Investing in Vietnam’s Sustainable Future: A Guide for European Companies

EU companies are uniquely positioned to make sustainable investments in Vietnam, which is seeking foreign capital and know-how to help it transition to a climate resilient economy and meet its decarbonization goals. European businesses can offer cutting edge renewable energy technology and climate solutions to meet Vietnam’s ambitious goals.

Vietnam is a country that is particularly vulnerable to the impact of the climate crisis. A World Bank report estimates that the effects of a warming planet could cost Vietnam around 12 to 14.5 percent of its GDP by 2050 if no concerted measures are taken.

At the same time, the country faces the challenge of meeting the energy demand required to sustain its GDP growth, further adding to the need for urgent action.

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To address these systemic challenges, Vietnam has set forth a series of ambitious goals to reduce its carbon footprint, increase its energy output, and improve efficiency and resilience.

Consequently, Vietnam has incredible potential for the growth of sustainable industries. Thanks to its ideal geographic location for renewable energy, rapidly developing economy, and sizable and expanding middle class, Vietnam offers a range of exciting opportunities to develop and implement sustainable solutions.

Being at the cutting edge of renewable energy technology and climate solutions, European companies are at a unique advantage in a range of sectors, from investing in renewable energy projects to consulting on climate resilient infrastructure.

Vietnam’s climate and energy goals

Vietnam has committed to becoming carbon neutral by 2050, enshrining this target into law with the approval of the National Climate Change Strategy to 2050 in July 2022. This strategy document included a series of incremental goals in the decades leading up to this deadline, including a 43.5 percent reduction of greenhouse gas (GHG) emissions by 2030 (subject to certain conditions), as well as several industry-level targets.

In March 2023, Vietnam adopted the Power Development Plan 8 (PDP8) (officially the National Electricity Development Plan For 2021 – 2030, with a Vision To 2050). This plan outlines the development of Vietnam’s energy market to meet demand in line with sustained annual GDP growth of around 7 percent from 2021 to 2030 and 6.5 to 7.5 percent between 2031 and 2050.

Among the strategies proposed to achieve this are plans to increase the proportion of renewables in the country’s energy mix, with the ultimate aim of eliminating the use of fossil fuels by 2050. These renewables include hydroelectricity, onshore and offshore wind power, solar, biomass, and hydrogen, among others.

The PDP8 outlines specific targets for growing the country’s renewable energy capacity. For wind power, the PDP8 aims to reach:

• 21,880 Megawatts (MW) of onshore wind power capacity by 2030;
• 6,000 MW of offshore wind power capacity by 2030; and
• Between 70,000 and 91,500 MW of offshore wind power capacity by 2050, cost and technology permitting.

In terms of development goals and priorities for solar power, the PDP8 proposes to:

• Strive for 50 percent of office buildings and residential houses to use self-produced and self-dissipating rooftop solar power by 2030 (for on-site consumption, not for sale to the national grid); and
• Prioritize and adopt breakthrough policies to promote the development of solar power on the roofs of residential buildings and construction sites, especially in areas at risk of power shortages such as northern Vietnam. This power source is prioritized for unlimited capacity development, provided it is reasonably priced and makes use of the existing power grid.

Other renewable industries that are prioritized in the PDP8 include biomass, hydropower, and battery technology. Targets for these fields include (but are not limited to):

• Striving for biomass electricity production and waste electricity production (from sources such as by-products of the agricultural and forestry industries) to reach 2,270 MW by 2030 and 6,015 MW by 2050;
• Growing the total capacity of hydroelectric power sources to 29,346 MW with a total output of 101.7 billion kWh by 2030, and 36,016 MW with a total output of 114.8 billion kWh by 2050;
• Developing the storage capacity of hydroelectric power plants to about 2,400 MW by 2030; and
• Developing the capacity of batteries distributed near wind power, solar power, or load centers to around 300 MW by 2030.

