Sunburn–Vietnam’s renewable energy bottleneck

Electrical energy consumption has outstripped even Vietnam’s heady economic growth. While the economy has been expanding at a 7% CAGR, electricity consumption has been rising at a rate of over 10% annually in the last five years. This trend is expected to continue in the short- to medium-term as Vietnam continues to absorb record foreign investment and exports continue to surge.

Historically, hydroelectric power has been the primary source of electricity generation and power production with coal and greenhouse gases making up the balance. However, by 2020 coal accounted for about 50% of generation capacity, followed by hydropower with renewable energy sources in third place overtaking natural gas.

According to Vietnam’s revised Power Development Plan No. VII published in 2016 by the power sector, Vietnam will need 559 GW of power in 2030 to meet domestic demand. This will require an investment of over US$150 billion in generation and transmission infrastructure. Vietnam’s hydropower potential has almost reached its limit and domestic coal reserves in the north are declining. Vietnam has also been impacted by climate change as the number and severity of tropical storms and typhoons have been increasing and the government wants to do its part to reverse climate change. Fortunately, Vietnam has significant solar and wind power generating potential and the government has been promoting sustainable energy development and renewable energy sources as part of its long-term energy development master plan. These proactive policies have been driving significant investment and growth in sustainable energy production capacity by foreign and domestic investors.  

Plenty of sun, wind, and biomass

Vietnam’s geographic location gives the country abundant solar energy and wind power potential. The average Direct Normal Irradiance (DNI) is 2.6 KWh/m2 with more than 2,000 hours of sunshine annually. In some regions of the country, the DNI is as high as 2.6 KWh/m2 with over 2,500 hours of sunshine.

Conditions are also good for wind power. Vietnam has 3,300 kilometers of coastline and an average wind speed in the range of 6.5-7.5 m/s with the potential to generate up to 550 GW.

As a major agricultural country, Vietnam also has the potential to develop biomass energy as a renewable energy source from sugar bagasse, coffee, and rice husks. There are an estimated 60 million tons of agricultural waste of which about 24 million tons are suitable for biomass energy production.

Other options would include ocean energy/tidal power, thermal energy, solar power, fossil fuels, kinetic energy, offshore/wind energy, etc. However, as mentioned, the focus is not generate electricity for the sake of it, but to generate renewable energy from renewable resources.

Supportive government policies

The Vietnam government is committed to promoting renewable energy sources as the primary electricity-generating source in the future. To support this objective, the government has issued many policies to promote investment in the sector by both Vietnamese and foreign investors.

Foreign investors are permitted to own up to 100% of the equity in renewable energy projects, which can be structured as wholly-owned firms, BOT (Build-Operate-Transfer) projects, public-private partnerships (PPP), or joint ventures.

To promote development, the government offers investment incentives such as water surface or land use fee exemptions, import duty exemptions on machinery and technology used for renewable energy projects, and corporate income tax exemptions and reductions.

The Vietnamese government, through state-owned Electricity Vietnam (EVN), is the sole supplier of electrical power. The Electricity and Renewable Energy Department under the Ministry of Industry and Trade (MoIT) started drafting its new Power Development Plan no. VIII (PDP VIII) in 2020 and they expect to submit it for approval to the Prime Minister in 2021. PDP VIII will specifically address many aspects of renewable energy development such as the definition of renewable energy, the amount of new generating capacity that can be absorbed, new feed-in-tariff regulations, and new renewable electricity power purchase models not included in the current PDP VII.

Complex legal framework

The new PDP VIII is desperately needed as the current legal framework is an obstacle to investing in renewable energy in Vietnam. Vietnam does not have any specific legal framework for renewable energy. Investors need to understand how their investment fits within the complex set of laws and regulations which govern renewable energy to structure their investment. They need to determine whether their project is allowed within the National Power Master Plan (part of the PDP) to determine its feasibility. Approvals must then be sought at a national level either from the MoIT (for projects <50MW) or the Prime Minister (for projects >50MW).

A victim of its own success

Despite all this potential, the explosive growth of renewable energy projects in recent years has put such stress on the electricity transmission infrastructure that EVN put a moratorium on new on-grid renewable energy project applications in 2020. The moratorium even extends to the development of projects just approved in 2020. Until significant planned transmission capacity upgrades are completed, the national grid cannot support all the capacity that has been approved.

	Capacity (GW)
Installed Renewable Capacity – 2020	17.9
PDP VII Plan Capacity – 2030	24
Revised PDP VII Plan Capacity – 2030	121
Approved capacity as of 2020	180

While significant investments have been made in renewable energy capacity, investors have not been allowed to sell power directly to third parties. Power purchase agreements (PPA) were restricted to EVN, and investors had to accept EVN’s feed-in tariff rate, which often might not provide an acceptable ROI, thus leading to disgruntled investors. To overcome this issue, the MoIT recently submitted a draft “Pilot Program on Direct Power Purchase Agreements (DPPA)” for off-site renewable energy projects. A proposed pilot program will apply to projects on a scale of 400-1,000 MW. DPPAs allow renewable energy developers to sell power directly to consumers.

Staying switched on with renewable energy

Vietnam’s renewable energy resources potential is substantial, and the government is committed to maximizing its development. The current moratorium is only temporary. The lull provides time for investors to learn about the potential, discern how their projects can fit within the current and long-term plans, and understand how to successfully navigate a complex regulatory environment for energy supply.

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Authors

Dennis J Meseroll is Executive Director based in the Bangkok Office. Tram Phan, Consulting Manager and Thao Nguyen, Analyst are based in the Ho Chi Minh City office.