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The World Bank

Asia Sustainable and

Alternative Energy Program

VietnamExpanding Opportunities or

Energy Efciency

March 2010


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2010 The International Bank or Reconstruction and Development / The World Bank

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Washington DC 20433

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All rights reserved

This volume is a product o the sta o the International Bank or Reconstruction and Development / The World Bank.

The ndings, interpretations, and conclusions expressed in this volume do not necessarily refect the views o the

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or the endorsement or acceptance o such boundaries.

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iv

Acknowledgments

The preparation o the report was carried out under the technical assistance project o the World Bank, P105834

Technical Assistance or Vietnam Demand-Side Management and Energy Eciency Program. The nancial and techni-

cal support o the Energy Sector Management Assistance Program (ESMAP) and the Asia Sustainable and Alternative

Energy Program (ASTAE) is grateully acknowledged.

The report was prepared by a task team that included Robert P. Taylor (Senior Energy Adviser and lead author), Jas

Singh (Senior Energy Specialist, ETWES), and Alberto U. Ang Co (Senior Energy Specialist, EASIN). Special appreciation

and gratitude go to the World Bank team in Hanoi, Vietnam, comprising Richard Spencer (Country Sector Coordinator,

EASVS) and Ky Hong Tran (Energy Specialist, EASVS) or providing local support, guidance, and technical assistance.

The report beneted rom the suggestions and comments rom the ollowing peer reviewers: Gailius J. Draugelis

(Senior Energy Specialist and Acting Country Sector Coordinator, China Energy, EASCS), Feng Liu (Senior Energy

Specialist, ETWS), Peter Johansen (Senior Energy Specialist, ECSS2), and Lisa Da Silva (IFC Consultant, CESFS).

The team is particularly grateul or the support o the Vietnam Ministry o Industry and Trade (MOIT), as an active and

enthusiastic counterpart or this study, the Institute o Energy, and other members o the donor community who are

involved in energy-eciency projects in Vietnam.


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vv

Acronyms and Abbreviations

ADB Asian Development Bank

AFD Agence Franaise de Dveloppement

CEEP Commercial Energy Eciency Program

CFL Compact fuorescent lamp

CNG Compressed natural gas

CO2 Carbon dioxide

CPC Clean production center

CP-EE Cleaner production and energy

eciency

DANIDA Danish International Development

Agency

DSM Demand-side management

ECC Energy conservation centers

ECCJ Energy Conservation Center, Japan

EE Energy eciency

EE&C Energy eciency and conservation

EE&CP Energy Eciency and Conservation

ProgramEECO MOITs Energy Eciency and

Conservation Oce

EMS Energy Management System

EPC Energy perormance contracting

ERAV Electricity Regulatory Authority o

Vietnam

ESCO Energy service company

ESF Vietnam Energy Savings Fund

EU European Union

EVN Electricity o Vietnam

FTL Fluorescent tube lamp

GDP Gross domestic product

GEF Global Environment Facility

GOV Government o Vietnam

GWh Gigawatt-hours

IEA International Energy Agency

IFC International Finance Corporation

IMS Vietnam Institute o Material Science

ISO International Organization or

Standardization

JICA Japan International Cooperation Agency

kcal Kilo-calories

kgoe Kilogram o oil equivalent

kWh Kilowatt-hour

LPG Liqueed petroleum gas

METI Japan Ministry o Economy, Trade and

Industry

MOC Vietnam Ministry o Construction

MOIT Vietnam Ministry o Industry and Trade

MOST Vietnam Ministry o Science and

Technology

MW Megawatt

NCST Vietnam National Center or NaturalScience and Technology

PC Power distribution company

PECSME Promoting Energy Conservation in

Small and Medium Enterprises

PROPARCO Promotion et Participation pour la

Coopration Economique

Sacombank Saigon Thuong Tin Commercial Joint

Stock Bank

SDC Swiss Development Cooperation

SECO Swiss State Secretariat or EconomicAairs

SIDA Swedish International Development

Agency

SME Small and medium enterprise

T&D Transmission and distribution

TA Technical assistance


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2 Vietnam: Expanding Opportunities or Energy Efciency

electricity use (15 percent). Energy use in all our o

these target areas has been growing aster than the

gross domestic product (GDP).

However, achievement o meaningul energy savings in

these target areas and other economic sectors will notjust happen by itsel. As is common in other countries,

a host o barriers prevent cost-eective savings rom

being realized, including lack o inormation, lack o read-

ily available expertise, pricing issues, insucient cost-

consciousness in some sectors, assignment o a lower

priority to cost savings compared to expansion in invest-

ment, transaction costs, perceived high investment

risks, and market ailures in some sectors. As in other

countries, specic policies, regulations, promotional pro-

grams, capacity-building eorts, market transormation

initiatives, nancing initiatives, and market construction

activities are needed to achieve large-scale results.

Meeting the Energy-Efciency Challenge

Vietnam initiated its rst-ever comprehensive national

energy-eciency program in 2006, ocusing especially

on capacity building during 200610. A urther rollout o

a wide range o activities has been planned or a sec-

ond, 201115 phase. The drat Law on Energy Conser-

vation and Ecient Use is currently being reviewed by

the National Assembly. A wide range o international

donor activities has been launched to help. The key

or the uture is to construct a strong and sustainable

institutional platorm rom these initiatives that candeliver large and measurable energy savings year ater

year. Backed by concrete policies, an eective platorm

requires institutional clarity as to who is responsible or

what, a major eort to build capacity in the government

and its implementing entities as well as in the market at

large, strategic planning, sucient unding, step-by-step

ollow-through on implementation, and ocus on achiev-

ing measurable energy savings results.

All countries with mixed or ully market economies that

have had success in promoting energy eciency use a

mix o government regulation combined with policies

and programs to encourage energy-eciency invest-ment through the market. Vietnam will need to promote

new administrative and regulatory measures and, espe-

cially, to ensure that they are implemented eectively.

Vietnam will also need to develop and implement a vari-

ety o market-based programs to spur investment and

behavioral change.

Devepin and Impementin Ener-Efcienc Reuatins.

Enactment o the proposed Law on Energy Conserva-

tion and Ecient Use will be essential to provide the

necessary oundation or instituting and enorcing regu-

lations, providing legitimacy to organizations and their

work, and assigning responsibilities and associated und-

ing. Enactment o the law can send a clear message to

society and the market on national intentions. I enacted,

the real challenge o developing and implementing eec-tive regulations will then begin. This will be a huge task,

and establishing priorities and ensuring implementation

o the strategically most important measures will be very

important during the next several years. Similar to the

laws enacted in China, Japan, Thailand, and other coun-

tries, recent drats o Vietnams law include introduction

o a new mandatory system or energy management in

large energy-consuming industries and buildings. The

system would require large consumers to report on

energy consumption and plans to improve eciency, and

to designate internal energy managers responsible or

energy-eciency work. Meeting the training, monitor-

ing and reporting, and supervision requirements o such

a system would be a large and important undertaking.

Experience (in Japan and China in particular) shows that

maximum government support is critical to make such a

system productive both or enterprises and the countrys

long-term interest.

Uneashin Maret Frces. For Vietnam, review and adjust-

ment o consumer energy prices to best refect true costs,

as well as continued state-owned enterprise reorm, can

help bring market orces to bear, especially in the industrial

sector. However, eort is also needed to oster develop-

ment o eective delivery systems or investment proj-ects. Experience elsewhere shows that eective delivery

systems or energy-eciency investment projects are not

likely to develop without some orms o initial public sec-

tor encouragement, but once they are operational, invest-

ment can continue sustainably with more limited public

involvement. Examples o delivery systems or consider-

ation include development o energy service companies

(ESCOs), utility-executed demand-side management

(DSM), commercial energy-eciency loan programs, and

special public resource unds.

Some suggestions on putting regulatory and market-

based program concepts together in the key energy con-servation target subsectors are summarized in the next

our sections.

