Outstanding credit of the banking system is forecast to increase 4.4% in the first quarter and 14.2% in 2024, up 0.4 percentage point from the previous prediction of 13.8%.

Capital mobilisation is expected to rise 2.6% in Q1 and 12.1% in the whole year, unchanged from the previously predicted figures, according to a survey of credit institutions’ business trend for Q1 conducted by the Forecasting and Statistics Department of the State Bank of Vietnam.

Meanwhile, the institutions believed the rate of non-performing loans among outstanding credit, which inched up in Q4 2023, will fall slightly in Q1 this year.

They forecast demand for banking services in Q1 will improve at a slower pace than in Q4 last year but bounce back more strongly during 2024. Notably, demand for loans will get much better than that for deposits or payments, different from what was seen in 2023.

The banking system’s liquidity was better than expectation in Q4 and abundant during last year compared to 2022. It is expected to stay in that state during Q1 this year and the entire 2024, they noted.

Deposit and lending interest rates are forecast to continue declining slightly, by an average of 0.3 - 0.4 percentage point in Q1 and 0.2 percentage point in 2024.

The latest survey also showed that the banking system’s business performance and pre-tax profits in last Q4 improved slightly from the previous quarter but were still lower than expected in the previous survey.

The institutions reported that their business performance fell short of expectation, and lowered pre-tax profit estimations from the previous survey. About 78.6% of them estimated last year’s pre-tax profits would grow compared to 2022, 17.9% forecast contraction, and 3.6% unchanged.

They expressed their hope that the situation will improve starting from Q1 and this year, but pre-tax profits may recover at a slower pace.

Enterprises honoured with HCM City Golden Brand Award

Thirty-two enterprises in various areas including building materials, consumer goods, garment and textile, food and services received the Ho Chi Minh City Golden Brand Award from the municipal People’s Committee on January 14 for the outstanding achievements they have carved out to develop brands for products and services.

Themed “Renovation and Sustainability”, the fourth award honoured businesses with high transparency and legal compliance, proactive engagement in social activities, sound human resources policies, innovation and excellent marketing and brand development strategies.

Renowned names included Nutifood Nutrition Food JSC, Viettien Garment JSC, Dien Quang Lamp JSC, Masan Consumer, and VISSAN JSC.

Among the businesses, 13 won the award for the first time while 19 others got it for the second time. The 32 award winners created jobs for 57,000 labourers, while generating more than 255 trillion VND (10.4 billion USD) in revenue and contributing nearly 1 trillion VND to the state budget in the past year.

Speaking at the awarding ceremony, Vice Chairman of the municipal People’s Committee Vo Van Hoan expressed his hope that the award winners will continue working to promote the value of the award, and play a pioneering role in carrying out the city’s policies on green growth and digital transformation.

The annual award, jointly held by the municipal Department of Industry and Trade and the Sai Gon Times Group, aims at becoming a prestigious one that helps branch out the HCM City brand and Vietnam national brand.

Over the past years, the honoured enterprises have attained significant achievements, been able to adapt to challenging periods and paid due attention to green transition.

Vietnam, Indonesia eye cooperation in EV development, food security, manpower

Indonesian Industry Minister Agus Gumiwang Kartasasmita has invited Vietnam to cooperate in the development of several sectors, including the electric vehicle (EV) industry, green industry, food security, research and development, and human resources.

“We invite Vietnam’s Ministry of Industry and Trade to maintain a discussion with us to strengthen this cooperation and collaboration,” Minister Kartasasmita said in a statement as quoted by the country’s national news agency Antara.

He highlighted that Indonesia has a large market in the automotive sector. Car ownership in Indonesia is pegged at 19.1 million units, and motorcycle ownership at 128 million units.

Furthermore, the projected demand for electric vehicle batteries in Indonesia is expected to climb in the coming years.

Minister Kartasasmita expressed his hope that the two countries will support each other at the yearly ASEAN Industry Ministries’ Meeting because the potentials and challenges in the industry sector are expected to become even more visible.

