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Vietnam – the next offshore wind market in Asia?

I’ve just comeback from my short business trip to Vietnam and the first Global Wind Energy Council (GWEC) Wind Power conference in Hanoi. But I’ve returned with mixed feelings. Have you ever been in a situation where certain actions or conclusions were not made, although making them would have been the most logical thing to do? Well, that’s how I felt on the flight back reflecting on the success of the conference.

And on the other hand – I return home with optimism for the wind power prospects in Vietnam, based on my “root cause analysis” and the real trends knowledge of the global market, that there could be big and significant decisions on Vietnam’s energy system very soon!

The wind power conference was indeed very well attended by both international and local Vietnamese stakeholders. This is always a good indicator for these types of gatherings. On substance, the conference program focused on going the last mile towards real commercialization of the wind market in Vietnam and the reasons why only less than 200 MW have been installed in the market so far – despite the obvious and huge unexploited wind power potential in the country.

So, let’s look at the situation and issues facing the wind power market. Vietnam has all the natural reasons for making its energy system green. Firstly, an unexploited huge wind power potential with a coastline of more than 3,000 kilometres, several areas with high wind resources and according to the World Bank over 2,600 square kilometres with an average wind speed above 6 m/s at 80m elevation.

Secondly, Vietnam has a “wolfly” appetite for more power to cater for a rapidly growing population and economy. Thus, the government has a serious annual electricity growth production plan which has increased ten-fold from 1990 to 2014. The government’s masterplan is to add another 60,000 MW by 2020, 96,500 MW by 2025 and 129,000 MW by 2030. In other words’, Vietnam is now in a situation where the country needs to go for energy technologies which can be brought online very fast, such as solar and wind (wind farm installations take one-two years to construct provided you have 12 months of site specific wind data) energy. Other carbon fuel-based generation technologies take many more years to be build and come online, and have significant CO2 emissions.

Thirdly, Vietnam has a very capable industry and is already a global supplier to the energy sector and other industries. In fact, one of the leading tower suppliers – Korean owned CS Wind – has a sizable factory in the Ba Ria-Vung Tau Province, as does another producer Hevy Halla Heavy Industries. And last, but not least, General Electric (GE) has a wind turbine generator factory in the city of Hai Phong. All these local suppliers have come to be in Vietnam because of the country’s industrial offering, quality and competitive prices – and of which are part of the global supply chain. But Vietnam has much more supplier potential for the wind industry and is very well positioned to harvest not only many manufacturing jobs, but jobs in installation and operations & maintenance.

In other words – Vietnam has all the ground conditions in place for a high wind power utilization. So why has Vietnam installed less than 200 MW of wind energy so far? Let’s delve a little deeper into the root causes as to why the wind market has not moved significantly in Vietnam until now – there are some substantial reasons for this. Firstly, the permitting process in Vietnam is very complex and cumbersome. Vietnam has at least 29 individual permits, agreements or licenses for utility scale wind farms. There are many government agencies involved at state and regional level – at least 12 different agencies, counties and ministries. The approval process ranges from a few days to several months and the entire process can take years.

Another significant barrier facing investors and developers of wind energy projects in Vietnam is the lack of available project finance. There is a lack of local finance and the Vietnamese power purchasing agreements (PPA) do not follow international standards in the areas of force Majeure, offtake interruptions, dispute resolution, GRID Connectivity, Change in Law and Tariff escalation. Also, failure to provide full currency guarantees is a serious problem for bringing in international capital and international public finance to Vietnamese wind projects. The only way to currently finance wind projects is through Overseas Development Aid (ODA) financed or equity financed projects setting certain limits to scale.

A third significant barrier for larger wind power installation in Vietnam is the country’s weak GRID-system – and the logical “competition” with solar PV which is rapidly being installed throughout the country and could “cannibalize” the remaining GRID capacity for wind projects.

Looking at the issues and opportunities facing Vietnam to capture its wind potential, a realistic approach for onshore wind will likely be slow development owing to some of the barriers and mitigating actions described above. This will take time to overcome and implement. With that in mind and the aggressive scaling power demand for the expanding Vietnamese economy, the government should seriously consider leapfrogging to opportunities in offshore wind.

Vietnam has exceptional offshore and near coast wind opportunities. Offshore wind conditions not far from large load-centres, such as Ho Chi Minh city, have great potential according to the World Bank ESMAP, and with reasonable water depths between 20m and 50m, this could easily be a wonderful opportunity for Vietnam to add yet more global suppliers to its fledgling wind industry. Vietnam could quickly acquire obvious competences in supply, offshore foundations and substructures, creating new jobs and diversifying the industry. Fast tracking offshore wind planning appears to be the right decision for Vietnam right now, where offshore wind technology is entering the region quickly thanks to the investment made in Taiwan.

Because of a mix of conditions described above, Vietnam should consider taking a dual strategy planning for its wind power strategy, but there is certainly also a strong socio-economic business case for fast-tracking planning of the development of its vast offshore wind potential.

4 Comments Add your comment
Avatar Yung says:

This is very informative and insightful. Thank you, Peter.

Would vulnerability to sea level rise a potential significant barrier?

Avatar Christian Wood says:

Wonderfully concise, thanks Peter!

Avatar Mikael Hägerby says:

Having followed a few energy projects in VN, I wouldn’t hold my breath.. just look at Block B, LNG receiving terminals, Blue Whale and indeed also wind projects.. it all boils down to what one is prepared to pay for the power, and the answer to that question so far has been ‘not so much’, which has lead to a wait and see approach. In many cases this however seems to have been successful as gas prices have dropped over the years and the same has happened with costs of offshore wind. I would therefore not expect a sudden improvement regarding these conditions any time soon.

Avatar Knud Bjarne Hansen says:

Dear Peter,
As always strait to the point – we are very proud of having our core knowledge manufacturing facility in Vietnam and as you describe it – the people have extreme knowledge and pride in the work they perform.
The capabilities seen from a manufacturing point of view are huge, also when looking towards the future offshore in the Asian region.
Thanks for the up-date and clear statements!

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