Vietnam cannot beat China with the lights out

• By David Fickling / Bloomberg Opinion

• • Add TT as Preferred Source

  • 

  • 

  • 

The world’s attempts to reduce its reliance on China’s juggernaut manufacturing sector depend to an outsized extent on just one country: Vietnam. The nation’s efforts to meet those expectations, in turn, might come down to the fate of a handful of mothballed wind farms. With energy costs soaring, the government is warning of blackouts looming as soon as next year. A fix is long overdue.

Vietnam might be a victim of its own success. More than perhaps any other country, it has been a beneficiary of the tariffs and diversification that have attempted to restrain China’s trade since the first administration of US President Donald Trump. The manufacturing sector is one of the fastest-growing on the planet. Exports are equivalent to almost all of GDP, and the economy grew 8 percent last year.

Keeping that industrial machine going requires phenomenal amounts of electricity. That is where the problems start. Grid demand is increasing at about 10 percent a year, but supply growth has stalled after a renewable-power boom ran out of control at about the time of the COVID-19 pandemic.

The war in Iran has made the situation worse: Liquefied natural gas, once seen as the backbone of Vietnam’s future grid, no longer looks like the affordable or reliable fuel it was once presented as being. Even coal is being considered as a way to relieve chronic shortages.

There is only one fix that is up to the scale of the problem, and it is the one that Vietnam has been avoiding: Ending the pricing squabbles with state-owned utility Vietnam Electricity Corp (EVN) that have kept gigawatts of clean energy switched off for much of the past five years.

It seems extraordinary in a country where blackouts in 2023 shut down factories and wiped 0.3 percent from GDP, but Vietnam is sitting on significant numbers of stalled but largely finished renewable generation projects.

Two wind farms amid the tea and coffee plantations of the Central Highlands are emblematic: Originally scheduled to be completed in 2021, they gathered dust in regulatory limbo for years before receiving licenses in January, allowing them to finally start operating.

They are far from alone. An EVN database lists 85 wind and solar projects totaling 4.7 gigawatts (GW) that have been caught up in similar shenanigans, with just 1.6GW delivering power. The remainder would, in theory, be sufficient for millions of homes. Not all of those are completed, but at least 0.5GW of the total appears to be tested and ready for grid operation.

The backlog is not entirely EVN’s fault. Driven by overly generous guaranteed revenues, Vietnam’s renewable power boom from 2019 to 2021 resembled a gold rush in every sense. Developers raced to stake out contracts, cutting corners and leaving permits, land-use rights and grid connections to be sorted out later.

The pricing disputes that have dragged on ever since represent the utility’s attempt to regularize the chaotic aftermath, without overpaying for electricity that can now be bought more cheaply.

When considered in the context of Vietnam’s surging power needs, however, this haggling has been penny-wise and pound-foolish. In attempting to rewrite agreed contracts with generators, the government has made the country look like a risky place for private capital.

Hanoi wants to roughly triple the size of its grid over the next five years and would require US$136 billion to pay for it — far beyond what the state can afford on its own. Renewables are the only power source capable of being built at the required rate, but the fate of Vietnam’s Just Energy Transition Partnership, a UN-brokered energy transition framework, shows how much it is at the mercy of private capital.

After four years, just three of 50 planned projects have received investment, representing about 7 percent of the US$11 billion needed.

EVN can afford to be magnanimous. It has eliminated cumulative losses after several dicey years. Paying 10 percent over the odds for a gigawatt of legacy projects would be a bargain if restoring investor confidence shaved even a few basis points from the cost of financing the extra 150GW or so Hanoi wants to install by 2030.

A quick but dirty resolution that gets the most viable ones connected, while avoiding giveaways to outright rule-breakers, would be far better than allowing the current purgatory to drag on.

That does not mean teaching developers that Vietnam is a pushover. The bargain for the next generation of projects should be the opposite: Hanoi would not rewrite contracts after investors have spent their money, and developers cannot expect deadlines and permits to be negotiable.

With the government attempting to finalize a trade deal with the Trump administration, Vietnam is in a prime position to be one of the biggest beneficiaries as the world decouples from China. However, if it cannot generate the electrons needed to power its production lines, multinationals are likely to conclude that other countries — or even China itself — represent better bets.

Vietnam’s chaotic first renewables boom has proved the country can increase its electricity generation at a prodigious rate. The long hangover that followed has demonstrated it is going to need to tempt private capital back in the door if it is ever to repeat the trick.

David Fickling is a Bloomberg Opinion columnist covering climate change and energy. Previously, he worked for Bloomberg News, the Wall Street Journal and the Financial Times. This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.