Overview of the CDM market in Vietnam
Certain projects for the reduction of emissions in Vietnam are suitable for purchasing certified emission reductions (CERs) under the Clean Development Mechanism (CDM). The buyers sign an agreement with local project owners in order to obtain rights to CERs from the project. Purchasers are usually ultimate consumers and speculators. Most CERs are eventually used by power companies and other purchasers from the EU area that meet the requirements as well as governments of developing countries etc. The buyers of primary CERs obtain at the European Climate Exchanges a discount compared to the secondary market price because they carry considerable delivery risks and typically have met CDM related expenses. Delivery risks arise typically through project execution, but also in form of CDM registration- and validation-related risks. Validation-related risks are highlighted due to the fact that out of 85 projects which have been uploaded for evaluation in Vietnam only 8 have been registered yet. Over 40% of the projects have been under validation for a year.
Vietnam’s market potential
Vietnam could have the potential to generate up to 10 million CERs. However, it is subject to acceleration of the validation process, i.e. the publication of standard CEF for the Vietnamese grid, the encouragement of required local approvals etc. Due to delays in project validation and construction, the scope will be probably smaller. The global recession has adversely affected the access to financing, which in turn affected particularly the hydropower sector (the main CDM project type in Vietnam).
Due to uncertainties with regard to the system after 2012, projects have to be registered or ordered as quickly as possible. Although the market price of CERs has decreased due to the impact of global recession, there is still a sufficient demand for Vietnam’s CERs. Purchasers are prepared to change to new product fields and are particularly interested in projects with a high sustainable development value for the local community.
CER portfolio management
Compliance buyers have to administer their portfolio intensively in order to reflect their intended and actually provided loans. Higher prices are paid usually in connection with project types involving high registration and verification risks. Furthermore, higher costs could be incurred within projects which are well advanced in respect of construction, but it will be dependent on this and not on increased registration risks. In case of projects which have already been started, the earlier CDM consideration as part of an additionality analysis has to be proven. Distribution of risk is an important risk management instrument. For example, many buyers may have a big percentage of their portfolio in Chinese CERs, so it is recommendable to have a look at other markets, such as SE Asia etc. Distribution of risk extends right up to technology type.
Most important project types in Vietnam
– hydropower: most common project in Vietnam. Validation risks are named as medium and verification risks are low. Although in these projects are a long construction period and often numerous delays.
– wastewater used for generate energy: 7 projects are already applied for registration. Risk of validation is low to medium, construction time is low (often less than one year) and the risks of validation is medium size.
– other renewable energy types: wind is a high potential, so far only one project existing. Also bio energy project have a high potential. Risks of validation and verification are low to medium, even there is a long construction period.
– MSW-treatment- are only few projects so far, but there is a high potential for composting. Risks of validation are low to medium, medium risks of verification and medium period of construction.
Most important feasible project types in Vietnam
Case studies:
BinhThuan: 30 MW wind farm project
This project, construction of the first wind farm in Vietnam, is run by the Vietnam Renewable Energy JSC. The first turbine group has been already installed on the construction site. In April 2009, the project has been registered with the CDM EB. A production of electricity of 91.571 MWh/year is expected, whereas over 59,000 t of CO2 emissions/year are to be reduced.
Case study – Cu Chi 1000t/d MSW processing plant
This project was developed by Tam SinhNghia (TSN) and includes composting of 1000 t/d of municipal solid waste (MSW). The expected emissions reduction of CH4 avoidance is estimated at roughly 1 million tCO2e (more than seven years of credited period).
Please do not hesitate to contact Oliver Massmann under omassmann@duanemorris.com if you have any questions on the above. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.
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