by Asia Perspective

Vietnam’s Rising Appetite for Energy

October 11, 2019

South East Asia’s rising star Vietnam is experiencing booming growth, with last year´s GDP growth at 7.1% being the fastest rate in over a decade. As the economy grows, however, so does the demand for power to fuel the growing industries. Electricity demand has been growing by 15% annually for the last several years. According to Vietnam Electricity Group (EVN), one thing has become clear: the energy supply is not meeting demand.

Ho Chi Minh City at night from above

Vietnam is today relying on three main sources of energy. As of 2018, hydropower plants contributed to about 40% of the total national electricity capacity, followed by coal and gas with 38.9% and 15.9% respectively. However, the existing hydropower plants capacities have already been exceeded, and the government. When it comes to renewable energy, Vietnam has substantial installations not only in hydroelectricity, but also wind power, solar power, and biomass. With the geographical location of Vietnam and its long coast, wind and solar power are well positioned to expand for meeting the growing demand.

In 2012 the government published the National Power Development Plan making sure that the country will have consistent growth in energy capacity over the next 20 to 25 years. The plan aims to provide modern, sustainable, and reliable energy for Vietnam. Renewable energy was originally projected to account for 9.7% of total power production by 2030. As of today, Vietnam has nearly 90 wind and solar power plants across the country, which account for 8.3% of the total power production and has surpassed the predicted numbers for 2020. There is however still a lack of sufficient funding to spearhead more renewable energy projects.

A viable solution for the energy supply in Vietnam is to be found in privatized power plants, owned by foreign investors. Looking at the investment conditions in the green power sector in Vietnam, the conditions are exceptionally generous to attract foreign investors. Full foreign ownership is allowed in the renewable energy sector and green energy projects benefit from tax relief incentives. A recently published report by Grant Thornton shows how the renewable energy sector is one of the most attractive sectors for investments, surpassing both the healthcare and e-commerce.

 

Chart showing attractive business sectors in Vietnam for 2020

However, there are still challenges with investing in green energy in Vietnam. While investors can profit from producing energy, getting the power plant up and running could be a long and arduous process. The local labor supply with needed qualifications is limited, and supporting industries are not yet fully developed. Although the demand is booming, the grid expansion and the infrastructure is adapting quite slowly. Today, most energy is produced in the North, and then transferred to the Center and the South of the country. Due to the long distance of energy transfer, a lot of electricity is wasted. This makes the Southern areas prone to power outages, which is now an urgent issue for the government to remedy.

Despite the challenges associated with investing in Vietnam’s energy sector, the market is now ripe for foreign investors. With various tax incentives, feed-in-tariffs, prioritization of the national grid, and 100% foreign ownership allowance, the green energy sector in Vietnam should be in the crosshair of international companies. Especially the power shortages in the South with its big population density and commercial activity poses an attractive opportunity.

 


Read more about our consulting services.

Top