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A dispute between the federal government of Vietnam and renewable vitality builders over subsidies is threatening to disrupt energy provides, a transfer that might hit producers which have moved to the nation in droves from China.
Vietnam has develop into a vital hyperlink in world provide chains lately as producers, together with Apple, Samsung and Intel, relocated as a part of a “China plus one” technique to hedge their operations towards geopolitical threat. However the nation’s electrical energy provide has struggled to maintain tempo with a growth in demand, resulting in blackouts and shortages.
A authorities choice to abruptly roll again subsidies for renewable vitality from January has hit energy producers, chopping funds from Vietnam’s state utility EVN for electrical energy they provide to the grid. Builders allege it is a breach of contracts signed from 2017 for a interval of 20 years.
The cancellation of subsidies “may lead to force majeure, meaning that power plants may have to stop supplying electricity to the national grid, seriously affecting the security of power supply in 2025 and the following years”, EVN warned in a letter in Could to Vietnam’s ministry of trade and commerce seen by the Monetary Occasions.
In a follow-up letter to the ministry in July, EVN reiterated its issues about impacts to nationwide energy provide, “especially in the coming period when the country sets a high economic growth target”.
Within the letters, which haven’t been beforehand reported, EVN mentioned decrease buying costs would limit the builders’ money stream, which it warned would end in delayed upkeep, missed mortgage obligations and even bankruptcies. The letters summarised conferences with international buyers and submissions from enterprise teams.
The withdrawal of the subsidies may hurt Vietnam’s enchantment as a vacation spot for international funding, clouding its financial outlook on the identical time that it begins grappling with greater US tariffs.
A complete of 173 photo voltaic and wind initiatives, constructed at a price of $13bn, could be affected by the coverage change. Of these, 75 have been backed by international buyers, primarily from south-east Asia together with Acen from the Philippines and Thailand’s Tremendous Vitality and B Grimm Energy.
“They [Vietnam] have demonstrated without a question that the contract from the main offtaker is not reliable,” mentioned a international investor within the photo voltaic trade who requested to stay nameless. “There is not a chance in hell of any serious funds being attracted into Vietnam’s power sector.”
EVN warned the ministry that international buyers may see the coverage change as a breach of their energy buying agreements and take authorized motion towards the state utility, together with worldwide arbitration, if Vietnam persists with the diminished subsidies.
“In case of reduced confidence in the stable investment environment in the energy sector, foreign investors as well as capital suppliers will shift their investment to other countries in the region,” EVN wrote in July.
The dispute underscores the challenges to Vietnam because it seeks to quickly constructed out infrastructure to serve the enlargement of power-hungry manufacturing sector.
In 2023, factories have been hit with rolling blackouts in northern Vietnam in the course of the peak summer season season, as a drought affected hydropower. The federal government has since then accelerated improvement of energy technology and transmission strains.
Final yr, it additionally allowed huge firms to buy energy instantly from producers slightly than depend on the grid, and EVN requested customers to be economical to keep away from shortages.
The present dispute stems from a 2017 coverage beneath which EVN would purchase renewable vitality at above-market costs to provide the nationwide grid. The incentives have been vital to the speedy enlargement of renewables in Vietnam, which now leads south-east Asia in clear vitality adoption.
Nonetheless, Hanoi determined to scrap the beneficial pricing scheme after an audit discovered a number of the initiatives have been lacking a certificates displaying development had been accomplished. Vitality builders allege this documentation was not required when the acquisition agreements have been signed. Since January, producers have been paid as little as half of what they obtained beforehand for energy.
The utility has aked the ministry to use the rollback retroactively, however just for the interval when producers lacked the inspection documentation. This implies buyers must return a part of the funds they obtained for that interval, however not for the remainder of the contract. The proposal is meant to keep away from lawsuits and safeguard Vietnam’s funding repute.
Greater than 40 international and Vietnamese firms with a mixed capability of 6.38 gigawatts have petitioned the federal government to evaluation the choice.
“The current situation poses serious and immediate risks to investor confidence, financial stability, and Vietnam’s long-term energy and climate objectives,” the investor group mentioned in a Could letter to the federal government.
EVN and the ministry of trade and commerce didn’t reply to requests for remark. Tremendous Vitality and Acen declined to remark. B Grimm didn’t reply to a request for remark.
Knowledge visualisation by Haohsiang Ko in Hong Kong
