A study on financial mechanisms to develop the power system in Vietnam

Abstract

Vietnam’s commercial electricity demand grew by 9.6% per year during 2011 - 2020. The Ministry of Industry and Trade (MOIT) forecasts that the average annual investment cost for the power system over 2021 - 2030 will be around USD 9.0 billion to USD 12.6 billion per year for generation sources and USD 1.5 billion to USD 1.6 billion for the grid. This article discusses the financial options to mobilise this capital. The private sector interest in financing new thermal power projects is low for coal and uncertain for gas; the current energy price crisis suggests deferring any new LNG power plant openings until after 2026. There, the state-owned sector takes the lead. For renewable energy, private investors have shown eagerness to finance new solar and onshore/nearshore wind projects under the feed-in-tariff regime. The subsequent mechanisms will be market-based: auctions and direct power purchase agreements. Offshore wind projects allow the state-owned oil and gas industry to invest jointly with international private developers and reorient its strategy in response to the energy transition. Developing the green bond market is an opportunity for Vietnamese banks. State-owned enterprises can use them to raise money through non-sovereign debt. Finally, a gradual increase in electricity prices will improve the sector’s ability to finance the necessary power system expansion.