Vietnam is one of the world’s most energy-intensive economies, consuming more energy per unit of economic output than the Philippines, Malaysia, Indonesia, and India does. The country’s electricity demand is expected to increase at an average rate of up to 9% annually over the next decade (Fitch Ratings). Its onshore, nearshore, and offshore wind power potential is attracting diverse global interest and has been named by the World Bank as world-class in 2021.
Vietnam’s Rich Wind Resources
Vietnam has a significantly higher potential for wind energy than its neighbours Thailand, Laos, and Cambodia. In 2021, Vietnam came 4th on the list of top 10 countries by added wind capacity, meaning the added amount of wind energy generated from wind power plants in the year, and 22nd by total newly installed wind power capacity in 2021, surpassing every other Southeast Asian country.
The country’s wind resources lie on its coastline of 3,000 kilometres, and in the hills and highlands of the northern and central regions. A study from World Bank ESMAP estimated that over 39% of Vietnam’s area had an annual average wind speed of over 6 m/s at a height of 54m, equivalent to a total capacity of 512 GW. By 2021, the country had installed 4,118 MW (4.118 GW) in wind power, a mere 0.8% of its total potential.
Out of the installed wind capacity, 3,124 MW is generated from onshore plants and 994 MW from offshore plants. Contrary to the current status, Vietnam’s offshore wind potential generated from wind at sea outweighs its current onshore wind resources. The Institute for Sustainable Futures (ISF) estimated in the development plan, Renewable Energy for Vietnam 2019, that Vietnam’s offshore wind potential could reach 609 GW, while the onshore wind potential in GW is approximated to reach 42.05 GW (the research is based on the meteorology data of 2015).
According to the World Bank Offshore Wind Roadmap for Vietnam, offshore wind capacity could supply up to 12% of Vietnam’s electricity demand by 2035. World Bank analysts estimated that offshore wind power capacity could increase to 5 GW – 19 GW, while onshore wind power capacity could grow to 17.34 GW by 2030.
Offshore wind projects are expected to be the next investment wave for FDI and private-sector investment. Despite their higher cost and complexity, offshore wind projects offer an opportunity to add capacity while providing more relief to the power grid than other renewables. Offshore output tends to fluctuate less than solar or onshore wind projects.
Several pioneering developers believe offshore advantages outweigh the challenges. Ørsted, Denmark’s largest multinational power company and the world’s largest developer of offshore wind power farms, opened a Vietnamese office and signed a memorandum of understanding with T&T Group to develop several gigawatts of offshore wind projects in Binh Thuan and Ninh Thuan.
According to Vietnam Electricity Corporation (EVN), out of 146 projects that signed the Power Purchase Agreement (PPA) with EVN, 84 projects have been operating commercially since before November 1st, 2021. Most are located in the central coastal region of Quang Binh in Quang Tri, and the southern coastal region of Ninh Thuan in Binh Thuan. Several wind power plants are in the highland Tay Nguyen area of Gia Lai, Kon Tum, and a large number of them are in the Mekong Delta area (Ben Tre, Tra Vinh, Soc Trang, Bac Lieu, and Ca Mau). Vietnam’s current largest wind power plant in operation is located in Ninh Thuan with 151.95 MW in capacity.
The surge in Vietnam’s wind power industry is largely due to the government’s strong support and implementation of generous feed-in-tariffs (FiTs), the Vietnamese government started offering a FiT of 8.5 cents US per kilowatt-hour (kWh) (1,927 VND) for onshore wind projects and 9.8 cents US per kWh (2,223 VND) for nearshore ones as per a 20-year PPA. The FiT was applicable to any project starting before November 2021.
The FiT was proposed by the government to extend until the end of 2023, mainly due to COVID-19, which hindered the progress of most onshore wind projects. After the expiration of the FiT, the Ministry of Industry and Trade (MoIT) has proposed an auction system starting in 2023 and onwards, similarly to other renewable energy asset classes, that will either 1) auction among developers to sell electricity to a local distributor, or 2) auction among investors to start their projects on the acquired land.
Power Development Plan PDP8
The MoIT recently released a draft version of its eighth national power development plan (PDP8) for 2021-2030, which also includes a vision for 2045. The plan includes a higher target of 18.0 GW of wind power by 2030 from a goal of 11-12 GW in PDP7. The ambitious target is expected to be followed with favourable policies to help Vietnam tap into its full wind power potential.
Tax Exemption and Reduction
The government also provides tax exemptions for wind developers within the first four years of operation. A tax reduction of 50% is applicable for the next 10 years of operation.
Opportunities for Foreign Investors
Foreign investors may own up to 100% equity in wind energy project companies as no foreign ownership restrictions are currently in place for the renewable energy sector under Vietnamese law. Developers are also able to invest in wind power projects on a greenfield basis. Still, most foreign investors currently attempt to participate in a joint venture with a local partner.
Under Vietnamese law, a project company or a special purpose vehicle will be established in the form of a limited liability company or joint-stock company. Commonly, investors initially find a limited liability company for the early-stage development of the project, before potentially converting the entity into a joint-stock company at a later phase when greater capital and financing requirements are available.
Foreign investors can also acquire equity interests in pre-existing wind energy projects via the acquisition of charter capital or shares in a Vietnamese project vehicle. Project companies that have already obtained fundamental early-stage investment approvals are viewed as attractive M&A targets by foreign investors to avoid regulatory hurdles of the early-stage investment approvals.
Vietnam’s very first Public-Private Partnership (PPP) Law, in effect on January 1st, 2021, provides an alternative pathway for foreign investment into greenfield wind energy projects with a Vietnamese government counterpart. In addition to the build-operate-transfer (BOT) model, which has been the most common PPP structure to date in Vietnam, the new law also recognizes build-own-operate and build-transfer-lease as relevant PPP models. While Vietnamese law will govern the project agreements, developers are free to choose a third country arbitration should a dispute scenario arise. Investors may also propose their own projects directly to the relevant state agency. Decree 35, released in March 2021, clarifies that the PPP law applies to renewable energy projects with a total investment value of 500 billion USD and over (approximately 22 million USD).
The next phase of Vietnam’s wind energy expansion will include larger, more capital-intensive, and more technically complex projects in both onshore and offshore wind. The Vietnamese government is continuing to strengthen its commitment and support in extending the country’s capacity in wind power, setting ambitious goals, and providing multiple benefits for developers. Strategic partnerships with governmental bodies, joint ventures with local entities, and acquisition of equity interests of existing businesses are some of the many ways foreign investors could capture the opportunities of wind power investment in Vietnam.