1. STRATEGIES FOR PROMOTION OF ENERGY EFFICIENT AND CLEANER TECHNOLOGIES IN THE POWER SECTOR Synthesis Report Issue 1: Implications of Carbon & Energy Taxes as Instruments for GHG Reduction in the Power Sector Issue 2: Identification of Barriers and Policy and Measures (PAMs) for the Adoption of Clean and Energy Efficient Technologies (CEETs) The Case of Vietnam Institute of Energy July 2005

2. Issue 1 Issue 1: Implications of Carbon & Energy Taxes as Instruments for GHG Reduction in the Power Sector

3. Overview of the Power Sector of Vietnam Capacity and Generation Mixes Total Installed power generation capacity (MW) (2003) Total Electricity generation (GWh) (2003) Weighted Av. efficiency of thermal generation (%) (2000) Average annual growth rate (%) Total electricity generation (1986-2002) Thermal electricity generation (1986-2002) 9,14640,92436.012.349.50 Table 1a: Overview of the power sector in Vietnam. The power sectors in Vietnam demonstrated diverse characteristics in terms of electricity generation technologies, fuel use, total electricity generation capacity, load growth & load characteristics of power system. Table 2a: Generation and capacity mix of selected countries in 2003, (%). Installed CapacityGeneration HydroCoalOilGasOtherHydroCoalOilGasOther 4512834046147276 Source: Institute of Energy (2004) Issue 1

4. Overview of the Power Sector of Vietnam Environmental Emissions & Status of Renewable Energy Technologies for electricity generation in Power Sector Table 3a: Overview of environmental emission in Vietnam. + Coal based electricity generation accounts for the highest share of CO2 emission from the power sector in Vietnam. + Vietnam has power generation potential from all RE sources. Successful in promotion of small hydropower generation. Source: Institute of Energy (2004) CountryTotal CO 2 emission (Million tons)Share of power sector (%) 1990200219902002% increase during 1990- 2000 Vietnam 175727.5*26.8*10.3 Renewable optionsPotential (MW) Installed Capacity (MW) gridOff-grid Biomass Wind Solar (kWh/m2/day) Small hydro Geothermal Total 4,750 9,000 5 1,400-1,800 400 50 0 130 0 3942 0 0.2 0 57 Table 4a: Status of Renewable Energy Technology in electricity generation in Vietnam. Issue 1

5. Implications of Carbon & Energy Taxes Candidate Supply Side Options Source: Institute of Energy (2004) + Candidate supply side options: 1. Hydro plants 2. Coal & Oil fired power plants 3. High efficient technologies: - Gas turbine combined cycle plants - Pressurized fluidized-bed combustion plants (PFBC) - Integrated gasification combined cycle plants (IGCC) - Supercritical plants 4. Renewable technologies: - Geothermal, Small and mini hydro, - Wind & Solar - Biomass (wood residue, rice husk, bagasse) Issue 1 + No DSM + Carbon tax rates: (5$tC,10$tC, 25$tC,50$tC,100$tC and 200$tC) + Energy tax rates: (0.5$Mbtu, 1$Mbtu,2$Mbtu,5$Mbtu and 10$Mbtu) + Planning horizon: 2006-2025 + All prices in the study are based on price of 2000. + Price Elasticity of demand estimated with - 0.3

6. Key Findings Utility & Environmental Implications Power Generation Capacity Mix at year 2025 (MW) Carbon tax rate ($/tC)05102550100200 Hydro17640177701802018432 Coal214001930018700136001150092007600 FO+DO725 3560428531253995 Gas949011230 12670 Import3000 RETs201513736111976980010800 Total capacity53000529015277352598525885695257222 Shares in Power Generation Capacity at year 2025 (%) Carbon tax rate ($/tC)05102550100200 Hydro33.2833.5934.1535.0435.0532.3632.21 Coal40.3836.4835.4325.8621.8716.1513.28 FO+DO1.37 6.778.155.496.98 Gas17.9121.2321.2824.09 22.2522.14 Import5.665.675.685.70 5.275.24 RETs0.040.290.711.163.7617.2118.87 Table 5a: Generation capacity mix at selected carbon tax rates in year 2025 Issue 1 Carbon Tax

7. Key Findings Utility & Environmental Implications Table 6a: Electricity generation mix at selected carbon tax rates during 2006-2025 Issue 1 Carbon Tax Electricity Generation (GWh) Carbon tax rate05102550100200 Hydro1218881123072612351761254692126315812938141296382 Coal1052220923436850862702984605781259464173251 FO+DO26941 32635334723154049285 Gas7484138520419082361018695106502612166141219042 Import333450 RETs18727377118751632248584181917228516 Total generation3410219340394033943463392968337790333443843327511 Shares in Electricity Generation (%) Carbon tax rate05102550100200 Hydro35.7436.1636.3936.9837.3938.6938.96 Coal30.8527.1325.0720.7217.937.765.21 FO+DO0.79 0.960.990.941.48 Gas21.9525.0326.7630.0231.5336.3836.64 Import9.789.809.829.839.879.9710.02 RETs0.050.220.350.481.445.446.87

