73 percent of initial investment in Dai OECF) supported Rural Infrastructure De- Son.The capital subsidy required is sensitive velopment and Living Standard Improvement to changes in tariff. Analysis shows that if no Project; and theWorld Bank supported Com- subsidy were provided, the tariff would need munuty-based Rural Infrastructure Project can to be raised toVND 2,500 per kWh.Tariffs all support hydro-based commune electrifi- at this level are likely to be unaffordable, thus cation. Information on these programs will dismissing a possible REAP approach of sup- be made available as part of the community porting only full commercial and for-profit awareness program. In addition, the Renew- operations. On the other hand, if the subsidy able Energy Fund is expected to provide were raised to 80 percent of the investment, grant funding for community hydro grids, the tariff in many communities would be less with a strong productive uses sub-program. than VND 1,000 per kWh. During project design, attention will be given to determine an appropriate tariff. 4. Renewable Electricity for Grid Supply 3.6 Estimated Cost of Community Iso- lated Hydro Grids Component 4.1 Objective Estimated cost of the component is indicated Small power producers invest in renewable in Table 13.The unit costs are approximately energy small power facilities, build-own-op- US$225,000 per commune; US$2,250 per erate the stations and sell electricity to EVN kW; and US$450 per household served. Pos- and/or PCs on a commercial basis.The small sibilities for obtaining grant funding to assist power producers could be enterprises owned with project development will be examined, by provincial, local, commune, cooperative, and the means of application, amount of sup- private sector entities. The small power pro- port available and probability of success as- ducers provide electricity with high quality sessed.The GOV-supported Project 135 Pov- and safety standards and at a lower cost than Table 13 Estimated Cost of Community Isolated Hydro Grids Component 0-5 Years 5-10 Years 0-10 Years Low High Low High Low High Billion VND Investments 63 252 504 693 567 945 Technical Assistance 17 43 42 42 59 85 Total 80 295 546 735 626 1,030 Million USS Investments 4.5 18.0 36.0 49.5 40.5 67.5 Technical Assistance 1.2 3.1 3.0 3.0 4.2 6.1 Total 5.7 21.1 39.0 52.5 44.7 73.6 Source: Team estmates Detailed Description ofREAP Components 45 alternatives.The revenues earned by the small vestors, that is, provincial or commune au- power producers by selling electricity are suf- thorities, cooperatives, or private companies. ficient for their businesses to operate on a Therefore they reduce investrnent needs of sustainable basis and to have a reasonable EVN and expand the participation of local profit. companies, thus supporting the government's Doi Moi Policy. Small grid connected renew- The proposed program consists of two sub- able energy projects also reduce losses in trans- components, (a) Nonutility Investment for mission as generation occurs closer to rural Grid Supply, and (b) Rehabilitation of EVN- load centers, improving the quality and reli- owned mini-hydro projects.These will be ex- ability of rural power supply, and help post- ecuted in two five-year sequential phases as pone investments needed to upgrade the described below. transmnission network to meet growth in ru- ral loads. 4.2 Background Only about 10-15 percent of the grid-con- Potential Use of Renewable Electricity nected small hydro potential is presently ex- for Grid Supply. Preliminary indications are ploited.AlthoughVietnam has significant bio- that about 700-1,200 MW of small renew- mass resources in the form of sugar bagasse, able energy potential could be technically fea- rice husk, coffee waste, coconut shells and sible for augmenting grid supply (see Table wood residues, very little is used to generate 14).This amounts to about 15-25 percent of electricity to supply the gnd. Only three sugar existing generation in Vietnam. The value of mills sell electricity to EVN. Although Viet- small power generation using renewable en- nam is the second largest rice producer after ergy extends far beyond its energy value. Small Thailand, many of the rice mills have low renewable energy projects are within the ca- capacities. If the husk can be transported to a pacity of small and medium-sized local in- central generation facility (for example, at dis- Table 14: Potential and Current Use of Renewable Energy in Vietnam Resource Potential Current Usage Geographical potential MW MW Grid-connected hydro power' 400-600 60 North and center Biomass-sugar bagasse2 100-200 50 South and center Biomass-fice husk3 150-200 0 South and center Geotherma0 50-200 o center Grid-connected wind power5 TBD 0 Islands and center coast Total 700-1,200 110 1. Includes mini hydro plants not connected to the gnd, but within 15 km of a medium-voltage (MV) per HV line. 2. There are 43 sugar milts with a total capacity of about 100 MW. Sugar milling capacity additons may add another 100 MW Current usage reflects mainly captive generaton (IE) 3 Total technical potental from nce husk is about 450 MW. About two thirds are used for animal feed or cooking Available potental estmated at one-third to one- half of technical potenbal. Other resources indude coffee waste, wood residue and coconut shells (IE) 4. Pnvate developer is negotatng a PPA for a 50 MW project Estmated geothermal potental is about 200 MW 5. A German developer has reportedly expressed interest in a 20 MW wind farm in the central coastal area Source: Team estmates 46 Detailed Description of REAP Components trict level) in a financially feasible way, power attention to power generation. However, with generation from husk would be viable. In ad- the increasing cost of power, there is now dition, there could be opportunities to pro- stronger incentive to maximize power out- duce rice husk ash,which has a value of about put. Since 1990, unit costs of small hydro and VND 200,000 per ton. wind power have declined to about US$800- 1,000 per kW A strong indigenous industry International Experience with Renew- has developed to provide design, engineer- able Energy for Grid Supply ing, manufacturing, installation and operation and management services. Wind technology India. Among developing countries, India is local content has increased from 20 percent at the forefront of nonutility generation of in the early 1990s to 80 percent today. renewable electricity. During the past 8 years, the Indian private sector has invested in 1,200 Thailand. The Thai government has a policy MW of wind farms, 1,160 MW of small hy- to encourage private sector participation in dro and more than 235 MW of power gen- power development from small power pro- eration from sugar bagasse has been commis- ducers.The National Energy Policy Council sioned or under construction. A 35 MW so- (NEPC) recognized that electricity generated lar thermal electric project is under prepara- by nonconventional energy, waste or residues tion. Key to India's success has been the issu- from agricultural activities or production pro- ance of policies and regulations requiring the cesses, and cogeneration would create envi- State Electricity Boards (SEBs) to support ronmental benefits and reduce waste disposal such projects. The SEBs in several states are problems. It would also reduce government now required by State law to buy electricity investment in electricity generation and dis- from small renewable energy plants at about tribution. Therefore, Thailand promulgated VND -875 per kWh (US$0.063 per kWh) policies and regulations to encourage small under SPPAs. Wheeling of power, using the power producers to sell electricity to the na- SEBs transmission lines from the generation tional utility, Electricity Generating Author- site to the investors demand center, is also ity of Thailand (EGAT). Under this program, permitted. The wheeling fee is 2 percent. EGAT is required to purchase up to 3,200 Where generation and demand are not coin- MW from small power producers. Electric- cident in time, the SEBs permit the genera- ity is purchased under an SPPA.The purchase tors to bank the electricity for up to one year. tariff is based on avoided cost. To date, firm Third party sales are also permitted, although contracts for 63 MW ofpower from nce husk, with a higher wheeling fee of 12.5 to 15 per- bagasse and wood chips projects have been cent. India also gives tax incentives for power signed. In addition, 400 MW of renewable generation at the national and state levels. At electricity capacity is being developed under the national level, energy investments can be nonfirm contracts. depreciated fully (100 percent) in the year the investment takes place. Five-year income Sri Lanka set up a small power purchase pro- tax holidays are also granted. Long-term fi- gram, with World Bank assistance to support nancing has been made available through the renewable electricity development. Under the IREDA. Significant local financing has been program, Ceylon Electricity Board (CEB), also mobilized for such investments from lo- purchases electricity under an SPPA. About cal investors, and banks. 