Indonesia currently ranks among the world’s top ten manufacturers, with a global manufacturing output value of 1.4%, according to data released by Safeguard Global. Meanwhile, according to World Population Review Data, Indonesia ranks 12th and Vietnam 23rd.

As of November 2023, Indonesia’s capital investment in Vietnam reached 651.21 million USD with a total of 120 projects. In terms of investment realisation in Vietnam, Indonesia ranked fifth among the ASEAN countries.

Pricing switch up ahead for solid waste and biomass

The Ministry of Industry and Trade is to publish a new pricing framework applicable to refuse and biomass power plants, with a possibility that Vietnam Electricity will negotiate the purchase price using this framework.

At the start of the year, the prime minister received a report from the Ministry of Industry and Trade (MoIT) outlining a proposition to establish a novel pricing structure for electricity generation utilising solid waste and biomass power projects.

The proposed framework would encompass all forms of electricity generated from solid waste and electricity generated through biomass. Vietnam Electricity and the project investors will negotiate prices and enter into power purchase agreements (PPAs) based on the price framework established by MoIT, as stipulated in this proposal.

The primary rationale for MoIT’s proposal to discontinue the preferential price mechanism for biomass electricity and solid waste is technological advancement. The tariff for biomass electricity ranges from 7.03 to 8.47 US cents per kWh, contingent upon the presence or absence of co-generation in the project. The tariff for solid waste electricity is from 7.28 to 10.05 US cents per kWh.

The MoIT believes that, like other power plants in the system, the electricity price of these plants should be determined through negotiations between electricity buyers and sellers based on the input parameters of the plant. The negotiated pricing falls within the MoIT-issued price range.

Despite MoIT’s assurance that business investment will remain assured for projects that have previously entered into PPAs in accordance with the Law on Investment 2020, numerous investors remain apprehensive that the revised price will impede capital recovery and new investments. Vietnam had 23 biomass and solid refuse power facilities with a combined capacity of over 523MW as of six months ago.

“Despite the extremely positive outlook, many sugar companies are not interested in developing co-generation thermal power projects from bagasse,” said Vo Thanh Dang, general director of Quang Ngai Sugar JSC. “This is despite the fact that many businesses have calculated their investments.”

A suitable electricity purchase price, in his opinion, will encourage the construction of heat-power co-generation facilities in the sugar industry, as companies will be able to utilise a portion of the generated electricity for sugar production and transfer the remainder to the national grid.

High investment capital costs are an additional barrier for biomass and refuse power. Moreover, policies that incentivise the purchase of electricity are not conducive to biomass power, and there is currently no mechanism in place to exchange certificates pertaining to the reduction of CO2 and greenhouse gas emissions.

Energy analysts are of the opinion that the government’s policies for waste incineration and gas recovery facilities are unattractive and do not provide new advantages. The costs associated with developing biomass power remain significantly elevated in comparison to alternative renewable sources like wind and solar.

The feed-in tariff (FiT) mechanism is presently being utilised to incentivise investors to contribute cash flow towards the development of biomass power projects. However, for tech that is not co-generation, Vietnam’s FiT costs only 8.47 US cents per kWh, which is less than many other nations, including Thailand, Malaysia, and the Philippines.

Numerous hazards will render financing challenges for banks in the presence of low preferential pricing. Insufficient leverage on the financial market discourages banks from extending capital if the FiT is not exceptionally favourable.

Vice president of the Vietnam Energy Association Nguyen Van Vy stated, “Achieving investment efficiency becomes a challenging task if the facility operates for a mere few months per year. The generation of biomass energy from sugarcane bagasse is seasonal for approximately 3-6 months and relies on the output of basic materials. Basic material depletion often forces power facilities to cease operations.”

In order to maintain year-round operations, the unified implementation of prices will incentivise co-generation biomass power plants at sugar mills to substitute sugarcane bagasse for fuel, Vy added. “Additionally, this approach facilitates investment efficiency and improves projects’ access to credit.”

New major projects can spearhead future real estate

Despite plenty of work on reviving Vietnam’s real estate taking place last year, fruition may not be felt for quite a while yet.

