Opportunities and Challenges to
ESCO Model in Vietnam
Nguyen Dang Anh Thi
January 14, 2013
www.efficiency-from-germany.info
Table of Contents
ESCO Business Model
3
Status of ESCO in Vietnam
6
Legal Framework
7
Market Opportunity for ESCO Development
8
Major Challenges to ESCO Development
12
Case Study
14
Recommendations for ESCO Development
16
Appendix: Key ESCO Players
17
Energy Service Company (ESCO) Business Model
 ESCO is an organization that offers
a broad range of energy-saving
solutions, including energy audits,
design and implementation of
energy conservation measures,
operation and management of
introduced facilities, and
procurement of project funds.
Guaranteed
 What is an ESCO?
Energy
Consumption
or utility
cost
 The basic concept of ESCO is that
the client does not have to incur any
upfront capital investment and is
only responsible for the payment
for the investment made or
arranged by the ESCO.
 Two key remuneration models of
ESCO contracts: shared savings and
guaranteed savings
Client’s
E
financial gain
ESCO’s fee
Re
pa
y
m
en
t
Interest
Capital
investme
nt
Energy
Consumption
or utility cost
Before
ESCO
project
Client’s
financial
gain
During
ESCO
project
Energy
Consumption
or utility cost
After
ESCO
project
Energy Service Company (ESCO) Business Model
Shared Savings Financial Model
Source: IFC energy service company market analysis (2011)
Energy Service Company (ESCO) Business Model
Guaranteed Savings Financial Model
Source: IFC energy service company market analysis (2011)
Status of ESCO in Vietnam
 Overview

The ESCO market in Vietnam is still in its infancy and unlikely to develop without sustained
government support.

There are about 15 “so-called” ESCOs operating in Vietnam. These are generally small in size
and weak in asset base.

Data on level of ESCO activities is limited

Majority of ESCOs in Vietnam remain incapable in terms of finance and technology, therefore
they only offer simple services and haven't fully met market demand

Most of ESCOs can not access to financing due to limited financing capacity and weak balance
sheet.
National EE
Law
National EE
programs
Grants for
ESCO
Energy Audit
assistance
Tax incentives
Yes
Yes
No
No
No
Legal Framework

The Law No. 50/2010/QH12 on Energy Efficiency and Conservation took
effect in 2011;

Decree No. 21/2011/NĐ-CP of the Government provides guidance on the
implementation of the Law on Energy Efficiency and Conservation;

Decision No. 1427/QĐ-TTg dated 2nd Oct. 2012 approving the National Target
program for Energy Efficiency and Conservation in period 2012-2015;

Decision No. 1393/QĐ-TTg dated 25th Sep. 2012 approving the National
Green Growth Strategy;

The Law No. 59/2005/QH11 on Investment; and its guidance documents;

The Law No. 60/2005/QH11 on Enterprises; and its guidance documents;

The Law No. 14/2008/QH12 on Corporate Income Tax;

The Law No. 45/2005/QH11 on Import Tax and Export Tax.
Market Opportunity for ESCO Development in Vietnam

Huge market potential




Power consumption is forecast to increase from 81TWh
in 2010 to 451TWh in 2030 while supply is shortage.
More than 1,200 key energy-consumption facilities
using over 1,000 TOE per year
The total investment needed for EE projects during
2011-2015 is US$ 847m
Total investment potential
(US$ million)
Annual saving potential
(US$ million)
$479
$368
Fuel shortage after 2015

Vietnam has started to import steam coal and oil
products over the last 5 years

Although oil is currently its largest source of export
revenue, Vietnam is projected to become a net importer
by 2015
$94
Industrial
Source: Reexcapitalasia, October 2010
$96
Commercial
Market Opportunity for ESCO Development in Vietnam (Cont.)


