Home to a population of over 96 million, Vietnam’s energy needs are ever-increasing and it is one of the most energy-intensive economies in the world. With more than 3,000km of coastline, Vietnam could become Asia's future leader in offshore wind, but not without overcoming challenges.
It is expected that Vietnam’s electricity demand will continue to increase at an average rate of up to 9.36% annually over the next decade. Although electricity generation in Vietnam has traditionally been heavily reliant on coal, its Prime Minister pledged at COP26 that the country would aim for a net-zero emissions target by 2050.
Replacing coal-fired generation, offshore wind power is poised to become a key pillar of Vietnam's energy transition. According to The World Bank’s Offshore Wind Roadmap for Vietnam, offshore wind power plays a vital role in Vietnam’s net emissions target reduction and could help avoid over 200 million metric tons of CO2 emissions. It also adds at least $50bn to Vietnam’s economy by stimulating the growth of a strong local supply chain, creating thousands of skilled jobs, and exporting wind power.
In light of the ambitious commitment, the Vietnamese government has rolled out a series of regulations aimed at developing renewable energy projects. The Ministry of Industry and Trade (MOIT) has been instructed to overhaul the Power Development Plan VIII (PDP8) draft, which currently relies heavily on coal-fired power.
Fundamental changes to the PDP8 draft have been proposed and it appears that the wind industry will be the leading renewable technology to play a significant role in Vietnam’s energy landscape. The current PDP8 draft sets out, among other things, an aggressive clean energy plan for Vietnam’s power where wind (both onshore and offshore) will be the leading pathway to its net-zero target.
However, realistically, coal power will continue to play an important role in Vietnam and cannot be eliminated overnight (or not at least until after 2025). The PDP8 draft currently reserves about 40GW by 2030 for coal-fired power sources, nearly 15GW lower than PDP7.
Challenges and limitations
Vietnam's offshore wind potential, however, has its own set of challenges and limitations – including, primarily, a lack of technology, higher infrastructure costs, limited feed-in tariffs, supply chain shortages, underdeveloped transmission grid and a dearth of skilled human resources. Given that the demand for increasing emissions along a traditional development trajectory is high and the resources to switch to a new greener pathway are often limited in developing nations like Vietnam, harmonising domestic economic development and global environmental commitments is certainly an extremely challenging task.
Uncertainty in policy creates difficulty for investors to commit fully.
Also, uncertainty in governmental policy and regulatory framework creates difficulty for investors to commit fully or plan their next steps, as a clear and transparent regulatory framework is critical in ensuring project exclusivity, facilitation and commencement of any meaningful procurement and development work. For instance, the expiry of the current feed-in tariff (FIT) for wind projects remains uncertain.
Many investors suffered prolonged delays due to Covid-19 and were rushing to complete construction ahead of the initial FIT expiry in late October last year. Without governmental relief to extend the expiry of FIT for wind projects, many investors (and consequently, the country) will suffer collateral damage of the pandemic, such as loss of job opportunities, economic and investment losses, and delayed progress towards Vietnam’s renewable energy aims.
As such, a clear legal framework and strong governmental support is necessary for the extension of FITs for wind-power projects given that the tariff is pivotal in navigating the market's wind power prices, which is a crucial factor for investors to ensure the continued development, construction and operation of projects.
As land is often prioritised for agriculture and farming in Vietnam, securing land-use rights for offshore wind farm projects can be very challenging. Investors and developers will likely need to collaborate with governmental agencies at the provincial level, including the provincial Investment Promotion Agency and the Ministry of Planning and Investment, to obtain land rights for the construction and development of offshore wind projects.
There is an increased difficulty for developers to obtain project financing from banks and/or lenders in absence of distinct legal ownership rights over allocated sea areas (which usually serve as security or mortgage under the facility).
It would be helpful for investors and developers with minimal experience in Vietnam to establish credible partnerships with local organisations that have relevant expertise. For instance, Vietnamese state-owned energy companies, such as PetroVietnam (PVN) and its subsidiaries/joint-ventures i.e., the PetroVietnam Technical Services Corporation (PTSC) and Vietsovpetro, which are expected to lead the offshore wind development projects in Vietnam, have specific experience in the country's energy market.
Learn from Japan
Despite their higher cost and added complexity as compared to other renewables, offshore wind projects offer an opportunity to add capacity while providing more relief to the transmission grid than other renewables. For instance, offshore wind output fluctuates less than that of onshore wind or solar (though it is still not fully predictable or dispatchable) and can connect directly to the grid at transmission-grade voltages. The successful addition of large offshore projects could be a more scalable source of renewable power for Vietnam.
To implement the net-zero scenario, Vietnam can minimise reliance on coal power by learning from Japan. Japan's fifth Strategic Energy Plan promotes a practical green transition by offering a future-based vision on safety, energy security, environmental standards, and economic efficiency.
With its Asia Energy Transformation Initiative (AETI) pledging to support $10bn for ASEAN countries to achieve carbon neutrality, Japan is currently leading at energy transition in Asia. Late last year, the minister of industry and trade of Vietnam, Nguyen Hong Dien, and Japan's minister of economy, trade and industry, Koichi Haguida, have agreed to discuss a specific roadmap to support Vietnam’s energy transition.
No doubt there remain a number of key hurdles for the development of large scale offshore wind in Vietnam, and it is likely that further changes may be needed to propel Vietnam further into the international offshore wind community to attract significant capital and expertise required to make these projects successful.
That said, there is certainly a huge potential for offshore wind in Vietnam. With the support from the Vietnamese government, combined with policy developments and a decline in manufacturing costs for the technology necessary to leverage renewable energy sources, Vietnam remains an attractive destination for foreign offshore wind power investors.
Kohe Hasan is a partner at Reed Smith and director, Resource Law LLC. Hoang Nghiem is investment director (energy) for Saigon Asset Management. Liseah Ang, an associate at Reed Smith, also co-wrote this article.