26 MW of small hydro plants have been com- missioned and another 12 MW are under In the early years, investments were made construction by nonutility developers in the mainly to obtain tax relief, without adequate first 5 years. The World Bank-funded credit Detailed Desrnption of REAP Components 47 line permits commercial banks to offer 6-10 of countries. Characteristics of three such year financing for such projects.As in the case agreements are given in Annex 9. Average of India, all projects have been developed by 'SPPA tariffs across a number of countries are local investors. Although the CEB was re- summarized in Table 15. quired to transparently update the purchase tariff annually, the process has not worked A number of useful lessons can be drawn from smoothly. Disagreements have arisen between the experiences described above: the utility and the developers as to the as- * Small scale generation using renewables sumptions used in the tariff calculations.With- is in the national interest. The scale of out an independent regulator to intervene, investment needed is well suited to local the developers are at a disadvantage as the investors and developers.Therefore, such CEB is the sole buyer of power. projects help build local industry and business capacity. Such projects also do Small Power Purchase Agreements (SPPAs). In not carry the risks of currency deprecia- the countries mentioned above, a key to un- tion or face issues of repatriation of profits locking the nonutility sector interest in re- offihore. Most projects are in rural areas newable energy development has been the and support rural development. establishment of suitable legal and regulatory * Small nonutility developers can imple- framework. A clear, well-crafted SPPA is an ment these small projects more efficiendy essential requirement. The small scale of the and at lower costs compared to utilities. projects makes lengthy negotiations on the However, cooperation and support of the purchase agreements and the tariff impossible. utility is absolutely essential if these The agreement must strike a balance between projects are to be developed. the interests of the small power producer, the * An SPPA is needed to reduce the trans- power purchaser and other stakeholders. If the action costs associated with developing procedures are too onerous, developers will these small power projects.The tariff for- have no interest in the program. Similarly, if mulation should be transparent and the the price and risks are not competitive with rules and assumptions for updating the other options, the utility will be opposed. tariff must be clear so that the developers Based on these considerations, the approach and the lenders can estimate the likely of a standard (in contrast to a "model"), non- revenue stream with greater confidence. negotiable PPA together with a pubhshed * An independent regulator (preferable) or purchase tariff has been adopted in a number arbitrator (at a minimum) is necessary to Table 15: Average Small Power Purchase Tariff Comparison Across Countries Computed Average Tariff (VND per kWh, equivalent) Thailand (energy only) 451 Thailand (energy + caparity) 714 Sn Lanka (energy only) 534 India (ubilrty sales) 875 India (captive generation and 3rd party sales) 1.000 Source: Team estmates 48 Detailed Description of REAP Components intercede between the small power pro- tivated land, the number of irrigation projects cedures and the purchasing utility when will continue to increase, providing more op- differences arise. portunitles forjoint operation for electricity * Long-term loan financing is essential. generation. Loan terms of at least 5, but preferably 10 years are necessary. Only 6 out of the 48 were reported as not in * The purchase agreement duration should operation (13 percent) due to equipment fail- be at least as long as the debt service pe- ure. Though most of the systems are func- riod to give confidence to the lenders. tioning, there is substantial scope for improve- ment through rehabilitation. Many of the Vietnam Experience59.There is limited ex- hydro systems were imported from China, perience in Vietnam of small renewable en- others from France, Russia, and Bulgaria. ergy generation that is not owned and oper- Some were produced in Vietnam based on ated by the utility (EVN or power compa- Chinese designs.The most common system nies).There are three sugar mills selling elec- is run-of-the-river (capacity from 0.1 MW- tricity to EVN under individually negotiated 7.5 MW). Most of the systems are in opera- purchase agreements.They are Bourbon sell- tion year round.The plant factor of the work- ing up to 12 MW of electricity to EVN at ing systems ranges from 0.23 to 0.60, which US$0.0435 per kWh; Son La selling 1 GWh is low in comparison to other countries. All per year atVND 400-440 per kWh and La the grid-connected systems were government Nga selling 1.5 GWh per year atVND 400 financed, either direcdy or through interna- per kWh.60 Some cooperative-owned small tional aid.Typically the grant was used to im- hydro plants also sell electricity to EVN or port equipment and material while the O&M power companies. The Duy Son 2 coopera- costs were borne by EVN. tive sold power in 1998 atVND 351 per kWh. EVN, as a condition for the World Bank-as- A recent survey indicated that there are 60 sisted Rural Energy Project has agreed to MW of grid connected mini hydro installed adopt an SPPA with a published tariff. Pres- in 48 systems, ranging from 100 to 7,500 kW ently,EVN is finalizing both.There are a num- capacity each. Most of the systems are in the ber of outstanding issues with respect to the north and center, especially in Ha Giang and SPPA, which is presently under resolution (see Cao Bang, Quang Nam and Quang Ngai Annex 10 for details).While both an energy- Provinces.Twenty percent of the systems were only and an energy-plus-capacity tariff have developed in conjunction with irrigation de- been computed, EVN favors offering an en- velopment by the Ministry ofAgriculture and ergy-only tariff as they are not confident that Rural Development (MARD). Since the gov- the small power plants can deliver firm power. errnient aims to irrigate 80 percent of all cul- The proposedVietnam energy-only tariff is 5 This section is based on studies comnuissioned as part of the preparanon of the REAP, the Rural Energy 1 Project and others.They included (a) Renewable Energy Small Power Purchase Agreement; (b) Smal PurchaseTariffDevelopment; (c) Pipeline Development of Small Hydro Projects; (d) Pipeline Development for Rehabilitation and Upgrade of Grid Connected Renewable Energy Projects; (e) Biomass for Power Generauon; (f) Renewable Energy Master Plan Study, prepared in conjunction with the Rural Electrification Master Plan. 60 In 1997, an IFC-led consortium gave a loan of US$42 milion to the Sucrerie de Bourbon sugar mnl, which produces 100,000 tons per year ofrefined sugar.The mvestment mcluded a 24 MW bagasse-fired power plant Detailed Desaiption of REAP Components 49 Table 16. Comparison of Small Power Purchase Tariffs and Economic Avoided Costs in Vietnam61 Average Tariff (VND per kWh, equivalent) Vietnam Economic Avoided Cost (energy only) 427 Vietnam Economic Avoided Cost (energy + capacity) 750 Proposed Vietnam (energy only) small power purchase tariff 420 Proposed Vietnam (energy + capacity) tariff 602 Vietnam Bourbon Sugar Mill (maxdmum 12 MW) US$0.0435 per kWh (VND 609 per kWh) Vietnam (other agreements with sugar mills) 400-440 Vietnam Duy Son II Coop (Small Hydro) 351 Source: Team estmates comparable to the avoided economic energy- action costs, manage risks and equitably allo- only cost while the proposed energy-plus- cate benefits. capacity tariff is about 80 percent of the eco- nomic avoided energy-plus-capacity cost To encourage such investments, efforts will (Table 16). The proposed tariffs in Vietnam be required by the GOV, EVN, development are low compared to the other countries, in- and commercial banks, and other relevant cluding Sri Lanka, which has a similar hydro agencies, including the following: dominated power system. * EVN needs to issue a notification to pur- chase power under the SPPA, as agreed 4.3 Subcomponent I: Nonutility Invest- to during negotiations of the Rural En- ment for Grid Supply ergy Project IDA credit agreement. * EVN and MOI need to establish trans- The GOV as part of its market-oriented de- parent and streamlined approval and con- velopment policies will encourage renewable tractual processes. electricity investments for grid supply, by * Access to financing through development nonutility public and private enterprises, co- and commercial banks must be facilitated. operatives and other nongovernmental enti- * EVN must offer a fair purchase contract ties.These entities would invest in new small and price under an SPPA, for projects hydropower plants,biomass power plants and under 10 MW Without an acceptable possibly wind farms and geothermal power. SPPA, few small power projects are likely To encourage investments, the enabling en- to be developed. The only projects that vironment and institutional process must be are likely to be developed are those that sympathetic to the need to munimize trans- already have spare capacity (for example, 61 Avoided cost is based on generation costs given in Table 2.5 ofWorld Bank report, Fueling Vietnam's Development (1999) with network investment and transrrussion losses obtained from Fitchner-Colenco tariff study. Diesel gas turbines are at the margin during peak hours and coal-based steam is at the mnargin during off-peak hours. The proposed tariff assumes generation from small hydro occurs 65 percent during wet season and 35 percent during dry season. The tariff may be higher for biomass generation as a greater proportion would occur during the dry season 50 Detailed Description of REAP Components sugar mills), and those that can be devel- and costing under US$1,000 per kW are likely oped with little or no additional invest- to be financially viable as commercial invest- ment. EVN is in the process of finalizing ments. Cooperatives or- other not-for-profit the SPPA and tariff. enterprises may be interested in projects with lower financial rates of return. Likely small Investment. Given the outstanding SPPA is- hydro candidates drop down to just one or sues, limited access to financing, and limited two-Nam Mo and Dan Sach 1:If EVN of- experience to date, the REAP program ex- fers both a firm (energy-plus-capacity) and pects small power developments to begin nonfirm tariff as in Thailand, the number of slowly.About 15-25 MW of investment could financially viable small renewable energy small occur during the first five years. During the power investments would increase.64 second phase, accelerated progress can be ex- pected as institutional capabilities are built, In addition, the larger sugar mills with ca- greater confidence in the renewable energy pacities exceeding 2,000 tcpd and the larger small power generation is created, costs are rice mills are likely to have financially viable lowered through experience and there is opportunities for excess power generation for greater local industry participation.62 A de- supply to the grid. With greater proportion velopment target of 100-200 MW of renew- of generation occurring during the dry