Why are European renewable giants fleeing Vietnam?

Italian energy conglomerate Enel, one of the world's largest investors in renewable energy, is reportedly planning to withdraw from Vietnam, according to Reuters, following in the footsteps of Norway's Equinor and Denmark's Orsted. Both firms have recently canceled renewable energy projects in the Southeast Asian country.

Enel had ambitious plans for Vietnam's energy market. In 2022, the company announced its intention to invest in generating up to 6 gigawatts (GW) of renewable energy.

However, its decision to abandon these plans, which is likely to be officially announced during the company's annual strategic planning presentation in November, reflects growing concerns about Vietnam's renewable energy sector.

While Enel did not specify the exact form of renewable energy it intended to develop in Vietnam, most experts believe wind power was at the core of its strategy. Wind energy is expected to play a significant role in Vietnam's energy transition, as the country aims to reduce its reliance on coal and increase its renewable energy capacity.

Currently, Vietnam's installed electricity capacity stands at approximately 80 GW, which the government plans to nearly double by 2030. Renewable sources like wind, solar, and other alternatives (excluding hydropower) are expected to account for at least 31% of the country's energy mix by the end of the decade.

Wind energy is projected to contribute 18.5%, a significant increase from current levels. However, solar energy's share will drop nearly threefold to 8.5% as the government shifts focus.

Roadblocks to progress

A major challenge holding back Vietnam's renewable energy potential is the lack of a solid framework for offshore wind development. Industry experts argue that delays in setting up guidelines for project approvals, sea area allocations, and pricing mechanisms have caused frustration among investors.

Chris Humphrey, executive director of the EU-ASEAN Business Council, told DW that this isn't a new concern and that he has been warning Southeast Asian leaders for some time that unless they move faster on energy transition, companies will look elsewhere for their investments.

Norway's state-run Equinor and Denmark's largest energy firm, Orsted, have already withdrawn from Vietnam's offshore wind sector. Equinor canceled plans to invest in offshore wind in September, while Orsted paused its projects last year, citing regulatory uncertainty.

"Despite Vietnam's abundant wind resources, the insecurity regarding standard guidelines on project approvals, sea area allocations, and pricing, among other regulatory hurdles, has resulted in hesitation among investors," Dan Martin, senior associate at Dezan Shira & Associates, an advisory firm, told DW.

"Without guarantees of profitability or operational clarity, companies are cautious," said Martin, and "this gap has effectively stalled offshore wind development, preventing Vietnam from capitalizing on its vast potential."

Infrastructure and funding challenges

One of Vietnam's persistent challenges is connecting planned renewable energy projects to the national grid. Much of the country's existing infrastructure is not equipped to handle the influx of new renewable energy sources.

Despite ambitious renewable energy goals, a significant portion of Vietnam's energy still comes from coal-fired power stations. While the government has pledged to reduce its dependence on coal, the path to transition has been slow and uncertain.

Funding is another significant hurdle. In May, the Vietnamese government approved a long-awaited power development plan, known as PDP8, which outlines a doubling of power generation capacity to more than 150 GW by 2030.

While most of this new capacity is expected to come from renewable sources, the plan requires an estimated $134 billion in funding for new power plants and grid improvements.

To help address these financial needs, the Group of Seven (G7) nations and other wealthy countries pledged $15.5 billion in December 2022 to support Vietnam's transition away from coal. However, the funds are just a fraction of what is needed to meet the ambitious goals set out in PDP8.

Investment woes and competition

Vietnam has long been a key recipient of foreign investment, particularly as companies diversify their operations away from China. However, a lack of financial incentives from Hanoi, combined with rising tax burdens, has led some of the world's largest firms to reconsider their investments in the country.

For example, US chipmaker Intel was planning a $3.3 billion project in Vietnam that would have nearly doubled its capacity. However, after requesting 15% cash support from the Vietnamese government and being denied, Intel moved the project to Poland.

Similarly, Austria-based semiconductor manufacturer AT&S and South Korea's LG chose to invest in other countries after Vietnam failed to meet their investment support requests.

While renewable energy issues were not explicitly cited as reasons for these decisions, they underscore broader concerns about Vietnam's investment climate.

European firms are particularly concerned about Vietnam's energy reliability. In 2023, widespread power outages, exacerbated by an overreliance on coal, disrupted operations at many foreign-owned factories, including those run by South Korean tech giant Samsung.

These energy woes have only added to concerns over the country's ability to support its growing manufacturing base with reliable, sustainable power.

A window of opportunity

However, there is still a window of opportunity for Vietnam to position itself as the preferred manufacturing center in Southeast Asia driven by renewable energy sources, Richard Ramsawak, Lecturer of Economics at the Royal Melbourne Institute of Technology Vietnam, told DW.

"This approach will require not a total transformation of Vietnam, but rather targeting key industrial zones and sites, with built-in renewable power energy sources."

As global demand for sustainable manufacturing grows, Vietnam's competitors in Southeast Asia — such as Indonesia and Malaysia — are already taking steps to diversify their energy sources.

"Vietnam will have little choice but to follow through on its commitments if it wants to retain its competitive position in global manufacturing," Ramsawak said. 

"The only question is if they will be a leader or follower in this process."

Edited by: Keith Walker