Energy Law in Vietnam

Background:

Electricity of Vietnam (EVN) currently holds a monopoly over electricity transmission, distribution, wholesale, and retail in the country. However, electricity shortages remain an issue due to extreme weather conditions, difficulties integrating renewable energy sources into the national grid and the transmission grid is under great strain.  While foreign investment on this sector is encouraged by the Vietnamese government, the procedures and other commercial aspects however is unclear and should be assessed carefully.

Significant regulations improvements

Vietnam's recently approved Power Development Plan (PDP) VIII outlines an ambitious shift towards renewable energy through 2050. This aligns with Vietnam's pledge to reach net-zero emissions by 2050.

PDP VIII provides some clarity for the power sector after years of uncertainly. However, it also poses new challenges regarding implementation and pathways forward for investors and stakeholders.

• Traditional technologies: Coal, Gas, and Hydroelectric power have driven Vietnam’s growth over the past two decades, still accounting for two-thirds of total capacity. This is set to change according to the updated PDP, driven by Vietnam’s commitments to reduce its overall carbon emissions.
• Renewable technology: While encouraging investment in Solar and Wind power, this has also burdened EVN with a high cost of purchased power from these projects. PDP VIII lays out a plan to significantly increase both solar and wind capacity, comprising over 60% of total installed capacity by 2050 across all technologies.
• New technologies: The PDP VIII lays out targets for newer technologies in Vietnam’s market, aiming to provide a vision for potential investors and developers to introduce and expand these technologies in Vietnam’s context.

Recommendations for investors

Some recommendations for investors looking to enter into renewable energy market in Vietnam:

• Careful negotiations of power purchase agreements (PPAs) and grid connection agreements with the state utility EVN are essential given its monopoly over transmission and distribution.
• Investors should closely monitor regulations around direct PPAs as Vietnam looks to open up the power market. It is also crucial to prioritize investments into renewable energy sources and grid infrastructure to support growth in this sector.
• With Vietnam's commitments to de-carbonization, investors should pay attention to opportunities in the emerging carbon credit market.
• Potential investors should monitor upcoming regulatory clarification by means of a future PDP implementation plan, the renewable energy law, and associated regulations related to offshore wind development, direct PPAs, and others integral to the power development process.

Conclusion

The recently approved Power Development Plan VIII represents a major milestone for Vietnam's economic development and energy goals through 2050. For investors, it opens up enormous opportunities across the power sector, especially in renewables. However, careful due diligence is crucial before investing, including assessing commercial, tax, legal, and technical considerations.

Our firm has extensive experience advising clients on Vietnam's complex but promising renewable energy landscape. We can assist investors in navigating the regulatory environment, conducting comprehensive risk assessments. With our multidisciplinary teams, we provide integrated legal, financial, and tax analysis to support major transactions and projects.