Imprvin Ener Efcienc in Existin Industria Pants. Two

key challenges are the development and implementation

o new energy use and conservation reporting, planning,

and management systems or large energy-consuming

industries (i the law is enacted), and the development

and implementation o new nancing programs or retro-

tting industrial energy conservation projects.


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3Executive Summary

Eective implementation o the new designated industry

programs will require a huge eort by the Ministry o

Industry and Trade (MOIT) and its provincial aliates to

provide specic guidance on energy-use and energy con-

servation planning requirements, to construct an eec-

tive data management system, to dene requirementsor energy managers and supervision o compliance, to

launch a wide range o energy auditing eorts and, espe-

cially, to plan and deliver a variety o large-scale training

programs. The human resource requirements within gov-

ernment agencies to deliver this eort eectively should

not be underestimated. Intensive review o experiences

gained with such systems in other Asian countries is also

recommended.

Several international donors are working with the govern-

ment to prepare new nancing programs or industrial

retrot projects. Such programs can be quite construc-

tive. One suggestion is to try to ocus on projects with

strong nancial viability, with an aim to create project

development and investment mechanisms that are inher-

ently protable and hence have strong potential or being

sustained ater donor involvement is concluded. Another

suggestion is to ensure that technical assistance or

project identication and development are blended well

together with nancing programs.

Encurain Mre Ener Efcienc in Ne Industria Pants.

A continued industrial growth rate o 10 percent per year

as in the past would mean that the new industrial capac-

ity built over the next seven years will produce morethan all o Vietnams industry today. The energy-using

characteristics o new industrial plants will be a critical

determinant o Vietnams uture energy demand and

import needs. In 1998, industry accounted or one-third

o nal energy use. In 2007, it accounted or 46 percent,

and in the uture it is likely to grow yet urther. The key

questions are (a) what type o industrial capacity will be

developed and (b) how energy-ecient will the adopted

technologies be?

Government planners and policy makers need to weigh

more systematically the energy demand and cost impli-

cations o developing new energy-intensive industrialcapacity. As reliance on energy rom outside and energy

costs increase, what types and scale o new energy-

intensive plants are in Vietnams long-term comparative

advantage? In addition, the government should consider

review o the energy-eciency aspects o key processes

and certain key types o industrial equipment as part o

the permitting process or new industrial production proj-

ects. Adoption o wasteul, backward, and highly pollut-

ing technology can and should be blocked.

Improving access to nancing or more energy-ecient

and environmentally riendly new industrial processes,

production lines, and equipment is another important

means to impact positively new industrial development.

Adoption o new, more ecient, and less resource-

intensive technology can yield substantial operating costsavings over the long term. However, upront invest-

ment in capital and in learning something new is usu-

ally required. The government can help by working with

banks to develop new programs to help bank clients

adopt greener technology or operating-cost savings.

Increasin Ener Efcienc in Transprtatin. Use o petro-

leum products in motorized transportation will continue

to be the main driver o Vietnams uture oil import levels.

Broad transportation policies and long-term development

plans can have a key impact on overall energy use in

transportation, especially where policies and plans aect

(a) the role o automobiles versus motorbikes, buses,

and light rail transport or urban and suburban passenger

movement; (b) trucks versus coastal and inland waterway

reight movement; and (c) automobiles versus buses,

boats, and airplanes or intercity passenger movement.

Fuel pricing policies also have a particularly strong impact

on consumer choices and behavior in this sector.

One specic measure that has yielded energy savings

in other countries is increasing uel-eciency standards

or motor vehicles, and strict enorcement o these

standards. Another set o measures includes vehicle

inspection and maintenance programs (serving multipleobjectives) and programs to promote earlier retirement

o old, particularly inecient vehicles. Promotion o

vehicles using alternatives to liquid petroleum uels (or

example, hybrid electric vehicles, compressed natural

gas, and biouels) also have produced noticeable results

in some countries, including programs to convert publicly

owned or captive high-use feets, such as taxis, or pro-

grams to provide nancial incentives.

Transrmin Marets r Husehd Eectrica Appi-

ances. Electricity use by household electrical appli-

ances accounted or 39 percent o total electricity use

in Vietnam in 2007. This includes lights, air conditioners,rerigerators, water heaters, washing machines, dri-

ers, televisions, ans, and so orth. The sector involves

millions o consumers. Successul eorts to improve

energy eciency in this sector have involved concerted

eorts to transorm marketsguiding increased pen-

etration o more energy-ecient appliances into specic

appliance markets through regulation and selective pub-

lic intervention, but still relying on market orces or e-

cient and sustainable market operation. This involves (a)

programs to provide customers with commonly available,


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credible, and correct but simple inormation about the

eciency characteristics o the choices in ront o them;

(b) government initiatives to work with suppliers to

encourage expanded marketing o reputable and more

ecient products, and to discourage particularly waste-

ul or raudulent market oerings; and (c) programs tohelp customers cope with initial higher costs in some

cases until market transormation can take hold.

Vietnam has launched a number o initiatives relating to

market transormation, but these eorts need to be con-

solidated and more strategically designed to achieve a

sustainable impact over the medium term. Energy-e-

ciency labels need to be visible, understood, and cred-

ible or consumers at large. Systematic surveys need to

be completed to understand all aspects o the markets

targeted or transormation, initiatives need to be devel-

oped to work in concert to meet specic medium-term

objectives, and subsidy programs need to be designed

so that they can catalyze sustainable change and be

withdrawn in due course.

Recommendations or Follow-Up

The necessary major strengthening o the institutional

platorm or promoting energy eciency in Vietnam will

require good planning, upront public investment, dedica-

tion, and time. Planning needs to consider realistic assign-

ment o priorities or the near termthere is insucient

human capacity now to try to achieve everything at once.

Responsibilities among dierent organizations, as wellas leadership and coordination mechanisms, need to be

clear. It is also very important to systematically monitor

and evaluate the actual energy savings achieved by di-

erent programs that compete or management time,

expertise, and money. Even training results can be sys-

tematically evaluated.

The Bank study team recommends consideration o a

number o new or scaled-up initiatives, which are out-

lined below and described urther in chapter 3. Many o

these can be or already are being discussed as areas o

uture World Bank Group support.

Ecnmic Studies. At least three strategic areas appear to

warrant more extensive review and analysis:

Review o the energy implications o industrial devel-

opment policy

Review o consumer energy pricing

Review o the energy implications o alternative

transportation development scenarios.

Devepment an Ener-Efcienc Prmtin Sstem.

Three areas where well-targeted advisory assistance to

the government may be especially useul include assis-

tance on the ollowing:

Development o Vietnams new industrial energy-

use supervision system

Policy development to encourage energy eciency

in new industrial plants

Review o scal incentive options to promote energy

eciency.

Ener-Efcienc Investment Prrams. New energy-e-

ciency investment programs that the government may

wish to consider include the ollowing:

A clean production and energy-eciency nancing

program or new industrial capacity

Expanded commercial nancing or energy-e-

ciency retrot projects

Expanded development o the third-party energy-

eciency service sector

Consolidation and rollout o appliance market trans-

ormation eorts.


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55

The objectives o this report are to (a) provide a general

overview o energy demand trends in Vietnam and needs

to urther promote energy eciency, (b) summarize the

main current government and international donor eorts

in the area o energy eciency in Vietnam, and (c) pro-

vide the government with suggestions and recommen-

dations on how to expand energy-eciency results in

the uture. Analysis was completed in a short timerame

by relying on readily available materials. Many topics or

types o analytical work could not be conducted because

systematic inormation is not yet readily availableor

example, on the technical energy savings potential in key

industrial or other economic subsectors. Where urtheranalytical work was considered especially important, rec-

ommendations or undertaking it are included.

Energy-Use Trends in Vietnam

The Increasing Energy Intensity o

Vietnams Economy

Vietnams energy economy has changed radically over

the last several decades with the transormation rom an

agricultural society relying primarily on traditional biomass

uels to a modern mixed economy. As shown in gure

1, commercial energy consumptionincluding hydro-

power, natural gas, coal, and oilhas increased eight-

old rom an extremely low base in 1980. This increase

has been driven by the increasing popularity o modern

commercial uel and electricity or household use, the

development o motorized transport, and the steady and

rapid growth o industry to become a key pillar in the

economy. Figure 2 shows country comparisons o total

primary energy supply.

