Capital pressure in the "green" transition.

(HNM) - The National Power Development Plan for the period 2021-2030, with a vision to 2050 (Power Plan VIII), approved in mid-May 2023, contains many new points and is expected to open a turning point for the power sector by promoting the development of clean energy and ensuring national energy security. However, the process of realizing the goals and development directions in the coming period will be accompanied by significant capital pressure.

Workers inspect the operation of the Ninh Phuoc 220kV substation ( Ninh Thuan province). Photo: Thanh Hai

Challenges for transformation

The Power Development Plan VIII reflects Vietnam's unwavering commitment to green and sustainable development, prioritizing clean and green energy sources such as renewable energy and new energy sources (ammonia, hydrogen, etc.). No new coal-fired power plants will be developed except for projects from the previous plan. Simultaneously, projects using fossil fuels are being gradually replaced with clean fuels to reduce greenhouse gas emissions.

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

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

According to Mr. Nguyen Ha Duc Tung, an analyst at VNDIRECT Securities Joint Stock Company, the Power Development Plan VIII has agreed on a "sufficient and green" plan, but it may be more difficult to implement than the revised Power Development Plan VII, due to the strong development of high-cost power sources such as gas-fired power and renewable energy. Meanwhile, alternative fuel technologies such as hydrogen and ammonia for thermal power plants are still only in the research and testing phase.

Multiple options for raising capital

To successfully implement the Power Development Plan VIII, the Government has put forward 11 specific groups of solutions. Among them, to ensure sufficient financial resources, the proposed solution is to diversify sources of capital, forms of capital mobilization, and ensure competition in the electricity market.

In addition, the Government calls for the effective use of international support commitments, green credit sources, climate credit, and green bonds; while also improving financial mechanisms and capital mobilization for investment in the development of the electricity sector…

Economist and former Director General of the General Statistics Office, Nguyen Bich Lam, expects that when a competitive electricity market is operational, all barriers will be removed. Transparent electricity prices determined by the market will ensure that businesses cover their costs, make profits, and achieve financial autonomy, thereby attracting economic entities to invest in electricity development.

“The trend of developing renewable energy will be a driving force attracting foreign direct investment and investment from all economic sectors; especially mobilizing capital from households to build rooftop solar power systems, self-generating and self-consuming electricity sources. This is one of the solutions to address the issue of investment capital for implementing the Power Development Plan VIII,” Mr. Nguyen Bich Lam stated.

According to Dr. Ngo Tuan Kiet, former Director of the Institute of Energy Science (Vietnam Academy of Science and Technology), the Power Development Plan VIII considers options for mobilizing capital, including international funding, for the development of renewable energy; this includes bidding, allowing investors with sufficient financial and technical capacity to participate, eliminating the previous "request-and-grant" mechanism. 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 independently calculate their profit potential and participate in investing in the development of the power system in Vietnam.

“An important aspect is the need to develop a power grid that is synchronized with power sources. Fulfilling this requirement demands coordinated efforts between relevant agencies, localities where projects are located, and especially the combined efforts of investors, as developing the power grid also requires mobilizing significant capital,” said Mr. Doan Ngoc Duong, Deputy Director of the Institute of Energy, Ministry of Industry and Trade.

Following the significant legal milestone of the approval of the Power Development Plan VIII, and in order to gradually realize the plan, especially to meet the aforementioned capital needs, many economic experts agree that the Government needs to urgently finalize specific financial mechanisms and mobilize capital for investment in the development of the power sector. These mechanisms should be implemented based on the principle of diversifying capital sources and forms of capital mobilization, effectively attracting domestic and foreign resources into power development.

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