Sweetening the Deal for Biomass Energy

in Viet Nam’s Sugar Industry

Insight Brief 01/Viet Nam/November 2018

1
Copyright © November 2018

The Global Green Growth Institute

19F Jeongdong Building,21-­15, Jeongdong-­gil, Jung-­gu, Seoul, Korea 100-­784

The Global Green Growth Institute does not make any warranty, either express or implied, or assumes any legal liability
or responsibility for the accuracy, completeness, or any third party’s use or the results of such use of any information,
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of the Global Green Growth Institute.
Acknowledgement

The GGGI writing team included Adam Ward, Hanh Le, Thinh Tran, and Nguyet Pham. The team would
like to recognize the valuable comments and inputs from Ingmar Stelter (GIZ), Vu Quang Dang (GIZ), Do
Duc Tuong (USAID), and Tero Raassina (GGGI). Hang Nguyen (GGGI) has contributed to the design of
this report.

This insight brief builds on the results of the pre-feasibility studies (pre-FS) conducted in 2017 by GGGI
and GIZ for five sugar mills. GGGI, GIZ, and the project team would like to express their gratitude to the
Viet Nam Sugar and Sugarcane Association (VSSA) for their assistance and collaboration in gathering
the required data, JSC Power Engineering Consulting 4 (PECC4), Energy Conservation Research and
Development Centre (ENERTEAM), and Institute of Energy Science (IES) for having successfully
completed the five pre-FS.

iii
Abbreviations

AEDP Alternative Energy Development Plan

CHP Combined Heat and Power

DPPA Direct Power Purchase Agreement

FiT Feed in Tariff

GDP Gross Domestic Product

GGGI Global Green Growth Institute

GHG Greenhouse Gas

GIZ Deutsche Gesellschaft für Internationale Zusammenarbeit GmbH

GoV Government of Viet Nam

GW Gigawatt

IRENA International Renewable Energy Agency

LDC Least developed country

MOIT Ministry of Industry and Trade

MW Megawatt

MWh Megawatt hours

NDC Nationally Determined Contribution

NPV Net Present Value

PDP7 Revised Power Development Plan VII

PPA Power Purchase Agreement

Pre-FS Pre-feasibility studies

RE Renewable Energy

SGDs Sustainable Development Goals

SPV Special Purpose Vehicle

VSSA Viet Nam Sugar and Sugarcane Association

iv
 SWEETENING THE DEAL FOR BIOMASS ENERGY
IN VIET NAM’S SUGAR INDUSTRY

OVERVIEW OF VIET NAM’S SUGAR INDUSTRY

US$ 1.08 billion 41 Sugar Mills 0.53% GDP

737 MW KEY CHALLENGES FOR BIOMASS ENERGY

Potential Capacity
Low FIT (U.S 5.8 cents)

Unbankable PPA

Lack of finance 352 MW

Current Capacity

RECOMMENDATIONS TO REACH POTENTIAL

9.35 563 737

MW MW Dispute resolution
Bagasse
FTT (U.S cents)

Trans
-parency
Extension
Rice Straw
Rights

Indepen
Grid connections Rice Husk
5.80 -dence
current 352 MW
Raise
price
capital
Termination
Wood chips
Single Fuel Multi- Fuel rights

Increase FIT Revise PPA Multi-fuel Solutions SPV Financing

1 2 3 4

BENEFITS OF INCREASED BIOMASS ENERGY

2.7 MtCO2 2,180

CO 2 Emissions Reduction pa Green Jobs

4,300 GWh
Equiv. to consumption
of 630,000 households pa

Published by Global Green Growth Institute and GIZ

vi
I. Introduction

Viet Nam’s impressive economic transformation over the past two decades has gone hand in hand
with a rapid increase in demand for energy. The strategies of the Government of Viet Nam (GoV) are
to ensure that future economic growth is more sustainable. As such, whilst modest, the Revised Power
Development Plan 71 (PDP7) has set targets for renewable energy development including solar, wind
and biomass energy. Biomass energy is set to take up 2.1% of total electricity production by 2030.

