Renewable energy in Vietnam

Having propelled from being one of the world’s poorest nations to a middle-income economy in one generation, the Socialist Republic of Vietnam (“Vietnam”) is one of the fastest growing nations in Southeast Asia. Between 2002 and 2021, GDP per capita increased 3.6 times, reaching almost US$3,700. Vietnam is looking to build on this growth through bold development aspirations which include transforming into a high-income country by 2045 (which would require the economy to grow at an annual average rate of 5.9% per capita for the next 25 years), committing to reducing methane emissions by 30 percent, putting an end to deforestation by 2030 and achieving net zero carbon emissions by 2050. 

Vietnam is considered to have one of the most vibrant renewable energy sectors in Southeast Asia, thus presenting significant opportunities for investors. However, foreign investors have been discouraged by Vietnam’s low feed-in-tariffs, with many believing that Vietnam is not harnessing its full potential.  

Recent developments may change the lack of investor confidence as Vietnam looks to focus on GDP growth supported by energy security and the transition to net zero by 2050. Recent developments in Vietnam that demonstrates this commitment include: 

1. Signing up to a Just Energy Transition Partnership (“JETP”);  
2. Approving the 8th National Power Development Plan which sets out Vietnam’s roadmap for power development through to 2030; and  
3. The removal of feed in tariffs for new wind and solar projects. 

These are summarised below. 

JETP was first launched at COP 26 in November 2021, when South Africa was promised USD 8.5 billion in financing by France, Germany, the United Kingdom and the EU. In 2022, Vietnam became the most recent nation to sign up to a JETP at the G20 Summit in Bali in 2022. 

JTEP is a form of green financing focused on creating a “just energy transition” – a principle under the Paris Agreement on climate change that “…ensures the affected people are considered by those making decisions”. 1  It recognises that previous transitions had led to job losses and economic hardship and seeks to avoid similar suffering in the ongoing transition to renewable energy. It is a multilateral financing agreement which provides funding to  heavily-coal-dependent emerging economies in making a just energy transition. In principle, JETP offers a mechanism to provide more money faster; in order to support developing countries with their plans to transition into a sustainable, low-carbon economy. 

The JETP with Vietnam aims to reduce emissions from coal-fired power plants by limiting peak capacity to 30.2GW by 2030, down from the 37GW previously planned by the Vietnamese government. This would mean that coal would account for 20% of the power mix, compared to the currently level of 33%. Prior to signing up to the JETP, Vietnam planned to have renewable sources make up 36% of its energy generation by 2030. The JETP has increased this target to ensure renewable sources make up 47% of its energy generation by 2030.  

The JETP Agreement was made in December 2022 between Vietnam and the International Partners Group (“IPG”) comprising the EU, the UK, the USA Japan, Germany, France, Italy, Canada, Denmark and Norway. The IPG agreed to commit USD15.5 billion to Vietnam over the next three to five years. This funding will be in the form of grants, low interest loans, and investments provided by both the public and private sector. Public sector finance will account for half of the amount on offer at USD7.75billion provided by the IPG. The other USD7.73billion will be provided by the private sector led by Glasgow Financial Alliance for Net Zero (“GFANZ”) but is contingent on the public sector finance. The GFANZ is the world’s largest coalition of financial institutions committed to the net-zero transition. GFANZ has established a working group comprising Bank of America, Citi, Deutsche Bank, HSBC, Macquarie, Mizuho Financial Group, MUFG, Prudential plc, Shinhan Fianncial Group, SMBC Group and Standard Chartered to support the Vietnam JETP by identifying barriers to sourcing the necessary private investment, advocating for reforms necessary to address those barriers and identifying approaches that could help attract private finance at scale.   

The funds under the Vietnamese JETP could not be disbursed until Vietnam approved and released its latest National Power Development Plan. This was achieved in May 2023 when Vietnam released its long awaited and delayed Eighth National Power Development Plan (discussed below).  