Commercial energy use1 has grown much aster than the

countrys economy overall. During the nine-year period

rom 1998 to 2007, commercial energy use grew at an

average rate o 12.1 percent per year, while Vietnams

GDP grew by 7.3 percent per year. The commercial

energy-use/GDP growth elasticity registered was a very

high 1.7. The energy intensity o Vietnams economy

grew rom 387 kilograms o oil equivalent (kgoe) per

US$1,000 o GDP in 1998 to 573 kgoe per US$1,000 in

2007, in constant 2000 prices.

1. The term commercial energyin this report reers to coal, petro-

leum products, natural gas, and electricity. Traditional biomass uelsare excluded, since data on their use, and especially use trends over

time, are scarce and unreliable.

Needs and Directions or ImprovingEnergy Efciency in Vietnam

1

FIgURE 1: VIETNAM PRIMARy ENERgy CoNSUMPTIoN,

1980 AND 2007

Sources: Asia-Pacic Energy Research Centre, APEC Energy

Supply and Demand Outlook, 2006; International Energy Agency,

Energy Balances o Non-OECD Countries (2009 edition).

Biomass

Hydro

Gas

CoalOil

50

40

30

20

10

0

Milliontoe

1980 2007Year


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13/39


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is now about the same as in China (282 kWh/capita), a bit

higher than in the Philippines (186 kWh/capita), but still

signicantly less than in Thailand (440 kWh/capita).

Expanded motorized transportation also occurred during

this period. While the choppiness in the annual statistics

suggests some accounting problems with the annual

statistics on petroleum product use by sector, it is clear

that use o uel in transportation has also grown aster

than GDP (gure 6). Use o transport uel grew rom 3.6

million toe in 1998 to 7.9 million toe in 2007. A little over

hal o uel use was diesel oil, while gasoline accountedor about 39 percent, and jet uel and uel oil combined

accounted or about 7 percent.

Total reight service volumes, measured in ton-kilome-

ters, increased at an average rate o about 12 percent

per year rom 1999 to 2005, while passenger transport

volumes, measured in passenger-kilometers, increased

at about 10 percent per year. In 2005, some 65 percent

o the total reight tonnage moved was by road, but

coastal water transport continued to account or by ar

the greatest reight service volume, with 76 percent o

total ton-kilometers in 2005. Passenger road transporta-

tion increased to 34 billion passenger-kilometers in 2005,

accounting or about 65 percent o total passenger ser-

vice volume.

FIgURE 5: VIETNAM RESIDENTIAl FINAl ENERgy USE, 19982007

Source: IEA, Energy Statistics o Non-OECD Countries(2009).

Electricity

Gas

Petroleum products

Coal and peat

GDP, constant Y2000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

0

Finalenergy

use

(thousan

d

toe)

Year

GDP,

constantY2000

($

bill

ion)

60

50

40

30

20

10

01998 20001999 200620052004200320022001 2007

FIgURE 6: VIETNAM TRANSPoRT FINAl ENERgy USE, 19982007

Source: IEA, Energy Statistics o Non-OECD Countries(2009).

Petroleum products

GDP, constant Y2000

9,000

8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

0

Milliontoe

Year

1998 1999 2000 200620052004200320022001 2007

60

50

40

30

20

10

0

GDP,constan

tY2000($billion)


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The tripling in energy consumption during the previous

decade o 199720074 was achieved with a net reliance

on Vietnams own energy resources during a period o

relatively low energy costs. Beginning rom a airly low

level o 10.8 million toe in 1998, the development o sup-

ply capacity and logistics, while challenging, was man-ageable. A urther tripling over the next decade, however,

would be another matter. Vietnam does not have easily

developed domestic resources that can sustain this mag-

nitude o growth in energy demand, and the country will

have to rely increasingly on imports, including imports o

steam coal and net oil imports. Such an increasing reli-

ance will come at a time o growing global competition

or energy supply, and virtually certain large increases in

costs. Potential environmental consequences o such

absolute increases in energy supply and use may also be

at levels never witnessed in Vietnam beore.

As discussed in the paragraphs below, more aggressive

eorts to improve energy eciency are key to address

these anticipated energy supply security, cost, and envi-

ronmental concerns. However, as demonstrated in many

examples rom other countries around the globe, energy-

eciency improvements will not develop suciently

through market orces alone, and require eective public

sector intervention. These issues, and how they may be

overcome in Vietnam, are urther discussed in chapter 3.

Resource Constraints and Energy Security

Vietnam has enjoyed a position as a net energy exporter,with domestic resources more than meeting its over-

all needs. Although petroleum products have all been

imported until substantial renery capacity came on

stream in 2009, crude oil exports have steadily surpassed

imports in both volume and value. Total coal production

also has exceeded domestic use severalold. Domestic

hydro and natural gas resources, combined with some

local coal, have been the backbone uels or electricity

production.

Vietnams oil production, however, ell steadily during

200508, while oil demand grew rapidly. As a conse-

quence, Vietnam is expected to become a net oil importervery soon. On the coal side, Vietnam is also beginning

large-scale steam coal importation or new coal-red

power plants. Domestic production is dominated by

4. Primary and nal commercial energy consumption grew by about

2.8 times during the nine-year period rom 1998 to 2007. IEA data or

1997 are not available, but i it is assumed that energy consumption

grew by at least 7 percent rom 1997 to 1998, primary and nal com-

mercial energy use at least tripled during the decade o 19972007.

anthracite coals in the north, which provides or a mix

o high-value metallurgical coal exports and lower-value

coal or relatively inconvenient combustion. Domestic,

economically exploitable coal resources are also limited.

As a result, internationally priced and sourced coal or

combustion will become a larger and larger componento Vietnams energy balance.

In conclusion, Vietnam is expected to need to rely

increasingly on energy sources rom abroad over the

next decade, raising issues o energy supply security and

vulnerability to international energy price fuctuations. As

in other countries acing such issues, meeting demand

by improving energy eciency and utilizing energy that

is currently wasted is perhaps the best single option or

reducing any potential vulnerability.

Energy Costs

The cost o energy to Vietnams consumers currently

amounts to some US$1415 billion per year (at interna-

tional petroleum product prices roughly associated with

US$65/barrel o crude oil). Introduction o large-scale coal

imports and expected increases in international oil prices

will only make this cost rise.

Capturing the wide variety o most nancially attractive

energy-eciency gains is unquestionably the least-cost

way to meet energy demand. Costs or standard, yet

unimplemented, renovations and equipment improve-

ments typically run at one-quarter o the cost o commer-cial energy supply, at todays prices. Improving energy

eciency increases industrial competitiveness by lower-

ing production costs, eases pressure on household bud-

gets, and reduces government energy bills, which can

ree up government resources or investment in other

socioeconomic areas.

Environmental Concerns

Energy-eciency improvements are an ideal way to

reduce pollution emissions, since they reduce the extent

o uel combustion to begin with. Environmental concerns

relating to increasing uel use in power plants, industry,

and vehicles will certainly increase in Vietnam as demands

continue to rise. Air pollution rom energy use carries a

range o socioeconomic costs, including public health

concerns that can maniest themselves as respiratory ill-

nesses and premature death. Energy-eciency improve-

ments are one o the main mitigation tools. In addition,

shits o technology that provide energy-eciency gains

oten also provide other environmental cobenets,


17/39


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o energy use per unit o industrial value added. Figure

8 shows how the structure o industry has been evolv-

ing in Vietnam since 1998.5 Figure 9 plots the growth in

production o several key energy-intensive commodities.

Each o these has been growing aster than industrial

output value as a wholeindicating a movement towardmore energy-intensive basic commodity production. Sup-

ply o these basic commodities is key to underpinning

new construction and downstream industrial growth.