This insight brief analyses the potential contribution of biomass energy to the development of the
power sector in Viet Nam, with a focus on the sugar industry. The electricity generation in this industry
requires either single fuel (bagasse only) or multi-fuel (bagasse and other types of biomass such as wood
chips and rice husks, among others). The brief examines the challenges and opportunities in scaling up
the development of bagasse energy projects in Viet Nam through the pre-feasibility studies (pre-FS)
that GGGI and GIZ have jointly developed together with five sugar mills in Viet Nam. Based on this
analysis, the brief presents key considerations in enhancing the bankability of biomass energy projects.

As the core analysis of this brief is conducted based on these five pre-FS together with data collected
from the Viet Nam Sugar and Sugarcane Association and the Business Directory of Sugar Industry in
Viet Nam, the findings are limited to the assumptions of the pre-FS which are detailed in the Annex and
rely heavily on the accuracy of the available data.

This brief is intended for policy-makers, sugar mills, project developers, financial institutions, relevant
associations (sugar, clean energy etc.), national and international organizations which are interested in
the development of Viet Nam’s renewable energy sector and the public at large.

This brief as well as the five pre-FS which the analysis is based on are jointly prepared and funded by
GGGI and GIZ. This cooperation falls under the framework of a Memorandum of Understanding signed
in 2011 in which GIZ and GGGI committed to establish an active cooperation in combating global
climate change and promoting green growth and sustainable development in developing countries. In
Viet Nam, the collaboration between the two institutions kicked off in 2016 aiming to assist the GoV to
reach its biomass energy targets by accelerating the development of provincial biomass energy planning
and enhancing bankability of biomass energy projects, with a focus on the sugar industry.

1. Decision 428/QD-TTg dated 18 March 2016

1
2
II. Viet Nam’s Rising
Demand for Energy
1. FAST ECONOMIC GROWTH COUPLED WITH
INCREASED ENERGY DEMAND
Viet Nam’s economic growth and development has been
remarkable since the Doi Moi economic reforms in 1986,
transforming Viet Nam from a low-income country (LIC) to the
current lower-middle income status. Over the last two decades,
GDP per capita has increased seven-fold with sustained GDP
annual growth rates2 of between 5-7%. Coupled with this
impressive economic growth is a rapidly increasing demand for
energy (Figure 1). For electricity demand, the PDP7 projects
installed capacity of electricity generation will need to triple
in 2030 compared to 2015, which will require significant
investments and diversification of power sources.

Figure 1: Vietnam’s rapid growth rate and rising energy demand

(*: projected) (GIZ – Highlights of PDP7 Revised and World Bank

Open Data)

2. World Bank, World Development Indicators, Vietnam

3
2. THE ROLE OF RENEWABLE ENERGY
To meet this rising energy demand, as shown in Figure 2: Viet Nam’s electricity production is increasingly
dependent on coal which is projected to contribute more than half of total electricity production in
2030. This heavy dependence on coal presents new challenges for Viet Nam, including threats to
energy security for becoming a net importer of coal for power generation, increasing GHG emissions
and deteriorating air quality.

Recognizing these challenges as well as the abundance of renewable energy sources such as solar,
wind and biomass, the GoV has set targets for renewable energy to be integrated into the power mix.
According to the PDP7, the installed capacity of renewable energy is planned to reach 12GW by 2025
and increase to 27GW by 2030, representing 21% of total planned installed capacity. At this targeted
installed capacity, renewable energy is planned to reach 11% of total electricity production by 2030
including relatively equal contributions by biomass and wind at 2.1% each and solar at 3.3%.