sea- able energy projects could be feasible in the son, compared to small hydro, electricity from second phase, depending on progress achieved these plants will be of more value to EVN as during Phase I and on the availability of fi- it would displace more expensive generation nancing. A preinvestment study of 40 pro- and provide firm power when EVN requires spective small hydro sites identified 10 that it most. Sugar bagasse power projects are likely are technically, environmentally and economi- to include the larger mills with existing cally viable.0 The 10 sites constitute about underutilized boiler capacity where an addi- 50 MW of capacity and require aboutVND tional steam turbine-generator could be added 1 trillion (US$75 million) in investment.Their at about US$500 per kW Rice mills with characteristics are summarized in Table 17. their longer operating season and with the additional benefit of a high value ash by-prod- However, as noted in Annex 10, there are a uct could be attractive investments at up to number of outstanding issues with respect to US$1,500 per kW even at the energy-only the SPPA, which will determine the finan- tariff. However, as the majority of rice mills cial viability of these small power plants. At a are small, efficient husk transport will be tariff that reflects only energy value (off-peak needed to aggregate the husk from several 2.3, peak US$0.043 per kWh), only plants mills to permit a larger, more cost-effective with capacity factors exceeding 60 percent power plants to be constructed and operated. 62 In both India and Sri Lanka, the SPP projects are being developed at a faster pace and at lower unit costs through experience gained by developers. For example, wmd power projects in India now cost under US$850 per kW compared to US$1,200 per kW seven years ago. Small hydro projects (-1 MW per station) m India are being developed at under USS900 per kW with groundbreaking to commis- sioning occurring in 15 months. Seven years ago, unit cost of small hydro were US$1,400 per kW and it took 48-60 months for completion. In Sri Lanka, small hydro project unit costs are US$650-850 per kW, installed. All developers are local enterprises. 63 Meritec, 2000. Vietnam Rural Energy Project. Pre-Investment Study Reportfor Pipeline Development of New Small Hydro Projects. Consultant report to EVN, Hanoi. 64 Financial viability assumes a FIRR on equity, after tax of 15 percent or greater (in nonunalVND). Detailed Desaiption of REAP Components 51 Table 17. Technical and Financial Characteristics of Selected New Mini-Hydro Schemes for Grid Connection Project Province sGeneration Financial Cost EIRR (%) (a) FIRR anequityaertax Capacity %(b Energy + Eeg mw GWb per Billion VND Million US$ Energy only capacity Energy only Energiy+ year avoided cost avoided tariff tpariff cost Nam Mou Ha Giang 5.9 43 1 79 57 21.0 36.1 16.9 29.8 Dan Sach 1 Binh Thuan 8.9 52.7 124. 8.9 24.3 43.2 20.0 36.8 Na Loi (c) Lai Chau 7.5 38 8 126 9.0 15.0 27.5 8.6 18.3 Da Dang Lam Dong 63 411 142 10.1 15.3 27 2 91 18.1 DaChoMo Lam Dong 2.8 21.0 74 5.3 15.0 267 9.0 181 Na Loa Cao Bang 6.5 36.0 150 10.7 155 28.4 8.6 18.4 Pa Khoang Lai Chau 1.6 12.6 59 4.2 15.1 26 8 9.0 180 Sa Deung Lam Dong 1.1 92 43 31 148 26.5 90 17.9 Dan Sach 2 Binh Thuan 2.4 14.2 67 4.8 15.0 28.4 8.3 18.6 Nam He Lai Chau 51 25.8 139 10.0 15.2 28.6 8.4 186 ThacVoi Lam Dong 1.1 . 7.8 42 3.0 14.5 26.6 8.6 18.0 Total 49.2 302.3 1,045 75 a Energy-only avoided cost VND 427 per kWh: Energy + capacity avoided cost VND 750 per kWh. b Energy-only small power purchase tariff VND 420 per kWh; Energy + capacity small power purchase tariff VND 602 per kWh. c. Na Loi is reportedly under development by pnvate sector interests Source- Mentec 2000c. Access to long-term financing (more than 5 hydro and other projects as BOO projects, years, up to 10 years) is needed to support designing award procedures, and offer- small power producer investments. State- ing sites to interested developers; owned enterprises that can obtain such fi- * Help sugar production and rice milling nancing with little or no collateral would be associations, as well as the responsible gov- the early entrants to the program.To encour- ernment agencies, to inform and encour- age broader participation by other nonutility age their members to participate in the entities, access to long-term financing must small power producer program; be facilitated. * Facilitate contacts between potential project developers, equipment suppliers, Capacity Building.The capacity has to be built engineering service providers, financiers, in Vietnam to facilitate development of MOI and EVN and conduct informa- nonutility markets for small renewable en- tion dissemination; ergy power generation projects. The follow- * Provide matching grant funding to in- ing work needs to be undertaken: terested renewable energy small power * Advise EVN on purchasing power un- project developers to assist in der the SPPA; preinvestment activities; * Assist MOI in packaging identified mni- * Provide business development services to 52 Detailed Description of REAP Components Table 18. Characteristics of Grid Connected Mini-Hydro Rehabilitation Projects65 Estimated Cost Project Province Capacity (kW) EIRR ( Billion VND Million U5$ Ban Thach Thanh Hoa 1.000 26 1.9 13 1 Thac Bay Lai Chau 2,800 7 0.5 63 5 Chieng Ngam Son La 2,000 22 1.6 33.2 Thac Ba Gia Lai 300 1 0 1 33 3 ladrang 2 Gia Lai 1,200 4 0 3 42 4 Kon Dao Kon Tum 600 5 04 24 2 Phu Ninh Quang Nam 1,760 4 0.3 47.2 Am Diem Quang Nam 5,640 3 0.2 111.4 Nam Suu Ha Giang 500 13 09D 13.5 Viet Lam Ha Giang 800 11 0.8 17 5 Nam Ma Ha Giang 3,600 24 1 7 46 7 ThacThuy HaGiang 850 13 0.9 10.8 An Kroet Lam Dong 4,400 27 1 9 390 Total 25,450 160 11.5 Source: Fichtner and Colenco 2000 developers to support preparation of con- thereby strengthen local expertise and capa- ceptual designs, hardware specifications, bilities in small power development. When financial analysis, financing plans, envi- this assignment ends, there will be a substan- ronrental and social assessment and com- tially improved capability in-country to con- pliance reporting, business planning, and tinue provision of small power development attracting the necessary financing; and assistance. This approach has been proven to * Help developers to prepare projects for be effective in other countries. support from clean energy funds, such as the PCF or the CDM. 4.4 Subcomponent II: Rehabilitation of EVN-Owned Mini-Hydro Projects A consultant team will be established to pro- vide these services, with significant partici- Investment. A recently concluded appraisal of pation of national experts. International ex- 30 existing, small hydro plants identified 13 perts would be used primarily in an advisory plants that could be rehabilitated. All 13 capacity.During the course of this assignment, projects have economic rates of return above the national experts will work alongside and the threshold of the World Bank's 10 percent in partnership with international experts and hurdle rate, and a majority of these plants have 65 Fichtner and Colenco. 1999. TechnicalAssistancefor Preparation of Proposed Rural Energy Project, package 2 Pricing Policyfor Rural Elecrification. Consultant report to EVN, Hanoi. Detailed Description of REAP Components 53 EIRRs greater than 30 percent (see Table 18). It is assumed that by the second phase, under The aggregate capacity of these 13 plants is power sector reform initiatives, EVN would estimated to be around 25 MW, and the total have divested itself of small hydro plants. investment cost would be about VND 160 Therefore, no small hydro rehabilitation bilion (US$11.5 million). projects executed by EVN or PCs are antici- pated in Phase 2. A number of these plants will be renovated by EVN. However, the consultant noted that Capacity Building.The Power Engineering and management of these systems is particularly Construction Companies under EVN, have difficult for EVN.The sites are in remote ar- adequate capacity to renovate small hydro eas and retention of staff is difficult. There- plants.They can specify the requirements, pre- fore, EVN needs to consider alternate man- pare bid documents, assist EVN in tendering agement methods that give greater incentives and in construction supervision. It would to operators and managers to ensure that these however be useful to strengthen their capa- plants do run optimaly. Options include per- bilities by recruiting an international team formance-based Management and Operations knowledgeable about the advances taking Contracts or some form of revenue sharing place in small hydro technologies; experi- contracts. In the future, EVN may wish to enced in environmental and social assessment divest themselves of these small plants through and mitigation of problems; application of equitization. new performance-based contracting meth- Table 19 Cost Estimate for Grid-Connected Renewable Energy Program Phase 1 (0-5 years) Grid-connected renewable energy Physical Targets Total Cost MW Million USS Low High Low High EVN Mini-Hydro RehabUitabon 10 26 5 13 Small Power Producers 15 25 18 30 TA 2 4 Total 25 51 25 47 Phase 11 (5-10 years) Physical Targets Total Cost MW Million USS Low High Low High EVN Mini-Hydro Rehabilitaton 0 0 0 0 Smal Power Producers 150 200 180 240 TA 1 2 Total 150 200 181 242 Source: Team estmates 54 Detailed Description of REAP Components ods and new construction management ahd 5. Renewable Energy Assess- supervision techniques; and small generation ment and Technology I m- systems control and management. provement Component 4.5 Cost Estimate 5.1 Objective The preliminary cost for a first five-year phase The objective is to support activities that will of a grid connected renewable energy devel- broaden and deepen the development of re- opment program is estimated at about newable energy in the long term. The pro- US$26-47 million, including US$3-4 mil- gram to be carried out will be defined in lion in grant assistance for capacity building detail during implementation of Phase 1 .The and institutional strengthening. Such a pro- activities described below are examples of the gram will improve the capabihties of the pub- activities that should take place during first lic and private sectors