However, it is very important or policy makers to con-

sider Vietnams comparative position or rapid develop-

ment o energy-intensive industries versus reliance on

imports rom elsewhere, because o the implications or

Vietnams energy balance and sourcing o uture energy

supply.

Aside rom industrial structure, industrial energy use is

determined by uel and electricity consumption levels

5. Assessment o the impacts o changes in industrial structure,

however, will require subsector energy-use data, which are not cur-

rently available.

per unit o physical output (or example, per ton o steel,

per 1,000 bricks, and so orth). For Vietnam, it is impor-

tant to review how the eciency o existing capacity can

be improved through retrots. It is even more important,

however, to pay attention to the technologies being

deployed in new plant, since this will play the biggest rolein determining uture unit energy consumption levels. A

key task or the government is to assess the nature o

energy-using technologies being deployed by companies

in new acilities, as well as the potential gaps in energy-

eciency characteristics compared to the best available

and potential means to encourage such gaps to close.

Improving the eciency o industrial uel use involves

deployment o ecient boiler technology and its ecient

matching with steam or hot water demands, tightening o

steam use systems, modern kiln development, schemes

to use waste heat and gas, and industrial cogeneration,

as well as specic process technology advancements and

Energy Management System (EMS) standards. Improv-

ing the eciency o electricity use involves technologies

FIgURE 8: gRoSS INDUSTRIAl oUTPUT IN VIETNAMS kEy INDUSTRIES, 19982007

Source: World Bank, Vietnam Development Report 2009.

450,000

400,000

350,000

300,000

250,000

200,000

150,000

50,000

0

VNDb

illionatconstant1994prices

Year

1998 20001999 200620052004200320022001 2007

Oil and gas

Rubber products and plastic

Production and repairing other transport means

Metallic products

Leather tanning and processing

Textile products

Electricity and gas

Chemicals

Nonmetallic products

Food and beverage


19/39

13Needs and Directions or Improving Energy Efciency in Vietnam

such as improved and oten variable-speed motors and

motor drive systems, ecient matching o equipment

capacities, ecient internal electricity distribution, elec-

tric urnace improvements and management, power ac-

tor correction, utilization and careul capacity matching

o cooling equipment, improved lighting technology, and

so orth.

Petroleum Product Use in Transport

Accounting or one-quarter o Vietnams nal commer-

cial energy consumption, gasoline, diesel oil, uel oil, and

jet uel use in transportation will be the main driver o

the countrys uture petroleum import levels. Measured

in terms o energy used per passenger-kilometer or ton-

kilometer o reight, the energy eciency o transpor-

tation is determined in some ways by the specic uel

use o vehicles, but even more so by broad patterns o

transport modal development. Reducing energy costs

is o course only one o many important concerns or

transportation development strategy. For Vietnam, three

broad transportation development trends that have an

especially important bearing on uel eciency include

(a) the role o automobiles versus motorbike, bus, and

light rail transport or urban and suburban passenger

movement; (b) truck versus coastal and inland waterway

reight movement; and (c) automobile versus bus, boat,

and airplane intercity passenger movement. Some o the

narrower, more energy-specic issues include vehicle

uel-use levels (including both vehicle technology and

operating practices) and potential interuel substitution,

such as the use o gaseous uels in buses or high-mileage

automobiles, or the introduction o electric motorbikes.

Residential and Commercial Electricity Use

The residential electricity-use sector accounts or about

39 percent o the countrys electricity use and 21 percent

o total nal commercial energy demand. Involving mil-

lions o individual consumers, this market sector requires

unique approaches to achieve energy-eciency gains. In

Vietnam, where heating is not a critical load, the key issues

concern lighting technology; air conditioning technology;

and the eciency o household appliances such as rerig-

erators, water heaters, washing machines, driers, televi-

sions, ans, and so orth. The basic tracks or promoting

improved energy eciency are the provision o improved

inormation to consumers, the introduction and enorce-

ment o mandatory energy-eciency standards or cer-

tain new appliances, and the introduction o incentives,

such as rebate programs, to encourage appliance market

transormation. Typical o East Asian nations, the urban

areas o Vietnam account or about 70 percent o eco-

nomic growth. The Ministry o Construction (MOC) pre-

dicted an urbanization level o 45 percent by 2020. With

the rapid urbanization accompanied by high economic and

population growth, big cities in Vietnam are subject to cli-

mate change and its associated problems. Adaptation to

climate change and the integration o energy-eciency

measures to urban planning and green building design

are important elements to be developed and integrated

into Vietnamese codes and standards.

FIgURE 9: gRowTH IN PRoDUCTIoN oF SElECTED ENERgy-INTENSIVE INDUSTRIAl CoMMoDITIES, 19992007

Source: World Bank, Vietnam Development Report 2009.

Bricks

Cement

Glass products

Paper and paper products

Steel

Industry Value Added

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0

1999

=1

Year

1999 2000 200620052004200320022001 2007


20/39


21/39


22/39


23/39

17Recent Eorts to Promote Energy Efciency in Vietnam

ocus strictly on maximizing energy savings results and

the capacity enhancements, which are the highest prior-

ity or achieving those results. Strict ocus on monitor-

able energy savings results also can aid the government

in determining appropriate levels o unding or vari-

ous initiatives, allowing or increased competition andaccountability among implementing partners, and pro-

viding clearer roles or private sector participation and

leverage.

Major Energy-Efciency PartnershipPrograms

In addition to the governments VNEEP, a number o par-

allel or supportive eorts have been initiated in direct

cooperation with donor agencies. Some o these pro-

grams predated VNEEP, while others were developedalongside the national program. Support has not only

included nancial packages, but also technical assistance

to local agencies and consultants implementing the proj-

ects. Some o the larger-scale programs that have been

completed or that are currently under implementation in

Vietnam are summarized in table 2.

Current Donor Support and Activities

Because there is a wide variety o donor activities, coor-

dination o donor support in the uture months and years

is important. In October 2008, the MOIT and the World

Bank cochaired an Energy-Eciency Donor Coordina-

tion Meeting, which included presentations rom each

participating donor agency on its programs and planned

activities, as well as a roundtable discussion on ideas or

coordination o eorts and urther sharing o inormation.

The participants agreed that an annual donor meeting

o this kind would be benecial in the uture. The ol-

lowing sections summarize the major donor activities

in the energy-eciency eld in Vietnam, based on the

TAblE 2: MAjoR CoMPlETED AND oNgoINg ENERgy-EFFICIENCy AND CoNSERVATIoN PRogRAMS IN VIETNAM

Prect name years Spnsr Impementin aenc

Energy-Eciency and Conservation Program

or Vietnam (EE&CP)

19952001 GOV and Netherlands,

EU, SIDA, UNDP

MOST

Vietnam Demand-Side Management (DSM)

and Energy EciencyPhases 1 and 2a200010 WB, SIDA and GEF MOIT, EVN

The Pilot Commercial Energy-Eciency

Program (CEEP)

200410 WB and GEF MOIT/ERAV

Compact Fluorescent Lamp (CFL)

Promotion Program

200407 WB and GEF EVN and PCs

Fluorescent Thin Tube Lamp (FTL)

Promotion Campaign

200407 WB and GEF EVN

Swiss Government and UNIDO Activities

Clean Production Center (CPC) 19982008 SDC VNCPC

Energy-Ecient Brick Project 200104 SDC and UNIDO Entec (Swiss consultant)

Green Credit Line 200812 SECO VNCPC and

commercial banks

Promoting Energy Conservation in Small and

Medium Scale Enterprises (PECSME)

200610 UNDP MOST

Vietnam Energy-Ecient Public Lighting 200610 UNDP and GEF NCST, IMS

The Study on Master Plan on Energy

Conservation and Eective Use in Vietnam

200809 JICA J-Power

(Japanese consultant)

Source: Compiled by author.

a. The project also included a number o technical assistance eorts, including building code development (Phase 1); creation o a standards and

labeling regime and development o select standards or electrical appliances (Phase 1); DSM planning, program design, and evaluation (Phases 1

and 2); load research (Phases 1 and 2); analysis o time-o-use (TOU) schemes and other load management eorts (Phases 1 and 2); marketing and

awareness raising (Phases 1 and 2); and solar water heating and appliance labeling pilot programs (Phase 2). EVN implemented an expanded TOU

program with its own nancing in 2001.


