According to HSBC, Vietnam is the best investment destination for renewable energy in ASEAN.
The growth of renewable energy in Vietnam
The renewable energy sector in Vietnam has been around for more than 10 years, however, it only quickly expanded after the government's FIT incentive mechanism from 2017 onwards (Decision 11-13/QD-TTg on solar power, Decision 37-39 QD/TTg on wind power). In particular, renewable energy has attracted a large amount of FDI and private capital. In 2021 alone, this sector attracted a number of new and large-scale projects with USD 5.7 billion, accounting for 18.3% of total registered investment capital, helped the electricity production and distribution industry to rank 2nd among industries that attract FDI. Moreover, Vietnam's renewable energy market is increasingly attractive to foreign investors following the commitment of the Vietnamese Government in Cop 26 to the goal of net zero emissions by 2050 and the allocation of capacity in the draft Power plan VIII.
From just under 10MW of renewable energy, by the end of 2021, the country's renewable energy sources have reached 20,670 MW, accounting for 27% of the total installed capacity of the whole system (76,620 MW). The total electricity output from renewable energy sources reached 31,508 billion kWh, accounting for about 12.27% of the total output of the whole system. Currently, monthly electricity output mobilised from renewable energy sources (solar power, wind power) averages around 24 billion kWh, accounting for 13.7%, sometimes over 16%, higher than mobilised from gas power sources.
To date, the majority of Vietnam's renewable electricity investments have come from domestic sources. The domestic capital market with lending rates (previously) in the range of 10% provided the capital needed to launch projects under the supporting electricity tariffs (FiTs), and similar to the new markets. In other words, the key to propel these projects forward is the ability to leverage existing banking relationships and corporate balance sheets to obtain funding. Since 2020, Vietnamese renewable energy companies have issued more than 3 billion USD of corporate bonds denominated in VND in the domestic market (estimated by Institute of Energy Economics and Financial Analysis - IEEFA). However, none of the companies have access to foreign markets yet. From 2021 to now, there have been only seven issuances of bonds abroad by Vietnamese enterprises, mainly for real estate development.
According to HSBC Research, Vietnam is ranked as the best investment destination for renewable energy in ASEAN thanks to a number of factors such as resource availability (solar and wind energy), the demand for renewable energy growth and the government's ambitious target of net zero emissions by 2050, as well as an absolute target for renewable energy, about 30% of Vietnam's energy use by 2030 will be from renewable source.
Since 2019, Vietnam has surpassed Thailand to become the leading country in ASEAN in terms of installed capacity of solar and wind power. In 2021, Vietnam will become the 10th largest solar energy producer in the world and the only country in Asia where the increase in electricity from the sun will exceed the additional electricity demand in 2021. In early 2022, Ember (UK) announced that, among the 50 countries in the world with the fastest growth in wind and solar power, Vietnam was one of the 7 countries that entered this list for the first time.
In the country, private enterprises such as Trung Nam Group, BIM Group, T&T Group and dozens of others have contributed dozens of projects with the scale of many thousands of MW, mainly wind and solar power. Not only domestic investors, preferential policies on renewable energy have also attracted dozens of foreign investors from the US, Germany, Denmark, Japan, Korea, Singapore, etc., with a series of projects are in the approval, construction or completion stage such as German ASEAN Power, JA Solar, GE Renewable Energy, Siemens Gamesa, Doosan Heavy, Copenhagen Infrastructure Partners, Orsted Group, etc.
According to the draft Power Plan VIII, the total capacity of the power source is expected to be 145,185 MW in 2030 and 413,054 MW in 2045, in which, renewable energy capacity will account for about 45% by 2030. In order to achieve this goal, the total investment in electricity development in the period 2021 - 2030 needs to be about 165.7 billion USD, of which, power source is 131.2 billion USD, for the grid about 34.5 billion USD, thus, an average annual investment of 3.45 billion USD/year.
The challenges
Nowadays, the Vietnamese's green energy market is full of international investors looking for opportunities to participate in the country's economic development and increase their presence there. The first wave of foreign investors to invest in this sector came from ASEAN countries, as they were familiar with the market and wanted to access preferential price programs, mainly focusing on acquiring existing companies. Gradually, investors from other parts of the world, mainly Europe and the US, have noticed the huge potential of this sector. Since there is little exposure to the Vietnamese energy market, investors start by getting acquainted with and following the market instead of actively investing.
The current policy related to the development of green energy in Vietnam does not yet have a sustainable and continuous roadmap, which reduces the commitment of investors in implementing heavily-invested projects as planned. Therefore, the Government should have policies to maintain a developed market in the long term to meet the electricity demand as well as the goal of sustainable economic development for Vietnam. And to do so, policies and mechanisms for this type of energy need to be connected, avoiding interruptions and gaps like in the past, only then can foreign investors mobilise more private investment capital to participate in development in the electricity sector.
In order to open up foreign capital for the renewable energy sector in Vietnam, Mr. Tim Evans, General Director of HSBC Vietnam, made a number of proposals, such as restricting the use of foreign loans for domestic debt payment purposes ot increase the banks' ability to support green sector projects in Vietnam. At the same time, the loan limit for a single customer of a credit institution limits the amount of guarantees Vietnamese banks can provide compared to the Export Credit Guarantee Agency (ECA) and other financial international government institutions. Moreover, it is necessary to build a legal corridor for green loans in Vietnam, the application of synchronous measures across the financial industry to certify green finance is very urgent to build an effective supervisory mechanism to monitor to reduce the risk of green financial fraud (also known as “greenwashing”).
It is also necessary to have a map of the National Electricity Planning in accordance with the actual situation, to remain the balance between different power sources and regions, ultimately, to reduce the great waste of social resources and to increase confidence among investors.