to undertake such phase of the renewable energy program, lead- projects and to support the development of ing to further up-scaling in the second phase. about 25 to 50 MW of rehabilitated small hydro plants and new small hydro and biom- The currently identified activities are as fol- ass power projects. During the next phase, lows: dependmg on the progress achieved during * Study to accelerate institutional markets the first phase, 150 to 200 MW of installa- for stand-alone renewable electricity sys- tions could be achieved. An indicative cost tems; estimate is given in Table 19. * Development of a publicly available data base on renewable energy resources; Representative allocation of institutional m Renewable energy technology improve- strengthenmng and capacity buildmgTA funds ment program; are as follows: * Preparation of REAP Phase 2, Large- * Srnall Power Producer Project Support Scale Implementation; (60 percent) * Other activities not yet defined. - Consulting Services (30 percent) - Information Dissemination (10 per- 5.2 Background cent) - Matching grants for feasibility stud- International Experience. Renewable en- ies (20 percent) ergy development programs internationally * EVN Support for Mini-Hydro Rehabili- include a number of activities that are directed tation (40 percent) toward medium to longer term development - Designs and bid documents (10 per- of the sector.These activities include targeted cent) support for research and development; re- - Training & Capacity Building (15 source assessment; market assessment; testing percent) facilities for technologies and international - Monitoring & Evaluation (5 percent) cooperation (for example, participation in - Implementation Support (10 per- conferences and technology development ac- cent) tivities of agencies, such as the International Energy Agency. Investment financing would have to be ob- tained from multilateral or bilateral sources, 5.3 Study to Accelerate Institutional from funds mobilized locally and equity con- Market for Stand Alone Renewable tribuuons form developers. Energy Detailed Descriptton of REAP Components 55 The objective is to accelerate the current pace dropower having the most potential sites iden- of development of institutional markets for tified and geothermal being the least well stand-alone renewable energy systems, includ- documented. However, in all cases, the infor- ing solar PV systems, improved pico-hydro mation is scattered and incomplete. During systems, and small wind systems.The project preparation of the REAP study, Hydro Power team will work together with interested min- Center (HPC) prepared several data bases on istries (health, education and/or telecommu- small hydropower, but the information avail- nication), renewable energy supply compa- able is not yet adequate to prepare a large- nies, and international agencies, to identify scale program. opportunities and establish an investment pipeline for these professional and institutional This activity would prepare and initiate imple- systems.The pipeline will be based on projects mentation of a public data base on renewable and programs the ministries are planning to energy. It would include resource measure- implement on the medium term.The project ment, resource assessment, and publication of team will identify and propose financing the results on the most promising sites for mechanisms for the programs,including gov- development of small hydro, wind, biomass ernment financing, customer contributions, and geothermal resources. It would charac- international support and making use of the terize the resources at promising sites inViet- earlier proposed rural renewable energy fund. nam to a level sufficient for conducting They will prepare feasibility studies for each prefeasibility studies for grid-connected subprogram, which will include financing projects or isolated power supply projects in plan, institutional arrangements, economic mountainous, coastal or island regions. It and financial feasibility, risks and benefits.The would then create a publicly accessible data project team will determine the appropriate base that contains the results of the assess- procurement mechanisms that will include ments, and publicize the availability of the minimum quality specifications of the sys- information.This activity would be ongoing tems.They will also produce a five-year busi- throughout the REAP program, increasing ness plan for each subprogram. Organizations the amount of information available over time. that could be involved in the activity are the This activity would include training and pro- Ministries of Health, Education, Agriculture vision of equipment and resources to ensure and Rural Development, General Department that data is obtained, processed and dissemi- for Post and Telecommunication as well as nated in a way that ensures usefulness and the Committee for Ethnic Minorities and quality. Organizations that could be involved Mountainous Areas (CEMMA). in the activity are Institute for Meteorology and Hydrology (IMH), Institute of Energy It is estimated that about US$350,000 is re- (IE), and the RECTERE. quired to complete the activity. It is estimated that about US$1.25 million is 5.4 Development of a Public Data Base required to complete the activity. It would on Renewable Energy Resources be carried out in two stages, an initial plan- ning study and then implementation of the The objective of the activity is to make avail- program. able to renewable energy businesses and project developers the data necessary to iden- 5.5 Renewable Energy Technology Im- tify opportunities for investment. Such data provement Program is not yet publicly available in Vietnam. The situation varies by resource, with small hy- The objective of the activity is to help equip- 56 Detailed Description of REAP Components ment suppliers to improve the renewable en- The objective of the activity is to update the ergy technologies currendy available inViet- REAP and prepare an implementation plan nam.This will involve cost sharing of activi- for Phase 2, that is, large-scale implementa- ties that will result in improved technologies tion and up-scaling of the best-practice ac- or strengthening of equipment supply busi- tivities from phase I.The activity will review nesses. Such activities could include product the lessons learned from Phase I, including development, product demonstration and the pilot projects, resource assessrment stud- evaluation, product testing,twinning arrange- ies, tests of implementation models, and ca- ments betweenVietnamese and foreign sup- pacity building efforts. It will also reassess ex- pliers, feasibility studies ofjoint ventures, and panding the scope of the action plan to other preparation of agreements for licensing. Lo- renewable energy systems including wind cal and foreign equipment suppliers will make farms, solar heating, and biogas. The review proposals to the program, including business will be prepared using a participatory process plans showing the results if the activity is suc- involving al relevant parties similar too what cessful, and apply for funding.The proposals has been done during the preparation of the would bejudged on a competitive basis. Such current REAP. The lessons will be clearly programs have had considerable success in documented with as aim to disseminate them industrial countries and could encourage in- internationaly. Based on these lessons, the stitutions inVietnam to seek out commercial REAP wiDl be updated with the objective of opportunities and look for foreign partners. significantly up-scaling electricity services to the rural poor, initially following the targets It is estimated that about US$1.75 milion is set in the current REAP. required to complete the activity, which would again be carried out in two stages, an It is estimated that about US$0.65 milion is initial planning study and then implementa- required to complete the activity don. 5.7 Estimated Component Cost 5.6 Preparation of Phase 2: Large-Scale Implementation The cost of this component is estimated at US$5 milion as shown in Table 20 below. Table 20: Estimated Cost of Renewable Energy Technology Assessment/Development Component Subcomponent Cost (million USS) Study to Accelerate Institutional Market for Stand Alone Renewable Energy 0.35 Development of Public Data Base on Renewable Energy Resources 1.25 Renewable Energy Technology Improvement Program 1.75 Planning of REAP Phase 2 0.65 Other Activities 1.00 Total 5.00 Source: Team esbmates Detailed Description of REAP Components 57 Bibliography Reports Prepared for Renewable Energy Ac- Other Reports on Rural and Renewable En- tion Plan ergy in Vietnam ASTAE. 2000. Optionsfor Renewable Energy in COWI. 1998. Rural Electrification Master Plan Vietnam, a Report on the June 15-16, 1999 Study-- Vietnam. Consultant Report to EVN, Two-Day Participatory Workshop, Hanoi. ESMAP Hanoi. Technical Paper 001,World Bank,Washing- ton, D.C. Entec. 2000b. Investment and Business Planfor Setting up a Micro Hydro Turbine Manufacturing Entec. 2000a. Package C: Techno-Economic As- Business in Vietnam. Consultant Report for sessment Model. Consultant Report To World World Bank,Washington, D.C. Bank,Washington, D.C. Fichtner and Colenco. 1999. Technical Assis- Finucane, J., et.al. 2000. REAP Package D: tance for Preparation of Proposed Rural Energy Program Designfor Isolated Households Segment. Project, Package 2: Pricing Policyfor Rural Elec- Consultant Report forWorld Bank,Washing- trfication. Consultant Report for EVN, Hanoi. ton, D.C. Meritec. 1999. Vietnam Renewable Energy Small Hydro Power Center. 2000. Package B: Col- Power Purchase Agreement. Consultant Report lection of Basic Information and Mapping Infor- for EVN, Hanoi. mation for Vietnam. Consultant Report for World Bank,Washington, D.C. Meritec. 2000a. Turn-Key Micro Hydro-Diesel Hybrid and Battery Charging Station Pilot Project. Meritec. 2000a. REAP Package E: Feasibility Consultant Report for EVN, Hanoi. Study of a Program to Develop and/or Rehabili- tate Community-Scale Hydro-Based Mini Grids. Meritec. 