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Vietnam’s renewable energy strategy can make or break economy’s manufacturing future

May 03, 2022
Thu Vu
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Key Findings

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.

Executive Summary

Last December, when the Danish toymaker Lego announced a USD1 billion greenfield investment in Vietnam, its sixth factory worldwide yet the first carbon neutral one, to be powered entirely on solar energy, the news sent a strong message to national governments in Southeast Asia. A country’s competitiveness as an investment destination for the global corporations now rests increasingly on its ability to provide clean energy. Vietnam seems ahead of the race, for now.

The past five years marked a spectacular first stage of development for Vietnam’s solar and wind power sector. Generous incentives ushered the birth of an industry that barely existed before 2017, the year when the first feed-in-tariff (FIT) policy was introduced. Today, with nearly 21 gigawatts (GW) of solar and wind power connected to the national grid, Vietnam has become the renewable energy leader of the region, successfully rebranding itself away from a traditional coal-centric developing economy.

All eyes are now on how the next stage of growth will unfold, which will be decided by the upcoming power development master plan for 2021-2030 (also known as PDP8), and new contractual and procurement policies that will replace earlier FIT programs.

The anticipation has been particularly intense for multinational corporations whose existing and future manufacturing activities in Vietnam will bank on credible progress in operational sustainability. These companies, which are growing in number and climate ambition, have been prominent advocates of an ambitious and robust clean energy adoption plan in Vietnam.

Prime Minister Pham Minh Chinh committing Vietnam to a 2050 net-zero carbon emissions target at the 2021 United Nations Climate Change Conference (COP26) bodes well with the decarbonization ambition of the many multinationals his country is hosting. This reflects a pragmatic alignment with the global movement towards climate-responsible investment and consumption. Vietnam’s unparalleled exposure to these investors and consumer markets in the west means that its senior officials cannot afford to be oblivious of the former’s quest for clean electricity access.

For Vietnam, renewable energy is going beyond solving power supply security issues or the agenda of the energy ministry. As the availability of clean electricity becomes an additional, critical determinant of investment capital and export orders, renewable energy policy planning is now a concerted cross-agency effort that must reflect the priorities and interests of macroeconomic, foreign investment, and sectoral ministries.

Reaching consensus will not be easy, as long-term economic gains could only come at the expense of near-term growing pains and substantial upfront investments. However, successfully charting the right pathway towards clean energy adoption will influence Vietnam’s ability to cement its position in the global supply chain for decades to come.

Vietnamese Translation: Chiến Lược Phát Triển Năng Lượng Tái Tạo Và Tương Lai Nền Kinh Tế Sản Xuất Của Việt Nam 

Thu Vu

Thu Vu is the energy finance analyst leading the Vietnam market coverage for IEEFA. Thu writes about policy developments and investment trends that facilitate the transition of Vietnam’s power sector towards a cleaner and economically sustainable future.

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