With its 3,000-kilometer-long coastline and the flat river deltas of the Red River in the north and the Mekong in the deep south, Vietnam is especially vulnerable to erratic storms, typhoons, flash floods, rising sea levels and coastal erosion. Over the last three decades, an increasing number of natural disasters and extreme weather events in this Southeast Asian nation have caused on average 500 deaths annually while accounting for yearly economic losses of about 1.5 percent of the nation’s gross domestic product (GDP). Such impacts are expected to increase in frequency and strength as the effects of climate change accelerate.
On the bright side, Vietnam has a natural climate advantage. The country’s climate and diverse topography bring large-scale potential for renewable energy, especially wind power. Onshore wind is one of the quickest alternative sources of energy to develop and a new strategic source of clean energy in a power-hungry nation that has been heavily reliant on coal-fired power as well as hydropower for the past two decades. Offshore wind has even more potential for the country, with a joint World Bank-IFC study identifying a technical potential of 160 gigawatt within 5 and 100 kilometers from shore; that is about two and a half times the total currently installed power capacity in Vietnam!
The country’s strong economic growth over the last two decades saw a massive expansion of coal-fired power generation, driven by a 13 percent annual increase in demand for electricity. Currently, coal-fired power plants provide about 50 percent of electricity—up from 17 percent in 2010. As a result, Vietnam’s energy sector accounts for 65 percent of its overall greenhouse-gas (GHG) emissions.
Wind farms will help the country ease its reliance on fossil fuels, supporting a smooth decarbonization of the power sector. For example, two onshore wind power plants in central Vietnam—in Binh Thuan and Ninh Thuan—will generate about 170 million kilowatt hours of clean energy per year once they start operating later in 2021. Developed by the Thuan Binh Wind Power company (TBW), a subsidiary of Refrigeration Electrical Engineering Corporation (REE), the project will provide enough power for about 100,000 Vietnamese homes per year. Moreover, it will help avoid about 123,000 tons of GHG emissions each year, which is roughly equivalent to taking 27,000 passenger vehicles off the road.
“Increasing the sources of clean energy is essential for Vietnam considering its vulnerability to the effects of climate change,” said Nguyen Ngoc Thai Binh, REE Deputy Chief Executive Officer. “In the past, we had invested in coal-fired power; however, it is clear that the future lies in renewable energy.” Binh added, “The conditions in Binh Thuan and Ninh Thuan are ideal for wind power development and we look forward to completing the combined 54.2 MW plants by October.”
Construction at 25.2 MW Phu Lac 2 wind power plant in Binh Thuan Province, Vietnam. Photo: Courtesy of Thuan Binh Wind Power Company (TBW)
Funding factor
Despite Vietnam’s huge potential, by the end of 2020, wind power accounted for less than one percent (or 670MW) of the nation’s total installed capacity. The government of Vietnam aims to increase renewable energy capacity—mainly wind but also solar power, including rooftop solar—by 19GW to more than 36GW by 2030.
However, to realize that target Vietnam needs an estimated $20 billion in investment, not including the costs for the necessary transmission infrastructure development. Given the constraints on public resources and the economic challenges of an ongoing global pandemic, private sector engagement is essential to provide this funding.
While local banks have funded the considerable scale-up of solar power in the country over the last three years—their balance sheet, project tenor and sector exposure limits are finite and international lenders are therefore needed to support the further scale-up of renewable energy. Yet most international lenders have not been able to fund the sector with normal (non-recourse) project finance due to the high-risk power purchase agreement (PPA) between projects and the government-owned offtaker, Vietnam Electricity (EVN).
IFC stepped in to provide TBW with a 12-year dollar-denominated financing package of $57 million, with corporate support from REE. The long tenor is unusual for such corporate structures and shows IFC’s additionality. Both projects will sell their energy to EVN through dollar-denominated PPAs, well-aligned with the currency of the debt.
“IFC’s long-tenor funding is key to the project sustainability. It demonstrates the viability of Vietnam’s nascent wind power sector while encouraging other lenders to participate and promote renewable energy solutions in Vietnam,” Binh says.
Local power
IFC has a track record of supporting transformational local renewable energy developers in Vietnam. In 2016, IFC’s equity investment in Gia Lai Electricity Company (GEC) helped finance the country’s first private grid-connected solar farm. IFC also anchored the green bond issuance of AC Energy, a Philippine power company with a pan-Asian footprint: IFC’s investment of $75 million was earmarked to support AC Energy’s renewable energy projects in Vietnam.
The two TBW projects will be the first wind power projects in Vietnam adhering to IFC’s internationally benchmarked performance standards. IFC guided and supported the developer through this process, allowing TBW to adopt best industry practices and standards for its projects, now and in future.
Clean energy contributes to national power security, fueling economic growth and resilience. As local developers like TBW and REE scale up their renewable energy investments, it will help Vietnam move closer to energy transition success by achieving its target of reducing GHG emissions by 9 percent by 2030, lower the contribution of coal-fired power to the country’s overall capacity and ultimately shift to a low-carbon economy that is both sustainable and inclusive.
“This wind power project marks IFC’s first engagement in the wind sector and is part of our ongoing efforts in Vietnam to help the country transition away from a coal-dominated power sector to one that is dominated by renewables, with gas-fired power as a “backbone” and to help integrate the intermittent renewable capacity. We look forward to doing more in this critical effort,” said Oliver Behrend, IFC Infrastructure Lead for Vietnam.
Published in June 2021