Nguyen Van Dinh, chairman of the Vietnam Association of Real Estate Realtors (VARS), said that positive factors such as strong recovery, supportive policies, and new planning create a favourable environment for making investment decisions. However, this choice also means that investors need to carefully consider strategies and goals to avoid wrong moves.

“Last year, the government and ministries actively intervened to resume the real estate market after a two-year period of downturn,” Dinh said. “In particular, nearly 20 directives, regulations, and decrees were announced, contributing to increasing trust and strength for the market and related parties.”

“Over time, government policies increasingly reflect the actual needs of the market and businesses, and many problems have gradually been resolved. This creates conditions for most capable projects to resume. Therefore, the real estate market is experiencing more positive developments,” Dinh added.

For the first time in many years, project investors have shown their enthusiasm for sales through a series of attractive demand stimulation policies including discounts, promotions, extended interest rate support, early handover, and extended payment times.

More specifically, around half of provinces and cities have announced long-term planning, which will provide a robust landscape for real estate development with detailed zoning and creating more available land.

The fourth quarter of 2023 also saw many large-scale projects starting sales campaigns, diversifying supply and promoting transactions.

Latest arrivals include the Canopy Residences by Vinhomes and GIC, The Moonlight 1 An Lac from An Lac Group, Akari City of Nam Long Group, Glory Heights from Vinhomes, and The Global City by Masterise Homes.

Economic expert Dinh Trong Thinh commented that, with low bank interest rates, investors will look for investment channels such as stocks or real estate. The reduction in deposit interest rates along with new sales policies are stimulating transactions.

“In fact, from mid-2023, although product supply has not improved much, in return, with projects eligible for launch, investors have implemented more sales policies to support sales,” Thinh said.

A survey released in December by Batdongsan.com.vn showed that around half of respondents were satisfied with the current market situation, of which around half of those respondents assessed that the market was offering better finance support options.

“Preferential and flexible sales policies are effective strategies to stimulate consumption during difficult times as well as help reach a wider customer group,” commented Nguyen Quoc Anh, deputy director of Batdongsan.com.vn. “The turning point of the real estate market may appear in the second half of 2024, after which it will enter a new cycle and go through the stages of exploration, consolidation, improvement, and stability.”

Meanwhile, economic expert Can Van Luc said that in 2024, support will come from a stable macroeconomy, capital flow returning, the corporate bond market gradually opening up, planning and construction of infrastructure, and legal corridors gradually improving.

“More specifically, thanks to Vietnam’s integration into the global market, industrial park real estate and residential real estate are benefiting as foreign experts flock to Vietnam to work and live,” Luc said.

He added that the recovery of the real estate market will be clearer in a few months when support policies are well absorbed, financial matters are resolved, and new laws are put into operation.

Real estate market prepares for renewal from 2025

Along with positive changes in the macroeconomic picture, real estate players are pining for 2025 when new laws come into play.

Nguyen Thi Bich Ngoc, director of Sen Vang Group, said that the revised laws on Housing and on Real Estate Business have regulations and policies to better protect the interests of buyers and can help increase transparency and safety for real estate transactions.

The two laws are expected to come into effect at the start of next year. “Especially, the provision that overseas Vietnamese who hold Vietnamese citizenship and have the right to buy, sell, and do business in real estate like nationals living here will help push demand for real estate purchases,” Ngoc added.

However, according to Ngoc, the legal corridor being adjusted to become increasingly strict can increase costs for both investors directly participating in the market, and developers and leasers of housing and tourism real estate.

“The combination of rising costs and increasingly limited supply could worsen property price increases, especially in urban areas.

Therefore, low- and middle-income groups in large cities will continue to have difficulty accessing housing,” she added.

One of the most notable points in the revised Law on Housing is that there is no regulation on the duration of apartment ownership.

Le Hoang Chau, chairman of the Ho Chi Minh Real Estate Association, emphasised that this point has met the wishes and needs of apartment owners who remain worried about the procedures of expanding building lifespans when they expire.

“The revised Law on Housing also provides a clearer legal framework for investors developing social housing in aspects such as exemption of land use fees/land rent, no requirement to reserve 20 per cent of land in commercial projects for social housing, and adding businesses and cooperatives in industrial zones onto the list of social housing users,” said Chau.

