Regulatory Uncertainties Pose Downside Risk To Robust Renewables Growth In Vietnam

Key View

• While we continue to maintain a robust growth forecast for Vietnam’s renewables sector, we believe that persistent regulatory and operational uncertainties will weigh on the near-term outlook and pose some downside risks.
• This stems from a lack of clear policy around the upcoming Power Development Plan, feed-in-tariffs for the wind sector, and procurement structure and bidding mechanisms for renewable projects going forward.
• Operational difficulties around grid bottlenecks for renewables integration will also pose a significant challenge to growth.

While we continue to maintain a robust growth forecast for Vietnam’s renewables sector, we believe that persistent regulatory and operational uncertainties will weigh on the near-term growth potential of the market and flag rising downside risks. We maintain our current forecast for non-hydro renewables capacity to more than double over the coming decade, to reach over 50.3GW by 2031. We expect growth to slow significantly over the near term (after the delivery of a backlog of projects due for completion over 2022), from levels seen in recent years, due to several regulatory and operational uncertainties. This will then pick up again towards the back end of our forecasts due to strong fundamentals and our expectations for an ongoing commitment for the sector, with more clarity going forward.

Although the government remains highly committed to boosting the market’s renewables growth, there appears to be continued disagreements between different governmental bodies around the trajectory of Vietnam’s power development plan. The government is set to announce a new National Power Development Plan 2021-2030 (PDP VIII/PDP8), however, at time of writing the specifics still remain uncertain. We note that the plan has already been revised four times since the first draft was released in February 2021, with notable differences across each revision, in terms of the roadmap that government wants to adopt for the sector. We believe the lack of a clear policy direction will weigh on near-term investor sentiment. Earlier this week, the Deputy Prime Minister said that the solar capacity targets are “too high” and should be lowered in favour of offshore wind power. Previously in December 2021, the Ministry also said they were looking to modify the PDP8 following Vietnam’s net zero pledge at the COP26 Summit, and will reduce the share of both liquefied natural gas and coal in its future energy mix. The Ministry of Industry and Trade (MOIT) has asked for the implementation of the plan to be deferred to Q2 2022, although we remain cautious on this timeline at present.