Vietnam’s banking system is unable to finance the huge development needs of the country’s energy industry, thus it is imperative to look to the private sector and green finance sources, financial data platform FiinRatings says in a report.
The country needs up to $135 billion in the 2021-2030 period to develop electricity projects under the National Power Development Plan VIII (PDP8). Meanwhile, total outstanding loans provided by local banks for renewable energy projects have reached just $10 billion.
“This indicates that it is crucial to tap private sector sources and green finance mechanisms designed to attract foreign investment,” the report notes.
Under PDP8, renewable energy will account for 27% of the country’s power mix by 2030, including 14.5% from onshore wind, 4% from offshore wind, and 8.5% from solar farms.
Despite the country’s huge renewable energy potential, this industry is facing big challenges. Among them, feed-in tariffs and sales contracts concern investors the most. They have negative impacts on developers’ bankability, especially foreign investors, says the report.
According to FiinRatings’ estimate, around 40% of wind energy developers have a debt-to-EBITDA (earnings before interest depreciation and amortization) ratio exceeding 8x. Meanwhile, the capacity of the Vietnamese banking system to provide long-term loans is limited.
In addition, poor business performances of Vietnam Electricity (EVN), which holds the monopoly over electricity distribution, and its power purchasing agreement policy have a tendency to raise investors' eyebrows.
“The potential impacts of EVN's struggling financial situation are concerning because the Vietnamese government does not have a mechanism to ensure payment to power generators,” the report emphasizes.
Regarding the outlook, FiinRatings expects the Vietnamese government and EVN to soon announce feed-in tariffs for renewable energy and mechanisms to solve existing problems.
On December 1, 2023, Vietnam and the European Union (EU) launched the Resource Mobilization Plan (RMP) to mobilize up to $15.8 billion, an increase from the initial $15.5 billion of climate financing pledged in 2022 by international partners under the Just Energy Transition Partnership (JETP), to help the Southeast Asian nation wean off coal power.
Vietnam’s green finance market remains limited. State-owned bank BIDV was the only green bond issuer in 2023, with a volume of VND2.5 trillion ($102 million), designed to finance green, energy-saving, and environmental protection projects.