A conflict has arisen between the Vietnamese government and renewable energy developers regarding subsidies, raising concerns about potential power supply disruptions. This situation could significantly impact manufacturers who have increasingly relocated to Vietnam from China.
In recent years, Vietnam has become a vital part of global supply chains as companies like Apple, Samsung, and Intel adopted a “China plus one” strategy to mitigate geopolitical risks. However, the country’s electricity supply has struggled to keep up with surging demand, leading to issues such as blackouts and shortages.
The Vietnamese government recently decided to retract the subsidies for renewable energy starting in January, which has negatively affected power producers. As a result, Vietnam’s state utility, EVN, has reduced the payments made to these developers for electricity supplied to the national grid. Developers claim this acts as a breach of contracts established in 2017 that were meant to last 20 years.
This subsidy withdrawal could lead to force majeure, causing power plants to halt their electricity supply, according to a letter from EVN to the ministry of industry and trade. The utility expressed concerns about the security of the power supply for the coming years, especially with the country aiming for high economic growth.
These letters, which have not been previously disclosed, detailed how lower purchasing prices could hamper developers’ cash flow, possibly resulting in maintenance delays, missed loan payments, or even bankruptcies. They served as a summary of discussions with foreign investors and input from various business groups.
While the subsidy cuts could diminish Vietnam’s appeal for foreign investment, complicating its economic outlook, 173 solar and wind projects, worth about $13 billion, would be impacted. Among these, 75 projects involved foreign investors primarily from Southeast Asia.
A representative from the solar sector pointed out that the reliability of contracts with the state utility has been severely undermined, potentially driving away serious investors from Vietnam’s power sector.
Concerned about possible legal actions from foreign investors over power purchasing agreements, EVN warned the ministry that if these subsidy reductions continue, the investment climate in the energy sector might worsen.
The ongoing dispute highlights the difficulties Vietnam faces in building infrastructure to support its rapidly growing manufacturing industry. In 2023, factories experienced rolling blackouts in northern Vietnam during peak summer months due to drought conditions impacting hydropower.
To address this, the government has been pushing to expedite the development of power generation facilities and related infrastructure. The country also allowed large companies to buy power directly from producers instead of relying solely on the grid.
The conflict originates from a 2017 policy where EVN was to purchase renewable energy at higher-than-market prices, crucial for the development of Vietnam’s renewable sector, which is now a leader in Southeast Asia. However, an audit revealed that some projects were missing necessary completion certificates, prompting the government to discontinue the favorable pricing policy.
Currently, producers are receiving payments that are sometimes half of what they previously made for their electricity. EVN has requested the ministry to apply the subsidy rollback retroactively, but only for periods when productions lacked proper documentation. This compromise aims to avoid lawsuits and maintain Vietnam’s appeal for investments.
Over 40 foreign and local companies, with a combined capacity of 6.38 gigawatts, have asked the government to reconsider this decision. They warned that the current climate poses significant risks to investor confidence and stability in Vietnam’s energy landscape. EVN and the ministry of industry and trade have not yet responded to requests for comment.