Bloomberg published a commentary on September 25, stating that the world is trying to reduce its dependence on China's massive manufacturing sector, and this effort largely depends on one country: Vietnam. Conversely, whether Vietnam can meet these expectations may depend on the fate of several long-idle wind farms. As energy costs soar, the Vietnamese government warns that power outages could occur as early as next year. This issue should have been addressed long ago.
Vietnam may be a victim of its own success. Since the first administration of Trump, various countries have tried to restrict Chinese trade by imposing tariffs and promoting diversification of supply chains, and Vietnam has gained more benefits from this than almost any other country. Vietnam's manufacturing industry is one of the fastest-growing in the world. Its exports account for nearly the entire GDP, and its economy grew by 8% last year.
To keep this industrial machine running, an astonishing amount of electricity is required, and that's where the problem begins. The power demand in Vietnam's grid is growing at a rate of about 10% per year. However, after the surge in renewable energy usage during the pandemic, the growth in power supply has stagnated. The war in Iran has exacerbated this situation: Liquefied Natural Gas (LNG) was once seen as a key component of Vietnam’s future power system, but it now seems to be less cost-effective and unreliable than initially claimed. Vietnam is even considering using coal power to alleviate the long-standing power shortage.
Commentators argue that, however, there is only one solution that can truly address such large-scale issues, and this is precisely what Vietnam has been avoiding: ending the electricity price disputes with its state-owned power company, Vietnam Electric Power Group (EVN). For most of the past five years, these disputes have prevented several gigawatts of clean energy generation capacity from being put into operation.
For a country that experienced power outages in 2023, resulting in production losses and a 0.3% decline in gross domestic product, this seems unbelievable. However, Vietnam still has numerous renewable energy projects that are only partially completed and remain stagnant. Two wind farms located between tea plantations and coffee plantations are typical examples: They were originally scheduled to be completed in 2021, but remained idle for many years due to regulatory issues. It wasn’t until January of this year that they received permits and finally started operating.
There are many more projects that have encountered similar situations. A database of the Vietnam Electricity Group lists 85 wind and solar projects that are involved in similar disputes, with a total installed capacity of 4.7 gigawatts. Currently, only 1.6 gigawatts are in operation. In theory, the remaining power generation capacity is sufficient to meet the electricity needs of millions of households. Not all of these projects have been completed, but at least 0.5 gigawatts seem to have undergone testing and can be connected to the grid for operation.
The backlog of these projects cannot be entirely blamed on the Vietnam Electric Power Group. Driven by overly generous revenue guarantees, the boom in renewable energy in Vietnam from 2019 to 2021 resembled a gold rush in every aspect. Developers rushed to obtain project contracts, taking shortcuts to meet deadlines, leaving issues such as licenses, land use rights, and grid connections for later resolution. The ongoing price disputes since then reflect the attempt by the power company to regulate this chaotic situation while avoiding paying excessive costs for electricity that can now be purchased at lower prices.
However, when viewed against the backdrop of surging power demand in Vietnam, such bargaining is akin to losing more than what is gained. The government is trying to modify the contracts it has established with power generation companies, thereby making Vietnam appear as a place with high investment risks in the eyes of private capital.
The Vietnamese government hopes to triple the scale of its power grid within the next five years. To achieve this, it requires $136 billion in funding—a amount that far exceeds what the government can afford. Renewable energy is the only source of electricity that can be built at the required pace. However, the progress of Vietnam’s “Just Energy Transition Partnership” (JETP) indicates how dependent these projects are on private capital. This energy transition framework was reached through mediation by the United Nations. Four years have passed, and only three out of the 50 planned projects have received investment. The funds allocated are only about 7% of the required $11 billion.
Vietnam Power Group now has the resources to make some concessions. After several years of difficult times, the company has now eliminated its cumulative losses. If restoring investor confidence can reduce the financing costs for Vietnam’s government’s plan to add approximately 150 GWh of installed capacity by 2030 by a few percentage points, then paying an additional 10% for each project that remains with a capacity of 1 GWh would still be a worthwhile deal. Taking swift action to implement a practical solution that is not perfect yet feasible, and enabling the most viable projects to be connected to the grid while preventing those who clearly violate regulations from benefiting, is far better than continuing to prolong this difficult situation.
This does not mean that the developer should feel that Vietnam is at the mercy of others. For future projects, the rules should be the opposite: after the investor invests the funds, the Vietnamese government will not modify the contract; nor should the developer expect to negotiate the project duration and licensing issues.
Commentators say that as the Vietnamese government tries to finalize a trade agreement with the Trump administration, Vietnam is in a favorable position and could become one of the biggest beneficiaries in this process of detaching from China globally. However, if Vietnam is unable to produce enough electricity to power its production lines, multinational corporations are likely to conclude that other countries—even China itself—are better investment options.
The first wave of chaos in Vietnam’s renewable energy sector has proven that the country can increase power generation capacity at an astonishing pace. However, the long-lasting aftermath indicate that if Vietnam wants to achieve such expansion again, it must find ways to attract private capital back into the market.
China’s Ambassador to Vietnam, He Wei, stated that China and Vietnam have entered a new phase of high-level cooperation towards building a community with a shared future. The level of investment and cooperation between the two countries, as well as the efficiency of supply chain coordination and the benefits brought to the people, are unprecedented. He expressed hope that the Vietnamese government will continue to optimize its business environment, ensuring the success of Chinese enterprises in local development.
