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Global Ideas

Climate projects hobbled by lack of legal framework

In many developing countries, conditions for producing renewable energy are ideal. But the lack of a regulatory framework is hampering a widespread introduction of a clean energy supply.

An image of a wind turbine

The lack of a legal framework scares off potential investors in wind power

Vietnam faces a host of challenges as it seeks to modernize its economy and raise living standards. In 2010, the Asian country was ranked 113th out of 169 countries on the UN Human Development Index. It measures three basic indicators of human development: health, education and income.

But the country has also made progress in recent years. The economy is thriving and energy consumption grew by 15 percent a year between 1995 and 2007. Most of the energy supply is provided by fossil fuel. This despite the fact that Vietnam has an abundance of sun, water and sunlight along its 3,200-kilometer long coastline.

Given the perfect conditions, wind and hydropower are slowly beginning to play a greater role.

"Wind power has the greatest potential," in Vietnam, according to a press release on the website of the GIZ German Society for International Cooperation. The group has signed a wind power development agreement with the Binh Thuan Province Department of Industry and Trade in the southeast of the country.

Pioneering project

A vietnamese beach

Vietnam's coast lends itself well to wind power production

The wind power project on the coast of Tuy Phong District, Binh Thuan Province, was hooked up to the national electricity grid in late 2009. The hope is that the ambitious wind energy project will boost regional socio-economic development and pave the way for exploitation of renewable energy sources in the country in the form of further onshore wind parks.

But so far, few investors have taken the bait. Many of them cite Vietnam's lack of legislation on renewable energies for their hesitation. The absence of a regulatory framework for private investors has hampered the construction of wind parks. 

Luring investors

A wind turbine against an evening sky

Wind power is booming in Chile

The GIZ has therefore begun advising a number of Vietnamese government ministeries on the development of such a legal framework and improving technical capacities for grid - connected wind power development in Vietnam.

They have their work cut out for them. "A comprehensive law on renewable energies takes three stages to achieve," explains Sascha Thielmann, energy expert at the GIZ.

First, the government needs to establish options for hooking up renewable energy sources to the grid. The next step is to establish the terms by which clean energy may be fed into the grid. The third step is the most crucial: setting tariffs. If these are too low, many companies will decide it's not profitable to produce clean energy.

"Moreover, even if a country provides a legal framework, there's no guarantee that investors will come," Thielmann says.

There are more obstacles to be overcome. The procedure whereby contracts are awarded is often far from transparent. Foreign companies are unaware which permits they need and where to get them. In general, they are expected to secure land use rights; negotiate feeding the power generated by their plant into the grid with the grid operators, and adhere to safety rules.

They also have to deal with corruption, says Stefan Gsaenger, secretary general with the World Wind Energy Association (WWEA). And ultimately, of course, they need to turn a profit. No wonder investors are dragging their feet.

Clearly, an efficient legal framework is needed if wind energy is to be promoted.

"Not only do (renewables) reduce carbon emmissions, they allow for sustainable development," stresses Karsten Smid, climate expert with Greenpeace. "This requires new legislation – this is the only way to achieve longterm environmental and social change."

Learning from successful models 

An electricity plant in Rotterdam

The hunger for energy is growing in many countries

The advantages of a functional legal framework to promote clean solutions are already apparent in Chile, where the GIZ also advised the government.

"Introducing renewable energy quotas is an important factor," says Trude Koenemann from the GIZ in Chile. "Gradually, these can also be increased."

In 2008, the Chilean government passed a law obligating energy companies to produce five percent of their electricity supply from renewable sources as of 2010. Moreover, the energy has to be drawn from power plants generating less than 20 megawatts.

By 2015, the percentage is due to go up to 10 percent.  The obvious result of this measure was a boom last year in clean energy, with eight percent of the energy supply going green.

Government incentives also encourage the building of wind parks in state-owned areas. It's a revolutionary development considering that in 2006, the country lacked even a single wind power plant.  

In Chile, the law was motivated not only by environmental considerations but also economic ones. 

The country relies on imports for over 75 percent of its energy needs and in 2006, witnessed an energy crisis in the wake of Argentina's reduced export of petroleum gas.

The government drew up an energy security plan and wasted no time implementing it.  Foreign investors soon noticed the potential of this burgeoning market, including German company Juwi, which has been active in Chile since 2010.  It's been a smart move – Chile's energy needs are expected to double in the next ten years.

Author: Michael Fuehrer (jp)
Editor: Sonia Phalnikar

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