Vietnam has gone through a rapid increase in electrification since 1990 where electrification levels jumped from a pre-policy reform rate of less than 50% in the early 1990s to 77% by 2001 and 96% by 2009. This dramatic rural electrification effort was founded on highly subsidized, focussed grid extension. It has been based upon investment from EVN (Electricity of Viet Nam power utility), BOT (Build-Operate-Transfer) and IPPs (Independent Power Producers). At the outset, the power system consisted of underdeveloped and isolated systems; electricity lines were extended to irrigation pumps in rice fields with rural communities largely bypassed. The process of electrification was driven by strong demand and the willingness of consumers to pay, to which authorities responded. This involved the completion of large power plants and a transmission system that created the national grid. Agricultural cooperatives, private companies and commune electricity groups initially undertook connection of households to systems with no institutional or technical control. But then government involvement increased with planning, regulation and the engagement of international partners. The World Bank Rural Electrification 2 programme (2004-2011) facilitated the enforcement of regulations and direct government support for extending electricity access to minorities and remote areas. The focus was then on ensuring the sustainability of rural electricity supply businesses, combined with greater accountability, as well as extending access for those still without electricity, and ensuring affordability for the poor.
The main focus of Viet Nam’s economy is rice production and, before 1975, this was the driver behind any electrification. The first electrification efforts connected the main rice-producing areas (the Red River Delta in the north and the Mekong River Delta in the south) to modern power, enabling the use of improved industrial processes for rice production. This had long-term benefits since Viet Nam is still today one the world's largest exporters of rice. Following the small scale but successful grid extensions beyond rice producers after 1975, the Government focused on expanding the network, using the great renewable energy potential in the northern highland areas. Hydropower plants were completed and provided low-cost electricity. High voltage transmission and distribution lines were then constructed, connecting the hydropower sources with the industrial base, thereby meeting demand. Even at this early stage, a Government target was for the electrification of rural areas; irrigation systems for rice fields may have been the first priority, but small rural industries were second. This focus ensured that not only the major cities were connected, but also operators in the countryside, which offered support for local economic development. However, even though rural districts were electrified, they were full of unconnected households. In the 1990s, the electrification strategy was refocused, with new distribution lines stretching from provincial capitals to district towns and ultimately to the surrounding rural communes. The use of electricity among the rural poor rose rapidly. In 1995, the national utility EVN was created and this, together with associated power sector reforms, led to a rapid increase in the level of rural electrification. Providing rural households with access to electricity became a political priority, which saw the level of national electrification increase from 1990. At the end of 2015, the total installed power generation capacity was approximately 38,600 MW with annual 10% increases predicted until 2030.
The overall goal was electricity access for all. But Vietnam’s rural electrification program and its priorities have evolved over time. The initial aim to provide simple connections evolved into one of securing quantity and quality of supply, while meeting ever-burgeoning urban and rural energy demand. The 5th Power Development Master plan (2000 - 10) included a target of 90% rural household electrification by 2010. The 6th Power Development Master Plan approved in 2007 increased this to 95% of households with access to electricity by 2010.
Prime Minister's Decision 22 and government decree 45 set out institutional and financial arrangements for the electricity system. An electricity law was passed in 2004. Decisions 27 and 32 on electrification licensing were issued by the Ministry of Industry in 2006. National tariffs were set under Decision 21 in 2009, and the Distribution Code approved in 2010.
Institutions, Roles and Responsibilities
- Ministry of Energy: responsible for administration of the power sector
- Institute of Energy: responsible for the planning and development of national electricity programmes
- Ministry of Industry: EVN's line Ministry, therefore involved with the management of the electricity sector
- Electricity of Vietnam (EVN): vertically integrated power utility, comprising a general corporation and 5 power companies, created in 1996; in charge of the development, management and operation of the state’s electric power industry assets. Took a growing role in local distribution, though most still undertaken by commune and district electricity groups
- Power Companies (PCs): three (then five) PCs were established when EVN was created; they own the generation and main distribution system, and are responsible for bringing electricity to commune centres
(Rural electricity management in Vietnam falls into six categories: provincial utilities, private electricity agent, private local enterprise, state enterprise (local level), electricity service co-ops, commune electricity groups)
As a first step, large power plants were built for medium voltage output, and a 500kV transmission line was constructed. National electrification targets were set, but there was no institutional or technical control by central bodies (the network in the South is based on US standards and in the North on Russian standards). The World Bank provided technical assistance and capacity building to energy sector institutions. After the first electricity law in 2004, a policy statement on rural electrification was issued, followed by the setting of a ceiling tariff and development of technical standards. EVN started acquiring medium voltage systems funded by others. In the second phase of rural electrification, existing inadequate networks were refurbished and the management and operational arrangements for rural networks were overhauled; 5600 Local Distribution Utilities (LDUs) were created as legal entities. Over time, the Power Companies were allowed to take over any non-financially viable LDUs, with the LDU role in local distribution falling from ~60% to 20%. The introduction of uniform tariffs allowed the PCs to recover operating costs through tariffs charged to all consumers (including remote and poor consumers who were cross-subsidized). A competitive generation market was introduced under the First Power Sector Reform Development Policy Operation in 2010. A Service Agent Model was then piloted under which local community members maintained low voltage systems, carrying out simple repairs and collecting revenues on behalf of PCs. The cost of operation, maintenance and depreciation of rural electricity infrastructure was covered by EVN and entities operating rural networks unless these activities were deemed commercially unviable, when the government would subsidize. When national sources of finance were exhausted, the Rural Energy Project was implemented (2000-06) with a $150m loan from the World Bank.
