Lessons from attracting international capital for renewables in Vietnam

This policy brief sets out how Vietnam has used the state-owned energy company, Vietnam Electric (EVN), to provide strategic financial support for renewables projects in order to attract overseas capital, and the lessons that other emerging markets and developing economies (EMDEs) can draw from this experience.

The brief is one of a series of three; read the China brief here and the India brief here.

Main messages

• Between 2017 and 2021, Vietnam experienced the fastest annual proportional increase in renewables ever seen globally.
• Vietnam achieved this by using the state-owned energy company, Vietnam Electric (EVN), as a state tool for creating a renewables market, implementing a green national strategy and reducing investor risks.
• The successes were particularly driven by EVN’s financial support for renewables projects. EVN intentionally and sustainably incurred losses when buying renewable electricity from the margin between high state-determined feed-in tariffs (FITs) and a low state-controlled electricity price.
• This technology-specific loss was made possible through direct state financial backing of EVN and by not publicly listing the company, allowing the state to set the prices of both buying and selling renewable electricity.
• Domestic banks, project developers and Asian regional equity investors viewed the FITs as high enough to compensate for all other risks.
• Equity came from both domestic project developers and international investors. Their risk assessment is in direct contrast to that of advanced-economy financiers and companies that did not involve themselves. Through FITs, the projects then sell the electricity to EVN.
• The case of Vietnam suggests that it is possible to design policies to reduce project risks, such as through FITs, without providing the types of guarantees that entail a large and difficult-to-control financial burden on states, such as dollar-denominated debt, offtake commitments and compensation for project delays.
• The fact that Vietnam drew on international capital from other EMDEs suggests that this is a promising avenue for similar countries, given that equity investors based in advanced economies remain reluctant to commit capital without burdensome guarantees.