Assessment of a social discount rate and financial hurdle rates for energy system
modelling in Viet Nam
Viet Nam’s sustained economic development is driving increasing demand for electricity
with generation capacity predicted to nearly double over the next decade. With the
majority of economic hydropower resources utilised, delays in coal power pipelines,
and increasing energy insecurity, Viet Nam has pivoted its electricity sector development
plans to further prioritize the deployment of wind and solar generation. A clean energy
transition such as this can deliver multiple social and economic benefits related
to cost reductions, improved energy security, and public health.
This working paper was prepared to support least-cost energy sector planning in Viet
Nam particularly for the upcoming Viet Nam Energy Outlook 2021 (VEO21) being prepared
in partnership between Viet Nam’s Ministry of Industry and Trade (MOIT) and the Danish
Energy Agency (DEA). This working paper discusses the use of discounting in energy
models and the potential impact discount rate selection may have on a model’s cost-optimised
technology selections. The paper also analyses the clean energy finance environment
in Viet Nam to identify opportunities for policy levers to reduce the prevailing cost
of capital and how these cost implications can be tested in the VEO21 modelling exercise.
The main outputs of this working paper are two sets of model inputs, an estimate for
an appropriate social discount rate and secondly a set of high and low financial hurdle
rates for renewable energy technologies for use in sensitivity or scenario analysis.