In a report released in December, Vietcap Securities analysed that the revised Law on Real Estate Business stipulates stricter legal requirements for investors before they can open for sale future projects and collect money from home buyers.

“Although this forces developers to spend a lot of time to meet all the necessary legal requirements and start construction before launching sales, this will protect home buyers from the risk of investors mobilising capital from customers before completing the necessary legal procedures,” said the report.

Meanwhile, VNDirect said the revised laws on Real Estate Business and on Housing stipulate that investors need to demonstrate stronger financial capacity and the ability to complete the legal system and project implementation.

“This will protect customers’ interests, promote home buying demand, and ensure a healthy development environment for the real estate market in the long term, as well as helping businesses create better competitive advantages,” it said.

Nguyen Mai Phuong, partner for KPMG in Vietnam, said that to be attractive enough for foreign investment, the Vietnamese real estate market requires a clear and stable legal corridor.

Real estate acknowledged as risky venture in short term

While Vietnam maintains a relatively stable growth rate and is a safe investment channel for investors, real estate financiers are still being careful to weigh up any potential risks.

According to economic expert Dinh The Hien, although there are many positive forecasts about the macroeconomic situation such as reducing deposit interest rates, stabilising the consumer price index, and exchange rates, the risk of slowed cash flow into real estate is still high.

“The recovery will take place gradually rather than a sudden rush. The domestic economy and consumption need the whole of 2024 to overcome challenges, before coming into 2025 with the implementation of revised laws on Housing and Real Estate Business,” Hien said.

Research data from the Vietnam Association of Real Estate Realtors shows that capital is still a difficulty for many businesses and cash flow into this field is still very risky.

Although corporate bond issuance has improved significantly, the total value of real estate corporate bonds issued cumulatively in the first 11 months of 2023 only exceeded $3.3 billion, about 40 per cent compared to the same period in 2021.

Notably, although deposit interest rates have continuously decreased sharply, the number of individual deposits in banks is still increasing.

According to data from the General Statistics Office, as of December 21, 2023, capital mobilisation by credit institutions had increased by 10.85 per cent compared to the beginning of 2023, double the increase of 5.99 per cent in 2022.

Data from the State Bank of Vietnam shows that by the end of September, total deposits of residents and economic organisations in the banking system rose by nearly 7.28 per cent compared to the beginning of the year and nearly as high as the deposit growth rate of the whole of 2022.

According to real estate expert Nguyen Hoang, the market will recover slowly. “The macroeconomy is the most important factor for the market improvement. It can be seen that it has gradually improved since mid-2023. Therefore, the cash flow will be concentrated on the real estate market when the investors and home-buyers see the improvement.

To increase capital flow into the real estate market, Hoang said competent bodies and developers must switch from high-end to more affordable residences, the most wanted segment of the market.

According to the Ministry of Construction, in Ho Chi Minh City in Q3/2023 alone, more than 90 per cent of new supply was in the high-end segment, with the rest in the luxury segment. There is almost no new supply in the mid-range and affordable segments brought to the market.

According to the Vietnam Institute of Real Estate Market Research (VIRES), it is forecasted that towards 2030, capital sources supporting the real estate market will continue to grow and develop stably thanks to the development of the financial and stock markets.

VIRES forecasts that credit capital would continue to grow by about 10-12 per cent annually to ensure the maintenance of the economic growth rate in the range of 6.8-7.2 per cent.

Real estate credit growth continues to maintain at a level equivalent to the overall credit growth of the economy (about 10-12 per cent per year), it said.

Foreign direct investment capital into the real estate sector in the coming period is forecast to remain stable, with an average growth of about 5-7 per cent per year in the 2021-2030 period.

Along with that, remittances are also an important source of capital for the development of real estate, as Vietnam has always been in the top 11 countries with the largest remittance sources in the world since 2015.

The amount of remittances is forecast to continue to grow steadily from 2023 and maintain an average growth rate of about 7-8 per cent year, expected to reach $30.9 billion by 2030.