Vietnam’s JETP Agreement also addresses the social impact of the green energy transition that requires the active inclusion of workers, affected communities and other vulnerable groups. It stresses the importance of creating a supportive structure for those affected by the coal phase out, such as reskilling programmes and educational opportunities.  

Vietnam’s long-awaited Eighth National Power Development Plan (the “PDP8”) was finally approved in May 2023. Estimated to require around US$134.7 billion in funding, the plan sets out Vietnam’s plan through to 2030, with a vision to 2050. It operates on the basis that the commitments made under the Vietnamese JTEP (discussed above) are fully implemented. 

The PDP8 seeks to ensure national energy security while simultaneously assisting Vietnam’s transition to becoming carbon neutral by 2050. It therefore aims to boost production of wind and gas energy while reducing Vietnam’s reliance on coal. 

Vietnam have asserted that national energy security is vital in achieving its targets of 7% GDP growth per year until 2030 and 6.5 – 7.5% per year between 2031 and 2050. Because of this, thePDP8’s first objective is to provide sufficient electricity to support these targets. Thus, the plan sets out to increase Vietnam’s total generation capacity (“TGC”) to 150GW by 2030; of which approximately 31 to 39% is expected to come from renewable energy; and a further increase from 490GW to 570GW by 2050, 67.5 to 71.5 % of which is expected to come from renewable energy.  

The PDP8 also seeks to limit greenhouse gases to 204-254 million tons by 2030 and 27 to 31 million tons in 2050. Assuming that the commitments under the Vietnamese JETP are fully realised, emissions will peak at 170 million tonnes by 2030. 

The planned increase of Vietnam’s TGC is expected to come from the following energy sources: 

• Coal – still important in the short term. It is projected to contribute 30 GW (20% TGC) by 2030. Complete transition to either biomass and/or ammonia is expected by 2050. Unless already under construction under a previous power development plan, no new coal fired power plants shall be developed. Plants older than 40 years which cannot be converted to alternate fuels shall be decommissioned.  
• Gas – In weaning off coal, the use of domestic gas and imported LNG shall be maximised. By 2030, 15 GW (9.9 % TGC) shall be produced via its domestic gas thermal power, and 22 GW (14.9 % TGC) from the use of LNG. To avoid over-reliance on imported LNG, hydrogen will be used for the developed LNG powerplants after 2035. 
• Wind power – By 2030, onshore wind power will produce 22 GW and offshore wind power will produce 6 GW (combined 18.5 % TGC). By 2050, wind will contribute around 130 to 169 GW (26.5 to 29.4 % TGC).  
• Solar power - solar energy is reprioritised – it will produce only 8.5 % TGC by 2030, down from 13.5% in earlier drafts. Instead, autonomous installation and use of solar panels shall be encouraged. Notwithstanding, solar energy is expected to contribute around 33 to 34.4 % TGC by 2050, showing that it continues to play an important role in the energy transition.  
• Biomass power - the combined capacity of biomass and waste-to-energy power plants is expected to reach 2,275 MW and 6,015 MW by 2050 (1.5 % TGC by 2030 and 1 to 1.2 % of TGC by 2050).  
• Hydropower – hydropower is expected to amount to 29 GW (19.5 % TGC) in 2030; and a slight increase to 36 GW (6.3 to 7.3 % of TGC) by 2050. 
• Energy storage – electricity loads is managed through hydropower plants for energy storage - supporting the integration of renewable energy sources at scale. It is projected to be able to store 2,400 MW by 2030. Storage batteries will be developed should they become more affordable, which could provide for a further 300 MW of energy storage by 2030. By 2050, both hydropower plants and battery storage power plants are expected to achieve around 30,650 to 45,550 MW of total energy storage. 