2000b. Vietnam Rural Energy Project Consultant Report for EVN, Hanoi. Pre-Investment Study Reportfor Pipeline Devel- opment of New Small Hydro Projects. Consult- Pham Nguyet Anh. 2000. Background Infor- ant Report for EVN, Hanoi. mationfor Institutional and Policy Aspects of Re- newable Energy Development. Consultant Re- Ministry of Industry. 2000a. Master Plan of port for World Bank,Washington, D.C. Power Developmentfor 2000-2010. Ministry of Industry, Hanoi. Detailed Desaiption of REAP Components 59 Ministry of Industry. 2000b. Rural Electrfica- ITDG. 2000. Best Practicesfor Sustainable De- tion Policy. Ministry of Industry, Hanoi. velopment of Micro Hydro Power in Developing Countries. ESMAPTechnical Paper 006.World World Bank. 1999. Fueling Vietnam's Develop- Bank,Washington, D.C. ment. World BankWashington, D. C. Lorenzo, E. 2000. Realities of Some PV Rural World Bank. 2000. ProjectAppraisal Document Electrification Projects. Renewable Energy for Vietnam Rural Energy Project. World Bank, World,James &Jarnes,Vol. 3:5. Washington, D.C. Martinot, E.,A. Cabraal, and S. Mathur. 2000. Other References World Bank/GEF Solar Home Systems Projects: Experiences and Lessons Leamed 1993-2000. Cabraal,A., et.al. 1998. Best Practicesfor Pho- World Bank informal paper,Washington, D.C. tovoltaic Household Electriftcation Programs: Les- sonsfrom Experiences in Selected Countries. World Truewind Solutions. 2001. Wind Resource At- BankTechnical Paper 324,AsiaTechnical De- las of Southeast Asia. Consultant Report to partment Series,Washington, D.C. World Bank,Washington, D.C. 60 Detailed Desrption of REAP Components Annex 1 List of Participants at the REAP Workshops No Name Organization Introductory Workshop July, 1999 1 Luong Cam Sanh Director, SELCO Vietnam 2 Pham Tien Khoa Director, Viet Phong Consulting 3 Nguyen Hoai Chung Vietnam Women's Union 4 Tran Thi Thin Deputy Director, Vietnam Bank for the Poor 5 Dang Dinh Thong Director, Renewable Energy Research Center, Hanoi University of Technology 6 Nguyen Duc Loc RERC, HUT 7 Pham Cong Dinh Industrial Dept., Ministry of Planning and Investment 8 Ma Trung Ty Committee for Ethnic Minornies and Mountainous Areas 9 Hoang Trong Do Industial Dept of Son La Province 10 Phan Van Lan Director, Industrial Dept of Gia Lai province 11 Tran Van Dinh Industnal Dept. of Tra Vinh provnce 12 Hoang Van Thang Director, Hydro Power CenterlMARD 13 Pham Van Vy Assistant to President & CEO, EVN 14 Nguyen Tan Loc Director, Rural Network Dept, EVN 15 Tnnh Ngoc Khanh Deputy Director, Rural Network Dept, EVN 16 Vu Ngoc Thu Director, Planning Dept., EVN 17 Nguyen Huu Duyen Deputy Director, lCD, EVN 18 Nguyen Minh Thang Planning Dept. EVN 19 Pham Khanh Toan Deputy Director, Insttute of Energy 20 Nguyen Duc Cuong Head, Rural Energy Dept., Institute of Energy 21 Nguyen Tien Long Head, Wind & Solar Dept., IE 22 Nguyen Danh Oanh Head, Hydro Dept., IE 23 Tran Manh Hung Head, ICD, IE 24 Do Thiet Hung Deputy Head, ICD, IE 25 Oystein Botillen UNDP 26 Nguyen Ngoc Ly UNDP 27 Susan Bogach World Bank 28 Anil Cabraal World Bank 29 Jon Exel World Bank 30 Van Tien Hung World Bank Vietnam 31 Pham Nguyet Anh World Bank Vietnam 32 Nguyen Thuy Anh World Bank Vietnam 33 Enno Heijndemmans Moderator (World Bank) Workshop on Draft Report, Odober 2000 1 Andrew Steer Country Director - World Bank Vietnam 2 Tran Van Duoc Vice President - Electricity of Vietnam 3 Pham Van Vy Assistant to President & CEO, EVN 4 Nguyen Tan Loc Director, Rural Network Dept, EVN 5 Trnh Ngoc Khanh Deputy Director, Rural Network Dept, EVN 6 Vu Ngoc Thu Director, Plannig Dept., EVN Annex 61 Annex 1 List of Participants at the REAP Workshops 7 Nguyen Huu Duyen Deputy Director, ICD, EVN 8 Luong Cam Sanh Director, SELCO Vetnam 9 Pham Tien Khoa Director, Viet Phong Consulting 10 Nguyen Hoai Chung Vietnam Women's Union 11 Dang Dinh Thong Director, Renewable Energy Research Center, Hanoi University of Technology 12 Nguyen Duc Loc RERC, HUT 13 Hoa Dai Thanh Investment and Planning Dept. Ministry of Industry 14 Cao Quoc Hung Intemabonal Cooperabion Dept, MOI 15 Pham Cong Dinh Industrial Dept, Ministry of Planning and Investment 16 Nguyen Ba Vinh Dept for Science & Technology Management Ministry of Science Technology and Environment 17 Ma Trung Ty Committee for Ethnic Minorites and Mountainous Areas 18 Tran Ngoc But Agncultural Policy and Rural Development Dept, Minister of Agnculture and Rural Development 19 Hoang Trong Do Director, Industrial DepL of Son La Province 20 Hoang Van Thang Hydro Power Center, MARD 21 Pham Khanh Toan Deputy Director, IE 22 Nguyen Duc Cuong Head, Rural Energy Dept, IE 23 Nguyen Tien Long Head, Wind & Solar Dept, IE 24 Nguyen Danh Oanh Head, Hydro Dept, IE 25 Do Thiet Hung Deputy Head, ICD, IE 26 Tran Manh Hung Head, lCD, IE 27 Nguyen Van Dang Head, Rural Network Dept Power Company No 1, EVN 28 Ho Viet Hao Power Engineering Construction Company No 1, EVN 29 Pham Van Lang Director, Consultng Center for Agnculture Engineering and Development 30 Mr. Thanh Energy Technology Center, National Center for Science and Technology 31 Nguyen Xuan Nguyen Central Institute for Economic Management MPI 32 Le Hoang To Director, SOLARLAB, National Center for Science and Technology 33 Duong thi Thanh Luong Manager, Research Center for Thermal Equipment and Renewable Energy 34 Nguyen Dac Hy GEF Coordinator, GEF-VN Office 35 Ms. Ma Anh Tohoku Electnc 36 Ms. Van Anh BP Solar 37 Ito Masayuki JICA 38 SIDA Representative SIDA 39 Anne Vehvilainen UNDP 40 Anil Malhotra World Bank Vietnam 41 Susan Bogach World Bank 42 Anil Cabraal World Bank 43 Jon Exel World Bank 44 Van Tien Hung World Bank Vietnam 45 Pham Nguyet Anh World Bank Vetnam 46 Nguyen Thuy Anh World Bank Vietnam 62 Annex Annex 2 Macro-Level Wind Map of Vietnam and neiboring countries Wind Resource at 65 m H~~~~~~~~~~~ HN _uoi A Hanoi MYANMAR 19¢~~~~~~- __; , 7;r'x, *ISr < FE ill a. A. . i-~ 14Pr- - ^Sr- ^ tangkok- r___-i -9 / Phnom Pe h . en ^;t 1: >; i ~~Miriih it Gulfof O . . Tha lard - * W-d Resorce at 6c . - X \ . l . = C_~~~~~~~~~~~~~~~~~~~~-.=S C G- 49t 104° CT 200 400 e60 Kfiomdters Projecton: Universal Transverse Mercator (Zone 48) This wind resource map of Southeast Asia was created I Scale: 1:10,400,000 (1cm = 104 km) for the World Bank by TrueWind Solutons using MesoMap, |Resolution of Wind Resource Data: 1 km a mesoscale atmospheric simulation system. Although the map is believed to present an accurate overall picture of wind Wind Resource Atlas of Southeast Asia resources in Southeast Asia, resource estimates for any Source: Truewind Solutons 2001 particular location should be confirmed by measurement. Annex 63 Annex 2 Macro-Level Wind Map of Vietnam and neiboring countries Wind Resource at 30 m 990 logo CHINA V VTIETNAM~ Hanoi p Guilf of e CAM=0DIA Phhn- ' Penh Gu4fofiMhC Thailand 0W Re=oce at 30m c,- - {"c - f3 1 t 'S ,, >- - l Mihh C~~~~~~~~~~~~fl : USm vi1t . t Tkibi- - . 1 Resoluton of Wind Resource Data Ikm a mesoscale atmosphenc simulaton system. Although the map is believed to present an accurate overall picture of wind Wind Resource Atlas of Southeast Asia resources in Southeast Asia, resource estimates for any Source Truewind Solutions 2001 particular location should be confirmed by measurement 64 Annex Annex 3 Renewable Energy Projects in Vietnam Supported by the World Bank Group Renewable Energy Policy Studies. A number of studies have been conducted to prepare the REAP resulting in (a) a data base' on more than 1,100 communes that will not be electrified by EVN in the next five years; (b) a feasibility study on a program to support individual renewable energy systems for households and institutions; (c) a feasibility study for community scale hydro-based mini grids; (d) an institutionial and policy background document was prepared; and (e) as a techno-economic analysis report. As part of the preparation of the Rural Energy 1 Project, key stakeholders visited the hydro and solar projects in Sri Lanka. Studies and support were provided for the development of an SPPA and tariff to be used by independent small power producers that will sell electricity to EVN. Preparation of investment pipelines for hydro. EVN undertook two investment studies, one on rehabilitation and upgrade of grid connected hydro projects and one on new small hydro projects. The rehabilitation study identified 13 economically viable projects with total capacity of 26 MW and a required capital of US$11 million. The study on new small hydro projects identified 11 economically viable projects with total capacity of 50 MW and required capital of US$74 million. EVN and the World Bank are considering the option to finance some of these projects as part of the next energy lending operation. Commune based miao-hydro-diesel pilot project. This project will test and demonstrate a model to supply electricity to a commune on a sustainable way. Particular attention is given to the organizational and management set up to assure technical quality control, commercial operation, proper maintenance and after sale services. If the project is successful, it could create momentum to develop 200 similar sites in the northern part of Vietnam. Pnvate sector development support for hydro organization. A twinning relation has been established between the RERC in Hanoi and a Swiss hydro company. Together they are developing a business plan to spin off the household scale pico-hydro production facility into a new business. A similar activity is planned with the HPC in Hanoi. Renewable energy training and awareness materialfor communes. The project has supported the development of training material for trainers who will work with communes and government authorities to prepare commune based renewable energy investment proposals. The material is prepared with local training experts and consists of leaflets, flipcharts, draft proposal, training guides, and a fact book. It will support the communes in making an informed choice in selecting their energy technology to fiufill their electricity need. Financing of solar company. IFC is supporting SELCO Vietnam, a commercial solar company that is selling solar PV systems. Macro level wind mapping Furthermore a macro level wind resource map is being prepared for the Indochina region. Data includes population, number of households, per capita income, village spacing, access to seasonal road, perennial road, health center, school, market and small hydro potential. Annex 