Why over $13 billion in renewable energy investments are at risk in Vietnam

More than two dozen foreign and Vietnamese investors have issued a warning to the Vietnamese government. 

The investors, including major players like Adani Green Energy, expressed concern that proposed changes to the regulations surrounding subsidised prices for wind and solar energy could have a significant negative impact, according to Reuters. 

These changes, which would be applied retroactively, could jeopardise more than $13 billion worth of investments in the country's renewable energy sector.

In a letter seen by Reuters and dated March 5, investors told Vietnamese leaders they were "deeply alarmed" by the potential end to favourable energy tariffs.

They warned that the policy change could weaken broader financial stability and damage trust in Vietnam, especially as the country plans to significantly increase its renewable energy capacity.

The 28 signatories include private equity fund Dragon Capital, ACEN, which is the Vietnamese subsidiary of Philippines' ACEN energy group, and investors from Thailand, the Netherlands, Singapore and China.

Surge in investments in recent years

The Southeast Asian country has seen a surge in renewable energy investments lately, due to attractive feed-in tariffs, where the government agreed to purchase electricity at higher-than-market rates for 20 years.

The only buyer of the generated electricity was Vietnam's state-owned power utility EVN. However, the high tariffs increased EVN's losses and caused an increase in power prices for households and factories.

The authorities have made multiple attempts to lower the high tariffs. 

Even though the projects are already generating power, they are now contemplating a retroactive review of the criteria used to determine eligibility for the feed-in tariffs, according to the investors' letter.

The letter said:

The letter failed to clarify whether all the funds had been used and how or when Vietnam planned to review the current rules.

What are the risks?

The investors stated in the letter that EVN was delaying or only partially paying for the electricity produced by renewable energy projects "without clear justification."

The letter revealed that the consequence of the current situation is that multiple projects are unable to meet their loan repayment obligations to both domestic and international lenders. 

This has led to a state of loan default. Furthermore, the letter cautioned that any permanent alteration or termination of the previously agreed-upon tariffs could have severe repercussions. 

These include jeopardising the stability of the national banking sector and diminishing trust in Vietnam's regulatory framework.

Vietnam's solar and wind energy expansion goals

Vietnam's ambition to significantly increase its solar and wind energy capacity is evident in recent reports. 

The country has revised its power plan for the current decade, and the draft plan reveals a substantial emphasis on expanding solar and wind energy generation.

This strategic move towards renewable energy sources is likely driven by multiple factors, including the need to reduce dependence on fossil fuels, mitigate climate change impacts, and meet the growing energy demands of a rapidly developing economy.

The base scenario of the plan projects that by 2030, installed capacity from wind and solar farms will surpass 56 gigawatts. 

This figure represents almost a third of the total planned installed capacity from all sources, which includes fossil fuels.

The letter states that foreign investors have funded projects with a combined capacity of almost 4 GW, valued at $4 billion. These projects, almost exclusively in solar energy, could be negatively impacted by the retroactive reform.