An extensive report by Institute for Energy Economy and Finance highlights that the renewable energy strategy of Viet Nam ties together with the manufacturing future to meet rising demand in the apparel landscape. After Bangladesh and China, Viet Nam continues to be the third largest garment producer. But to maintain this growth, the country needs to move on from coal-based power to renewable energy solutions.
The Need to Develop and Execute Strategic Renewable Energy Solutions
Unlike others, Viet Nam’s export-driven economy caters to worldwide consumers and multinational corporations in the apparel industry.
IEEFA, or the Institute for Energy Economics and Financial Analysis, affirms that Viet Nam needs to develop and deploy strategic renewable energy efforts to support global corporations’ carbon neutrality commitments. The Scope 3 emissions, accounting for more than 70% of the emissions, such as outsourced cut-and-sew factories in Viet Nam, are a big part of the decarbonization strategies. But building this low-carbon economy needs to speed up the transition to clean, green energy.
Switching to renewable energy sources such as solar, wind, and hydropower will significantly reduce carbon emissions, improving the industry’s environmental sustainability.
Large Scale Apparel Production in Viet Nam
In apparel production and manufacturing, it is no wonder Viet Nam has become a top player in Southeast Asia. While countries like Bangladesh, Indonesia, and India are an essential part of the supply chain across the world, their economies are less exposed. Vietnam also has a long history of textile and garment production. This experience has helped the country develop a strong supply chain and expertise in the industry.
The ownership composition and structure also favour the country’s economy. Last year, Viet Nam’s total apparel exports increased by 7.4%, accounting for over $42 billion. One of the world’s top-tier garment producers and exporters must now prioritize renewable energy investments to meet increasing demand and drive economic growth.
The best shot for the country to grow and sustain its apparel industry is through the swift adoption of renewable energy solutions.
Scope 2 emissions account for major emissions
What’s interesting is that the apparel industry workforce of the country accounts for 12% of the entire industrial employees. The apparel industry’s high percentage of the industrial workforce means that any changes in the sector can have a significant impact on Vietnam’s net-zero goals.
In Viet Nam’s apparel space, manufacturers use the CMT production method, which refers to “cut-make-trim”. It only allows manufacturers to cut, sew, and trim fabrics. It means most of the emissions stem from these machinery operations. The good news is that Viet Nam’s apparel industry can cut back on these emissions by implementing robust renewable energy solutions across the board in scope 2 emissions.
Major Global Brands committing to RE100
Today, companies like Under Armour, Nike, New Balance, and Asics are moving forward with renewable energy sourcing to support their future operations. In fact, these companies expect to run 100% of their operations via renewable energy sources.
It means Asia-based manufacturers like Viet Nam need to accelerate their adoption of renewable energy sources and cut back on carbon emissions. Since Viet Nam can garner private investments for renewable energy solutions, it can become easier for local partners to meet the country’s decarbonization goals and commitments.
According to Mekong Infrastructure Tracker data, over 55% of renewable energy-based projects across Viet Nam are being developed by local partners and companies. Around 27% of these projects are developed and managed by international Vietnamese partners and companies, thus boosting the local economy. The country even hit 16,000 MW of production in 2022, exceeding previous government targets.
However, on the downside, off-site PPAs or power-purchase agreements are not yet accessible across Viet Nam. And these PPAs are vital to sourcing renewable energy at a bigger scale. While Viet Nam apparel manufacturers tend to follow short-term operational cycles, PPAs require long-term objectives and commitments.
International Support
Many local Vietnamese apparel manufacturers need the support of international brands to deploy rooftop solar-based projects.
Greening Textile Program by WWF was one of the programs that managed to help textile mills improve their energy and water management in 2021.
The Clean Energy Investment Accelerator (CEIA)— a public-private partnership, helps manufacturers to identify market barriers, recommend solutions, and explore cost-effective energy procurement models. In 2021, they assisted five apparel manufacturers for three major global brands in issuing requests for proposals (RFPs) for rooftop solar projects on eight manufacturing facilities across Viet Nam.
Still, Vietnamese apparel manufacturers need a well-designed and well-thought-out framework that addresses how they can make renewable energy changes. The framework should also highlight how apparel manufacturers can compensate for tariff compensations and remuneration changes.
Government Support
The Vietnamese government also provides significant support for this transition. For example, apparel industry owners are eligible for a reduced corporate tax rate of 10% for 15 years. Even goods and services used for renewable energy projects are exempt from VAT, which can help to reduce the cost of investment in renewable energy for apparel companies. Switching to renewable energy will thus help manufacturers lower operational costs and attract investment from foreign companies who have committed to RE100 goals.
Practically, it takes cross-departmental and industrial efforts to develop and implement renewable energy initiatives that serve in the best interests of the country and attract more foreign investments. In retrospect, uniform and ubiquitous access to clean power will allow Viet Nam to acquire more capital investments and complete more export orders.