Why are European renewable giants fleeing Vietnam?

Italian vigor conglomerate Enel, 1 of the world’s largest investors successful renewable energy, is reportedly readying to retreat from Vietnam, according to Reuters, pursuing successful the footsteps of Norway’s Equinor and Denmark’s Orsted. Both firms person precocious canceled renewable vigor projects successful the Southeast Asian country.

Enel had ambitious plans for Vietnam’s vigor market. In 2022, the institution announced its volition to put successful generating up to 6 gigawatts (GW) of renewable energy.

However, its determination to wantonness these plans, which is apt to beryllium officially announced during the company’s yearly strategical readying presumption successful November, reflects increasing concerns astir Vietnam’s renewable vigor sector.

While Enel did not specify the nonstop signifier of renewable vigor it intended to make successful Vietnam, astir experts judge upwind powerfulness was astatine the halfway of its strategy. Wind vigor is expected to play a important relation successful Vietnam’s vigor transition, arsenic the state aims to trim its reliance connected ember and summation its renewable vigor capacity.

Currently, Vietnam’s installed energy capableness stands astatine astir 80 GW, which the authorities plans to astir treble by 2030. Renewable sources similar wind, solar, and different alternatives (excluding hydropower) are expected to relationship for astatine slightest 31% of the country’s vigor premix by the extremity of the decade.

Wind vigor is projected to lend 18.5%, a important summation from existent levels. However, star energy’s stock volition driblet astir threefold to 8.5% arsenic the authorities shifts focus.

Roadblocks to progress

A large situation holding backmost Vietnam’s renewable vigor imaginable is the deficiency of a coagulated model for offshore upwind development. Industry experts reason that delays successful mounting up guidelines for task approvals, oversea country allocations, and pricing mechanisms person caused vexation among investors.

Chris Humphrey, enforcement manager of the EU-ASEAN Business Council, told DW that this isn’t a caller interest and that helium has been informing Southeast Asian leaders for immoderate clip that unless they determination faster connected vigor transition, companies volition look elsewhere for their investments.

Norway’s state-run Equinor and Denmark’s largest vigor firm, Orsted, person already withdrawn from Vietnam’s offshore upwind sector. Equinor canceled plans to put successful offshore upwind successful September, portion Orsted paused its projects past year, citing regulatory uncertainty.

“Despite Vietnam’s abundant upwind resources, the insecurity regarding modular guidelines connected task approvals, oversea country allocations, and pricing, among different regulatory hurdles, has resulted successful hesitation among investors,” Dan Martin, elder subordinate astatine Dezan Shira & Associates, an advisory firm, told DW.

“Without guarantees of profitability oregon operational clarity, companies are cautious, said Martin, and “this spread has efficaciously stalled offshore upwind development, preventing Vietnam from capitalizing connected its immense potential.”

Infrastructure and backing challenges

One of Vietnam’s persistent challenges is connecting planned renewable vigor projects to the nationalist grid. Much of the country’s existing infrastructure is not equipped to grip the influx of caller renewable vigor sources.

Despite ambitious renewable vigor goals, a important information of Vietnam’s vigor inactive comes from coal-fired powerfulness stations. While the authorities has pledged to trim its dependence connected coal, the way to modulation has been dilatory and uncertain.

Funding is different important hurdle. In May, the Vietnamese authorities approved a long-awaited powerfulness improvement plan, known arsenic PDP8, which outlines a doubling of powerfulness procreation capableness to much than 150 GW by 2030.

While astir of this caller capableness is expected to travel from renewable sources, the program requires an estimated $134 cardinal successful backing for caller powerfulness plants and grid improvements.

To assistance code these fiscal needs, the Group of Seven (G7) nations and different affluent countries pledged $15.5 cardinal successful December 2022 to enactment Vietnam’s modulation distant from coal. However, the funds are conscionable a fraction of what is needed to conscionable the ambitious goals acceptable retired successful PDP8.

Investment woes and competition

Vietnam has agelong been a cardinal recipient of overseas investment, peculiarly arsenic companies diversify their operations distant from China. However, a deficiency of fiscal incentives from Hanoi, combined with rising taxation burdens, has led immoderate of the world’s largest firms to reconsider their investments successful the country.

For example, US chipmaker Intel was readying a $3.3 cardinal task successful Vietnam that would person astir doubled its capacity. However, aft requesting 15% currency enactment from the Vietnamese authorities and being denied, Intel moved the task to Poland.

Similarly, Austria-based semiconductor shaper AT&S and South Korea’s LG chose to put successful different countries aft Vietnam failed to conscionable their concern enactment requests.

While renewable vigor issues were not explicitly cited arsenic reasons for these decisions, they underscore broader concerns astir Vietnam’s concern climate.

European firms are peculiarly acrophobic astir Vietnam’s vigor reliability. In 2023, wide powerfulness outages, exacerbated by an overreliance connected coal, disrupted operations astatine galore foreign-owned factories, including those tally by South Korean tech elephantine Samsung.

These vigor woes person lone added to concerns implicit the country’s quality to enactment its increasing manufacturing basal with reliable, sustainable power.

A model of opportunity

However, determination is inactive a model of accidental for Vietnam to presumption itself arsenic the preferred manufacturing halfway successful Southeast Asia driven by renewable vigor sources, Richard Ramsawak, Lecturer of Economics astatine the Royal Melbourne Institute of Technology Vietnam, told DW.

“This attack volition necessitate not a full translation of Vietnam, but alternatively targeting cardinal concern zones and sites, with built-in renewable powerfulness vigor sources.”

As planetary request for sustainable manufacturing grows, Vietnam’s competitors successful Southeast Asia — specified arsenic Indonesia and Malaysia — are already taking steps to diversify their vigor sources.

“Vietnam volition person small prime but to travel done connected its commitments if it wants to clasp its competitory presumption successful planetary manufacturing,” Ramsawak said.

“The lone question is if they volition beryllium a person oregon follower successful this process.”