Capturing the wind: Renewable-energy opportunities in Vietnam

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In pursuit of Vietnam’s economic growth agenda and sustainability goals, the country’s authorities have been actively working to expand energy capacity, with a commitment to renewable sources where possible. This is no small feat in a country where coal provides most of the energy generation, hydropower sources are essentially tapped out, and energy needs are growing by almost 10 percent a year. According to our 2019 research on Vietnam’s energy future, renewables have the potential to become the lowest-cost option for meeting the country’s energy needs.

Already, Vietnam has made significant progress on expanding its capacity to generate renewable energy. The vast majority of that expansion to date has come from photovoltaic (PV) solar installations, in large part driven by private investment. Still, coal retains a dominant share of the energy mix today, accounting for more than 50 percent of the capacity added since 2018, which has contributed to persistent poor air quality. According to a 2019 report from the Ministry of Natural Resources and Environment, for example, pollution metrics in Hanoi reached historical highs before the pandemic despite a variety of efforts.1

Earlier this year, Vietnam’s Ministry of Industry and Trade released a draft of its eighth national power development plan (PDP8) for 2021–30, which also includes a vision for 2045.2 The plan includes higher targets for renewable-energy capacity—with upper limits of 18.6 gigawatts of solar and 18.0 gigawatts of wind by 2030—as well as for the share of total energy capacity derived from renewables. It also accounts only for coal plants already under construction; no new coal plants are planned.3 This top-down plan informs the plans of provincial governments working in concert with the centralized government in achieving targets.

PDP8 calls for a substantial increase in wind capacity, which has untapped potential in Vietnam. Vietnam’s natural advantages in wind are significant, and some pioneering players have already launched large-scale projects in favorable locations. In this article, we show how the success of solar projects to date creates significant opportunity for wind power and then outline the steps investors and developers can take to capitalize on that potential.

Solar has been powering Vietnam’s energy expansion

Since 2018, the growth in Vietnam’s power-generation capacity has largely come from private investors. At least 45 percent of this growth has resulted from purely private investments (both foreign and domestic), while 35 percent of capacity growth involved foreign direct investment (FDI), either alone or in partnership with local companies and governments.

Due largely to this investment, Vietnam has experienced a boom in renewables capacity that is dramatically shifting the overall energy mix (Exhibit 1). Since 2018, the country has added almost ten gigawatts of capacity from renewable-power plants (excluding distributed-generation solar), constituting nearly half the total energy capacity added. The vast majority of this renewables capacity is solar, with hydro-, wind, and biomass power only adding up to one gigawatt of capacity.

Vietnam has made substantial progress since 2018 in adding energy capacity, largely with renewable solar power.

Behind this investment in renewables is a significant cost reduction in funding these projects. Prior to 2019, few banks were comfortable lending for renewables projects, with interest rates hovering in the high teens. Now, with more projects demonstrating viability and with regulatory support on the rise, major state-owned and private banks in Vietnam have plans to finance renewables projects at interest rates in the mid to high single digits.

While the added capacity is sizable, it is still less than the 8.5 gigawatts contributed by coal and is insufficient to meet Vietnam’s energy needs in the years ahead. With PDP8 now targeting up to 18.6 gigawatts of solar-energy capacity by 2030, solar developers can look favorably at potential projects in Vietnam (Exhibit 2).

Vietnam’s energy plan (PDP8) sets goals for generation-capacity increases from 2021 to 2030.

But there are limitations to solar’s growth potential. Solar projects tend to be smaller, and because they provide intermittent energy, they would require grid investments to achieve their full generation potential. Vietnam’s power grid, initially designed for large power sources like hydropower and thermal plants, is not prepared for distributed solar at scale. In addition, high solar output (especially in the middle of the day) can overload grids at the provincial level and has put the main north-south backbone transmission line under strain, forcing Vietnam Electricity (EVN) to curtail solar production.4

Wind power: A potential alternative renewable

Against this backdrop, wind power has significant room for growth as a scalable alternative to the expansion of thermal coal. Vietnam enjoys enviable natural potential for wind capacity, with 3,000 kilometers of coastline and winds that blow from 5.5 to 7.3 meters per second (not accounting for seasonal variability). The biggest opportunity for massive wind-power generation sits offshore. According to the World Bank, estimates of Vietnam’s offshore wind potential range up to 500 gigawatts. By comparison, Germany, a leader in wind power, currently has about 62 gigawatts of total installed wind capacity, of which approximately eight gigawatts are offshore.5

Vietnam’s coastal provinces have driven overall capacity gains since 2018 but so far have added little wind capacity: Bình Thuận and Ninh Thuận provinces have collectively added 6.0 gigawatts of capacity, or 40 percent of the total for Vietnam, since 2018, which includes 2.5 gigawatts from solar power plants but only about 300 megawatts from wind turbines. Most of the rest comes from coal.

