- The Vietnam issue proves the old adage’ if it’s too good to be true, it probably isn’t” home for a lot of investors.
- Vietnam persisted with Feed in tariffs way longer than other neighbouring markets, attracting much more investment. Now that generosity has come back to bite the govt and by extension, those investors too possibly.
Vietnam’s decision to retroactively revise subsidised pricing rules for wind and solar energy has raised concerns among stakeholders in the industry, especially foreign investors. The move comes after Vietnam blew past its renewable addition targets between 2020-23 on the back of a generous Feed In tariff mechanism that made projects much more lucrative in the country, feeding a rush to set up solar projects especially. Solar skyrocketed between 2019-2020 threefold, eventually taking the country to 17.08 GW of solar capacity by 2023, making it the largest solar power producer in the region, while onshore wind power capacity stood at around 5.89 GW. growth numbers have sharply ebbed, as the Feed in tariffs were pulled away. The rapid buildout has also led to grid stability issues, raising the risk of curtailment as well.
In a letter dated March 5, 2025 to top Vietnamese officials, 28 investors expressed “deep alarm” over the possible end of the favorable tariffs that were promised to their wind and solar projects.
They argue that retroactively altering agreed prices violates the expectations under which investments were made, and could result in devastating financial losses. According to the industry letter, such a move could force developers to write off nearly 100 percent of the equity value of the affected renewable projects – effectively wiping out their investments of up to USD 13 billion. Of this, about USD 4 billion corresponds to foreign-funded projects totaling ~4 GW, primarily solar farms. Foreign investors include including Adani Green Energy, Dragon Capital, ACEN’s Vietnam unit, and investors from Thailand, the Netherlands, Singapore and China.
The letter in question did not yet clarify if all of the funds had been spent yet, and it was not clear how and when Vietnam intended to review existing rules.
Backstory
Vietnam has been a major destination for renewable energy investments, largely due to its attractive feed-in tariff (FiT) system. FiT guarantees above-market rates for electricity over a 20-year period.
However, the high tariffs increased losses for Vietnam’s state-owned power utility EVN, the only buyer of the generated electricity, and led to an increase in power prices for households and factories. The proposed policy changes would involve a retrospective review of eligibility criteria for these FiTs, even for projects that are already operational.
The trigger was a Government Inspectorate report, in late 2023, that audited the implementation of Vietnam’s power development plans and FiT policies. The Inspectorate’s conclusion, announced in December 2023, explicitly identified 14 solar power projects in Ninh Thuan province that were “unjustly enjoying” the preferential FiT rate of 9.35 ¢/kWh contrary to the limits set by Decision 11/2017 and Resolution 115/2018.
Following that, the Ministry of Industry and Trade (MOIT) proposed that EVN and the developers “reconsider eligibility” for the FiT incentives and reassess the electricity selling prices for projects that failed to meet the required conditions. The ministry instructed EVN to coordinate with local authorities on this review and to prepare to adjust payments accordingly, effectively laying the groundwork for the retroactive tariff changes.
In addition to the FIT misapplication, the conclusion also revealed that the MoIT had approved the addition of 154 solar projects to the national power development plan without proper legal basis. Among them, 123 projects were a major cause of an imbalance in the power system and power sources, wasting social resources.
The government agreed to address the issues surrounding these 154 renewable energy projects, as outlined in a November regular meeting resolution. During the December 12 meeting, Prime Minister Pham Minh Chinh affirmed the cabinet’s determination to resolve the projects’ problems definitively.
Risks: Loan Defaults, Trust Issues, and Future Challenges
Renewable energy projects are typically financed with significant debt in the ratio of 1:2.5 or higher, and investors note that EVN has already been exacerbating the situation by delaying or partially withholding payments for power from existing solar/wind farms “without clear justification.”
This has pushed multiple projects to the brink of loan defaults with local and international lenders. In case the government permanently goes back on the agreed feed-in tariffs (FiTs), it could trigger a wave of defaults even.
The letter cautions “risks undermining national banking stability” in addition to eroding confidence in Vietnam’s regulatory framework. In essence, banks that lent to these projects – including Vietnamese banks – might be stuck with non-performing loans, creating a ripple effect in the financial sector.
Foreign investors in Vietnam also view the sudden change in renewable energy policy as a serious contract sanctity issue – a signal that government commitments in Vietnam can be unexpectedly rolled back.
As Vietnam aims to expand its wind and solar capacity to 56 gigawatts by 2030, the drop in credibility on the sanctity of contracts could prove to be a significant blow to raising future investments..