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25/39

19Recent Eorts to Promote Energy Efciency in Vietnam

respective donors public documents, as well as notes

gathered during the donor coordination meeting. Table 3

provides a matrix o donor energy-eciency programs,

both ongoing and planned.

Asian Development Bank

The Asian Development Bank (ADB) is now undertak-

ing a US$1 million technical assistance program entitled

Supporting Implementation o the National Energy-E-

ciency Program, which aims to promote energy conser-

vation in the industrial sector in Vietnam. The technical

assistance includes (a) industrial survey o energy use,

(b) energy manager training, (c) energy audits in select

large actories, (d) training o ESCOs and energy conser-

vation centers, and (e) development o suitable nancing

mechanisms. Based on the ndings rom the technical

assistance, the ADB will consider options to create an

industrial energy-eciency nancing program. The ocus

may be on ve subsectors, such as cement, beverages,

chemicals, plastics, and steel. The ADB also expressed

ideas to support EVN power plant rehabilitation and to

help mobilize carbon nancing or the procurement and

distribution o CFLs, solar water heaters, and more e-

cient lighting or public buildings.

Agence Franaise de Dveloppement

The support o the Agence Franaise de Dveloppement

(AFD) or Vietnams development targets is set out in

the Partnership Framework Document signed betweenFrance and Vietnam in 2006. One o the AFDs support

eorts within the ramework o the 200610 National

Socio-Economic Development Plan is to develop and

modernize nancial, banking, and nonbanking sectors.

The AFD activities support nancial sector reorms

and small and medium enterprise (SME) development.

The AFD also undertakes its operations in Vietnam

through Promotion et Participation pour la Coopration

Economique (PROPARCO), a development nancial insti-

tution or the private sector. Energy and environment,

including climate change, all within the AFDs priori-

ties in Vietnam. The AFD cosponsored a symposium on

energy-eciency policies in Vietnam, which was held in

Ho Chi Minh City in April 2008 as part o French Week

in Vietnam. Other ongoing support rom the AFD to the

energy sector in Vietnam includes hydropower invest-

ments, load management and DSM, CO2 emission miti-

gation eorts, and provision o modern energy access or

all. Early ideas or uture activities include development

o urban energy-eciency strategies and perhaps the

establishment o credit lines to support energy-ecient

construction in the housing sector.

Danish International Development Agency

The Danish International Development Agencys

(DANIDAs) programs in Vietnam are aligned with the gov-

ernments Socio-Economic Development Plan 200610.

The Environment Program is intended to ocus on threethematic areas that include (a) urban and industrial envi-

ronmental management, (b) sustainable energy, and (c)

management o natural resources. Danish programs

generally aim to build capacity and knowledge in Viet-

namese institutions and to target key sectors identied

by the Vietnamese government. DANIDA has recently

approved a multiyear technical assistance program o

about US$15 million to directly support MOITs energy-

eciency program. While some details had yet to be

worked out as o March 2009, the program is expected

to ocus primarily on technical training or energy manag-

ers and auditors or consultants (including a certication

program with local universities), industrial energy audits,and economic incentives or the implementation o audit

recommendations.

Japan International Cooperation Agency

Since October 1, 2008, Japans Ocial Development

Assistance loans provided by the Japan Bank or Interna-

tional Cooperation (JBIC) and the grant aid disbursed by

the Ministry o Foreign Aairs are being overseen by one

agency, the new Japan International Cooperation Agency

(JICA). One development scheme o JICA is the Private

Sector Investment Finance program, which supports

private enterprises with unds provided as either equity

investments or loans. A easibility study on a possible

energy conservation loan under this program is under-

way. This is likely to include nancing or the purchase

o equipment rom a specied eligible high-eciency

equipment list. The design is patterned ater a program

being implemented in Japan in which government unds

are made available to industrial enterprises. Preliminary

plans call or the project to be implemented by the Viet-

nam Development Bank (VDB), which will lend to enter-

prises or their purchase o equipment.

JICA also has undertaken a development study entitled

Study on National Energy Master Plan in Vietnam. The

project aims to (a) help establish the National Energy

Master Plan up to 2025, including energy security, energy

diversity, power import-export, rural electrication, pro-

motion o renewable energy utilization, CO2 emission

issues, energy conservation, investment planning, socio-

environmental impact analysis, and international cooper-

ation; (b) develop a national database or socioeconomic

and energy data covering electric power, coal, oil and gas,

renewable energy, and so orth; and (c) build capacity


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o the bodies under MOIT. JICA is currently working to

develop a roadmap or the VNEEP to enhance program

results and help MOIT meet its national targets.

The Energy Conservation Center, Japan (ECCJ), has also

been actively conducting energy conservation trainingprograms or developing countries, mainly in the Asian

region and including Vietnam. EECJ also has provided

expert assistance or the development o energy conser-

vation law, including the transer o inormation on suc-

cessul experiences in Japan. The ECCJ is developing a

database or MOIT to acilitate the reporting and analysis

o annual energy consumption data, which will likely be

required or all large industrial and commercial custom-

ers under the proposed new law.

Swiss Development Cooperation

In the specic area o energy eciency, the Swiss Devel-

opment Cooperation (SDC) has been collaborating with

UNIDO in the establishment o a national ocal point

or the promotion and implementation o eco-ecient

industrial production through the Vietnam Cleaner Pro-

duction Center (VNCPC) under the Hanoi University o

Technology. The ocus during Phase 1 (19982003) was

on training, policy support, and dissemination o inorma-

tion on pilot demonstration projects. Phase 2 (200508)

sought to operationalize VNCPC ully and make it nan-

cially sustainable. SDC has also implemented an energy-

eciency and environmental management project in the

brick-making industry. The SDC assisted in the identi-cation and promotion o economic and environmentally

viable brick production processes within the ramework

o the Nam Dinh Urban Development Project. The proj-

ect included the upgraded design and demonstration o

a local tunnel kiln, which may be urther replicated under

the United Nations Development Programmes (UNDPs)

SME Project.

The Swiss State Secretariat or Economic Aairs (SECO)

established a trust und with the VNCPC that provides

partial credit guarantees and incentive grants or cleaner

production (such as pollution prevention, energy e-

ciency, water and material recycling, and so orth). ThisGreen Credit Line works with three commercial banks

(Techcombank, Asia Commercial Bank, and Vietnam

International Bank). The program targets SMEs (under

US$5 million o registered capital and 500 employees).

VNCPC reviews applications and, i approved, provides

a grant incentive based on the amount o environmental

impact reduction (that is, reduced pollution and resource

use). Applicants can also request up to a 50 percent guar-

antee or associated loans, i needed.

United Nations

The UNDP has been supporting Vietnam since 1977.

Energy and environment is one o the ocal areas or

the UNDPs work in the country. One key initiative is

a UNDP project entitled Vietnam: Promoting EnergyConservation in Small and Medium-Scale Enterprises,

with a program period rom 2005 to 2010 and budget

o US$28.8 million, including US$5.5 million o support

rom the Global Environment Facility (GEF). The project

aims to address barriers blocking widespread adoption o

energy-ecient management practices, operations, and

technologies in SME. The project ocuses on ve SME

production subsectors: bricks, ceramics, textiles, paper,

and ood processing. The project is composed o six

integrated components: (a) policy and institutional sup-

port development; (b) communications and awareness;

(c) technical capacity development; (d) energy-eciency

services provision support; (e) nancing support; and ()demonstrations.