Current efforts of the Government and international organizations to create
electricity market based on competitiveness

Removal of fuel subsidies

Power sector reform based on competitive market
Interest of stakeholders in energy efficiency market

Campaign on EE launched in Nov 2012 under which Vietnamese firms having EE projects will
have an opportunity to borrow capital from various financial institutions such as:

IFC at $100 million

Danish embassy at $30 million

Asian Development Bank at $100 million

World Bank at $70-$100 million, and

Japan International Cooperation Agency at $50 million
Energy Efficiency in Industrial Sector
8
$103
100
Total investment potential
(US$ million)
Annual saving potential
(US$ million)
5.6
80
6
4.7
4.2
60
3.4
$42
40
3.9
4
$38
$30
$29
20
$9
$9
$28
$8
2
$5
0
0
Food products and
beverages
Non-mentallic
mineral products
Source: Reexcapitalasia, October 2010
Fabricated mental
Chemicals and
products
chemical products
Textiles
Years
US$ million
Payback
(in years)
Energy Efficiency in Commercial Sector
Investment potential
Annual Saving Potential
Payback
10.7
436
12
10
400
8
6.6
300
6
4.6
200
4
100
92
8
0
Hotels
Source: Reexcapitalasia, October 2010
2
34
1
Commercial offices
3
Retail outlets
0
Years
US$ Million
500
Major Challenges for ESCO Development in Vietnam

Difficulty accessing financing

Scarce capital and immature banking sector

ESCOs are not aware of how to access financing



Unawareness of existing grants, loans, credit facilities offered by a large number of
international financial support mechanism.

Unclear system for accessing domestic source of capital
ESCOs and their clients are unknown or not considered creditworthy

Lenders is lack of familiarity with EE financing

Lenders is lack of confidence in return of EE projects
High administrative and transaction costs

related to technical challenges, time-consuming contract negotiation, lack of a legal and
institutional framework and complicated government procurement rules
Major Challenges for ESCO Development in Vietnam


Governmental supports in terms of policies and measures are not sufficient:

No tax incentives

Lack of an effective overarching and comprehensive EE policy framework

Insufficient financial support and assistance

Electricity price subsidies negatively effect energy investment
EE is not yet regarded as top business priority by many companies


Users are not fully aware of EE and not confident that equipments deployed can achieve
projected savings
Challenges of the EPC business model:

Low profit margin due to electricity price subsidy

The uncertainties associated with remuneration based on guaranteeing savings

Risks associated with clients who do not fulfill their end of the contract

The costs associated with preparing complicated bids that may not be successful
Case Study 1: Thailand’s Energy Efficiency Revolving Fund (EERF)
EERF
 Founded in 2003
 Total budgeted size: US$235mil
Credit lines of US$
2.5-10 mil/bank
Repayment within 10 years
Interest (0.5%/year)
13 banks
Repayment + Interest
(max. 4%/year)
max amount ~ US$1.6m/project
Loan term: max. 7 years
EE/RE Developers
Resulted
 Projects financed: 294
 Total investment: UD$519 mil
 Financial saving: US$177 mil/year
 Energy savings: 320 ktoe/year
 CO2 reduction: 1 mil ton annually
Source: Center for Clean Air Policy, 2012
Case Study 2: Thailand’s ESCO Fund
ESCO Fund
 Phase 1: 2008-2010
(US$32.6 mil)
 Phase 2: 2011-2012
Non-profit foundation
EE/RE Developers
 Equity investment: (10-50% of project, max US$1.6 mil, 5-7
years investment)
 ESCO venture capital: (max US$1.6 mil, 5-7 years investment)
 Equity leasing: (up to 100% of project cost, max US$0.3 mil,
payback <5years, interest rate 4%)
 Technical Assistance: (up to US$3250/project)
 Credit guarantee facility: (up to US$0.3 mil/project, < 5 years,
1.75% guarantor fee)
 Carbon credit trading
Resulted
 Projects financed: 39
 Total investment: UD$166 mil
 Financial saving: US$30 mil/year
 Energy savings: 23.97 ktoe/year
Source: Center for Clean Air Policy, 2012
Recommendations for ESCO Development

Having a focal agency to coordinate all EE programs funded by local and
international organizations.

