Home to a population of over 96 million, Vietnam’s energy needs are constantly growing and it is one of the most energy-intensive economies in the world. With more than 3,000 km of coastline, Vietnam could become the future Asian leader in offshore wind power, not without meeting challenges.
Vietnam’s electricity demand is expected to continue growing at an average rate of up to 9.36% per year over the next decade. Although Vietnam’s power generation has traditionally relied heavily on coal, its prime minister pledged at COP26 that the country will aim for net zero emissions by 2050.
Replacing coal-fired generation, offshore wind is set to become a key pillar of Vietnam’s energy transition. According to the World Bank Offshore wind roadmap for Vietnam, offshore wind power plays a vital role in Vietnam’s net emissions reduction goal and could help avoid more than 200 million metric tons of CO2 emissions. It also adds at least $50 billion to Vietnam’s economy by spurring the growth of a strong local supply chain, creating thousands of skilled jobs and exporting wind power.
In light of this ambitious commitment, the Vietnamese government has put in place a series of regulations aimed at developing renewable energy projects. The Ministry of Industry and Trade (MOIT) has been tasked with revising the Draft Power Development Plan VIII (PDP8), which currently relies heavily on coal power.
Fundamental changes to the PDP8 project have been proposed and it looks like the wind industry will be the main renewable technology to play an important role in Vietnam’s energy landscape. The current PDP8 draft outlines, among other things, an aggressive clean energy plan for Vietnam’s electricity, where wind (onshore and offshore) will be the primary route to its net zero goal.
However, realistically, coal power will continue to play an important role in Vietnam and cannot be phased out overnight (or at least not until 2025). The PDP8 project currently reserves about 40 GW by 2030 for coal-fired power sources, almost 15 GW less than the PDP7.
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Challenges and limitations
However, Vietnam’s offshore wind potential presents its own challenges and limitations, including a lack of technology, higher infrastructure costs, limited feed-in tariffs, supply chain shortages, an underserved transmission network. developed and a shortage of qualified human resources. Since the demand for increasing emissions along a traditional development path is high and the resources to shift to a new, greener path are often limited in developing countries like Vietnam, harmonizing national economic development and global environmental commitments is certainly an extremely difficult task.
Policy uncertainty creates difficulties for investors to engage fully.
In addition, uncertainty in the government policy and regulatory framework creates difficulties for investors to fully engage or plan their next steps, as a clear and transparent regulatory framework is essential to ensure project exclusivity, facilitation and commencement of any significant sourcing and development work. For example, the expiry of the current feed-in tariff (FIT) for wind projects remains uncertain.
Many investors faced lengthy delays due to Covid-19 and were rushing to complete construction before the original FIT expired at the end of October last year. Without government assistance to extend the expiration of the FIT for wind projects, many investors (and therefore, the country) will suffer collateral damage from the pandemic, such as lost job opportunities, economic losses and losses. investment, and delayed progress toward Vietnam’s renewable energy goals. .
As such, a clear legal framework and strong governmental support is needed for the extension of feed-in tariffs for wind projects, given that the tariff is critical to navigating market wind energy prices, which is a crucial factor for investors to ensure the continued development, construction and operation of projects.
As land is often a priority for farming and ranching in Vietnam, securing land use rights for offshore wind farm projects can be very difficult. Investors and developers will likely need to work with government agencies at the provincial level, including the Provincial Investment Promotion Agency and the Ministry of Planning and Investment, to secure land rights for the construction and development of offshore wind projects.
It is increasingly difficult for developers to obtain project finance from banks and/or lenders in the absence of separate legal property rights over allocated sea areas (which usually serve as collateral or mortgage under the Facility).
It would be useful for investors and developers with minimal experience in Vietnam to establish credible partnerships with local organizations with relevant expertise. For example, Vietnamese state-owned energy companies, such as PetroVietnam (PVN) and its subsidiaries/joint ventures, namely PetroVietnam Technical Services Corporation (PTSC) and Vietsovpetro, which are expected to lead offshore wind development projects in Vietnam, have specific experience on the country’s energy market.
Learn from Japan
Despite their higher cost and increased complexity compared to other renewables, offshore wind projects offer an opportunity to add capacity while putting more strain on the transmission grid than other renewables. For example, offshore wind generation fluctuates less than onshore wind or solar (though 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 provide a more scalable renewable energy source for Vietnam.
To implement the net zero scenario, Vietnam can minimize its dependence on coal power by taking inspiration from Japan. Japan’s Fifth Strategic Energy Plan promotes a practical green transition by providing a forward-looking vision for safety, energy security, environmental standards and economic efficiency.
With its Asia Energy Transformation Initiative (AETI) pledging to support $10 billion for ASEAN countries to achieve carbon neutrality, Japan is currently leading the energy transition in Asia. Late last year, Vietnam’s Industry and Trade Minister Nguyen Hong Dien and Japan’s Economy, Trade and Industry Minister Koichi Haguida agreed to discuss a specific roadmap to support Vietnam’s energy transition.
There undoubtedly remain a number of key obstacles to the development of large-scale offshore wind in Vietnam, and it is likely that further changes will be needed to propel Vietnam further into the international wind community. offshore in order to attract the capital and expertise needed to make them happen. successful projects.
That said, there is certainly huge potential for offshore wind in Vietnam. With support from the Vietnamese government, combined with changing policies and falling costs to manufacture the technology needed to take advantage of renewable energy sources, Vietnam remains an attractive destination for foreign energy investors. offshore wind turbine.
Kohe Hasan is a partner at Reed Smith and director of Resource Law LLC. Hoang Nghiem is Chief Investment Officer (Energy) for Saigon Asset Management. Liseah Ang, partner at Reed Smith, also co-authored this article.