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Vietnam’s Offshore Wind Power Holdup: Unpacked

At the beginning of March of this year, a 100-ton wind turbine fell apart over a fish and shrimp farm in Vietnam’s Bac Lieu province. No one was injured but some three weeks later the owner of the shrimp farm made a compensation claim in the amount of VND 160 billion or US$6.4 million, a substantial sum in a country where the average wage is just US$280 a month.

But more to the point, this compensation claim could have been avoided had the wind turbine been erected 30 kilometres out to sea.

That said, the perks of offshore wind farms go well beyond simply mitigating the impacts on local communities of faulty wind turbines. The wind further offshore is also more consistent and there is an abundance of cheap, empty space which means bigger blades can be used and that means a whole lot more electricity. In fact, Vietnam’s offshore wind power potential is among the best in the world.

However, realising this opportunity is taking quite a while.

The Power Development Plan 8–known in short as the PDP8–that was approved last year, was embedded with a target of six gigawatts of offshore wind power by 2030. The implementation plan for the PDP8 released earlier this year, however, did not list a single offshore wind power project.

Indeed, Vietnam’s six gigawatt goal is looking increasingly unattainable. There is just a little under six years left to reach said target yet, under near-perfect conditions, offshore wind power projects generally take upwards of eight years to complete.

So what’s holding up the development of offshore wind farms in Vietnam?

Electricity pricing in Vietnam can be complex

Firstly, actually negotiating a price for electricity produced by private power plants in Vietnam is challenging in general, but when it comes to wind power projects those challenges are somewhat amplified.

This dates back to 2011 and Decision 37. This document broadly laid out how Vietnam would attempt to reduce its carbon emissions by embracing renewable energy. More specifically, it codified feed-in tariffs for new wind power projects of about US 7.8 cents per kilowatt-hour. 

This rate was then increased in 2018 through Decision 39

Of note, whereas Decision 37 had applied a blanket feed-in tariff for all wind projects, Decision 39 divided wind power projects into two categories: inland wind power projects, which would receive a feed-in tariff of US 8.5 cents per kilowatt-hour; and offshore wind power projects, which would receive a feed-in tariff of US 9.8 cents per kilowatt-hour.

For comparison, the feed-in tariff for coal power in 2018 was set at about US 6 cents.

In this context, from a power generator’s perspective, these feed-in tariffs were very attractive and Decisions 37 and 39 proved to be hugely successful at driving investment in wind power in Vietnam–by the end of 2021, Vietnam had an installed wind power capacity of 3,299 megawatts.

There was, however, also one crucial caveat attached to Decision 39: to access the tariffs it had on offer, projects needed to be operational no later than November 1, 2021. 

For wind power projects that failed to meet this deadline, there was no alternative power pricing framework and without this framework, power generators could not be paid.

As such, project developers that missed the deadline were faced with a dilemma. Either, finish their wind farms and provide power to the grid anyway and wait for a pricing framework to be established to get paid; or, halt work on their wind farms and chalk-up whatever had already been spent as a loss.

For firms that moved forward with their projects, they were in for a long wait. It wasn’t until January of 2023 that the Ministry of Industry and Trade finally released feed-in tariffs for these projects.

Of note, during that period EVN had also had its own financial difficulties, recording a loss in 2022 of US$816.7 million. This was largely attributed to rising input costs, in the context of a regulated, and subsequently stagnant, retail price at which it could sell electricity to consumers.

In this light, there was enormous pressure on the state-owned enterprise to pay the lowest possible price for the electricity it bought from private producers. It also had a monopoly on the power grid, and with no alternative buyers, there was no competition–EVN had wind power producers over a barrel.

With this in mind, those 2023 feed-in tariffs were just a fraction of those offered back in 2018–onshore windfarms would receive US 6.8 cents per kilowatt-hour and offshore wind would receive US 7.8 cents, representing a reduction of US 1.7 cents and US 2 cents, respectively.

All of that is to say, that this uncertainty has made power project investors more cautious, with an obvious need for a clear pricing framework, for whatever eventuates, to be in place before work starts on a wind power project. This process, however, can be very long, drawn out, and complex.

A number of laws still need to be amended

But it’s not just electricity pricing that is keeping offshore wind in a relative state of stillness.