Looking Forward 

The PDP8 is Vietnam’s bold and clear commitment to reducing its greenhouse gas emissions and beginning its energy transition to become carbon neutral by 2050, while ensuring energy security in order to achieve sustained economic growth. As one of the world’s top 20 coal users, Vietnam’s PDP8 would be welcomed by clean energy advocates as well as investors looking for opportunities in the energy transition sector. 

Vietnam’s feed-in-tariff (“FIT”) (the price at which the state would pay developers for electricity) scheme has traditionally been one of the lowest in the world, with Electricity Vietnam (“EVN”) purchasing all renewable project power. However, recent developments signal a change.  

In 2011, the foundation and mechanism for Vietnam’s transition to renewable energy was laid out when the Government introduced FIT at 7.8 US cents/kWh for wind power projects. In 2017, FIT for solar power was introduced at 9.35 US cents/kWh. In 2018, the wind power FIT was increased to 8.5 US cents/kWh for onshore wind projects and 8 US cents/ kWh for offshore wind projects.  

In April 2020,  a new national FIT was introduced at: (i) 8.38 US cents/kWh for rooftop solar power projects; (ii) 7.09 US cents/kWh for ground mounted solar projects; and (iii) 7.69 US cents/kWh for floating solar power projects. A special incentive for projects located in Ninh Thuan province was introduced with FIT rates at 9.35 US cents/kWh. In order to be eligible, projects needed to have achieved commercial operations before 31 December 2020 for solar projects (“Solar Deadline”) and 1 November 2021 for wind project (“Wind Deadline”). 

However, the outbreak of COVID-19 meant that a number of projects (62 projects out of 146 projects) did not meet the deadline, and were no longer eligible for the FIT. 

On 3 October 2022, Vietnam’s Ministry of Industry and Trade (“MOIT”) issued a circular which provided a framework for EVN to negotiate directly with the developers of these solar and wind projects that failed to meet the Solar Deadline and the Wind Deadline respectively. 

On 7 January 2023, MOIT announced new FITs for solar projects that achieved commercial operations date after the Solar Deadline and wind projects that came online after the Wind Deadline, and provided a price ceiling for FITs at:  

1. VND 1,184.90/kWh for ground mounted solar projects;  
2. VND 1,508.27/kWh for floating solar projects;  
3. (iii) VND 1,587.12/kWh for onshore wind projects; and  
4. (iv) VND 1,815.95/kWh for offshore wind projects. 

On 19 January 2023, MOIT issued Circular No. 01/2023/TT-BCT (“Circular 01/23") which had several wide-ranging impacts on wind and solar projects in Vietnam. Circular 01/23 repealed a number of provisions in MOIT’s previous Circular No. 02/2019/TT-BCT (in respect of wind projects) and Circular No. 18/2020/TT-BCT (in respect of solar projects). This included: 

• The abolishment of the need to fix the electricity price to the FIT rates for wind and solar projects; 
• The abolishment of the fixed 20-year PPA term for both wind and solar projects; and  
• The abolishment of the USD/VND exchange rate that had been used to determine the electricity purchase price in wind and solar projects in Vietnam. Electricity purchase prices are to be determined in Vietnamese Dong only from hereon.  

The abolishment of the fixed 20-year PPA is seen as a welcomed change. However, the annulment of the USD/VND exchange rate will have an impact on the bankability of new wind and solar projects. Its overall impact on Vietnam’s JTEP and the PDP8 remains to be seen. The removal of the FITs for wind and solar projects was expected as it had ceased to apply for new wind and solar projects. Following this, the MOIT is promulgating regulations in the direction for Vietnam Electricity Group to take the lead in negotiating and setting suitable electricity purchase price for each enterprise based on the ceiling price set by the Government. Once the legal framework for electricity price bidding is jointly developed with the Government, the electricity purchase price is believed to be applied under such mechanism to keep pace with international trends. PPAs that have negotiated purchase prices before the effective date of Circular 01/23, with the fixed 20-year term will have to be renegotiated based on the updated regulations to be issued and applied to initial transitional projects on expiration of the fixed term.