Developing financial support mechanisms: Dedicated debt agencies, development
funds or grants, loan guarantees… Thailand’s EE Revolving Fund and ESCO
Fund could be suitable models to learn.

Building legal framework for ESCO business

Capacity building: ESCOs, bankers, end-users, governmental agencies.
KEY ESCO PLAYERS
APPENDIX
Key ESCO Players
Company name Description
ECC-Ha Noi




Established in 2007
Supported by national budget
Mainly operating in Hanoi and surrounding areas
The primary function: research and consultancy assistance to organizational energy
users
ECC-Ho Chi Minh




Established in 2002 as a member of the Department of Science and Technology
Supported by national budget
Mainly operating in Ho Chi Minh City and surrounding areas
The primary function: energy auditing, technology transfer, energy conservation
training, energy conservation communication, and financial consultancy
ENERTEAM

Established in 1995, Enerteam is a non-governmental organization and the first
science & technology organization specializing in energy efficiency in Vietnam
 Main services: energy auditing, technical & financial analysis and performance
guaranty for energy saving
 Completed projects: Masan, Big C
Key ESCO Players
Company name
Description
Schneider Electric
Vietnam



Moving from product sale to solution sale since 2008
Strong in providing Building Energy Management Systems and solutions
Provided energy management system for Intel Manufactures, Bitexco Tower,
Hilton Hotel, Agribank Data Center, Vietinbank HaNoi, BaoViet Bank Hanoi
SYSTECH ESCO



Founded in 2006
Main services: providing equipment and energy saving solutions
Involved in several EE projects sponsored by foreign organizations (Meet Bis,
Danida, UNDP, GEF, Jica, USEP, WB, SIDA,..)
HATECH ESCO

Founded in 2008, Hatech is a company under the support UNDP and the Vietnam
National Energy Efficiency Program (VNEEP)
 Main services: providing comprehensive packages of energy saving solutions with
financial support to enterprises.
 Involved projects: Colusa Miliket Foodstuff JSC, Truong Giang Seafood
processing Corp, Thien Tri Paper Manufacture, Thanh Vinh Corp, Thuan An 3,…
Key ESCO Players
Company name
Description
RCEE-NIRAS

VESCO



Founded in 2008 as a “backyard” of RCEE-NIRAS
Main Services: specializing in energy audit
Involved in over 10 projects
VETS



Mainly operating in the North Vietnam
Main Services: Consultancy and implementation of EE systems
Target sectors: garment, cement
Hoa Thuan Corp



Founded in 2009; mainly operating in the South Vietnam
Main Services: providing EE solutions for compressor machine manufacturers
Target sectors: plastic industry
Founded in 2006, RCEE-NIRAS is a Danish-Vietnamese consulting company,
mainly operating in the North Vietnam
 Main Services: providing consultancy services in Energy, Climate and
Environment field
 Participating in several foreign Energy and Environment projects together with the
Ministry of Industry and Trade
Key ESCO Players
Company name
Description
Solar BK


Viet ESCO



Kasati ESCO

Founded in 2006; mainly operating in the South Vietnam
Main Services: providing packages of EE solutions focusing in solar and wind
energy
 Completed projects: Majestic Hotel, Morin Hotel, Norfolk Hotel, Sai Gon Hotel,
Wooshu complex, Son Long Thuan Resort, Vinamilk, Tan Cang Restaurant,…
Established in February 2012 by ECC HCMC and Veglia-the first ESCO in Japan
Main services: providing packaged EE solutions and financial arrangement
Succeeded with financial assistance from the International Finance Corporation
(IFC).
 Ongoing projects : Legend Saigon
Established in August 2012 by Vietnam Posts and Telecommunication Group and
other individuals
 Strategic partner: Enerteam
 Main services: providing packaged EE solutions and financial arrangement
 Completed projects: No information
Further info: ndanhthi@yahoo.com