Figure 2: Power Mix and RE Integration 2030 (Revised PDP7)

3. TAPPING VIET NAM’S BIOMASS ENERGY POTENTIAL

Given the strong presence of the agriculture sector in Viet Nam, biomass energy can come from multiple
sources of feedstock, ranging from sugar bagasse, wood chip to rice husks and stalks. Utilisastion of
Viet Nam’s huge biomass energy potential will help not only reduce the dependency of Viet Nam on
conventional energy sources, reduce carbon emissions and environmental pollution but also bring
economic benefits to farmers who participate in the bioenergy value chain. Meeting the national
target of biomass energy will also contribute to the achiement of Viet Nam’s Nationally Determined
Contribution (NDC) which prioritises mitigation actions in the energy sector that represent more than
half of the nation’s annual GHG emissions3. The development of biomass energy projects will also create
green jobs and increase industrial efficiency, especially in the sugar industry which currently suffers from
obsolete inefficient technologies and, as a result, is increasingly uncompetitive in the region. Further,
given that biomass energy is not a fluctuating renewable energy source like solar and wind energy, it
can contribute positively to the supply of stable baseload energy.

3. Viet Nam’s Biennial Updated Report (2017)

4
III. Policy Framework for Developing
Viet Nam’s Biomass Energy

The GoV recognizes the role of renewable energy in the power sector in many of its policies, reflected in
the various legal and policy documents, from laws to master plans and policy decisions. Below is a summary
of government policies that show support for renewable energy and, specifically, biomass energy.

Table 1: Summary of Viet Nam’s key policies supporting RE and Biomass Energy

Policy Issue No/Date Relevant Content for RE and Biomass Energy

Article 4.- To step up the development and use of new and renewable
energy sources for electricity generation.
Article 13.- Investments in new and renewable energy sources are entitled
In effect from 2005 with
to investment preferences, electricity and tax rates.
Electricity Law amendments in 2012
(24/2012/QH13) Article 60.- Encouraging organizations and individuals to invest in the
construction of electricity grids or power-generating stations using local
energy, new energy and renewable energy to supply electricity to rural,
mountainous and island areas.

Prime Minister’s Decision

Strategy on Development
Development of new and renewable energy plants. To make use of new
of Viet Nam Electricity
(176/2004/QD-TTg) on-spot energy sources to generate electricity for areas where the national
Industry 2004-2010, With
grid cannot supply or supply inefficiently, especially to offshore islands.
Orientations Towards 2020

Section 2.5.4 Promote effective exploitation and increase the proportion

Viet Nam’s INDC 2016 of new and renewable energy sources in energy production and
consumption

Renewable energy targets by 2030:

Revised Power Decision 428/QĐ-TTg
- Installed capacity: 27,000 MW
Development Plan 7 dated 18/3/2016
- Biomass energy: 2.1% of electricity production

- Setting ambitious targets of biomass energy production at 6.3% in

National Strategy for 2030 and 8.10% in 2050
Renewable Energy
Decision 2068/QĐ-TTg - Outlines measures for implementation such as conducting renewable
Development in Viet Nam
dated 25/11/2015 energy planning at the national and provincial level, strengthening the
until 2030 with a vision to
2050 role of the government in regulating RE, and conducting research on
RE.

Setting prices for biomass energy:

- FiT for electricity produced using Combined Heat Power (CHP) technol-
ogy at 5.8 (U.S. cents)/kWh
Regulation - supporting the Prime Minister’s Decision - Avoided cost tariff (based on imported coal prices) for other biomass
development of biomass energy technologies (other than CHP). The current avoided cost tariffs
energy (24/2014/QD-TTg) are set in Decision 942 by MOIT (2016) at:
o US 7.5c/kWh in the northern region
o US 7.3c/kWh in the central region
o US 7.4c/kWh in the southern region

Regulation – PPA template Decision 44/2015/TT- Decision on a template for a Standard Power Purchase Agreement (PPA)
for biomass energy projects BCT dated 09/12/2015 for biomass energy projects

Overall, these policies are important initial efforts by the government to unlock the potential of
renewable energy, including biomass. However, the development and implementation of biomass
energy projects has been slow and limited. The technologies currently deployed in the sugar industry
are mostly inefficient, presenting low-hanging fruit opportunities to capture the potential of biomass
energy production should the policy incentives be set correctly.