It is forecaste that in the future the budget capital source will remain at a modest level of about $500-830 million, double than the current budget capital source. This budget will be served for the development of social housing and housing for low-income individuals at major cities of Hanoi and Ho Chi Minh and through Vietnam Bank for Social Policies, as well as a number of assigned commercial banks.

Banks remain prudent about 2024 targets

Major state lender Vietcombank has just released its 2023 figures, with results across a variety of areas exceeding expectation. The Hanoi-headquartered bank saw $59.5 billion in deposit volume, up over 12 per cent on-year, and outstanding balances amounting to $53.58 billion, showing a 10.6 per cent jump on-year.

Vietcombank's non-performing loan (NPL) ratio was kept at 0.97 per cent, and pre-tax profit was on target at around $1.8 billion. The bank paid $472.5 million into the state coffers last year.

Another lender reporting figures in the billion-dollar range for 2023 is the Bank for Investment and Development of Vietnam, (BIDV) which saw a healthy profit of $1.12 billion last year, up 18.6 per cent on-year. The bank’s total asset value came to $95.3 billion last year, as it remains Vietnam’s largest bank in the asset scale. Last year, BIDV posted $79.7 billion in total deposit volume, up 16.5 per cent on-year, and outstanding balances reached $73.8 billion, surging 16.6 per cent on-year.

Strong credit growth in the last quarter of 2023 might not yet translate into last year's figures, but should contribute to the profit picture in 2024.

For its part, Agribank reported $84.38 billion in total asset value and capital sources exceeded $79.3 billion for last year.

Its total deposit volume approximated $65 billion, with over 65 per cent earmarked for agricultural and rural development targets. The bank kept bad debt ratio at below 2 per cent, meanwhile its pre-tax profit exceeded $1.06 billion, setting a record.

Another major lender, VietinBank, reported an outstanding balance of $63.29 billion, up 15 per cent on-year. Credit quality also improved markedly as the bank kept its bad-debt ratio at 1.15 per cent, putting it in the group of banks with low non-performing loans ratios.

VietinBank's deposit volume surged 13.7 per cent on-year for 2023, in which demand deposit accounted for 27 per cent. At the bank's recent 2023 summary meeting on January 6, the bank's executives said they had reached their full-year profit target of nearly $950 million.

Meanwhile, southern lender Sacombank announced it achieved $28 billion in the asset scale, with income-generating assets accounting for over 90 per cent of the total. Its estimated consolidated pre-tax profit soared 50 per cent on-year to over $400 million, reaching the year’s projection.

Despite these encouraging results, banks are still cautious about setting 2024 targets in the face of the current uncertainties.

BIDV is aiming for a 14 per cent hike in the outstanding balance, as opposed to the 16.6 per cent hike seen last year, commensurate with the credit limit being assigned by the government. The bank's bad debt ratio is set to be equal or lower than 1.4 per cent, while the profit target has yet to be set.

Vietcombank expects to see nearly $2 billion in profit for 2024, up 10 per cent on-year; with total asset value and deposit volume surging 8 per cent and 12 per cent respectively by the year-end. Its bad debt ratio is set to be contained at below 1.5 per cent. Early this year, the bank was assigned a credit growth target at 16 per cent, higher than the sector average growth at 15 per cent.

Meanwhile, Sacombank envisages raising financial capacity and manpower quality, along with pushing up digital bank operations and heightening risk management, from there consolidating internal resources to reach new targets.

In its 2024 prospect report, Mirae Asset Vietnam JSC points out a raft of factors for the banking sector’s rosier performance in 2024, including anticipated global and domestic economic rebound and surging credit, lower system risk, augmenting demand deposit flow, net income margin bottoming out, and a more positive profit picture.

Some analysts have assessed that the strong credit growth in the last quarter of 2023 might not yet translate into last year's figures, but should contribute to the profit picture in 2024.

Remittances play key developmental role

The country is estimated to have received a rise in remittances from overseas Vietnamese people in 2023, with Ho Chi Minh City taking the lead.
 
Incoming remittances to the city reached approximately $8.92 billion last year, up by 35 per cent over the previous year, according to the State Bank of Vietnam’s Ho Chi Minh City Branch. The figure is triple the foreign direct investment (FDI) influx to the city in 2023.