Other ongoing activities or activities under advanced

preparation include a US$3.0 million UNDP-GEF public

lighting eciency project with the National Center or

Natural Science and Technology (NCST) and the Insti-

tute o Material Science (IMS); a US$4.5 million UNIDO

national clean production program or Vietnam with

Hanoi University o Technology (counded with SDC as

noted previously); a proposed US$6.8 million regional

energy-eciency appliance labeling and standards pro-

gram, which includes Vietnam among other countries;

and a proposed US$3.0 million UNEP-GEF incandescentlamp phaseout program. Planned UNDP-UNIDO support

rom 2010 and beyond includes possible initiatives on

energy-eciency building codes, capacity building or

implementation o the energy conservation law, promo-

tion o Energy Management Standards via the proposed

International Organization or Standardization (ISO) 50001

Management Standard, and assistance or the coordina-

tion o climate change adaption and mitigation eorts.

The World Bank Group

The International Development Association (IDA) has

been supporting energy-eciency eorts in Vietnam

since 1997. Its program began with a US$3.6 million

technical assistance grant provided by the Swedish

International Development Agency (SIDA) administered

by IDA, or: (a) DSM planning and pilots with EVN; (b)

initiation o load management and research unctions,

also with EVN; (c) development o initial equipment stan-

dards with MOST; and (d) development o a commercial

building code with the MOC. Based on the results o this


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2323

Options or Further ImprovingEnergy Efciency in Vietnam

Previous chapters reviewed energy demand trends

in Vietnam, discussed the need to expand eorts to

improve energy eciency, and outlined Vietnams cur-

rent eorts to ramp up energy-eciency initiatives.

This chapter briefy discusses the overall challenge o

implementing eective energy-eciency initiatives and

explores options and priorities or the uture to overcome

those barriers. The chapter then describes how a com-

bination o regulation and market-based initiatives might

be applied to realize improved energy eciency in each

o the our strategic sectors in Vietnam identied earlier.

A nal section provides recommendations or action dur-

ing the next three years.

Making Energy-EfciencyImprovements Happen

Achieving greater energy eciency has become a central

tenet in the energy policy o many countries or a good

reason: it helps enhance energy supply security, it is

environmentally riendly, and it is substantially more cost

eective than energy supply. In most cases, it also yields

protable lie-cycle nancial returns to energy users.

However, experience across the globe has shown that

the huge potential or cost-eective, energy-eciency

investment is dicult to capture. Relying on mar-

ket orces alone is insucient. Even where market

economies are very advanced, many energy-eciency

investments with strong lie-cycle returns remain unim-

plemented. Although the use o market orces is impor-

tant and critical or sustained progress on improving

energy eciency, strong government leadership is also

required. Government leadership is needed to put stan-

dards and regulations in place where there are market

ailures, to promote economic policies that encourage

investment in operating cost savings as much as pos-

sible, to help provide inormation and raise awareness, to

nurture the development o a domestic energy-eciency

service industry, to launch and nurture market transor-

mation initiatives or key energy-using equipment or

appliances, and to promote and oster the development

o nancing mechanisms and public-private alliances that

can eectively help deliver increased energy-eciency

investment. The need or strong and sustained govern-

ment leadership is especially evident in Vietnam, espe-cially at the current time.

Barriers to Achieving Energy Efciency

lac Inrmatin. Perhaps the most basic requirement

or achieving greater energy eciency is or energy

users to be aware o potential energy savings and their

nancial benet, and how to attain them. Although a

good start has been made and the VNEEP recognizes its

importance, Vietnam is still a long way rom meeting this

requirement. Many consumers, especially in commercial

or industrial establishments, actually have little concrete

idea o the potential or energy savings in their busi-nesses, and how much money could be saved through

improved management or modest investment. Despite

some progress o late, there remains little reliable and

comparable inormation on the actual energy-use pat-

terns o dierent types o appliances or new equipment

that consumers can readily see and properly consider.

Business enterprises are typically not very knowledge-

able about the types o retrot projects that could save

3


30/39


them on energy costs, new and more ecient technolo-

gies, or even where they might nd out more about these

things. As VNEEP progresses in uture years, consumers

will also need more specic inormation on implementa-

tion and nancing options.

Insufcient Readi Avaiae Expertise. A related issue

concerns the availability o expertise. Clients need to

be able to tap appropriate expertise to advise on energy

savings options, complete customized energy-use audits

on site, identiy projects and sources o nancing, and

assist in developing and implementing complex projects.

Such expertise needs to be readily available locally and

easy or clients to contact and engage. Clients also need

some way to gauge whom they can trust. Experts with

established track records in actually implementing proj-

ects are especially valuable or providing advice derived

rom actual experience rather than theoretical calcula-tion. Expanding and improving the qualications o local

expertise is another area where Vietnam needs to make

major improvements i a meaningul share o the poten-

tial or energy eciency is to be captured. Vietnams gov-

ernment has made this a priority, but it takes concerted

eort over a sustained period to achieve real results.

Ener Pricin. In any market economy, higher energy

prices are an exceptionally powerul orce to attract

attention to energy eciency and to increase incentives

or action. In Vietnam, prices paid or energy are low rela-

tive to those in most other countries. The actual level o

electricity taris has allen in real terms over the pastseveral years, despite an increases in January 2007 o

an average o 8 percent to VND 873/kWh and a urther

increase o an average o 9.1 percent to VND 948/kWh in

2009. Domestic coal prices are well below levels in other

countries. Although solid returns on a wide range o

energy-eciency investments still exist, incentives and

investment results could be sharply improved i energy

prices better refected international levels.

Cst-Cnsciusness. Even i price signals are strong, con-

sumers need to be interested in reducing operating costs,

although this is not always the case. Where enterprise

operation culture in a planned economy remains strong,

as in some state-owned enterprises, reducing operating

costs, such as energy or water utility costs, may not be a

priority to managers, even i quite protable. In addition,

when economic growth is robust, commercial and indus-

trial establishments may naturally place greater empha-

sis on the expansion or introduction o new products to

increase market share, and investments or long-term

payo in operating cost savings may be assigned lower

priority or the time being.

linerin generic Prems ith Ener-Efcienc Prects.

Even i consumers are aware o opportunities, expertise

is available, and the economic environment is support-ive, problems inherent in these types o operating cost

saving projects still remain and, unless addressed, con-

tinue to hinder realization o the available potential. Ben-

ets in the orm o calculated cost savings streams, as

opposed to highly visible new production assets, appear

nebulous and inherently risky to many. At micro decision-

making levels, energy costsaving characteristics o new

equipment may be relatively insignicant compared to

other concerns. When purchasing new rerigerators, or

example, buyers are unlikely to push energy-eciency

demands on producers hard enough to cause market

transormation, relative to other demands, such as rerig-erator appearance, convenience items, layout, and so

orththe energy expenditures involved in operating one

rerigerator are just not big enough (although the energy

costs are large in the aggregate or the country). In some

cases, or example, where oce or living space is rented,

one party may be responsible or purchasing equipment

while the party responsible or paying energy bills is di-

erent, causing a problem o split incentives. Then there

is the problem o transaction costs. Unless addressed,

the eorts required by an energy user on his own to nd

good inormation, obtain advice, consider options, design

projects, and then implement the measures may add up

to too much eort and cost or the many small projectstypical o the energy conservation business. I projects

require substantial outside expertise or outside nanc-

ing, the contractual hurdles involved increase transaction

costs and implementation diculties even more. Unless

specic programs and packaging mechanisms are put in

place, beneting rom scale economies in aggregation,

these problems cause potential energy-eciency inves-

tors to require exceptionally high implicit discount rates

or to orgo the potential savings altogether.

behavira Inertia. There are also inherent behavioral

issues associated with the acceptance o change. For

some, there is comort in doing what you know even

i other ways may be better. Others perceive the adop-

tion o new practices as having unoreseen risks. Engi-

neers design in ways in which they are accustomed,

procurement ocers like to work with existing suppli-

ers that understand their needs, and technicians preer

to work with equipment they know how to operate and

maintain.