5
IV. Capturing Viet Nam’s biomass energy
potential in the sugar industry
Currently, there are 38 sugar mills in Viet Nam that are using biomass for electricity and heat production
with a total capacity of around 352 MW4. Among them, only eight plants are grid-connected with a total
capacity of 82.51 MW (22.4%)5, selling 15% of electricity produced from biomass to the grid at US 5.8
cents/kWh.

1. UPSCALING BIOMASS ENERGY PRODUCTION IN THE SUGAR INDUSTRY

As part of the cooperation framework on biomass energy, in 2017, GGGI and GIZ jointly conducted
pre-feasibility studies (pre-FS) of biomass energy projects with local sugar mills with the aim to support
the acceleration of investments in biomass energy in Viet Nam. Working together with the Viet Nam
Sugar and Sugarcane Association (VSSA), GGGI and GIZ received interest from domestic sugar mills and
selected five for pre-FS development, reflecting a variety of sizes and locations of the mills to provide
results that can be representative (to the extent possible) for other mills in the sector (see Figure 3).

Figure 3: Locations of five selected sugar mills for biomass energy pre-FS

3. Institute of Energy, Report to MOIT on National Biomass Energy Master Plan, 2017
4. Viet Nam Sugarcane and Sugar Association statistics

6
The economic analyses from these five pre-FS examine the required feed in tariff (FiT) levels that
would turn the projects economically viable under two scenarios namely i) single fuel (bagasse) and
ii) multifuel (bagasse and other available feedstocks). The preliminary financial analyses were then
conducted to the remaining 33 sugar mills to assess the potential of biomass energy in the sugar
industry at varying FiT levels. The financial analyses are based on the methodology established and
applied in the pre-FS (please see the Annex for more information regarding the extrapolation method).

Based on this analysis, the sugar industry can potentially capture nearly 737 MW of biomass energy
capacity under the multi-fuel scenario (Figure 4) and produce almost 4,300 GWh annually, which
amounts to almost 2.7 MtCO2e in emissions reduction. This potential capacity would nearly double
the current installed capacity in the sector. Under the single fuel scenario, the industry potential
can reach as high as 564 MW and produce up to 1,600 GWh per annum, equivalent to 1 MtCO2 in
emissions reduction.

Figure 4: Potential Biomass Energy of Vietnam’s Sugar Industry

2. RAISING FIT TO US 9.35 CENTS/KWH

As evident from Figure 4, the current FiT at US 5.8 cents/kWh is insufficient to capture the potential
737 MW biomass energy capacity in the sugar mill industry. At this rate, no further capacity is
estimated to be economically viable to be added to the existing 352 MW of installed capacity, under
both scenarios of single and multi-fuel. At US 7.4 cents/kWh which is currently regulated for non-CHP
biomass technologies, our analysis shows an increase of capacity to 514 MW under the multi-fuel
scenario whilst Net Present Values (NPVs) are still negative under the single-fuel scenario. To capture
the potential fully at 737 MW, the FiT is recommended to be at US 9.35 cents/kWh and using multi-
fuel instead of single fuel.

Compared with the neighboring countries in the region, the FiT levels for biomass energy in Viet Nam
are considerably lower, less than half of Thailand (US 13 cents) and the Philippines (US 12.4 cents)
(Figure 5).

7
Figure 5: Comparison of biomass energy FiTs in the region

As such, compared to other countries in Southeast Asia, Viet Nam’s current installed capacity for biomass
energy is very low at only 352 MW, with Thailand at 3.3 GW and Indonesia at 1.7 GW6. Thailand has
been leading Southeast Asia in biomass energy due to its abundant resources, available grid connection
and favorable policies. In 2014, biomass and biogas contributed 58% of renewable energy generation
in Thailand7 and this is predicted to increase to 62.5% in 2025 . The Thai

Alternative Energy Development Plan (AEDP) in 20158 identified solar and biomass power as the largest
renewable energy source for electricity and heat generation. To encourage investment, Thailand has set
the FiT for biomass energy as high as US 13 cents, driving private investments into the sector.

