Why wind investors are looking at Vietnam right now

This month’s meeting of G7 leaders was dominated by President Trump’s antics. No doubt these fallouts and bust-ups will have some impact on global investment flows.

For investors in the wind sector though, there were also interesting stories around the edges of the summit. For instance, at the accompanying G7 Outreach Meeting in Canada, Vietnam’s Prime Minister Nguyen Xuan Phuc affirmed his country was “blessed with immense potential for clean energy development”, and confirmed the government’s commitment to exploit the huge potential of its wind and solar resources.

The message to investors could not have been clearer: we want you. So is Vietnam on the verge of a renewables revolution?

Vietnam has so far installed only 197MW of wind capacity, but a recent World Bank study has estimated that the country could install wind farms totalling up to 27GW.

A handful of foreign investors have already been drawn in. Emerging markets developer Mainstream Renewable Power and General Electric signed an agreement last year to build wind farms with a total capacity of 1GW in the country, including the 800MW Phu Cuong wind farm. The $2bn agreement is part of a larger investment package worth $5bn that GE is planning in Vietnam.

In addition, in February, Thai solar developer Superblock announced investment of $1.7bn in the country to build 700MW of nearshore wind farms. These deals fit into Vietnam’s plan to install 800MW of wind capacity by 2020 and 6GW by 2030.

However, to reach its targets and unleash its potential, the country must fix some key issues.

The German Society for International Cooperation (GIZ) argued last week that the cost of developing wind farms and integrating them into the grid were among the biggest challenges facing the Vietnamese government. Deputy head of the country’s Electricity & Renewable Energy Department, Nguyen Van Thanh, added that land use, limited availability of capital and hesitancy to adopt new wind technologies are also of particular concern.

In that case, what do those pioneering wind investors see that others yet haven’t?

Well, Vietnam’s economic growth and its historic ability to attract foreign capital work are two factors in its favour. The nation has the fastest projected economic growth in Asia, with an annual 5% GDP growth from 2014 to 2050, according to PwC.

The country has also been open to foreign investment since 1986. Investors have been attracted by its low manufacturing costs, abundance of labour and willingness of the government to ease permitting processes.

Expanding into the country is also fairly straightforward and efficient permit-wise, and most industries allow foreign investment of 100%. This should be good for turbine makers looking to establish a presence in the country. As a result, foreign direct investment in Vietnam increased to $29bn in 2017, which is 44% higher than 2016.

There are also specific steps that the the country could take to extend in wind too.

The Global Wind Energy Council, Mainstream Renewable Power, turbine makers Siemens Gamesa and Vestas, and consultancy DNV GL last week published four recommendations that could unlock the potential of the wind sector in the country.

These include the establishment of standardised, transparent and bankable power purchase agreements; a simplified project approval process; a clear plan for investment in the grid infrastructure; and the development of a national wind energy association to drive legislative initiatives and help the government to support the industry. In particular, bankable PPAs would be key to attract international investors, as they would help reducing project risk and lowering the cost of capital.

That would make life easier for investors, but let’s go back to the original question – is Vietnam on the verge of a renewables revolution?

Possibly. Vietnam is still heavily reliant on coal, which represents 33% of its total energy mix, and a report published by Vietnamese research centre GreenID has forecast this could reach 43% by 2020 to sustain the country’s economic growth. Firms in the wind industry need to make the case that wind can play a key role in helping the country to meet its growth targets.

The government has already created a stable environment for attracting foreign investment. Now it needs policies to support the prime minister’s enthusiasm.