The remittances in the city are also expected to grow in 2024, with a projected increase of 20 per cent compared to this year. Ho Chi Minh City in 2022 was responsible for more than half of total remittances into Vietnam.

“Ho Chi Minh City is focusing power sources to consolidate the city’s position as a national financial centre towards 2025 and beyond, aiming to develop the city into a regional financial centre. From 2031 onwards, the goal is to develop the city into a global financial centre,” said Vice Chairman of Ho Chi Minh City People’s Committee Vo Van Hoan at the 32nd National Diplomatic Conference organised in Hanoi in late December.

“To realise these targets, the remittances will contribute a pivotal role, along with other factors such as foreign-invested capital, and international sponsors,” Hoan added.

To attract this crucial power source, Ho Chi Minh City’s government is actively working on the policies to attract and leverage remittance resources. The initiative focuses on specific objectives related to the growth rate of remittances and the implementation of social development projects in education, healthcare, the environment, and contributions to the local community by overseas Vietnamese.

The draft project set a target of achieving an annual remittance growth rate of at least 10 per cent during the 2023-2025 period, highlighting the significance of remittances in supporting the city’s development and addressing various social challenges.

The World Bank last August forecasted that remittances into Vietnam might reach $14 billion in 2023 and could hit $14.4 billion in 2024.

The crucial role of overseas Vietnamese in general and their remittance was proclaimed by Deputy Prime Minister Tran Luu Quang at a December conference in the northern port city of Haiphong, seeking ways to promote resources of overseas Vietnamese and connect localities and businesses.

“Amid complex developments of the world political and economic situations, Vietnam has reaped great achievements thanks to the contribution of the overseas Vietnamese, along with sound and prompt leadership and drastic engagement of authorities at all levels,” DPM Quang said.

In recent years, the flow of remittances pouring into Vietnam has continuously increased, making significant contributions to hunger eradication and poverty reduction, and raising the living standards of the people who receive remittances.

Remittances to Vietnam are estimated at $190 billion in the past 30 years, nearly the same as disbursed FDI in the same period. Last year, the figures rose 5 per cent to a record $19 billion, making Vietnam among the top 10 countries globally in remittances.

The statistics published by the State Committee for Overseas Vietnamese under the Ministry of Foreign Affairs show that there are around six million Vietnamese living overseas, and the number increases by 5 per cent annually. They live in 130 countries and territories, with 80 per cent of them in developed countries.

About 3,000 overseas Vietnamese enterprises are investing in 52 localities across the country, with a total contributed and registered capital of $4 billion. Enterprises are mainly from the United States, Canada, Australia, Russia, France, the Netherlands, Japan, Poland, and Switzerland, and concentrate on the production, and processing of export goods, trade, tourism, construction, real estate, aquaculture, seafood processing, and software technology.

Nguyen Phu Binh, chairman of the Association for Liaison with Overseas Vietnamese, said, “During meetings with the overseas Vietnamese community, I see that many talents and entrepreneurs have the intention to come back to the country to either work or implement investment activities. They expect to receive more information about the resources available for attraction, and domestic policies, processes, and procedures requiring refinement.”

But many overseas Vietnamese remain apprehensive, sceptical, and uncertain about long-term investments and employment opportunities in the country, Binh said.

“It is necessary to build a foundation so that they can be reassured of their investment in the country, including offering preferential credit loans to support them establishing businesses,” he added.

Renewables conundrum still up in air

Despite ample opportunities in renewable energy, Vietnam needs to remove legal bottlenecks to facilitate the progress of solar, wind power, and liquefied natural gas projects.
 
There are plenty of huge projects trying to take off this decade, but some of the processes are not simple, Photo: Le Toan
Last week, Quang Tri Department of Planning and Investment said that it had sent a document to the local People’s Committee seeking opinions on the proposal of two foreign companies to contribute capital to two solar power projects in the central province.