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The PDP8 estimates that the capital investment required to develop its energy sources and the transmission grid to meet its energy demand will amount to around US$134.7 billion between 2021 and 2030. It will need an additional US$399.2 billion to US$523.1 billion in the period from 2031 to 2050.

Vietnam’s ambitious goals to grow and transform its energy market, and the huge amount of investment required, presents myriad opportunities for foreign companies engaged in sustainable fields. These vary from the direct provision of products and services for the expansion of renewable energy capacity, as well as a broad range of auxiliary industries, including energy conservation and the construction of climate-resilient infrastructure.

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Wind and solar industry

Vietnam’s geography makes it unique in the region for renewable energy potential. Its 3,000-plus kilometer coastline gives it the highest potential for wind energy capacity in Southeast Asia. According to the PDP8, Vietnam’s total technical potential is about 221,000 MW for onshore wind power and around 600,000 MW for offshore wind power. Its solar power potential is also considerable, estimated to be about 963,000 MW (837,400 MW ground-mounted solar, 77,400 MW water-mounted, and 48,200 MW of roof-mounted potential).

However, at the current time, Vietnam is falling considerably short of the wind and solar energy potential. At the end of 2021, Vietnam’s total installed wind power capacity reached 4,118 MW. This suggests it is only fulfilling around 0.5 percent of its total technical potential, going by the PDP8’s estimates. Meanwhile, the total installed solar capacity in 2021 amounted to 16,600 MW or around 1.7 percent of its total potential.

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The Vietnamese government has introduced feed-in tariffs (FiTs) to support the development of the wind and solar sectors; however, these do not apply to new projects at present.

European companies, renowned all over the world for their advanced technology in the wind and solar energy sector, can leverage their experience, expertise, and established supply chains to offer technology to meet Vietnam’s growing demand.

Many European wind energy companies have already established a presence in Vietnam and begun actively participating in the development of the industry. Spain-based Siemens Gamesa, for instance, secured an order for 29 wind turbines for a 117 MW wind farm in Vietnam in 2021, while in 2022, the Danish company Vestas secured a 100 MW order for an undisclosed project, bringing the company’s total capacity of onshore wind turbines in Vietnam to over 1,600 MW.

Meanwhile, the German photovoltaic company SMA Solar Technology continues to supply solar power systems to various projects around the country.

For more insights on investing in Vietnam’s renewable energy industries, see also our articles on How Investors Can Seize Vietnam’s Wind Power Potential, Prospects for Investors in Vietnam’s Solar Industry, and Current Opportunities and Future Outlook of Renewables in Vietnam.

Electric vehicle market

Vietnam’s electric vehicle (EV) market is still in its nascent stage, with EV sales in 2022 numbering in the low thousands. Adoption remains relatively low in Vietnam due to barriers, such as high prices relative to local wages and a lack of support infrastructure, most importantly, charging stations.

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However, Vietnam’s EV market has enormous growth potential, with demand likely to grow both from the expanding middle class and the country’s push to reach carbon neutrality. The country’s first home-grown electric vehicle brand, VinFast, reported that it sold over 4,000 EVs in December 2022 alone, seven times higher than the previous month.

It is important to note that the penetration rate of passenger cars in Vietnam, including fossil fuel cars, remains low. Vietnam’s car ownership rate was around 5.7 percent in 2020, significantly lower than the 60 percent ownership rate of motorcycles. Investors looking to develop the market may therefore wish to explore other types of EVs besides passenger cars to cater to local preferences and reduce unit costs. VinFast is reportedly looking to cater to local consumers with the production of a lower-cost electric “mini car” better suited to Vietnam’s busy urban roads.

Vietnam’s growing EV market opens a host of new opportunities for European companies in a variety of fields, from EV battery production to R&D. For instance, earlier this year, the French multinational Schneider Electric, which specializes in energy management equipment and digital automation, invested in the Vietnam-based Selex Motors to expand production lines and set up battery-swapping systems in cities in Vietnam.

The government has not rolled out many supportive policies for developing the EV industry yet; however, this may change in the future as pressure mounts from industry groups and climate targets loom.

