Vietnam Economic Update Report

Recognizing the limitations of traditional energy sources and the urgency of climate change, Vietnam is actively pursuing a greener path to ensure energy security, environmental protection, and sustainable development. The government’s ambitious National Power Development Master Plan for 2021-2030 period, with a vision to 2050 aims to develop a renewable-based energy ecosystem, targeting 50% rooftop solar usage in residential households and office buildings by 2030. The plan also sets target for renewable energy (including hydropower, onshore and offshore wind, solar, biomass, etc.) to constitute 30.9-39.2% of total energy by 2030 and 67.5-71.5% by 2050.

During the first half of 2024, Vietnam produced 13.91 billion kWh of solar energy and 6.15 billion kWh from wind, together representing 13.3% of the nation’s total electricity output. In total, renewable energy sources generated 49.36 billion kWh, contributing 32.6% of the overall energy mix. Despite this growth, coal-fired power remained the dominant energy source, accounting for 57.0% of the country’s total energy production. Renewable energy has made significant progress toward Vietnam’s long-term renewable energy targets. Although the current figure of 32.6% for renewable energy indicates consistent growth, achieving the upper end of the national target (39.2% by 2030) will require further acceleration in infrastructure development, regulatory reform, and increased domestic and foreign investment, particularly in wind and solar sectors.

Vietnam is well-positioned to become a key player in renewable energy sector thanks to its abundant natural resources. The country benefits from high solar radiation levels, averaging 4-5 kWh per m2, and a long coastline of over 3,000 kilometers with consistent winds, giving it substantial potential for solar and wind energy generation. Vietnam’s technical potential for solar energy stands at 1,646 GW, ranking among the highest globally. Over the past decade, the country has made remarkable progress in solar power, rising from a relatively low ranking of 196th place in 2010 to 9th globally by 2021. This impressive growth is highlighted by the construction of the 600 MW Dau Tieng Solar Power Complex inaugurated in 2019, which is the largest of its kind in Southeast Asia. By 2022, Vietnam contributed 69% of ASEAN’s total solar and wind generation, underscoring its leadership in the region.

Additionally, Vietnam’s extensive coastline, with wind speeds averaging 5.5-7.3 meters per second, offers a substantial opportunity for wind energy production. The country has a total wind power potential of 24.0-26.7 GW and aims to nearly double its onshore and near-shore wind power capacity to 11.3 GW by 2030, up from 5.8 GW in 2021. Looking forward, Vietnam is also prioritizing offshore wind farms and has identified a pipeline of 143 offshore wind farm projects, with several large-scale ventures exceeding 2 GW each. However, realizing these targets requires overcoming significant obstacles. Regulatory hurdles, such as complex permitting processes and inconsistent policies, complicate development. In general, the development of a wind power project in Vietnam is subject to at least six laws and over 20 regulations, with the involvement of nine central agencies, creating an administrative burden. Financial challenges are another barrier, as wind projects demand large initial investments that are risky without secure long-term power purchase agreements. The short three-year feed-in tariff (FIT) eligibility window and the absence of incentives after October 2021 in Vietnam have also made project planning more difficult. Environmental concerns, such as potential impacts on marine ecosystems and coastal erosion, further add to the complexity.

While Vietnam’s renewable energy sector holds promise, several challenges remain. Economic constraints under the current tariff system in Vietnam make renewable projects less attractive to developers. The lack of direct power purchase agreements and established financing mechanisms further hinders the progress of renewable energy initiatives. Additionally, increasing energy prices to support renewable energy projects may face resistance from consumer groups and discourage foreign investment. Moreover, better coordination between government agencies is needed, especially for handling financial disbursements related to official development assistance, which is critical for encouraging private sector participation in these projects.

Despite the challenges, there are still significant opportunities for Vietnam’s renewable energy transition. In December 2023, with the goal of achieving net-zero emissions by 2050 and aligning with sustainable development goals, Vietnam signed the Just Energy Transition Partnership (JETP), a comprehensive agreement addressing policy reforms, technology transfer, and financial backing for a sustainable energy shift. The initiative aims to attract investments to enhance renewable energy, energy efficiency, and grid infrastructure, with an initial commitment of 15.5 billion USD over the next 3 to 5 years. Furthermore, local private sector involvement is growing. VinaCapital was the sole shareholder of SkyX, a rooftop solar power developer focused on the commercial and industrial segment in Vietnam, until the strategic investment by EDF Renewables, a giant in clean energy. Recently, SkyX reached a valuation of more than 100 million USD.

By leveraging its resources and ongoing development efforts, Vietnam is poised to become a dominant force in renewable energy, especially solar and wind power generation, enhancing energy security and contributing to global climate change mitigation efforts.