65 Annex 4 Overview of Donor-Supported Renewable Energy Projects in Vietnam Donor Donor VH Orgunlzatlon Focus Period Amount Remarks Country Organlzalion (UIS$) China/Japan ODA HPC Small hydro power Northem and Cenlral Part Denmark DANIDA TA on wind power; wind assessment Denmark EVN RE master plan 1.1 million EU ASEAN Bagasse Cogen Cogen Finland Mission in Sept'98 France Fondem Solar PV 1990-1998 South of VN France ACCT HUT, Hanoi University of Renewable Energy Technologies Central Part Technology Germany GTZ Can Tho University Biogas Agric. University, South of VN Germany PV/diesel hybrid Japan NEDO IE Solar/hydro hybrid Kon Tum Province Japan IE New and renewable energy Netherlands SNV SNV-VN Rural Renewable Energy Advisor 1999-2001 Central Part Netherlands NEDA Transport, btogas, cogen 0.2-2 millton COM Netherlands NEDA MOSTE EC and Efficiency EOF involved Swedish SIDA PV research and demonstraton Under Renewable Energy Technology in Asia Program Swiss VN-Swiss HCM University of Wind Turbines Association Technology Worldwide IFC SELCO-VN PV 750.000 Worldwide GEF Geothermal Worldwide UNDP PV Potenfial in Vietnam ESCAP ..... (5 Renewable Energy Projects in Vietnam Supported by the World Bank Group Main Issues All Technologies Household Systems Community Mini-Grid Grid-connected Hydro or Biomoss Pico-Hydro SHS Policy Environment and social benefits not No subsidy from GOV No subsidy from GOV Subsidies from GOV less than for grid Investor must negoliate deal valued unlike grid unlike grid No standard PPA or tariff Proposed subsidy for rural Dumping of Chinese High import duties, taxes electrification less than for systems below cost convenlional Technical Equipment and operation not best Poor quality and Equipment standards inadequate, Same as mini-grid intemational practice performance safety issues Number of professionals not adequate Shorl Lifetime Seasonal supply for large scale Safety issues in operation Environmental impact Business No renewable energy businesses Only 1 company No management model Few potenlial investors as IPP is new operating business in Vietnam Govemment approvals complex and noncommercially Usage levels too low difficult 0 and M inadequate Public enterprises get preferential treatment over private HPC not commercial Information Lack of awareness Lack of consumer None since opportunity only now being awareness identified Lack of data on the grids and on villages and communilies not to be electrified by EVN1 Resource Lack of adequate measurement, Limited number of sites, Adequate only in south Lack of adequate data on sites Same as mini-grid assessments, no public data base only in north Finance Lack of long-term finance and No source of finance for No source of finance for community No long-term finance for developer consumer finance consumer Soure. ASTAE 2000 Now addressed by REAP Package B, in which HPC has collected this information and made it available. See Hydro Power Center. 2000. Package B: Collection of Basic Infonnation and Mapping Infornationfor Vietnam. Consultant report to World Bank, Washington, D.C. Annex 6 Implications of Rural Electrification Policy for Renewable Energy Policy on Rural Electrification Policy and Power Sector Policy REAP Implications Basic Princlples (Headings and section numbers correspond to that in the Rural Electification Policy paper) The purpose of rural electrificaton is to deliver electicity efficienfly and reliably to rural consumers in order to improve Renewable energy-based off-grid and mini-grid options are proposed where they are their standard of living and ability to eam income. The following principles will guide the evaluation, development and least economic cost compared to either grid extension or using diesel minl-gnds. Implementation of the rural electrificaton In Vietnam: 2. Rural electicity supply will be based on both grid-based and off-grid systems. 4 Priority should be given to those areas that have the capacity to enhance the pace of agncultural productivity, Emphasis for mingrids will be on areas with productive use opportunities. Where modemizaton and economic restructuring of strategic areas. productive uses are likely to be limited, off-grid options may be lower cost solution to enhance quality of life. 5. The responsibilities for invesUng, managing and operatng rural electridcity networks and providing supply and service Off-grid services and mini-grid systems will be owned, operated and managed by local funcUons should maximize the use of local authorities, local people and local investors. authorites. In additon, experiences in other countries show that given the small scale of these investments, main investors in such ventures are local. 6. The costs of operations, maintenance and the economic depreciation of rural electnfication infrastructure and supply Consistent with the govemment policy of equitable distribution, it is hopes that should be financially recovered from the revenues eamed by EVN, PCs and other operating entibes in Vietnam's power renewable energy-based gnd and off-gnd services will receive transparent subsidy. sector. The GOV should provide a transparent subsidy for investment in rural electrification networks and supply This is likely needed for mini-grids even where they are least cost compared to grid infrastructure when these are deemed commercially unviable by revenue eaming enUties in Vietnam's power sector. extension or diesel mini-grids. 7. Electncity supply for rural consumers should be considered a commercial service, except for those areas Govemment Grid connected renewable energy generaton projects to be financed are economically has subsidy policy when it is deemed to be socially necessary and consistent with the objective of equitable and commercially viable when energy generated is credited on avoided cost basis development. All entities that are responsible for the final delivery of electricity service to rural consumers should have an adequate financial incentve to conUnue in business and maintain an acceptable level of service. The PolIcy Framework for Rural ElectriflcatIon 1. Project Selection Criteria Selection of communes to be served by electrcity, either grid, mini-grids or off-gnd The selection of unserved areas and individual communes for electrificafion should be consistent with the Govemment's would meet the EIRR criteria proposed. socioeconomic development objectves and should Include, among others, the following principles: (a) that communes should have a potenbal for economic development so as to ensure that energy consumption will be sufficient to justify the investment in economic terms that are defined as below: - The methodology for conducting the economic evaluation of any rural electrirication project will be based on regulations to be issued by the Govemment - A rural electrification project is defined as the capital investment decision for a medium-voltage and low voltage system induding all associated downstream investments. A typical rural elecitficalion project would therefore cover mulbple communes. - Only those rural electrification projecfs-would be selected for investment if they are able to demonstrate a minimum EIRR of 12 percent. - Specially difficult communes selected for electrification under a specfic project should achieve a minimum EIRR (probably 8 percent). - Those communes that have EIRR below the above criteria will be electrified under a specific decision by the Govemment. Annex 6 Implications of Rural Electrification Policy for Renewable Energy Policy on Rural Electrification Policy and Power Sector Policy REAP Implications (b) that the connection of communes to the grid should be the least-cost solution to supply electncity, The decision to use off-grid, mini-gnd options are based on least cost criteria compared to providing equivalent services using either grid extension or isolated diesel grids. (c) that the selection should be done following a process whereby local groups, that is, local community and households, Local communities would make the ultimate decision on level and chotce of will have an opportunity to partcipate. technology solutions. 3. Ensuring Appropriate Design Standards and Construction Quality All rural electrificabon investment from the medium-voltage level down to the consumer meter will have to meet Design and quality standards will be set and enforced to ensure quality of service, nationally promulgated design standards. MOI will issue nationwide applied design standards for rural electncity safety and reliability criteria for off-grid and mini-grid systems (solar PV, pico-hydro, networks. and hybrid systems). EVN will undertake the responsibility of certifying or ensuring that the medium and low-voltage rural network invested by Mini-grids will meet EVN standards consistent with level of service proposed. Such the PCs meet national design standards. designs low-cost mini-grids have been developed with Bank support in other countries in Asia. These will be made available to MOI for consideration Departments of Industry in the provinces and central cibes will undertake the responsibility of evaluating rural electricity network projects that are designed and invested by other investors to meet national design standards and existing Grid-connected renewable energy plants will be required to meet EVN interconnection regulations An agreement on design standards with EVN or PC(s) if an electncity network needs to be connected to the standards national grid The Power Companies and local network owners and operators are obliged to meet the nabonally promulgated design standards. 