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25Options or Further Improving Energy Efciency in Vietnam

Overcoming Barriers to Energy Efciency

All countries with mixed or ully market economies that

have had some success in overcoming barriers to improv-

ing energy eciency use a mix o government regula-

tion combined with policies and programs to encourageimproved uptake o energy-eciency investment through

the market. Some common regulations include require-

ments to provide monitorable inormation on energy

use, requirements or standardized energy consump-

tion labeling on energy-intensive equipment, enactment

o mandatory energy-eciency standards or certain

equipment (such as rerigerators), implementation o

programs or either voluntary or mandatory government-

industry agreements on improving industrial plant energy

eciency, and outlawing o specied particularly energy

inecient equipment models or subscale industrial pro-

cesses. Some common public programs to help spark

greater market investment include public support orpublic-private partnership nancing schemes, provision

o targeted concessional nance or tax breaks, programs

to develop and launch an energy-eciency perormance

contracting industry by ESCOs, and more. In countries

where inormation and expertise are basically available

and economic environments are generally supportive,

orceul and sustained government action on both regu-

lation and promotion o market-based solutions is still

needed to overcome the more generic energy-eciency

investment barriers described above.

Devepin and Impementin Ener-Efcienc Reuatins.

The most important measure that Vietnam can take in

the short term to address current barriers to energy

eciency is enactment o the proposed Law on Energy

Conservation and Ecient Use. The law is especially

important because it can provide the oundation or the

regulations that are needed to address specic problems

undermining Vietnams ability to achieve greater energy

eciency. The law can bring stronger legitimacy to orga-

nizations and their work, and provide or assignment o

responsibilities and associated unding. Enactment o the

law can send a clear message to society and the market

on national intentions. The law can mandate new relation-

ships among the government, industry, and large com-mercial enterprises to encourage more ecient use o

energy, mandate improved systems to provide consum-

ers with objective inormation, and lay a oundation or

developing minimum energy-eciency standards or key

types o equipment. It is important to maintain fexibility

or adjustments based on evolving experience, and hence

leave many specics or associated regulations. Based

on Chinas experience with its rst energy conservation

law in the 1990s; however, it is also useul or the law to

provide clear authority or the enorcement o regulations

and assessment o penalties or noncompliance.

Development and especially implementation o the rst

set o regulations based on the law, i enacted, will bea very large undertaking over the next three years. It is

important or the design o specic regulations and their

rollout to be careully aligned with the governments

capacity to assist in their implementation and to enorce

them. Overambitious, all-encompassing regulations that

cannot be practically implemented with existing sta and

organizational capacity may undermine credibility and be

counterproductive.

Uneashin Maret Frces. While regulation is important

or drawing attention to energy waste, ensuring unbiased

inormation fow, and overcoming certain specic marketailures, the use o market orces is critical or realizing

large-scale, ecient, and sustainable investment in more

ecient energy-use systems. For Vietnam, rom an over-

all policy perspective, the review o consumer energy

prices and adjustment to best refect true costs, as well

as continued state-owned enterprise reorm, can make a

major dierence in helping bring market orces to bear,

especially in the industrial sector. However, eort is also

needed to oster development o eective investment

project delivery systems. Experience elsewhere shows

that eective delivery systems or energy-eciency

investment projects are not likely to develop without ini-

tial government encouragement, but once operational,investment can continue sustainably with more lim-

ited public involvement. Given the scale o investment

needed, reliance on market-based mechanisms is essen-

tial to achieving long-term energy-eciency goals. Some

o the more common energy-eciency investment deliv-

ery systems are outlined below.

Ener Service Cmpanies. For the energy-eciency invest-

ment market to unction, entities that understand the

technology and cost-saving potential are required to help

identiy opportunities, complete good easibility studies,

and assist in project implementation. Such companies or

institutes may be called third-party service providers,

project agents, or other terms. For Vietnam, continued

development o a local industry o these types o compa-

nies will be critical i energy-eciency investment is to

increase sharply.

Many people reserve the term ESCO or energy ser-

vice companies that engage in energy perormance


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33/39


Specia Puic Resurce Funds. Some governments estab-

lish special-purpose unds, parastatal energy-eciency

investment companies, or other long-term special pro-

grams designed to catalyze energy investment in the

market with the use o public unds. Two examples that

involved the creation o new legal entities include IndiasRenewable Energy Development Agency (a national para-

statal company that also engages in energy-eciency

loans) and the development o Energy-Eciency Utili-

ties by several state governments in the United States.

Objectives best ocus on maximum monitorable results in

increased energy-eciency investment per unit o public

resources. While some programs have clearly been suc-

cessul, there are many inherent challenges, including

maintenance o program stability because o continuing

nancing uncertainties, complex and sometimes uneasy

or unhealthy relations with the banking industry, and pro-

gram management capacity requirements. I Vietnam

chooses to consider such an option, it may be best to

dene upront (a) very clear and narrow objectives, and a

sophisticated system or how results will be measured;

(b) specics o program management and implementa-

tion, including the contracting o capacity rom outside

the government; and (c) medium-term dedicated nanc-

ing sources.

Putting Regulation and Market-BasedPrograms Together in Key Sectors

Improving Energy Efciency in ExistingIndustrial Plants

While many cost-eective energy-ecient technologies

and process improvements are available and appropri-

ate or existing Vietnamese industry, inorming industry

managers, incentivizing owners, packaging projects,

and identiying and implementing them have been more

problematic. On the regulatory side, some important and

useul measures listed in recent drats o the energy

conservation law include new mandatory energy-use

reporting systems, requirements or developing internal

energy management programs in designated enterprises,

requirements or designated enterprises to implementve-year energy-eciency improvement plans agreed

with and monitored by the government, and provisions

allowing the government to ban particularly wasteul

equipment and energy-use practices. The reporting,

energy management, and energy-eciency planning

requirements can provide a critically needed platorm or

increasing inormation on the specic energy-eciency

opportunities, both in industrial enterprises and in govern-

ment entities. They can also provide a powerul impetus

or organizing greater attention in enterprises to poten-

tially protable opportunities or energy-eciency invest-

ments and operational modications, and or instituting

improved energy management practices that can have a

big payo over the medium term. However, implementa-

tion will be a major eort requiring ocused attention atmany levels or quite a ew years. Countries with strong

experience in recent years in these particular regulatory

and monitoring areas include China, Japan, and a num-

ber o European Union countries. China also began to

achieve good results in 200608 in its banning o particu-

larly energy-wasting, subscale industrial technologies,

but its experience has shown that rigorous enorcement

at local levels is critical.

Regulatory measures can attract needed attention within

industrial enterprises, but measures to help make it

easier or them to implement money-making energy-

eciency projects in line with market orces are needed

to then deliver concrete energy savings in existing plants

(provided that the plants continue to operate). This

requires additional inormation programs, steady and

major capacity-building programs or energy managers

and third-party service providers, and eorts to expand

project nancing channels and amounts. Programs to

provide enterprises with inormation on opportunities

or example, through the dissemination o case studies,

technical resources, and analytical tools; delivery o train-

ing courses; and so orthoten get the best results i

the ocus is on how enterprises can save money rom

energy conservation. Training and increasing hands-on experience is needed, especially among third-party

service groups, to help eciently identiy and package

nancially attractive technology choices and renovations.

Financing or energy-eciency projects is typically di-

cult to arrange through standard channels. Although

the business can be protable or banks in due course,

eorts are needed to help jump-start loan programs that

can eciently accommodate good energy conservation

retrot projects.

A number o international donors are working with the

government to prepare new programs or preparing

and/or nancing industrial energy-eciency retrot proj-ects, and such programs can be quite constructive. One

suggestion is to try to ocus exclusively on capturing

a good share o the available nancially attractive proj-

ects, avoiding less economic investments, and aiming

to create and link project development and investment

mechanisms that are inherently protable or the nanc-

ing and host entities and that can be sustained ater

donor nancing is exhausted. Another suggestion is to

ensure that technical assistance or project identication


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Electrical Appliances

Electrical appliances in residences used 39 percent o all

electricity consumed in Vietnam in 2007. The IEA esti-

mates that electricity savings o some 2538 percent in

residential appliances could be achieved internationally.

