Case Study Details - Playbook of Solutions - Lifting Restrictions on FDI

Challenges to investment

As of end-2021, electricity demand in Vietnam was forecast to increase annually by 7.9-8.9%, with total generation capacity expected to grow from 77 GW to 122-146 GW by 2030. Renewable sources, including wind, solar, and hydro power, were projected to represent 36-47% of that new installed capacity. However, Vietnam’s transmission infrastructure needed to expand rapidly to integrate the new renewable energy generation sources. Until 2011, Vietnam Electricity (EVN) held a monopoly on transmission and distribution, with foreign investor participation limited by restrictions on foreign direct investment. To meet rapidly growing electricity demand and connect new RE generation sources to the grid, Vietnam needed to promote foreign private investment in transmission and distribution, which would create a sustainable and stable power system.

Approach

On 11 January 2022, Vietnam’s National Assembly passed Law No. 03/2022/QH15, amending the Law on Electricity 28/2004/QH11. These amendments, effective 1 March 2022, increased foreign investors’ ability to participate in Vietnam’s electricity grid, allowing them to build, manage, and operate power grids. Specifically, the law removed previous caps on foreign ownership, so private players could invest in the construction of the electrical transmission grid and operate the grids they invested in. Balancing increased foreign ownership in grid projects, the Vietnamese government retained its monopoly over managing the national power grid system and constructing and operating large electricity plants of particular socio-economic importance as well as national defense and security significance.

Key Enabling Conditions

Vietnam's firm commitment to increasing RE, as stated in the eighth National Power Development Plan (NPDP), opened opportunities for the foreign, foreign investment in grid development and helped to integrate Vietnam’s rising RE generation capacity. The amendments to the Law on Electricity were also complemented by broader government efforts to increase foreign direct investment, such as the 2020 amendments to the Law on Investment.

Impact / Outcomes

For the period 2021-2030, Vietnam issued extensive enhancement plans for its power infrastructure, involving the construction of new 500 kV substations totaling 49,350 MVA, the renovation of existing substations amounting to 38,168 MVA, and the establishment of 12,300 km of new 500 kV transmission lines, in addition to the renovation of 1,324 km of existing lines. Additionally, the plan included the construction of 16,285 km of new 220 kV transmission lines and the renovation of 6,484 km of existing lines. The total investment capital required was estimated at $134.7 billion, with $14.9 billion for the transmission grid. Although the amendments permitted foreign investor participation in grid projects, investors still faced regulatory risks due to stringent compliance requirements and security concerns. Additionally, starting 22 November 2022, the private sector shared tariff-setting responsibility with EVN, overseen by the Electricity Authority of Vietnam (ERAV). Annex V of the Implementation Plan of Power Development Plan 8 lists priority grid projects, including projects to connect domestic sources and projects to import electricity from neighboring countries.

Additional Sources