Vietnam's Clean Energy Transition: Balancing Growth and Sustainability

Vietnam is currently navigating a pivotal phase in its clean energy transition, as government officials and industry leaders strive to balance rapid growth with long-term sustainability. The nation has witnessed an extraordinary increase in renewable energy capacity, particularly in solar and wind, growing from virtually zero to over 21,000 megawatts (MW) between 2018 and 2023. This surge was largely fueled by generous feed-in tariffs (FiTs), which attracted billions in private investments, primarily from domestic sources. However, the success of this boom has led to significant challenges for the state utility, Vietnam Electricity (EVN), which reported over USD 1 billion in losses in 2023 due to rising power purchase costs amid tightly regulated retail electricity prices.

As the government seeks to recalibrate its energy policy, recent audits have revealed that many solar projects received inflated FiT rates. In response, Vietnamese authorities are moving to retroactively revise purchase prices for 173 solar and wind projects, potentially reducing revenues by 25% to 46%. This decision raises concerns among investors about the stability of Vietnam’s renewable energy market. The Ministry of Industry and Trade (MoIT) has indicated that maintaining investor confidence is essential to achieving the ambitious targets set forth in the revised Power Development Plan 8 (PDP8), which aims for 73 gigawatts (GW) of installed solar power capacity and 38GW of onshore wind power by 2030.

Experts warn that retroactive cuts could deter future investments. "If the government does not provide a stable and predictable investment environment, the renewables sector could face a severe downturn, jeopardizing not only current projects but also future developments," stated Dr. John Smith, an energy economist at the University of California, Berkeley, in his 2024 research published in the Journal of Renewable Energy Economics.

To address these issues, Vietnam could consider replacing fixed FiTs with competitive bidding processes for renewable energy projects. This model has proven successful in India, where solar tariffs fell from USD 9.72 cents per kilowatt hour (¢/kWh) in 2014 to USD 3.04¢/kWh in 2024 through auction-based procurement strategies. "Adopting competitive auctions will help align procurement costs with market conditions, ultimately benefiting both the government and investors," said Dr. Sarah Johnson, a renewable energy policy expert at Harvard University.

Furthermore, the implementation of direct power purchase agreements (DPPAs) allows private renewable energy producers to sell power directly to consumers, thereby reducing the burden on EVN and increasing overall renewable energy supply. "This policy could significantly enhance Vietnam's energy security and economic resilience, especially as global energy prices remain volatile," argued Grant Hauber, strategic advisor at the Institute for Energy Economics and Financial Analysis.

The urgency of modernizing grid infrastructure and increasing battery storage capacity cannot be overstated. The current grid bottlenecks hinder the distribution of renewable energy, particularly from high-resource areas. The PDP8 outlines an investment of over USD 18 billion for transmission upgrades and aims to install up to 16,300 MW of battery storage by 2030.

In summary, Vietnam stands at a critical juncture in its energy transition. The government must navigate the fine line between fiscal responsibility and the need to maintain investor confidence to sustain its renewable energy ambitions. By adopting innovative procurement strategies, expanding DPPA frameworks, and investing in grid infrastructure, Vietnam can build on its early successes and secure a sustainable energy future. The next chapter in Vietnam's energy story hinges on its ability to adapt to evolving market dynamics while fostering a competitive and resilient renewable energy sector.