The share of households with electricity access grew from 2.5% in 1975, to 96% by 2009 and 99.2% by 2014. The number of people with access to electricity grew from 1.2 million in 1976 to about 82 million in 2009. This was a remarkable success in terms of rural electrification, although the enabling political and socioeconomic conditions that contributed to this positive outcome may not be replicable in other countries. By 2011, EVN owned about two-thirds of power generation and the transmission and medium voltage systems (through the National Power Transmission Company and Power Corporations), and low voltage systems in urban and some rural areas. Distribution systems in other rural areas are managed by local distribution utilities owned by provincial, distribution and commune cooperatives or companies.
The issues encountered during the course of the rural electrification effort were constantly changing - there was a need to be responsive to the changing environment. For example, there was no unified master plan at the outset, but this was prepared and has continually evolved in the way it tackled the challenges, which themselves were changing. Small Power Developers have been a significant component of the successful electrification program; 1881 of Vietnam's 8,982 rural communes are served by Local Distribution Utilities (LDUs) that are organised as cooperatives of private companies (a typical LDU supplies electricity to 1200-1500 households). But, in the latter stages of the programme (2005-2008), it became evident that many of the newly-formed LDUs were too small to succeed and not financially viable. There is a need to commit resources to customer service, and to define a clear approach towards tariffs (in Vietnam, there was growing customer dissatisfaction and pressure for a uniform national tariff, which was eventually delivered). There are useful lessons regarding the adaptive and dynamic combination of several key factors that contributed to success: strong leadership, commitment of all stakeholders, nationwide mobilization of participative involvement and finances, innovative management models and technical solutions. However, it should also be noted that, while the lack of control over local distribution arrangements (in relation to both institutional arrangements and technical standards) led to a rapid increase of energy access, it also raised doubts over management practice and the operation of rural electricity networks. These concerns related particularly to low efficiency, too much variation in tariffs and incompatible technical standards; such doubts must be carefully monitored since the quality and reliability of electricity supply need to be maintained at an acceptable level to retain customer satisfaction and avoid disputes.
The rapid electrification process in Vietnam from essentially no connections to universal connection in 40 years (from 1975-2015) is certainly a great success. The number of people with access to electricity grew from 1.2 million in 1976 to about 82 million in 2009. The level of access achieved was, in theory at least, tier 5 (though there are some concerns that the continued growth in demand will put capacity constraints on the system, and then tier 4 may be a more accurate description due to reliability concerns). This achievement is however based upon the allocation of significant public resources to support the process (from Government and from international donors such as the World Bank, OPEC and Japan). According to estimates, the total investment capital for the development and improvement of the rural power grid over the 15 years from 1998-2013 reached VND48.291 trillion (approximately US$3bn). In the same period, the World Bank funded about 12 projects related to the development of rural electrification with a total investment capital of more than US$2 billion. In 1998, the electrification rate was about 61%, reaching 98% by 2013, meaning an additional 42m people, or ~10m household connections at a cost of US$500 each. Although not low cost, this figure represents reasonable value - particularly in the latter stages of the electrification programme, which must involve reaching more remote consumers.
Overview of Other Country Case Studies
Authors: Mary Willcox, Dean Cooper
The Review was prepared by Mary Willcox and Dean Cooper of Practical Action Consulting working with Hadley Taylor, Silvia Cabriolu-Poddu and Christina Stuart of the EU Energy Initiative Partnership Dialogue Facility (EUEIPDF) and Michael Koeberlein and Caspar Priesemann of the Energising Development Programme (EnDev). It is based on a literature review, stakeholder consultations. The categorization framework in the review tool is based on the EUEI/PDF / Practical Action publication "Building Energy Access Markets - A Value Chain Analysis of Key Energy Market Systems".
A wider range of stakeholders were consulted during its preparation and we would particularly like to thank the following for their valuable contributions and insights:
- Jeff Felten, AfDB - Marcus Wiemann and other members, ARE - Guilherme Collares Pereira, EdP - David Otieno Ochieng, EUEI-PDF - Silvia Luisa Escudero Santos Ascarza, EUEI-PDF - Nico Peterschmidt, Inensus - John Tkacik, REEEP - Khorommbi Bongwe, South Africa: Department of Energy - Rashid Ali Abdallah, African Union Commission - Nicola Bugatti, ECREEE - Getahun Moges Kifle, Ethiopian Energy Authority - Mario Merchan Andres, EUEI-PDF - Tatjana Walter-Breidenstein, EUEI-PDF - Rebecca Symington, Mlinda Foundation - Marcel Raats, RVO.NL - Nico Tyabji, Sunfunder -
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