In March 2022, Vietnam reduced the excise tax for battery electric vehicles (BEV) to promote industry development. Until 2027, BEVs with under nine seats will be subject to a 3 percent excise tax, down from 15 percent, while the rate for BEVs with between nine and 24 seats is reduced from 10 percent to 1 percent. After 2027, the rates will be raised to 11 and 4 percent respectively.

Climate-resilient infrastructure

Due to its long coastline and position along the Mekong River Delta, Vietnam is particularly vulnerable to the impacts of climate change. Vietnam is prone to severe flooding, threatening livelihoods, critical infrastructure, and food security. Its geographical location also means that the country is at high risk of exposure to typhoons, which are expected to become increasingly frequent and severe as global temperatures rise. This is despite the country only contributing around 0.8 percent of global GHG emissions.

For this reason, Vietnam urgently needs to develop climate-resistant infrastructure and management systems to mitigate the risks posed by global warming. A World Bank report released in July 2022 recommends that the country’s climate adaptation measures focus on the “most vulnerable sectors and locations, particularly agriculture, transport, trade and industry, coastal areas, and the Mekong Delta.”

The report also estimates for total financing requirements to reach around US$254 billion between 2022 and 2040.

With Europe at the forefront of innovative climate solutions, companies have myriad opportunities to contribute to the building of Vietnam’s climate-resilient infrastructure and solutions. Areas that require urgent investment include flood risk management and mitigation, coastal protection, urban drainage, early warning systems, wastewater collection and treatment, and flood-resistant buildings.

There is also a need to raise civic awareness of possible climate disruption, improve disaster response and post-disaster response capabilities, and implement climate-resilient agricultural practices.

Europe is at the forefront of developing climate solutions. Several countries on the continent have already adopted innovative home-grown solutions to protect coastlines from rising sea levels and mitigate the risk of floods. With the expertise of European companies and urgent demand in Vietnam, there are myriad opportunities for cooperation on technological development and implementation.

Energy conservation and efficiency

Increasing energy conservation and efficiency is an important piece of the puzzle for Vietnam as it seeks to meet its energy needs over the next few decades. In 2019, the government issued the Vietnam Energy Efficiency Program (VNEEP 3), which lays out a series of strategies to reduce energy loss. The program’s targets include:

• Saving between 5 and 7 percent of the national energy consumption in the period from 2019 to 2025;
• Reducing power loss to less than 6.5 percent; and
• Reducing the average energy consumption in various industrial sectors, including steel, chemicals, cement, textiles, and garments.

In 2021, a 50 percent credit guarantee for industrial enterprises and energy service companies involved in accredited energy-efficiency projects was announced under the Vietnam Scaling Up Energy Efficiency Project (VSUEE). Under this project, companies engaged in energy-efficient projects or energy service companies wishing to take out loans from local banks are backed up by the 50 percent credit guarantee from a risk-sharing facility.

Finally, the PDP8 also outlines various tasks for increasing the efficiency and energy conservation of the country’s energy infrastructure, including:

• Building a smart grid system, capable of integrating and safely operating large-scale renewable energy sources; and
• Renovating and upgrading the power transmission and distribution system in order to improve reliability and reduce power loss and accelerate the smart grid construction roadmap.

Vietnam’s commitment to sustainable development and its growing energy consumption present significant opportunities for European companies in the energy conservation and efficiency sector. As the country seeks to reduce its reliance on fossil fuels and improve energy efficiency, European companies can contribute their expertise, technologies, and best practices to help Vietnam achieve its energy conservation goals.

European companies specializing in energy-efficient technologies, such as smart meters, energy management systems, and building automation systems, can provide innovative solutions to help Vietnamese industries and companies optimize energy consumption across various sectors. In addition, as Vietnam expands its renewable energy capacity, European companies can offer solutions for grid stability, energy storage systems, energy forecasting, and much more to enhance the efficiency and reliability of the grid.

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