6. IRENA data – http://www.irena.org/bioenergy

7. G
 overnment of Netherlands, Bioenergy in Thailand https://www.rvo.nl/sites/default/files/2017/03/FACTSHEET%20BIOENER-
GY%20IN%20THAILAND.pdf
8. Ibid

8
Figure 6: FiT comparison between different types of RE in Viet Nam

Waste to
Energy
10.50

9.50

Sola r 9.35
On-shore
Wind
8.50

Biomass 5.80

0 2 4 68 FIT (U.S cents )

Compared with the FiT of other renewable energy generation in Viet Nam, the difference is equally
striking. As seen in Figure 6, the FiT set for solar energy is currently at US 9.35 cents9, FiT for wind energy
has been increased to US 8.5 cents for on-shore and US 9.5 cents for off-shore10, and FiT for waste to
energy is US 10.5 cents11. This shows an unfair treatment between different types of renewable energy,
resulting in unequal opportunities for independent developers as well as investors in biomass energy.
Moreover, as with other types of renewable energy, biomass energy brings in not only economic but also
social benefits especially in the agriculture sector. Thus, addressing this current disparity in the FiT will
bring more private investments into biomass energy and scale up the sector.

3. REVISING PPA TO INCREASE BANKABILITY

As is the case with other renewable energy projects in Viet Nam, the current PPA for biomass energy
is considered by many investors, banks and developers as non-bankable. Several key issues related to
the PPA include12:
• S
 ole off-taker: EVN is the only buyer of electricity which would impact the PPA bankability given
EVN’s low creditworthiness. EVN’s creditworthiness is a key issue for many international financiers
because of the associated risks. Though domestic financiers have a higher risk tolerance for EVN’s
rating, it still results in higher financing cost.
• D
 ispute resolution: lack of provision for international arbitration on a neutral forum
• Term: 20 years without extension rights
• G
 rid connection: electricity sellers to bear the risks and costs of connecting the power plants to
the grid.
• Termination rights: lacks details and specific terms on termination rights

9. Decision 11/2017/ QD-TTg dated 11 April 2017 issued by the Prime Minister on Supporting Mechanism for Developing Solar
Power Project
10. D
 ecision 39/2018/QĐ-TTg dated 10 September 2018 by the Prime Minister on Provision of Assistance in Development of Wind
Power Projects in Vietnam
11. D
 ecision 31/2014/QD-TTg dated 5 May 2014 issued by the Prime Minister on Supporting Mechanism for Development Of Power
Generation Projects Using Solid Waste In Vietnam
12. Decision 44/2015/TT-BCT issued by Ministry of Industry and Trade on 9 December 2015

9
4. USING MULTI-FUEL SOLUTIONS TO INCREASE FINANCIAL VIABILITY.
The success of a biomass energy project is highly dependent on the availability of biomass supply and
location of the plants. Most sugar mills use bagasse as their primary input for electricity production.
However, bagasse supply is subject to seasonal variations which would result in a lack of feedstock
supply during the non-crushing season. The pre-FS analyses show that the financial viability of the
project would improve should there be other sources of feedstock to complement the bagasse during
low season. To do so, it will be important for strengthened cooperation between VSSA and other
associations such as Viet Nam Timber and Forest Product Association to enhance the use of multi-
feedstocks.

Another important factor is the distance between the source of the biomass feedstocks and the plant
site which determines the transport cost and the risk of delay or loss of feedstocks. This factor has
proven to have an impact on the cost benefit ratio of the project. Whilst storage facilities can be used
to address part of this risk, it creates an additional cost to the project’s finance. On the other hand, the
distance from the plant site to the grid connection point is another important factor, especially if the
plant is to sell excess electricity back to the grid.

5. EXPLORING INNOVATIVE FINANCING STRUCTURES SUCH AS SPECIAL-

PURPOSE VEHICLE (SPV)
As is the case with other renewable energy projects, long term investment and payback periods are
among the biggest barriers to financing biomass energy projects. Project’s lifetime of around 20 years
and average payback period of 10 years often increase risk perception and cost of financing. SPV can
be an effective financing model to address this problem. A SPV is a legal entity that is independent of
the parent company or project owner (e.g. the sugar mill), often created to fulfill specific or short-term
objectives and used in infrastructure financing.