6

However, capturing the savings potential involves some

dierent challenges rom those in industry or transpor-

tation. In industry, energy-eciency initiatives ocus

especially on helping enterprises identiy and implement

relatively customized solutions. With household electri-

cal appliances, however, a limited number o appliance

types dominate electricity use (or example, lamps,

rerigerators, air conditioners, water heaters, and rice

cookers), but a very dispersed supply and use chain that

involves millions o customers, many retailers, and quite

a ew dierent product suppliers.

Because o the nature o the market, programs to improveeciencies or electrical appliances are usually done on

a national scale and oten by individual appliance. Many

countries aim to transorm existing markets, that is,

to guide the increasing penetration o more energy-e-

cient appliances into specic appliance markets through

regulation and selective public intervention, yet they

still rely on market orces or ecient and sustainable

market operation. This involves (a) programs to provide

customers with commonly available, credible, and cor-

rect but simple inormation about the eciency charac-

teristics o the choices in ront o them; (b) government

initiatives to work with suppliers to encourage expanded

marketing o reputable and more ecient products, anddiscourage particularly wasteul or raudulent market

oerings; and (c) programs to help customers cope with

the initial higher costs o some more ecient appliances

until market transormation can take hold. Good results

require careul planning, a mix o tools, and long-term

dedication.

The main initiatives undertaken in the appliance market

transormation arena in Vietnam so ar are on the dis-

semination o CFLs and some initial activities on market

labeling, establishment o appliance testing protocols,

establishment o a local testing acility, and some devel-

opment o several national standards (see Chapter 2).

EVNs program or bulk purchase and distribution o CFLs

has been quite successul in terms o volumes achieved

and increasing awareness. Now may be the time or the

6 IEA.Experience with Energy Eciency Regulations or Electrical

Equipment IEA inormation paper, OECD/IEA, August 2007.

government to establish promotional programs that can

build on recent gains and be sustained over the long term

through local retail outlets, and or renewed eorts on

FTLs and electronic ballasts. It also is a good time to put

more aggressive and comprehensive programs in place

or larger household appliances. For the uture, Vietnamneeds to develop more consolidated and deliberate pro-

grams ocused on ensuring long-term results.

Good market transormation programs require upront

public investment to gain understanding o the specic

target markets beore attempting to transorm them.

Consumer purchase behaviors and concerns when buy-

ing new appliances, the realities o retail systems and

locations, consumer nancing patterns, supplier chains

and selling strategies, and the characteristics and prices

o the main products currently on the market are all

important to understand beore embarking on major mar-

ket transormation initiatives. Unless built on such spe-

cic understanding, program designs are likely to result

in too much wasted eort.

Expansion and upgrading o programs to provide readily

available and credible inormation to consumers about var-

ious appliance products on the market is especially impor-

tant now. Many poor-quality products are on the market,

and unsubstantiated claims about energy eciency and

critical product characteristics abound. It is dicult or

consumers to know with condence which claims are

correct and which are bogus, and hence when payment

o higher costs upront will pay o. To solve this problem,however, will require greater public investment, planning,

and time to develop and institute testing programs, to

develop well-designed appliance labels and other inorma-

tion, and especially to increase the visibility o such inor-

mation and consumer condence that it is correct.

Development and implementation o either voluntary

or mandatory energy-eciency standards or key appli-

ances has been eective in a number o countries and is

being considered in Vietnam. However, standards must

be strictly enorced or they lose their meaning. I compli-

ance is voluntary, consumers must still have condence

rom the compliance system that products claiming tomeet voluntary standards actually do. Compliance moni-

toring systems also require public investment and time

to develop and implement properly.

Energy-ecient appliances typically cost more than ine-

cient ones, even i they pay o through savings later,

and the issue o higher upront costs needs to be dealt


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with as programs are launched. Government-supplier

negotiations can oten help to bring down costs, with

technology transer agreements, and/or bulk procure-

ment or other discount deals in which suppliers oer

lower prices or arrangements resulting in larger-scale

sales. Still, consumer subsidies may be justied to jump-start market transormation to more ecient appliances,

at least until the market penetration begins to see ur-

ther economies o scale and/or consumers more clearly

see the longer-term payos. Common subsidy mecha-

nisms include partial rebates or the purchase o speci-

ed more ecient models, or the provision o low-cost

nancing or large appliances. Such subsidies are best

designed rom the beginning with plans or their gradual

phaseout. Most countries rely on existing appliance retail

systems or distribution, although electricity utilities may

collaborate with the programs (or example, in market-

ing and distribution o rebate coupons and so orth) as

part o DSM program agreements or under specic gov-

ernment contract. Because appliance markets are large

and diuse, government programs must be designed to

minimize unintended distortions in the market, especially

competition with and undermining o existing supply

channels. Waste by providing incentives to those con-

sumers already planning to purchase ecient equipment

on the market also needs to be minimized.

Recommendations orFollow-Up Actions

With the new energy conservation law up or consid-

eration by the National Assembly, growing experience

through the implementation o the VNEEP, and a sup-

portive donor community, the overall environment or

scaling up the governments eorts to promote greater

energy eciency is very good. What is most important at

this point is laying solid oundations or institutional sys-

tems and programs that can make major energy savings

contributions over the long haul, and grow stronger and

stronger over time. However, achievement o real and

sizable energy-eciency gains is not easy. While some

quick gains may occasionally be achieved, the best

and most lasting results usually stem rom programs

that are built with sucient and growing local capacity

or delivery. This requires good planning, upront public

investment, dedication, and time. Some countries have

grabbed onto program ideas introduced rom elsewhere,

which sound simple and easy, and introduced them with

high expectations without sucient groundwork, adap-

tation to local circumstances, consideration o possible

unintended consequences, or consideration o the need

or human resource investment in program delivery.

Results then tend to be poor and zzle out. It is certainly

not the case that all programs must wait or complete,

ull-scale planning beore anything can be started. Small-

scale piloting and trial eorts are excellent ways to test

ideas and begin to adapt them to realities on the ground.It is oten useul, however, or pilots to have a strategic

ocus set in a broader, deliberate plan and, i evaluations

show promise, or scale-up eorts to be designed with

deliberate ocus on long-term sustainable results.

Although donor unds may provide some large nancing

sources or a ew years or some activities, the current

public und budget o US$2 million per year or imple-

mentation o the VNEEP means that the government

must prioritize its activities careully. Increasing leverage

is also criticalor example, to use public unds as seed

money or ideas that can be scaled up by others, espe-

cially the private sector.

In prioritizing among competing program requests or

public unds, the Bank study team strongly recommends

greater attention to evaluation o the actual energy sav-

ings results that may be achieved. The success o the

VNEEP should be assessed with respect to the spe-

cic, quantied role it has played in helping to meet the

governments energy savings goals. It is true that many

public investments in the early years may need to con-

centrate on human resource capacity building, although

assessment o direct energy savings rom capacity build-

ing investment is dicult. However, even in this case,greater rigor is possible. For example, what specic pro-

grams are sta to be trained or and expected to contrib-

ute to, and how much energy savings might evolve rom

a specic program i successul? Ater the training, did

those sta really apply the skills they learned in the spe-

cic program? What other actors must be addressed or

those skills to produce concerted, new energy savings,

and have those actors been addressed?

With the new law moving orward and new implementa-

tion regulations in the preparatory phase, it would also

appear to be a good time to review how government

institutional responsibilities and the coordination between

dierent parties can be urther crated to best serve the

long-term needs. A common observation expressed by

oreigners reviewing Vietnams energy-eciency pro-

gram is that it is too ragmented institutionally, with

overlapping or unclear responsibilities and insucient

coordination and direction. While there are many issues

and actors to consider, the current juncture may provide

a good opportunity or adjustments.


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31Options or Further Improving Energy Efciency

Documents

ASTAE Vietnam Expanding OpportunitiesEE Web