Vietnam Electricity Reforms Spark Opportunities for Foreign Investment
Vietnam’s amended Law on Electricity allows foreign investment in the country’s electrical grid to improve energy quality and capacity. Power consumption in the country is projected to increase by 10-12 percent annually through to 2030, representing the fastest growth rate in Asia. As such, early entrants to building, managing, and operating Vietnam’s electrical grid will have the advantage of becoming trusted partners as opportunities grow in Vietnam’s energy sector.
Private investors can now build, manage, and operate power grids in Vietnam following recent legal amendments, as the Vietnamese state gradually reduces its control of the sector.
On January 11, 2022, Vietnam’s National Assembly passed Law No. 03/2022/QH15, which includes amendments to the Law on Electricity 2004. The law is Vietnam’s main piece of legislation governing the electricity sector and includes regulations on investment, market, pricing, and licensing, among other stipulations.
The amendments, which came into effect on March 1, 2022, increase the ability of private investors to participate in Vietnam’s electrical grid, while reducing the state’s role. The reform comes amid a push to improve the quality and capacity of Vietnam’s electrical grid, including by adopting renewable technologies.
Updates to the Law on Electricity
The amendments to Article 4 of the law concerns where private investors can and cannot invest. With the changes, private investors are able to:
- Invest in the construction of the electrical transmission grid; and
- Operate the electricity transmission grid in which they are invested.
Accordingly, private investors can now build new segments of the electrical grid and operate those segments without the direct involvement of the state.
Further, according to the amended Article 4, the state of Vietnam retains its monopoly over:
- Management of the national power grid system; and
- Construction and operation of large electricity plants of particular socio-economic importance and of significance in terms of national defense and security.
The amendments maintain the monopoly of the state of Vietnam over the construction, operation, and management of the national power grid system and certain large electricity plants. However, the new Article 4 explicitly limits the state from operating the parts of the grid that are built and run by private investors.
Demand for energy efficiency and renewable power
In light of the amendments, foreign entities have greater opportunities to invest in Vietnam’s electrical grid and contribute to upgrading the sector’s infrastructure. Currently, Vietnam Electricity (EVN), a state-owned enterprise, is the largest buyer of electricity in Vietnam. Until the amendments, EVN held a monopoly on the transmission and distribution of electricity.
Fast-paced economic growth, increasing investments in manufacturing and industry, and a burgeoning middle-class have sparked unprecedented demand for electricity. The Vietnamese government projects power consumption to grow by 10-12 percent per year through to 2030, representing the fastest growth rate in Asia.
However, growth in power consumption is set to outpace growth in capacity. For example, by 2030, the Ministry of Industry and Trade expects Ho Chi Minh City to be 10,000 megawatts short of capacity, or 7.5 percent of the total, despite the city having some of the most developed infrastructure in the country.
To meet increasing demand, the government is investing in increasing capacity and efficiency. According to Resolution 55 on Strategic Energy Orientation, issued by Vietnam’s Politburo, Vietnam should double its electricity capacity over the next decade to reach 125-130 gigawatts by 2030. Over this period, Vietnam will invest US$148 billion in power generation and in the electricity network, whereby 74 percent of which will be directed to power sources and 26 percent of which will be directed to grid development.
While Vietnam has made investments into renewables, power generation continues to be led by coal. As of 2020, coal-fired power accounted for 34 percent of power, followed by hydroelectricity (30 percent) and gas turbines and oil-fired thermal power (15 percent).
As Vietnam stands to face pressure to reduce greenhouse gas emissions due to the worsening global climate crisis, renewable power generation, storage, and transmission is a strategic area for foreign investors to meet Vietnam’s energy needs.
Compliance and regulatory hurdles
Early entrants to building, managing, and operating Vietnam’s electrical grid have the advantage of becoming trusted partners as opportunities will grow in the country’s energy sector.
Nevertheless, while the amendments allow for private investment, hurdles remain. Because the electrical grid works alongside state systems and involves significant security concerns, compliance requirements are stringent.
Moreover, compliance and regulatory risks are heightened for foreign investors, even though the amendments allow them to participate. As such, foreign investors may face higher levels of scrutiny, requiring careful and strategic pre-investment planning as a result.
Despite these challenges, Vietnam’s high demand for a stronger power grid means that foreign investors with industry leading technology and expertise have promising opportunities in the industry following legal reforms.
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