4 Diversifying Ownership and Management Responsibilities for Rural Electnfication Networks and Supply The GOV encourages the diversification of investment and management forms in the provision of electricty to Renewable energy-based grid and off-grid systems would be owned and operated by consumers commercial enterpnses, such as community organizations, cooperatives and private - Foreign and local investors are encouraged to invest in generation of power to supply rural electrfication sector. The small scale of the projects and the correspondingly small investment networks-The Govemment will not limit the participation of entities and individuals in owning, managing rural network requirements are ideally suited for local investors as expenence in other countries and supply businesses, provided that these activifies are in compliance with legal regulations. Different operation and have shown. Moreover, these small operabons are more efficiently and cost-effectively management schemes will be encouraged and applied depending on the local situation providing the mechanisms are run by such commercially funchoning enterprises rather than EVN or PCs transparent and incenbves appropnate. MOI may wish to consider selling or offenng on long-term lease to commercial - The low-voltage network developed by the PCs may be leased or sold to a business entity that may have enterprises the mini-hydro plants that need to be rehabilitated. The enterpnses would sufficient operating capacity and be assigned the responsibility of operating the low-voltage network then rehabilitate the plants and sell electicity to EVN or PCs on an avoided cost basis. ON Z Annex 6 Implications of Rural Electrification Policy for Renewable Energy Polity on Rural Electrification Policy and Power Sector Policy REAP Implications 5. Encouraging Decentralized On Grid Generation Supply This is an important policy to support decentralized generation To encourage Investment in economic decentralized generation in the low voltage grid, the PCs will offer avoided cost Avoided cost-based tariff reflecting the cost of supply at the specified voltage in each capacity and/or energy payments to potential decentralized generators (avoided cost capacity and/or energy payments PC service area is Important in ensuring that economically viable decentralized are the highest price that the power purchase can be afford to buy electricty from outside generaton source instead of renewable energy sources are developed. their self investment, generaton and transmission to the consumers). The tanff should include both capacity and energy payments as a function of season and maybe even on time-of-day basis if justified by metenng cost and complexity. Penalty for not meeting capacity requirements could be considered to encourage These avoided cost capacity and/or energy payments will be linked to the load profiles and location at which this power these generators to ensure capacity is supplied when needed by EVN. is supplied to the network. The EVN will specify and prociaim the pnnciples for establishing these avoided cost The tariff formulaton and assumptions should be transparently derved and updated payments and the principles, formula and data should be made known to the developers as required in the rural electrification (RE) policy. {From Power Sector Policy] Since the gnd-connected renewable energy systems are most likely to be connected C. Reform Strategy to the PCs medium-voltage (MV) gnd, the purchaser of electricity will be the PCs. (c) Electricity Pricng Therefore the Power Sector Policy statement that the PCs will purchase power at 100 - introduce a cost-based bulk transfer price for bulk power sales to the distribution companies. percent of G&T costs by 2000 is important to ensure that all economically ustfied EVN will ensure that the difference between cost-reflective bulk supply tariff (BST) to PCs and retail tariff by year 2000, decentralized qeneration is supDorted. which results in an operating loss to PCs is compensated transparenty, that is, not through the bulk supply tariff. The current practce of adjusting the bulk tariff through a hidden subsidy to ensure that 13 2 Implementation of full cost-based bulk supply tariff to PCs may be phased, if necessary. thq PCs that serve rural consumers are financially viable is a disincentive for PCs to -1998 70 percent of actual G&T cost purchase power from other generators as they can get subsidized bulk power from -1999 85 percent of actual G&T cost EVN. -2000 100 percent of actual G&T cost Tariff setting by an independent regulatory authority is important as proposed in the Power Sector Policy. 6. Incentves for off grid supply A large number of communes and consumers who could be more economically and in For some mountainous communes and island areas not being able to connect to the national grid, respective provinces a least cost way be served by off-grid and mini-grid options were identified in the will establish the on-spot or local generaton projects suitable with the spedfic conditions of each location, such as REAP. The GOV commitment to support such service delivery by foreign and local diesel, small hydropower, and solar power. investors is encouraging. The Govemment will encourage foreign and local investors participabng in investment, local generation businesses for electncity supply to consumers, especially in remote areas where the national grid cannot reach. Annex 6 Implications of Rural Electrification Policy for Renewable Energy Policy on Rural Elecdrification Policy and Power Setor Policy REAP Implications 7. Retail Price The Govemment through its assigned price setting authority will establish a ceiling price for retail supply to rural It is important to ensure that this policy statement regarding differential pricng of bulk consumers. power is consistent with the statement in the Power Policy referenced above (1.3.2), which stated that by 2000, the bulk tariff will cover 100 percent of G&T while any This retail price ceiling will be readjusted and increased if the overall financial subsidies made available through the necessary subsidy will be transparently and independently provided. differential pricng of bulk power to urban and rural power distibution companies is inadequate to sustain acceptable financial performance for EVN, the PCs and other rural electricity supply business entities. (This financial performance is as follows: self-financing rabo is 30 percent, debt service ratio is 1.5 and debt-to-equity ratio is 60:40 ) The mechanism of subsidizing the price of electicity to rural consumers should ensure that there are incentves for (a) effiident purchase of bulk power by the supply entity; (b) entites responsible for electricity delivery to cover costs. 8. Funding Arrangements for Rural Electrification Access to long-term financing will be important to support renewable energy The GOV will ensure the following when providing funds to EVN, PCs and other business entities for investmenl in rural investments. Financing from multilateral, bilateral or local sources could be coursed electification: through the commercial banking sector following good investment banking practices. - Refundable or partially refundable capital sources from mulblateral and bilateral loans AIll be allocated as Experiences in other countries should that while long-term (10 years) financing is special budget fund aimed at investing in rural electification once the investment is determined appmopriate. needed to make decentralized renewable energy projects financially viable, concessional interest rates are not necessary or recommended. Where appropriate and justified, grants reflecting global environmental values of these projects should be transparently provided. Annex 7 Summary of Sites and Communes for Inclusion in the Pilot Commune-Based Hydro Program No. Province District Commune Name No. of New or Hydro Diesel Peak Load System Cost O&M Cost Revenue Ratio Community Estimated Consumers existing Capacity Capacity (kW) (US$) (US$) (US$) Rev/O8M Subsidy (USS) Grant Cost (% 1 Son La Son La Town Chieng Co 296 Ex 40 30 59 146,242 5,643 7,266 1.3 14,624 64 2 Son La Quynh Nhai Muong Chien 367 New 80 0 73 192,048 2,769 8,987 3.2 28,807 54 3 Son La Song Ma Chieng En 295 New 60 0 59 162,374 2,608 7,237 2.8 24,356 59 4 Son La Song Ma Muong Lan 407 New 90 0 81 208,106 2,853 9,972 3 5 31,216 51 5 Son La Song Ma Chieng Phung 292 New 60 0 58 161,559 2,606 7,163 2 7 24,234 59 6 Son La Song Ma Huol Mot 259 New 60 0 52 152,435 2,574 6,339 2.5 22,865 59 7 Son La Song Ma Muong Cai 210 New 50 0 42 134,095 2,482 5,148 2.1 20,114 62 8 Son La Muong La Ngoc Chien 537 New 110 0 107 253,747 3,068 13,164 4.3 38,062 46 9 Son La Muong La Chieng Cong 227 New 50 0 45 138,820 2,498 5,575 2 2 20,823 62 10 Son La Muong La Muong Tral 350 New 50 40 70 188,677 6,108 8,590 1.4 28,302 62 11 Son La Bac Yen Bac Nga 403 New 90 50 81 227,537 2,849 9,869 3.5 34,131 51 12 Ha Giang Dong Van Lung Cu 272 New 40 30 54 158,077 4,646 6,663 1 4 23,712 64 13 Ha Giang Meo Vac Tat Nga 224 New 50 0 45 137,843 2,495 5,486 2.2 20,676 62 14 Ha Giang Meo Vac Lung Pu 253 New 60 0 51 150,969 2,569 6,207 2.4 22,645 59 15 Ha Giang Meo Vac Nam Ban 226 New 50 0 45 138,494 2,497 5,545 2.2 20,774 62 16 HaGiang Meo Vac Niem Son 455 New 100 0 91 226,446 2,945 11,164 38 33,967 49 17 Ha Giang Yen Minh Ngam La 253 New 60 30 51 163,149 2,568 6,192 2 4 24,472 59 18 Ha Gtang Yen Minh Du Gia 572 New 100 60 114 282,740 6,501 14,017 2.2 42,411 49 19 Ha Giang Hoang Su Phi Tien Nguyen 328 New 70 40 66 192,935 2,686 8,046 3.0 28,940 57 20 Ha Giang Xin Man Quang Nguyen 295 New 60 0 59 162,374 2,608 7,237 2.8 24,356 59 21 Ha Giang Xin Man Na Chi 324 Ex 70 0 65 152,194 2,473 7,943 3.2 22,829 57 22 Ha Giang Bac Quang Uen Hiep 303 Ex 50 40 61 155,749 3,864 7,428 1.9 Lg. 62 23 Ha Giang Bac Me Duong Am 221 New 50 30 44 149,534 2,492 5,427 2.2 22,430 62 24 Lai Chau Muong Lay Nam Hang 317 New 70 0 63 173,382 2,675 7,766 2.9 26,007 57 25 Lai Chau Phong Tho Nam Xe 392 New 80 0 78 198,890 2,792 9,605 3.4 29,834 54 Totals 8,079 1,650 350 1,614 4,408,416 79,869 198,036 2.6 653,950 57.6 (1) No. of Consumers equals 60 percent of the households in the commune. (2) Subject of detailedfinancial and economic analysis. (3) Subject to sensitivity analysis. Soure: Meritec 2000. Annex 8 Summary of the Results of the Financial and Economic Evaluations for Eight Selected, Representative Schemes No. Project or Commune Hydra/Diesel FIRR Tariff EIRR Capital Subsidy Required to Achieve FIRR of 10% Capacity (Wk) (unsubsidized; %) (VND, used for calculation of FIRR) (unsubsidized; %) (% of development cost) 1. Tn Nang 40/30 -2.9 2,200 +10.0 72 2 Muong Lan 90/0 -0.8 1,100 +15.9 58 3. Chieng Phung 60/0 -2.2 1,100 +14.4 63 4. NgocChien 110/0 +0.4 1,100 +17.3 52 5. Lung Pu 6010 -3.3 1,100 +13.2 67 6. Ngam La 60130 +0.6 1,800 +10.9 22 7 Duong Am 50/30 -0.6 1,800 +9.6 71 8. Dai Son 40/0 4.9 1,100 +11 6 73 FIRR = Financial intemal rate of return. EIRR = Economic internal rate of return. Soure: Meritec 2000. Annex 9 Comparison of SPPA and Tariff Structure among Countries Characteristic Thailand Indonesia Sri Lanka Capacity Limit 60MW Java/Bali 30MW; other 15 MW 5MW, but could be used for up to 10MW PPA period 5-25 years Non-firm- 2 years -10-15 years Firm: 3-20 years Tariff Non-negotiable, avoided cost based. Non-negotiable, avoided cost based Non-negotiable, avoided energy cost based. Energy + capacity payment for firm contracts (VND 100,000- Energy + capacity for firm contracts and energy-only for Wet season (May-Jan): VND 520 per kWh 200,000 per kW per month + VND 370 per kWh) non-firm contract Dry season 590 per kWh Energy only for non-firm contracts (VND 450 per kWh) Electncity Payment Varies by time-of-day. Penalty for firm contracts if contracted Varies by time-of- day, finm or non-firm, facility location, Vanes by wet (May-Jan) and dry season capacity is not met. HV or MV, and facility type. Payment in Rupiah Payment is in Rupees. Payment in Bhat Tariff adjustment Annual according changes in avoided cost. Avoided cost is indexed to price of utility's generators at the margin (fuel oil in Thailand, diesel GT in Sri Lanka, and a mix of fuel depending on region, in Indonesia) Operation of Facility Annual CF> 80% (53% for waste-to-energy). Monthly According to Prudent Utility Practices Monthly CF >50% According to Prudent Utility Practices. 