Vietnam's energy security depends on accelerating its clean energy transition

Executive summary

Vietnam has emerged as one of Southeast Asia's fastest-growing economies and an increasingly important manufacturing hub for multinational companies, including Samsung, Apple, Nike, Adidas, Google, and Amazon. Rapid industrialization, urbanization, and rising living standards have driven sustained growth in electricity demand, making reliable, affordable, and secure energy supplies critical to the country's economic development.

Traditionally, energy security referred to the reliable and affordable supply of energy needed to support economic activity. Deeper integration into international energy markets could enable this objective by allowing countries to diversify suppliers and access globally traded fuels when domestic resources are insufficient. However, Russia's invasion of Ukraine in 2022 and the 2026 Middle East conflict, which disrupted shipping through the Strait of Hormuz, exposed the vulnerabilities of this approach, demonstrating how geopolitical events can rapidly affect globally traded fuel supplies and prices.

For Vietnam, these risks are becoming more important as electricity demand rises and the country becomes more dependent on imported energy. The 2026 disruption was particularly significant given that approximately 85% of Vietnam's crude oil imports originate from the Middle East, along with around 80% of its propane imports and more than half of several key hydrocarbon liquids.¹ Although Vietnam imports only a limited share of its liquefied natural gas (LNG) directly from the region, its reliance on the spot market leaves it critically exposed to global LNG price fluctuations regardless of the origin of individual cargoes. Energy security, therefore, increasingly encompasses not only adequate and affordable supply but also greater energy independence and resilience to geopolitical disruption, commodity price volatility, and global supply chain disruptions. Vietnam cannot control these external events, but its energy choices can determine how exposed its economy and power system are to them.

These considerations are increasingly important for Vietnam's power sector. Under the April 2025 revised Power Development Plan VIII (PDP8), Vietnam plans to meet part of its rapidly growing electricity demand through a substantial expansion of gas-fired power. By 2030, the plan targets 22.5 gigawatts (GW) of LNG-fired capacity and 10.9–14.9GW of domestic gas-fired generation.² As production from mature domestic gas fields declines and new offshore resources prove costlier and slower to develop, this expansion would increase Vietnam's reliance on imported LNG and its exposure to global fuel markets. 

The economics underpinning this strategy have also changed. LNG fuel costs remain uncertain, while the cost of building new combined-cycle gas turbine (CCGT) power plants has risen sharply and equipment lead times have lengthened.³ Higher fuel and project costs would ultimately need to be borne by developers, state-owned energy companies such as Vietnam Electricity (EVN), the government, or electricity consumers. This could undermine Vietnam's longstanding objective of maintaining affordable and predictable electricity prices.

The changing economics of gas-fired power are particularly significant when compared with renewable energy. Even the relatively generous feed-in tariffs (FiTs) used to accelerate Vietnam's first renewable energy boom are below the estimated cost of new LNG-fired generation under current market conditions. Between 2018 and 2023, these FiTs helped increase Vietnam's installed solar and wind capacity from virtually zero to more than 21GW and mobilized billions of dollars in private investment.⁴ Renewable technology costs have fallen further since those tariffs were introduced, while LNG fuel and CCGT construction costs have risen.

This strengthens both the economic and energy security case for greater use of Vietnam's domestic renewable resources to meet growing near-term electricity demand. Solar and wind require substantial upfront capital but provide greater long-term cost certainty because their economics are largely determined when projects are built rather than by fuel prices over decades of operation. Increased use of domestic renewable resources can also strengthen energy independence by reducing the amount of additional electricity demand that must be met with imported fuels.

Vietnam's first renewable energy boom exposed weaknesses in the investment and regulatory framework. FiTs mobilized substantial domestic and international capital, but rapid development outpaced transmission investment in several regions, contributing to congestion and curtailment. Subsequent changes to pricing arrangements and uncertainty over the treatment of some existing projects have also affected investor confidence.⁵

The next phase will therefore require a different approach. Vietnam will need substantial private capital to develop new generation and supporting infrastructure, requiring greater certainty over how projects are procured, priced, and connected to the grid. Transparent market mechanisms, stable and clearly communicated policies, credible contractual arrangements, and consistent implementation will be necessary to give developers and lenders confidence to commit long-term capital. Continued investment in transmission and storage, along with improved coordination between generation and grid planning, will also be essential to maximize Vietnam's domestic energy resources.

Taken together, the changing economics of gas and renewable energy provide a strong case for reassessing the balance of new investment proposed under PDP8. The objective should be to meet rapidly growing electricity demand at an affordable cost while strengthening energy independence and limiting Vietnam's exposure to risks beyond its control. Decisions on long-lived fossil fuel infrastructure should also account for changing power system needs, long-term costs, and Vietnam's commitment to achieve net-zero emissions by 2050.

The Institute for Energy Economics and Financial Analysis (IEEFA) identifies four priorities for strengthening Vietnam’s energy security while meeting growing electricity demand:

1. Shift a greater proportion of near-term power supply development towards domestic renewable energy. Prioritize solar, wind, and other domestic renewable resources where they can meet incremental electricity demand more quickly and economically than new LNG-fired generation. Increasing the share of electricity supplied from domestic renewable resources would strengthen energy independence and reduce the additional import requirements associated with expanding gas-fired power. As renewable energy and storage capacity expand, some planned LNG projects may also prove unnecessary.

2. Reassess the scale and sequencing of LNG development. Regularly review the 22.5GW LNG target against changing fuel prices, construction costs, equipment availability, project timelines, expected utilization, and Vietnam's longer-term power needs. For projects that remain under consideration, assess fuel and foreign exchange exposure, infrastructure requirements, and vulnerability to geopolitical disruption when determining whether they remain economically justified. This would reduce the risk of committing to long-lived infrastructure where changing market conditions or lower-cost alternatives have weakened the investment case.

3. Accelerate investment in transmission, storage, and power system flexibility. Align generation development more closely with transmission expansion and accelerate investment in grid infrastructure, storage, and other sources of system flexibility. This would help reduce congestion and curtailment, enable greater integration of renewable energy, and ensure that new renewable capacity can contribute reliably to meeting electricity demand.

4. Establish a stable and bankable framework for private investment. Provide transparent procurement and pricing mechanisms, including consideration of revised FiTs and competitive renewable energy auctions, while supporting the continued implementation and expansion of the existing Direct Power Purchase Agreement (DPPA) framework. Credible power purchase arrangements, clear grid-connection rules, and consistent treatment of existing and future projects should underpin these mechanisms. Greater regulatory certainty will be essential to restore investor confidence, reduce financing costs, and mobilize the scale of domestic and international private capital required for Vietnam's power sector expansion.

_{¹ MUFG Research. Vietnam – Strait of Hormuz Closure: Oil and Energy Shortages Key for VND. 18 March 2026.
² KPMG. Revised Power Development Plan Vlll of Vietnam under Decision 768/QD-TTg dated 15 April 2025 and its implementation guidance under Decision 1509/QD-BCT dated 30 May 2025. July 2025. 
³ IEEFA. Global gas turbine shortages set to increase delays and costs for gas-to-power projects in Vietnam and the Philippines. 7 October 2025.
⁴ The Diplomat. Why Vietnam is Cutting Down Payments to Renewable Energy Developers. 3 June 2025.  
⁵ IEEFA. From boom to balance in Vietnam's clean energy transition. 17 June 2025.}