8. Key Findings Utility & Environmental Implications Fig1a: Installed generation capacity by fuel types at selected carbon tax rates in 2025 Fig2a:Electricity generation by fuel types during 2006- 2025 at selected carbon tax rates Issue 1 Carbon Tax

9. Key Findings Fig3a: Total electricity generation by hydro during 2006- 2025 at selected carbon tax rates Fig4a:Electricity generation by coal during 2006- 2025 at selected carbon tax rates Issue 1 Carbon Tax

10. Key Findings Fig5a: Total electricity generation by gas during 2006- 2025 at selected carbon tax rates Fig6a: Change in consumption by fossil fuels during 2006- 2025 at selected carbon tax rates Issue 1 Carbon Tax

11. Key Findings Fig7a: Effects of carbon tax on power generation technology mix during 2006-2025 Fig8a: Generation mix during the planning period at different carbon tax rates Issue 1 Carbon Tax

12. Key Findings Reduction in Total Capacity Addition due to Carbon Tax (%) -10 10 20 30 05102550100200 Tax ($/tc) Reductions in Total Generation due to Carbon tax (%) 10 20 30 05102550100200 Fig9a: Reduction in total capacity addition due to Carbon tax Fig10a: Reduction in total generation due to Carbon tax Issue 1 Carbon Tax

13. Key Findings Table 7a: Weighted average thermal generation efficiency during the planning horizon at selected carbon tax rates, % Carbon tax rate (US$/tC) Weighted average thermal generation efficiency (%) 037.23 538.36 1038.05 2540.27 5041.05 10044.32 20044.88 Energy tax rate (US$/Mbtu) Weighted average LOLP (%) EENS GWh%#%# 00.003272588.70.07591 0.50.00322517.50.07545 10.002421947.60.06007 20.001831397.60.04459 50.0000010.20.00001 101E-070.090.00000 Table 8a: Weighted average loss of load probability and cumulative expected energy not served during 2006-2025 at various energy tax rates Issue 1 Carbon Tax

14. Key Findings Table 9a: CO2 and local emissions mitigation potential at different carbon tax rates during the whole planning period Carbon tax rates (US$/tC)05102550100200 Total CO2 emitted (thousand tons) 1308344.11241880.41200266.11107042.81042070.4784433.8714997.1 Total CO2 reduction (thousand tons) 66463.7108078201301.3266273.7523910.3593347 % reduction 5.088.2615.3920.3540.0445.35 Total SO2 emitted (tons) 2606680.52513494.52436769.32177869.72089010.91160019.4982602.6 Total SO2 reduction (tons) 93186169911.2428810.8517669.61446661.11624077.9 % reduction 3.576.5216.4519.8655.5062.30 Total NOx emitted (tons) 2998296.62964040.62920676.82641429.32523744.92314792.62256457.5 Total NOx reduction (tons) 3425677619.8356867.3474551.7683504741839.1 % reduction 1.142.6212.2217.9727.0832.05 Fig10a: Cumulative CO2 emission reduction (%) during the planning horizon at different selected carbon tax rates Issue 1 Carbon Tax

15. Key Findings Fig11a: Cumulative SO2 emission emitted during the planning horizon at different selected carbon tax rates Fig12a: Cumulative NOx emission emitted during the planning horizon at different selected carbon tax rates Issue 1 Carbon Tax

16. Key Findings Fig13a: CO2 emission intensity in term of per unit of electricity generation at different selected carbon tax rates Fig14a: Cumulative CO2 emission reduction (%) during the planning horizon tax at various selected carbon tax rates Issue 1 Carbon Tax

17. Key Findings Table 11a: The share of supply side effect and demand side effect to the total CO2 mitigation during the planning horizon at selected carbon tax rates, % Carbon tax (US$/tC)Vietnam SSEDSE 591.478.53 1091.708.30 2594.025.98 5096.373.63 10096.863.14 20095.934.07 Note: SSE = CO 2 mitigation due to supply side effect DSE = CO 2 mitigation due to demand side effect Carbon tax range (US$/tC)Carbon elasticity (%) 0 - 5-0.026 5 - 10-0.051 10 - 25-0.094 25 – 50-0.091 50 - 100-0.423 100 - 200-0.139 Table 10a: Carbon tax elasticity of CO2 emission at selected carbon tax rates, % Issue 1 Carbon Tax

18. Key Findings Cost Implication Table 12a: Average incremental cost (AIC) during 2006-2025 at carbon tax rates (US¢/kWh) Issue 1 Carbon Tax Carbon tax (US$/tC) Vietnam 02.70 52.73 102.78 252.89 503.05 1003.22 2003.62 Fig15a: Change in discounted expansion cost components for electricity generation expansion during 2006- 2025 at different selected carbon tax rates, (%)