'Must-run facility' CF>51% for firm contracts for firm contracts Interconnechon Seller responsible for cost. Seller responsible for costs but work done by seller or Seller pays the utility to contract interconnection, utility Connection at MV or HV and follows Prudent Connection at 33 kV and follows Prudent Utility Practice Utility Practice System Standards UUility Grid Code Regulations for Synchronizing Generators Utility Standards Utility Standards, plus G/59/1 British Electncal Association Source: Wordey Intemational in associafion with Clayton Utz, Renewable Energy Small Power Purchase Agreement, Draft Final Report prepared for EVN, September 2000. Annex 10 Outstanding SPPA Issues Issue Concerns Discuss of Options Period of EVN wishes to enter into no more than 10-year contract Rather than setting the contract term based on source of fuel, it may be more appropriate to issue 5-year SPPA for energy-only Contract for small hydro plants and not more than 5 year contracts that are renewable at EVN and developers option. Longer-term contracts of 10 years could be considered for small power contracts for thermal plants, such as bagasse-fired producers that commit to delivering both energy and capacity. Without a purchase agreement at least as long as the loan repayment stations penod for loans taken to finance the investment, few small power producer investments would occur. Only investments that will occur are those financed on the balance sheet of companies or those needing litte extemal financing. Purchase EVN will pay only energy component of the tariff and EVN may wish to offer both firm and non-firm contracts as in Thailand Non-firm contracts would receive only an energy payment. The tariff not the capacity component as EVN cannot depend on firm contracts will receive an energy and capacity payment with penalties if minimum capacity (annual and monthly) is not met. The the small power producer to deliver electricty capacity payment is paid only during peak demand periods dependably when required Many of the identified renewable energy small power projects have plant load factors comparable to EVNs own base load generators (-65%) and therefore deserve capacity payments (for example, small hydro plants identified to date have average annual PLF of 63- 93%, nce husk-fueled plants 63% or more, sugar bagasse plants around 40%, and geothermal plants 90+ percent) Uniform The tariff as presently constructed assumes that the The tanff fails to recognize that with the N-S transmission capacity constraints, there is a distinct cost differential between generation in natonal tanff avoided cost Is the same throughout the country and the north, and the south. Therefore, a regional tariff would be more economically rational. vs. regionally considered existing hydro at the margin during off-peak Moreover, with coal plants being built in the north and new hydro being build in the south, it is these plants that will be at the margin and differentiated periods appropriate for considering in the avoided cost formulation. tanff If the tanff is below that which is economically appropriate, Vietnam as a nation would not be able to benefit optimally from developing its own natural resources. Standard EVN wishes the SPPA to be a model contract rather The critical need for a standard, as opposed to a model contract for these small power producers is that it reduces the time and cost to SPPA vs than a standard contract and to have the opbon to both the developer and EVN of coming to closure on the agreement. The size of the investment is small so that extended negotiations model SPPA negobation indwidual agreements with each developer will discourage most developers. Expenence in Thailand, India and Sri Lanka has clearly demonstrated the value of such standard agreements. Deemed EVN is concemed that if they are obliged to buy The small power producers, by definition, are small plants Even if 100 MW in aggregate are developed, it is only about 2 percent of energy elechicity from these facilities on a must-run basis, the EVN's capacity. Therefore, buying power from such plants will have little influence on EVN's merit order dispatch. output/Must Load Dispatch Center (LDC) would be prevented from Moreover, as EVN is a monopoly buyer, discretion on dispatch leaves the small power producer vulnerable. If EVN is to insist on having Run Facility opbmal load dispatch. dispatch control over such small power producers, the EVN should be willing to pay the capacity payment so that cashtflow does not cease if EVN decides not to dispatch the plant If not, few developments will occur Buy-out EVN does not wish to accept the provision of a If the single buyer, EVN, defaults, the small power producer has no altemative market for its product-electricty, and Is left with a provisions compulsory buy-out in the case of EVN defaulting on stranded asset. Therefore, this provision was included to reduce the perceived risk to the developer. This provision is a contractual purchase of electncity for the following reasons mechanism to shift the risk of Buyer default to the party best able to manage or control the risk. (a) A smail power producer may arificially inflate the To address EVN's concems, the SPPA could contain a schedule outlining procedures and formulas to determine the buy-out price. The development and construction costs and thus the buy-out provision would cease if sector reform is implemented and includes the establishment of a competitive power market with economic value of the plant multiple retailers (b) It would be difficult to determine the fair market value of the plant and could result in long, protracted and bitter negobations Giay ph6p xuat ban so: 138/2001//XBNT-VHTT. In 1000 cuon kho 21x28crn. tai Xii6ng in T8ng c6ng ty Phat hanh sach Viet Nam, N6p Iutu chieu QuV 3 nam 2001 Joint UNDP/World Bank ENERGY SECTOR MANAGEMENT ASSISTANCE PROGRAMME (ESMAP) LIST OF TECHNICAL PAPER SERIES Region/Country Activity/Report Title Date Number SUB-SAHARAN AFRICA (AFR) Kenya Field Performance Evaluation of Amorphous Silicon (a-Si) Photovoltaic Systems in Kenya: Methods and Measurement in Support of a Sustainable Commercial Solar Energy Industry 08/00 005/00 The Kenya Portable Battery Pack Experience: Test Marketmg an Alternative for Low-Income Rural Household Electrification 05/01 012/01 Swaziland Solar Electrification Program 2001-2010: Phase 1: 2001-2002 (Solar Energy in the Pilot Area) 12/01 019/01 Uganda Report on the Uganda Power Sector Reform and Regulation Strategy Workshop 08/00 004/00 WEST AFRICA (AFR) LPG Market Development 012/01 017/01 EAST ASIA AND PACIFIC (EAP) China Assessing Markets for Renewable Energy in Rural Areas of Northwestern China 08/00 003/00 Technology Assessment of Clean Coal Technologies for China Volume I-Electnc Power Production 05/01 011/01 Technology Assessment of Clean Coal Technologies for China Volume II-Environmental and Energy Efficiency Improvements for Non-power Uses of Coal 05/01 011/01 Technology Assessment of Clean Coal Technologies for China Volume III-Environmental Compliance in the Energy Sector: Methodological Approach and Least-Cost Strategies 12/01 011/01 Thailand DSM in Thailand: A Case Study 10/00 008/00 Development of a Regional Power Market in the Greater Mekong Sub-Region (GMS) 12/01 015/01 Vietnam Options for Renewable Energy in Vietnam 07/00 001/00 Renewable Energy Action Plan 03/02 021/02 SOUTH ASIA (SAS) Bangladesh Workshop on Bangladesh Power Sector Reform 12/01 018/01 LATIN AMERICA AND THE CARIBBEAN (LAC) Regional Electricity Markets Interconnections - Phase I Identification of Issues for the Development of Regional Power Markets in South America 12/01 016/01 - 2 - Region/Country Activity/Report Title Date Number LATIN AMERICA AND THE CARIBBEAN (LAC) Population, Energy and Environment Program (PEA) Comparative Analysis on the Distribution of Oil Rents (English and Spamsh) 02/02 020/02 GLOBAL Impact of Power Sector Reform on the Poor: A Review of Issues and the Literature 07/00 002/00 Best Practices for Sustainable Development of Micro Hydro Power m Developing Countries 08/00 006/00 Mini-Grid Design Manual 09/00 007/00 Photovoltaic Applications in Rural Areas of the Developing World 11/00 009/00 Subsidies and Sustainable Rural Energy Services: Can we Create Incentives Without Distorting Markets? 12/00 010/00 Sustainable Woodfael Supplies from the Dry Tropical Woodlands 06/01 013/01 Key Factors for Private Sector Investment in Power Distribution 08/01 014/01 03/07/02 CAA AD1 *JlV 1L1 The World Bank 1818 H Street, NW Washington, DC 20433 USA Tel.: 1.202.458.2321 Fax.: 1.202.522.3018 Internet: www.esmap.org Email: esmap@worldbank.org t '-4 ,4-E v , ! . * _ ^ ! 8.~~~~~~~~~~~~~~~~~~~~~F LIU~~~~~~~~~~~~~~ A joint UNDP/World Bank Programme A joint UNDP/World Bank Programme