General

Investment Opportunities In Vietnam’s Energy M&A

Trường Lăng

August 31, 2022

General

Investment Opportunities In Vietnam’s Energy M&A

Trường Lăng

August 31, 2022

Realizing the increasing demand for energy in Vietnam, many foreign investors are accelerating their market entry in the form of merger and acquisition (M&A) deals, especially focusing on renewable energy projects such as wind and solar power.

Increased demand for energy in Vietnam

Vietnam has been a country with a rapid growth rate, accompanied by a high demand for energy. During the 10-year period 2011-2020, Vietnam’s electricity demand grew very rapidly, averaging nearly 10% per year. To meet the electricity demand, the scale of Vietnam’s power sources has increased in capacity from 20,600MW in 2010 to 69,300MW in 2020. It is also expected that Vietnam needs to add 6,000-7,000 MW of electricity annually, with an estimated investment cost of $148 billion accumulated by 2030. Besides traditional energy sources, avid energy will significantly add to the electricity supply.

Additionally, the on-going Russia-Ukraine conflict, followed by an energy crisis and inflation, has caused the price of energy fuel to skyrocket. The consequences directly affect electricity prices, CPI, and many other areas around the world. 

The world today is facing environmental and energy challenges, thereby placing an urgent need to reduce carbon emissions. Vietnam’s climate and topography make renewable energy, especially wind power, a significant investment prospect. Vietnam’s large renewable energy production potential is due to the long and narrow geographical shape of the country, with more than 3,000 km of coastline, including hills and mountains. Over 8% of the entire area has very good wind potential with an annual average temperature of over 21 degrees Celsius, and there are typically between 2,500 and 3,000 hours of sunshine per year.

Data from the World Bank (WB) shows that Vietnam currently has the most comprehensive installed solar capacity in Southeast Asia, with 16,500 MW produced in 2020. Vietnam is also one of the top 10 countries that have the highest installed solar capacity globally.

Vietnam’s commitment to achieve net zero emissions by 2050 is anticipated to open up a slew of new opportunities for investment, transforming the nation into a green manufacturing hub and facilitating the export of made-in-Vietnam goods into developed countries’ markets.

Foreign Investors Flocking to Energy Projects

Although M&A activity has slowed in the first half of 2022, it has merely reset to pre-pandemic levels, which averaged around 25,000 deals per half of the calendar year. Many foreign investors are still accelerating their speed of entry into the Vietnamese market in the form of M&A for renewable energy projects such as wind and solar power projects. The continuing acceleration of the energy transition and a growing focus on supply chain security will drive M&A in the areas of critical minerals and national energy supply in the second half of 2022.

Foreign investors from Thailand, Japan, Korea, Singapore, India, the EU, and Australia have stepped up market research and invested in many energy projects. Among them, the first green certificated loan in Vietnam between the Asian Development Bank (ADB) and Phu Yen Joint Stock Company on October 9, 2020, is worth $186 million to build and operate a solar power plant with a capacity of 257 MW. Foreign investors bring to Vietnam not only capital but also technical knowledge, negotiation skills, project management, and support for investors across the entire supply chain.

The dynamism of Thai investors is one of the main factors that has increased the heat of the M&A market in recent years, especially projects related to renewable energy. Some prominent transactions in the market belong to Thai investors such as Gulf Energy Development Company, Super Energy Corporation, and Banpu Energy Corporation.

The recent exciting M&A activity in the renewable energy sector is largely thanks to the leverage from the preferential policies for renewable energy projects and the favorable legal framework for foreign investors, including regulations that allow enterprises to own 100% of renewable energy projects.

Vietnam’s Effort in Pursuing Renewable Energy

During the past 35 years of renovation and reform, Vietnam has set the overarching goal of ensuring energy security. Particularly in Resolution 55-NQ/TW on “Strategic orientation for Vietnam’s national energy development to 2030, with a vision to 2045,” Vietnam unequivocally states that it is necessary to link requirements to ensure environmental safety with requirements to ensure sustainable energy security in Vietnam. Resolution 55 has highlighted the crucial task of accelerating the energy transition in the direction of putting a priority on the exploitation, efficient use, comprehensive use of renewable and clean energy sources, and developing a reasonable roadmap for traditional and fossil energy sources.

Only 0.32% of Vietnam’s energy consumption was from renewable sources in 2014.  The installed solar power generation capacity in 2015 was only 4 megawatts (MW). However, within five years, investment in solar power, for example, soared.

Solar PV - Energy M&A
The country’s concentrated efforts and dedicated policies are why Vietnam is Asia’s next renewable energy powerhouse.

Currently, the Ministry of Industry and Trade is finalizing the National Power Development Plan for the period 2021-2030, with a vision to 2045 (National Power Development Plan VIII) and the National Energy Master Plan for the period 2021-2030, with a vision to 2050 with emphasis on strongly promoting the use of clean power sources, minimizing the impact on the environment. Due to its high level of complexity, the National Power Development Plan VIII is particularly significant and of interest to numerous agencies, units, professionals, scientists, and localities across the nation. “Putting the interests of the people and nation first” is the overarching objective that guides the Government’s completion of the National Power Development Plan. So far, investment mechanisms and policies for energy projects have gradually shown more transparency and clarity.

Regarding the mechanism for transitional wind and solar power projects, the Ministry of Industry and Trade has proposed and requested the Prime Minister to approve the mechanism for investors of transitional projects to negotiate electricity prices and electricity purchase and sale contracts with the Vietnam Electricity Group (EVN) within the electricity generation price bracket and guidelines issued by the Ministry of Industry and Trade.

The power purchase agreement and electricity price negotiation mechanism will be used similarly to those mentioned above for future wind and solar power projects to ensure that the legal corridor is consistent with the projects.

Regarding the Decision on piloting the direct electricity trading mechanism between renewable energy generators and large electricity users (DPPA), a Draft Decision has been posted for comments from the public.

With the increasing demand for energy in the country and in the world, the energy industry and its M&A deals will continue to attract foreign investment in the coming years. Reach out to Viettonkin for more insights on the energy market in Vietnam.

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