There are a number of gaps in legislation that could also cause problems moving forward. 

There are no contract bidding guidelines in the Law on Electricity, the Law on Investment doesn’t say who has the authority to approve offshore wind power projects, nor are there guidelines for developing offshore wind with respect to how Vietnam’s national security interests should be protected in offshore wind power developments, according to one assessment by The Leader.

By some estimates, there are at least 20 laws that will need to be amended to make offshore wind possible.

The problem with this is not so much the volume of laws and regulations that need to be addressed and updated but rather the way in which this is done. Across multiple departments and ministries coordination can be difficult and ensuring guidelines and laws do not overlap can be a tedious, long drawn-out (and still not always successful) process.

There is still no marine spatial plan

That said, even if EVN can establish a clear electricity pricing framework and the multitude of government ministries and departments can come together to pass all of the necessary supporting legislation, there is still the issue of the marine spatial plan–the MSP–or lack thereof.

The MSP is being developed by the Ministry of Natural Resources and Environment in consultation with just about every ministry. It will guide the development of Vietnam’s offshore resources, a decent portion of which are located in possibly the most hotly contested sea in the world.

Indeed, a marine spatial plan for Vietnam would require marking out a vast swathe of the South China Sea, likely intersecting claims from a myriad of other Southeast Asian nations and possibly inflaming tensions in the region. Of course, publishing a marine spatial plan that excludes areas in which there are overlapping claims, may have an adverse effect at home, serving to aggravate nationalists and ruffling the feathers of Vietnam’s unofficial anti-China brigade.

This might help to explain why the plan has been years in the making.

But it’s not just about national security but energy security too. Sourcing electricity from a wind corridor in such a geopolitically fragile region may put Vietnam’s power supply at risk in the event conflict was to arise in the South China Sea.

In this context, a credible argument could even be made that offshore wind on the whole just is not practical at all in the current geopolitical context. 

Where does that leave it?

In December of last year, the Vietnam Department of Seas and Islands announced that it had submitted a draft marine spatial plan to the government for consideration. Details in the department’s press release were scant and there hasn’t been much said about the draft or what’s in it in the local media.

Regardless, a number of international firms are still plugging away trying to gain access to the industry. Australia’s Corio Generation, for example, signed a memorandum of understanding with an EVN subsidiary to jointly develop up to 4.5 gigawatts of offshore wind back in March.

Singapore’s Sembcorp Utilities has also been working with Vietnam’s state-owned PetroVietnam Technical Services Corporation on a 2.3 gigawatt offshore wind farm with the power produced to be exported to Singapore via an undersea cable.

Furthermore, big international brands like Samsung, Apple, and Heineken have all expressed a desire to power their operations with renewable power. Likewise, the U.S. Undersecretary for Economic Growth and the Environment, Jose Fernandez, has said a lack of access to consistent renewable energy sources is a key obstacle for US chip makers looking to invest in Vietnam (see also: Vietnam’s Semiconductor Manufacturing Ambitions: Unpacked).

The point is that there is immense interest in developing offshore wind power specifically,  but renewable energy more broadly, in Vietnam. 

That said, from developing the electricity pricing framework for offshore wind, to amending a multitude of laws, to developing and publishing a marine spatial plan, the path forward is complex. With this in mind, it’s fairly safe to say that any offshore wind by 2030 is unrealistic, let alone six gigawatts. That’s not to say, however, that Vietnam doesn’t have a role in offshore windpower more broadly. 

Earlier this month a shipment of wind turbines made in Vietnam set sail for an offshore wind farm development in South Korea. Furthermore, companies like China’s Trina Solar and South Korea’s CS Wind have invested millions of dollars in factories in Vietnam to produce solar panels and wind turbines, respectively.

In this context, offshore wind power developers may find that wind power projects in Vietnam are off the cards, at least for a while, but they may benefit from the low-cost labour and openness to trade that has turned Vietnam into a manufacturing powerhouse now (See also: How to Open a Factory in Vietnam: Ultimate Guide 2024).

All of that said, Vietnam’s demand for electricity is growing rapidly and the energy sector is among the most dynamic in the region. With this in mind, opportunities can both appear and disappear very quickly, and in this light, firms looking to invest in Vietnam’s energy sector should make sure to keep up to date with the latest developments by subscribing to the-shiv.

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