Arnaud Ginoline (left), managing director and partner at Boston Consulting Group, and Sansika Zdunic, project leader at Boston Consulting Group.
Asia Pacific's huge potential and diverse market trends present significant opportunities and unique challenges for renewable energy developers, investors and operators. These complexities are examined in our latest report, “Asia Pacific is Ready for Renewables. Who are the Energy Players?”
Navigating this complex landscape requires a strategic approach that is tailored to local conditions, with a nuanced understanding of the complexities of each market. Achieving substantial renewable energy integration will require significant investments. According to the International Energy Agency's revised August 2023 pledge scenario, renewable energy investments in Asia-Pacific from 2022 to 2030 are projected to reach $286 billion.
Vietnam’s rapid growth and national drive to expand renewable energy capacity make it an attractive market for the evolution of low-carbon energy in Southeast Asia, with wind and distributed solar technologies providing a valuable platform for sustainable success.
Vietnam's renewable energy prospects
Vietnam is a country with growing energy demand due to rapid population and economic growth. In 2024, the country's economic growth rate is expected to reach nearly 6%, well above the global average and outperforming many other countries in the region. The realignment of global supply chains from China to Southeast Asia is further boosting economic opportunities for the country, creating fertile ground for investment in renewable energy.
The country has a strong renewable energy foundation, with an installed energy capacity of over 46,000 MW as of 2023, establishing it as a regional leader in total installed renewable energy capacity.
There is a strong national effort to build on this base, with Vietnam setting a target of reaching net zero by 2050.
The Eighth Power Development Plan targets around 27% electricity generation from wind and solar by 2030, with around half of that coming from hydro, gas and other low-carbon sources. It aims to phase out coal and convert gas-fired power plants to ammonia, hydrogen and liquefied natural gas by 2050. Wind, solar and hydro aim to account for the largest share of the future electricity mix.
By joining the Just Energy Transition Partnership, Vietnam will position itself to benefit from significant foreign direct investment to support the country's low-carbon energy goals. Vietnam's roadmap to significantly expand renewable energy generation is expected to add a total of 26GW of wind and solar power capacity.
Plot your path to success
Renewable energy development in Vietnam, and in Asia Pacific, is being driven by several key factors, each of which is helping to accelerate the momentum towards a sustainable energy future. One key driver is cost reduction. Technological advances and economies of scale have made renewable energy increasingly competitive with traditional fossil fuel-based generation. This cost parity, especially in solar PV, is accelerating the adoption of renewable energy in Asia Pacific and encouraging investment and deployment in clean energy infrastructure.
To navigate the renewable energy landscape in Vietnam and the Asia-Pacific region, developers and investors will need to adapt to the diverse business environments that exist in each market.
We have identified five key factors that both developers and investors should consider: sharpening focus by concentrating efforts on specific markets and technologies, establishing local partnerships to access land and navigate the regulatory environment, widening financing options to address the challenges of lower revenues and increased competition, navigating the supply chain by integrating with local players to meet local content requirements, and leveraging offtake expertise to gain a competitive advantage in the bidding process.
Vietnam's high-growth economy and strong transition commitments present attractive opportunities for the energy industry and provide a valuable foundation for future industry growth. It is critical that stakeholders consider their position now and build a strong platform that can capitalize on the predicted acceleration of renewable energy technologies.
Distributed solar power has emerged as an attractive opportunity due to low capital costs and an established local presence in solar panel manufacturing. Corporate demand is likely to drive further market growth. Enthusiasm for such projects will be driven in large part by the recently approved Direct Power Purchase Agreement (DPPA) pilot.
This system gives large-scale consumers with monthly consumption exceeding 500,000 kWh the opportunity to procure renewable energy directly from producers, creating an environment favorable for the installation of distributed solar power generation facilities.
Vietnam also has official goals to accelerate the growth of onshore and offshore wind energy, but grid capacity constraints and congestion issues will likely dictate the timeline. These grid challenges mean that the internal rate of return for renewable energy is low, currently averaging less than 5%.
Offshore wind power, with potential exports to other ASEAN countries, is expected to become a priority beyond 2030. Singapore's energy regulator has already conditionally approved the import of 1.4GW of low-carbon energy, mostly from offshore wind, from Vietnam to ease the country's energy constraints.
Despite the opportunities, investors in Vietnam's renewable energy market face challenges. Maintaining financial viability and sustainability while adapting to market trends requires agility, foresight and a deep understanding of local market conditions.
However, important efforts are underway to address these issues. In collaboration with Electricity of Vietnam, the government is focusing investments on strengthening grid infrastructure by promoting investment in appropriate energy storage solutions that support the integration of variable renewable energy into the expanding power system, and by increasing the flexibility of the power system. DPPA pilots and market liberalization efforts also provide important signals to potential investors, although the former must address outstanding implementation issues regarding the financial dynamics of virtual DPPAs.
Vietnam has a significant platform with existing capabilities, strong commitment and government support to drive growth. Developers and investors should aim to build a strong initial foundation backed by local partnerships to ensure first-mover advantage with high return potential in the long term.
Feasibility is essential for the success of the DPPA mechanism
A government decree in July allowed many types of renewable energy projects to enter into direct power purchase agreements without using Vietnam Electric's transmission lines. Tran Dang Khoi, general director of Hero Future Energies Vietnam Limited, a subsidiary of Hero Group, spoke to VIR's Oan Nguyen about how the policy will affect renewable energy companies and offered some suggestions.
DPPA paves the way for energy transition
The Direct Power Purchase Mechanism paves the way for manufacturers to accelerate their emissions reduction strategies by expanding their renewable energy sourcing.
Vietnam launches energy efficiency promotion program
Applications are now open for Vietnam’s first energy efficiency accelerator program.