Why the lag in wind capacity? Three factors may be at play. First, wind projects are more technically complex to implement than solar. Typical wind projects have a two-year construction period, while solar projects can be completed in an average of half a year. Additionally, the requirements for implementing wind projects are highly variable, while solar projects tend to be much more standardized. Wind projects also have higher financial barriers to entry, with an average total installed cost for offshore wind turbines of about $3,200 per kilowatt, compared with approximately $900 for solar plants (though onshore wind is closer to the cost of solar, at about $1,400 per kilowatt).6 Finally, only a few OEMs produce large wind turbines, mainly large international companies, whereas PV-cell manufacturing is relatively widespread, even within Vietnam.

The wind opportunity for Vietnam is here and now

Despite these challenges, several factors in the Vietnamese market suggest that wind investors and developers can find significant opportunities for growth. In addition to the sizable natural potential for wind projects, the central government is indicating its strong support for wind development. For example, the extension of feed-in tariffs (FiTs) for wind-power projects from 2021 to the end of 2023 underscores government support and reduces financial risk for wind projects commissioned before the new deadline.

Second, the success of FDI and private-sector investment in solar projects to date demonstrates the financial viability of renewables projects in Vietnam. The next wave of investment in renewables will likely include substantially larger projects, especially offshore wind projects, which tend to provide more generation capacity than either solar or onshore wind projects. Also, despite their higher cost and added complexity, offshore wind projects offer an opportunity to add capacity while providing more relief to the grid than other renewables. Offshore output tends to fluctuate less than onshore or solar (though it is still not fully predictable or dispatchable) and can connect directly into the grid at transmission-grade voltages.7 The successful addition of large offshore projects could be a more scalable source of renewable power for Vietnam.

Several pioneering developers think these advantages outweigh the challenges. Most recently, Ørsted, the largest offshore wind farm company in the world, opened a Vietnamese office and signed a memorandum of understanding with T&T Group to develop several gigawatts of offshore wind projects in Bình Thuận and Ninh Thuận.8 Two large projects already announced in Bình Thuận demonstrate interest in wind projects at the provincial level: Enterprize Energy announced the Thang Long Wind project,9 and Copenhagen Infrastructure Partners launched the La Gan project.10 Separately, Nexif Energy, a Singapore-based power company, has formed a partnership to start a project in Bến Tre Province.11

Considering that wind projects require large scale, are emissions free, have significant potential to anchor FDI, and are relatively simple to integrate into the grid, they have the potential to fit quite naturally into regional power plans.

How investors and developers can participate in Vietnam’s wind ambitions

Investors and developers approaching wind projects in Vietnam should consider a few initial steps. First, as with other infrastructure projects in emerging markets, international industry participants will need to consider a risk profile that could be different from that of projects on their home turf. This implies a higher weighted cost of capital, which would require a higher internal rate of return to generate economic profit. Reducing time to commissioning by using capital-project delivery best practices—such as creating an integrated construction and commissioning plan early in the project—can help players realize desired returns.

Second, foreign investors and developers without experience in Vietnam must establish credible partnerships with local organizations that have relevant expertise. Local partners can bring valuable know-how, including an understanding of Vietnamese energy markets, capital projects, and regulatory environments. Vietnamese energy companies, such as subsidiaries of EVN, have country-specific experience in the energy market. Large real-estate developers with proficiency in land-use and capital projects in Vietnam can deliver project expertise, especially specific to given provinces.

Third, developers will likely need to collaborate with agencies at the provincial level, including the provincial Investment Promotion Agency and the Ministry of Planning and Investment. Securing land-use rights for projects could be challenging. In provincial government land-use plans, for instance, land is often prioritized for agriculture and farming. Provincial development plans explicitly earmark plots of land for specific industries and purposes—including power generation—so developers will need to articulate the value of their projects and explain why they should be included in these plans. Provinces have significant autonomy in planning, but their local plans must align broadly with national objectives.

The Vietnamese government has reaffirmed and expanded its commitment to building renewable-energy capacity beyond the solar installations that have dominated development to date. Vietnam’s next phase of energy expansion will entail larger, more capital-intensive, and more technically complex projects in solar and onshore wind—but especially offshore wind. Some early movers already have projects under way, but there is still room for others to study the power market, establish partnerships with local entities, and secure value before the window closes.

Download the article in Vietnamese (PDF-1.56 MB).

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