The companies, Taiwan’s Shinfox Energy and Singapore’s Camellia Energy, want to invest $5.2 million each in Gio Thanh Energy JSC, the investor of Gio Thanh 1 solar power plant, accounting for 35 per cent of the charter capital. This would mean that foreign companies would account for 70 per cent of Gio Thanh Energy’s charter capital if the proposal is approved.

In December, Sembcorp Solar Vietnam proposed to contribute capital and purchase shares of five projects in the same province. The company is willing to spend $29 million to take over Huong Phung Wind Power Company, the owner of the Huong Phung 2/3 plants, and buy out Gelex Quang Tri Energy Company, which owns Gelex 1-3 plants, for nearly $52 million.

The previous month, Khe Sanh Wind Power JSC, the investor behind the Amaccao Quang Tri 1 wind farm project, also proposed to transfer a 50 per cent stake to a Chinese investor.

A merger and acquisition broker in the renewable energy field told VIR, “Many investors are keen on buying clean energy projects with a clear feed-in tariff (FiT). They are willing to pay over $2 million per megawatt for wind power projects in operation which enjoy the announced FiT scheme. Meanwhile, investors can spend around the same to buy projects with documents, despite not taking advantage of an FiT.”

Many wind power initiatives are racing to sell electricity by the end of 2025 to enjoy an attractive FiT of 6.95 US cents/kWh, signalling that billions of US dollars are awaiting to flow into the renewable energy sector. However, investors are still waiting for new developments of the direct power purchase agreement (DPPA) mechanism.

The Ministry of Industry and Trade (MoIT) noted that of the 95 wind power and solar power projects with a capacity of 30MW or more, 24 projects with a combined capacity of 1,770MW have expressed interest in participating in a pilot scheme for a DPPA in Vietnam. An additional 17 projects, totalling 2,830MW, are considering their eligibility and capability to secure contracts with large electricity consumers.

However, 26 projects have opted out of the DPPA pilot. The MoIT is accelerating the development of the DPPA mechanism to woo investment in renewable energy.

Last month, Copenhagen Infrastructure Partners announced the launch of its Growth Markets Fund II, with a target size of $3 billion. This will enable more than 10GW of new renewable energy capacity.

Vietnam is one of the key focus markets for the fund, with a pipeline of renewable energy projects such as the La Gan offshore wind project, set to be completed in 2030 off the coast of Binh Thuan province.

In addition, Enterprize Energy has been present in Vietnam for the past 4-5 years to seek opportunities to develop offshore wind power. Among them, the group is investing in the Thang Long offshore wind project. It comprises Thang Long Wind with a capacity of 3,400MW and investment of $11.9 billion, and Thang Long Wind 2 with 2,000MW capacity and costing $5 billion.

Likewise, Sembcorp Utilities (SCU) and PetroVietnam Technical Services Corporation are jointly exploring the development of offshore wind farms in Vietnam for the export of electricity to Singapore. Last October, Singapore’s energy regulator granted conditional approval to SCU to import 1.2GW of low carbon electricity from Vietnam to Singapore.

However, there are numerous barriers for offshore wind power projects like these to take off. According to Ernst & Young Vietnam, there are around 20 different risks for developers and lenders involved in offshore wind power project development in Vietnam. They include risks associated with legal permits and approvals, site selection, wind resources, technical design, financing, construction risk, and many more.

The MoIT believes that offshore wind power projects need to be included in the list of important national projects with special policy mechanism. Meanwhile, the ministry also wants a resolution issued to remove legal obstacles for offshore wind power projects in alignment with the Power Development Plan VIII.

Meanwhile, after three years of negotiation, PetroVietnam Power Corporation (PV Power) is making progress on the PPA for the Nhon Trach 3&4 liquefied natural gas (LNG) power plants. However, PV Power faces hurdles with the negotiations on electricity prices and annual power offtake commitments.

​In late December, Vietnam Electricity (EVN) completed the price frame for the LNG gas power projects and sent it to the MoIT’s Electricity Regulatory Authority for consideration. This price frame will have to be updated in 2024.