In Viet Nam, SPVs are used in infrastructure projects such as roads, hospitals, and power plants by
independent power producers. However, guarantees from the government and/or project sponsor are
often required even if there are off-take or minimum traffic agreements.

The pre-FS analyses suggest that SPV might be a suitable model for some biomass energy projects
because:

• It is potentially easier to raise capital, especially from investors that are interested primarily in power
not sugar production

• S
 PV structure would increase the transparency of the power project

• If the business is interested in exploring other power development opportunities

On the other hand, local financial institutions are reluctant to invest in biomass energy projects due
to their lack of experience and the lack of success stories in Viet Nam. Many commercial banks in Viet
Nam are new to renewable energy financing, especially with the SPV model vis a vis the conventional
balance sheet financing, and they often have limited experience in appraising biomass energy projects.

In 2017, GGGI and GIZ conducted training on appraising biomass energy project feasibility and
technologies to eight local banks where the SPV model was also introduced for these types of projects.
The training received positive feedback from the banks. To increase financing of biomass energy and
renewable energy projects in general, it is important to continue enhancing capacity for local commercial
banks on project financing and biomass energy and other renewable energy technologies.

10
V. Benefits of scaling up biomass energy in
the sugar industry

Biomass energy contributes to GHG emission reduction, creates green jobs and increases access to
sustainable energy. Through investments in more efficient technologies, it also contributes to the long-
term competitiveness of agricultural sector, such as the sugar industry.

1. GHG EMISSIONS REDUCTION

Figure 7: Potential CO2e Emissions Reduction per annum

4,300 GWh pa
1,600 GWh pa

3,100 GWh pa
1,300 GWh pa

1,100 GWh pa

Electricity
Output (GWh pa)

Increasing the FiTs and moving from sing-fuel model to multi-fuel solutions would result in higher
GHG emissions reduction potential. Specifically, GHG emissions reduction of the multi-fuel scenario
is estimated to double that of single fuel, from 1MtCO2e to 2.7 MtCO2e at the FiT of US 9.35 cents/
kWh. This equals to almost 7% of GHG emissions of HCM City13 (in 2013) and represents approximately
1.8% of emissions from the energy sector14 (in 2013). These figures represent a significant opportunity
to contribute to Viet Nam’s NDC targets.

13. GHG Inventory of Ho Chi Minh City, Project to Support the Planning and Implementation of NAMAs in a MRV Manner, JICA
14. The Second Biennial Updated Report of Viet Nam to the United Nations Framework Convention on Climate Change, Hanoi, 2017

11
2. GREEN JOB CREATION
Figure 8: Potential Green Job Creation

FIT (U.S Cents)

Increasing biomass energy potential in the sugar industry would create more green jobs. As seen in
Figure 8, it is evident that the higher FiT levels, the more green jobs would be created. At US 9.35 cents/
kWh, the number of green jobs created is estimated to more than double that of the current FiT (US
5.8 cents). Further, the multi-fuel scenario would create more green jobs than the single-fuel scenario.
This is due to the increase in bankable and larger projects at the higher FiT levels and using multi-fuel
solutions.

3. IMPROVING THE SECURITY AND QUALITY OF ELECTRICITY SUPPLY

Figure 9: Electricity output per annum under the Multi-fuel scenario at US 9.35/kWhy

Multi-Fuel Scenario

12
Electricity production from biomass energy strengthens energy security and quality of energy supply.
As shown in Figure 9, at US 9.35 cents/kWh, the electricity production from biomass is estimated to
meet the average demand of nearly 630,000 households, an almost two-fold increase compared to the
current FiT at US 5.8 cents/kWh (equivalent to around 345,000 households). Across these 3 FiT levels
in our analysis, the potential electricity production is more than doubled in the multi-fuel scenario
compared to the single fuel scenario. By adding electricity to the grid, biomass energy can enhance
access to electricity during peak hours and contribute to the quality and stability of the electricity
supply. It is therefore recommended to both increase the FiT and use multi-fuel technical solutions
instead of single fuel to maximize the supply of clean and green electricity.

