Power policy

Vietnam’s power market is dominated by state-utility Vietnam Electricity Group (EVN). The generation sector is opened to the participation of independent power producers. State-owned companies including EVN, Vinacomin and PV Power owned 65% of installed capacity in 2019. However, two consecutive solar booms in Vietnam over 2019-20, which saw almost 19 gigawatts of capacity installed, greatly diversified generation capacity ownership. EVN retains a monopoly in the transmission, distribution and electricity retail segment. The government targets liberalizing its electricity retail market by 2025 starting with a planned direct power purchase agreement pilot.

Vietnam witnessed strong power demand growth over the last decade. Between 2010 and 2019, Vietnam’s electricity demand increased at a compounded annual growth rate of 10.1%, primarily driven by increased foreign investment in Vietnam’s manufacturing sector. Delays in planned fossil fuel plants and exhaustion of the country’s large hydro potential led to power supply shortage concerns. This led to a pivot in the government’s attention away from coal and toward renewables and gas as suggested by the draft power development plan VIII issued in February 2021.

Power prices and costs

To spur development in wind and solar, Vietnam introduced feed-in tariff (FiT) schemes for wind and solar projects. The first wind FiT implemented in 2011 at $78/MWh failed to incentivize development. It was subsequently revised in September 2018 – the onshore wind FiT was increased to $85/MWh and an offshore wind FiT of $98/MWh was introduced. Wind developers in Vietnam are currently racing toward a commissioning deadline of November 1, 2021.

The solar FiTs successfully attracted investments into the sector, allowing Vietnam to emerge as the regional clean energy leader in Southeast Asia. The two solar feed-in tariff schemes drove almost 19 gigawatts of solar build in just two years and propelled Vietnam to become the third-largest solar market in 2020. This led to a significant change in the make-up of Vietnam’s power mix. In 2020, the share of fossil fuel fell significantly to just 42% of installed capacity, from 83% in 2019. However, as most of the solar boom in 2020 occurred in December, coal and gas still generated 66% of electricity in 2020. However, due to the rapid development of both utility and small-scale solar, grid congestion and curtailment are increasing concerns in Vietnam.

Power market

Vietnam’s power system is predominantly fossil fuel based with coal, gas and oil supplying 60% of generated electricity in 2018. Hydro’s potential has been largely harnessed in Vietnam and accounts for 38% of supply. Renewable energy (excluding hydro) has a limited role in the current generation mix, with less than 1% of total supply.

Vietnam’s power market is partially liberalized, with the generation sector open for private participation. EVN and its subsidiaries monopolize transmission, distribution and retailing of power. Vietnam operates on a single buyer model with EVN as the sole off-taker of all generated electricity. A power sector reform roadmap is in place. In 2012, the competitive generation market was established and unbundled EVN’s power generation function. In the second phase of liberalization, Vietnam introduced the competitive wholesale market in 2019. A competitive retail market is targeted after 2021. A mechanism for direct purchase of power by corporates is also under development.

Doing business and barriers

The investment climate in Vietnam is stable. There are no known defaults by the single off-taker, EVN. There are no barriers to entry in the form of foreign ownership restrictions or local content requirements. There is however uncertainty in the future revenue and offtake schemes for solar and wind projects. After the expiry of the last solar FiT in December 2020 and with the upcoming wind FiT expiry in November 2021, the government has yet to release any new pricing mechanism for solar and wind projects.

EV market

While there are little to no passenger EVs in the vehicle fleet currently, Vietnam leads the Southeast Asia region in electric two-wheelers with over 420,000. In 2020, the country accounted for 99% of all-electric two-wheeler sales in Southeast Asia. This high adoption rate is driven by Vietnam’s lax rules on low-speed electric two-wheelers. The country historically allowed these vehicles to be driven without a driver’s license and without registration, making it a popular choice of transportation.

EV policy

Vietnam has yet to implement a federal electric vehicle (EV) policy or a long-term roadmap. There are no incentives for the purchase of EVs although the country imposes a lower excise tax of 5-15% on battery EVs compared to 35-90% for internal combustion engines. The Ministry of Industry and Trade has said it was considering additional tax incentives to encourage development and use of electric vehicles in Vietnam, however, none has been finalized.

Buildings market

The government has yet to implement any substantive policy support in this sector and the low-carbon heat market remains at an early stage.

Buildings policy

In 2006, Vietnam approved the first Vietnam Energy Efficiency Program that outlined measures for improving energy efficiency and conservation across different sectors of the economy. The program is now in the third phase for the period 2019-30.

The national technical regulation on energy efficiency buildings code applies to the design, construction or retrofit of buildings with a gross floor area of 2,500 square meters or larger. The energy efficiency building code regulates and sets minimum standards for building envelope, ventilation and air conditioning systems, lighting systems and electrical equipment. Although the regulation was first adopted in 2013, compliance is reported to be low.