Previously, PV Power proposed 80-90 per cent of annual power offtake within 15 years from the date of commercial operation. However, the current regulation requests the mobilised contracted volume (MCV) of power plants are between 60 and 100 per cent of average long-term power output. PV Power proposed the MCV to be over 70 per cent. However, PV Power and EVN have not agreed on the long-term MCV power output, so it will be difficult to determine the volume of LNG purchase and capital arrangement.

EVN is now worried about the low load demand in reality. However, it still has to buy electricity at high prices due to commitments under the PPA, which will lead to an increase in its electricity purchase costs.

Offshore wind power, hydrogen, and gas power awaiting policies

The expeditious execution of gas power, offshore wind power, and hydrogen projects is contingent upon the competent authorities formulating policies pertaining to these domains.

As it finalises the draft hydrogen production strategy and implements offshore wind power and gas power projects, the Ministry of Industry and Trade (MoIT) will shortly submit a report to the government and present its findings to the appropriate authorities for evaluation.

Minister of Industry and Trade Nguyen Hong Dien stated at a December 25 meeting that the strategy, which outlines the execution of gas power and offshore wind power projects in accordance with Power Development Plan VIII, has issues surrounding gas power and offshore wind energy initiatives that need to be examined and addressed promptly and simultaneously, from strategies to policy mechanisms.

“Gas power and offshore wind are two crucial energy sources for ensuring national energy security and advancing the energy transition process in Vietnam,” Minister Dien said.

“In addition, the hydrogen development strategy serves as a political orientation and a critical strategy, providing a foundation for the establishment of robust policy mechanisms and facilitating the practical implementation of hydrogen production activities in Vietnam. This not only addresses the demands of the energy transition but also fosters economic progress,” he added.

As stated in a report by the Electricity and Renewable Energy Authority under the MoIT, the execution of gas power and offshore wind power projects in time for commissioning prior to 2030 is a formidable task that demands the involvement of capable authorities and close collaboration among pertinent entities.

Such efforts also serve to safeguard national energy security and facilitate the realisation of Vietnam’s commitment to carbon neutrality.

This report details the investor selection, feasibility study preparation, power purchase contract negotiations, loan arrangement, and execution of engineering, procurement, and construction contracts involved in the execution of gas power projects. The entire process takes approximately 7-8 years.

Pham Van Phong, general director of PetroVietnam Gas (PV Gas), states that the inadequate infrastructure for importing liquefied natural gas (LNG) could impede the advancement of gas power projects and hinder the achievement of objectives outlined in the PDP8.

“The absence of a financial policy, a mechanism to guarantee electricity output coverage, or a mechanism to convert petrol prices to electricity prices in Vietnam have rendered investment projects incapable of ascertaining their capacity to recuperate capital, organising capital, and determining the quantity of LNG imports required to secure competitive petrol prices for electricity production contracts,” said Phong.

Vietnam has a single LNG storage facility at present, according to the general director of PV Gas. PV Gas has successfully concluded and is prepared to supply regasified LNG to consumers in the Southeast region from its import port in the Thi Vai area of the southern province of Ba Ria-Vung Tau, Phong added.

“Other port terminals, such as those situated in import ports that are slated to be incorporated into LNG thermal power initiatives, are confronted with a multitude of challenges and concerns. These encompass technical conditions as well as regulatory issues.”

Phong further underscored that neglecting the integration of LNG import infrastructure with power plants would result in suboptimal resource utilisation, diminished investment efficiency, and inefficient use of Vietnam’s seaport resources.

Le Manh Hung, chairman of PetroVietnam, asserted that at present, all domains associated with the PDP8 implementation fall under PetroVietnam’s purview, with the exception of hydrogen. Nevertheless, investors face significant hazards in gas power and offshore wind power due to the absence of appropriate policies. “However, the lack of mechanisms, policies, and planning, as well as the absence of a location and management agency responsible for approving such projects, pose a significant obstacle,” he said.

Experts in energy and economics concur that international obligations must be carried out expeditiously and that policies and work attitudes must be revised accordingly. The integration of hydrogen production strategies, gas power implementation, and offshore wind power initiatives into the broader national energy strategy is imperative.

Source: VNA/SGT/VNS/VOV/Dtinews/SGGP/VGP/Hanoitimes