Capital pressure in the "green" transition

(HNM) - The national power development plan for the 2021-2030 period, with a vision to 2050 (Power Plan VIII) was approved in mid-May 2023 with many new points, expected to open a turning point for the power industry when promoting the development of clean electricity, ensuring national energy security. However, the process of realizing the goals and development orientations in the coming time will come with great capital pressure.

Workers check operations at the 220kV Ninh Phuoc Transformer Station (Ninh Thuan Province). Photo: Thanh Hai

Challenges for conversion

Power Plan VIII shows that Vietnam is determined to pursue green and sustainable development goals, prioritizing green and clean energy sources such as renewable energy, new energy (ammonia, hydrogen)... and not developing new coal-fired thermal power plants except for projects from the old plan. At the same time, projects using fossil fuels have been gradually replaced by clean fuels to reduce greenhouse gas emissions.

However, to achieve the above goals, according to the Power Plan VIII, the total estimated investment capital for developing power sources and transmission grids in the 2021-2030 period is equivalent to 134.7 billion USD, of which investment in power sources is about 119.8 billion USD, and power transmission grid is about 14.9 billion USD. In the orientation for the 2031-2050 period, the estimated investment capital demand for developing power sources and transmission grids is equivalent to 399.2-523.1 billion USD, of which investment in power sources is about 364.4-511.2 billion USD, and power transmission grid is about 34.8-38.6 billion USD.

“Thus, according to calculations, in the period 2021-2030, each year we need over 13 billion USD and from the period 2031-2050, the annual capital amount will be higher. This is a huge challenge for the economy in general and the electricity industry in particular,” said Tran Ky Phuc, Director of the Institute of Energy, Ministry of Industry and Trade.

According to Mr. Nguyen Ha Duc Tung, an analyst (VNDIRECT Securities Joint Stock Company), the Power Plan VIII has agreed on a “sufficient and green” plan, but it may be more difficult to implement than the adjusted Power Plan VII, due to the strong development of high-priced power sources such as gas power and renewable energy. Meanwhile, technologies to replace input fuels such as hydrogen and ammonia for thermal power plants are still only in the research and testing stage.

Many ways to mobilize capital

To successfully implement the 8th Power Plan, the Government has proposed 11 specific groups of solutions. In particular, to have enough financial resources, the proposed solution is to diversify capital sources and forms of capital mobilization, ensuring competition in the electricity market.

Along with that, the Government calls for effective use of international support commitments, green credit sources, climate credit, green bonds; at the same time, perfecting financial mechanisms and mobilizing capital for investment in developing the electricity sector...

Economist and former General Director of the General Statistics Office Nguyen Bich Lam expects that when the competitive electricity market is put into operation, all barriers will be removed. Transparent electricity prices will be decided by the market, businesses will be guaranteed to collect enough costs, have profits and financial autonomy, thereby attracting economic sectors to invest in electricity development.

“The trend of developing renewable energy will be the driving force to attract foreign direct investment and investment capital from all economic sectors; especially mobilizing capital from households to install rooftop solar power, self-produced and self-consumed power sources. This is one of the solutions to address the issue of investment capital to implement the 8th Power Plan,” said Mr. Nguyen Bich Lam.

According to Dr. Ngo Tuan Kiet, former Director of the Institute of Energy Science (Vietnam Academy of Science and Technology), the Power Plan VIII takes into account options to mobilize capital sources, including international funding sources for renewable energy development; including bidding, investors with financial and technical capacity can participate, no longer using the previous mechanism of asking and giving. The Government and the Ministry of Industry and Trade need to quickly introduce mechanisms and policies such as flexible electricity purchase prices so that investors can calculate their own profitability and participate in investing in developing the power system in Vietnam.

“An important content is the need to develop the power grid in sync with the power source. Implementing this requirement requires synchronous coordination between functional agencies, localities where the project is located, and especially the joint efforts of investors because developing the power grid also requires mobilizing large capital sources,” said Mr. Doan Ngoc Duong, Deputy Director of the Institute of Energy, Ministry of Industry and Trade.

After the important legal milestone when the Power Plan VIII was approved, in order to gradually realize the plan, especially to meet the above-mentioned capital needs, many economic experts agree that the Government needs to urgently complete specific financial mechanisms and mobilize capital for investment in the development of the power sector. These mechanisms are implemented from the perspective of diversifying capital sources and forms of capital mobilization, effectively attracting domestic and foreign resources to power development.

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