Global market exposure is an impetus for the government to support the power sector’s decarbonization
Vietnam’s economy stands more exposed to multinational corporations and the global consumer market than any other country in developing Southeast Asia (SEA), given the size of its export-linked manufacturing industries.
The unparalleled exposure serves as an impetus for the Vietnamese government to align the country’s power development policies with the corporates’ decarbonization plans and make clean energy access a priority to support Vietnam’s growth potential.
Corporate demand has been driving growth in Vietnam’s distributed renewable energy installations, such as commercial and industrial rooftop solar power, as global brands face the immediate pressure of tackling supply chains’ emissions.
12 May (IEEFA Asia): The Vietnamese economy’s unparalleled exposure to multinational corporations and the global consumer market calls for a pragmatic alignment between the country’s renewable energy strategy and the decarbonization commitments of the global brands, according to IEEFA’s latest report on Vietnam.
“Multinational corporations responsible for up to USD150 billion of Vietnam’s export revenues have made specific pledges on carbon neutrality or decarbonization of varying scope and timelines,” says author Thu Vu. “These brands’ journey toward sustainability progress is one in which Vietnam cannot afford to ignore or miss out on.”
Vietnam is currently the largest exporter of goods in developing Southeast Asia. With nearly 60% of the exports being manufactured goods for the big brands, its growing role in the global supply chain comes with the pressure to be attuned to the brands’ needs and preferences.
In her report, Vu describes the macroeconomic spillover effect of a solid renewable energy adoption plan in Vietnam, as well as the key drivers that will shape the sector’s next stage of growth.
“Solar and wind power is no longer a sole matter of incremental power supply, but also an insurance policy for jobs, hard currency earnings, economic growth, and a conduit for sustainable investments,” says Vu. “Unlike the past, this decade’s revenue streams will rest on the country’s ability to plug factories to a low-carbon grid.”
Prime Minister Pham Minh Chinh committed Vietnam to a 2050 net-zero carbon emissions target at the 2021 United Nations Climate Change Conference just as international consumer brands, many of whom have supplier clusters in Vietnam, are making supply chains’ emissions reduction front and center of their decarbonization strategy.
Companies such as Nike and Apple have been prominent advocates of an ambitious and robust clean energy adoption plan in Vietnam, have asked the government to enable their suppliers’ factories access to clean energy options, says Vu. “For these corporates, getting clean power is less about immediate cost savings.”
Vu explains that this is part of a wider, more pressing carbon footprint reduction effort, without which their bottom lines, ability to access lower-cost capital, and reputation will be put at risk.
Greater focus on corporate clean energy needs can be seen in the rapid growth of distributed renewable power solutions, such as commercial and industrial (C&I) rooftop solar systems, for which the government and state utility Electricity of Vietnam (EVN) have expressed continued support.
“These systems help ease demand, grid congestion, and relieve EVN of the pressure of developing and funding new capacity,” says Vu.
Vu notes that Vietnam’s C&I rooftop solar segment has been quietly driving capacity growth this year amid the temporary policy freeze on utility-scale projects.
“Developers and their financiers, which have successfully adjusted their business models to become largely independent of state subsidies, are tapping into the country’s largely under-served and growing industrial space.”
High-profile investors are entering this market, such as the French utility group EDF and South Korean conglomerate SK Group. Both have formed joint ventures with local partners, each pledging over USD100 million in investment over the next few years.
Eco-industrial parks are also gaining traction in Vietnam, with the owners proactively exploring clean energy solutions to lure ESG-conscious tenants. Sembcorp-backed Vietnam Singapore Industrial Park’s expansion in Binh Duong province recently announced that it would develop an onsite solar farm to power its tenants, including the upcoming first carbon-neutral factory of Danish toymaker Lego.
The government has been undertaking regulatory and technical preparatory work for an offsite corporate renewable energy procurement scheme, also known as the Direct Power Purchase Agreement (DPPA). This is highly anticipated by energy-intensive corporate consumers who lack access to adequate onsite renewable resources.
DPPAs are expected to be deployed in 2023-2024 with an initial cap of one gigawatt (GW) capacity. “The charm of DPPA is that it relieves EVN of tariff pressures,” says Vu.
Vu adds that the corporate renewable procurement market in the Asia Pacific is quickly evolving, with India, a competing manufacturing economy to Vietnam, currently leading the pack with 5.2GW in cumulative capacity.
“Quickly deploying and scaling up the program could give Vietnam stronger positioning, given the abundant demand and natural resources at hand,” says Vu.
Read the report:
In English: Vietnam’s Renewable Energy Strategy Can Make or Break Economy’s Manufacturing Future
In Vietnamese: Chiến lược phát triển năng lượng tái tạo và tương lai nền kinh tế sản xuất của Việt Nam
Author contact: Thu Vu ([email protected])
Media contact: Alex Yu ([email protected]) Ph: +86 178 217 06229
About IEEFA: The Institute for Energy Economics and Financial Analysis (IEEFA) examines issues related to energy markets, trends and policies. The Institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy. (www.ieefa.org)