4. INCREASE THE COMPETITIVENESS OF THE SECTOR

Generating biomass power enhances the competitiveness of the sugar industry by providing additional
revenue for sugar companies, increases efficiency, and reduces waste. Moreover, it provides an additional
income to farmers and tax for local authorities, thus increasing the value of biomass and contributing to
the development of the agriculture sector and Viet Nam’s economy.

13
14
VI. Conclusion

If Viet Nam is to meet its NDC, Viet Nam’s Green

Growth Strategy, and Sustainable Development Goals
(SDGs), it will need to increase the share of renewable
energy in the power mix. Renewable energy will also
help to meet Viet Nam’s increasing energy demand
as its economy continues to grow. To achieve this
goal, biomass energy plays an important role, and
by realizing its full potential, will create thousands
of jobs, reduce emissions, increase competitiveness
of the industry and result in higher energy security
and quality of electricity supply. However, to capture
these benefits, the key issues analyzed above need to
be addressed.

Going forward, the government, the sugar industry

and the financial sector are recommended to work
together to enhance the bankability of biomass
energy projects:

• T
 he FiT needs to be raised to US 9.35 cents/
kWh for all biomass energy technologies for the
industry to reach 737MW in potential capacity.

• Improvements to the PPA to increase bankability.

• Consideration of multi-fuel options would help

address the seasonal issue of using bagasse only,
provided that the transportation costs do not
outweigh the benefit.

• Developers are encouraged to consider new

financing models such as SPV to attract more
investments. Local banks need to enhance their
capacity in handling RE projects and SPV financing.

15
ANNEX – Methodology to Assess Biomass
Energy Potential for the Sugar Industry

SELECTION OF DATA INPUT

a) Pre-FS results
• In 2017, GGGI and GIZ jointly conducted five Pre-Feasibility studies for five sugar mills, out of 38
sugar mills in Viet Nam that use bagasse for heat and electricity production.
• T
 he industry analysis in this report is conducted based on the Pre-FS results of these five biomass
projects.
b) List of 38 sugar mills and VSSA’s update on sugarcane volume:
• T
 he list of 38 sugar mills and their features are collected from Business Directory of Sugar Industry
in Viet Nam, published by GGGI/GIZ in 2017.
The available sugarcane volume is based on data provided by VSSA for the crushing season 2017/2018,
with revisions based on further desk research.

MODELING METHODOLOGY:
• T
 he methodology used in the financial analyses of these five pre-FS are applied to the financial
analyses for the remaining sugar mills in the industry.

• In particular, the financial analyses were performed for 38 sugar mills based on the FITs (i.e. US$5.8
cents/kWh, US$ 7.4 cents/kWh and 9.35 cents/kWh) and under two scenarios: i) single-fuel and
ii) multi-fuel. US$ 5.8 cents is the current avoided cost tariff for biomass electricity produced
using CHP technology, which is the case for most sugar mill companies. When considering SPV
models, it is assumed that FiT would equal to US$ 7.4 cents/kWh since this is the avoided cost
tariff for biomass electricity produced using technologies other than CHP. The financial analysis
also considers US$ 9.35 cents/Kwh which is the current FiT for solar energy. This is to show the
potential of the industry when FiT for biomass energy is raised to the same level with FiT for other
types of energy, such as solar.

• The total industry figures are based on the results of these financial analyses.

ASSUMPTIONS AND CAVEATS

• M
 ost assumptions from the pre-FS studies are applied in performing the financial analyses for the
remaining sugar mills in the industry
• In particular, the key assumptions for the analyses include:
 Technology options based on EPC proposals
 Electricity output/ Designed power capacity
 Available bagasse and total sugarcane volume
 Number
 of operation days
 A
 dditional feedstock availability and costs depending on the sugar-mill locations (North,
Central, or South regions)
 C
 apex/opex

16
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