Vietnam’s 2050 energy transition plan sparks green lending surge
The Power Development Plan 8 helps attract foreign lenders for green projects aligned with Vietnam’s 2050 clean energy goals.
Green lending in Vietnam might have experienced a slow start in the past, but the country’s ambitious Power Development Plan 8 (PDP8) is expected to change the trajectory.
In the early half of the year, the government of Vietnam released its PDP8 with goals stretched out to the year 2050. Despite its late entry into the lending environment, it provides a lens for the future of green finance.
For starters, PDP8 provides a roadmap for Vietnam’s energy strategy, with renewable energy (RE) playing a pivotal role. As large-scale projects necessitate substantial debt financing, international lenders are likely to step in to support Vietnam’s transition towards a sustainable energy future.
“International banks, through their Vietnam branches or from outside Vietnam, may therefore have opportunities to participate in financing some of these projects,” Chris Milliken, counsel at Freshfields Bruckhaus Deringer Ho Chi Minh City, told Asian Banking and Finance.
“I should note that PDP8 is essentially only a roadmap — the devil will be in the details of the implementing regulations that are to follow. That said, the strategy and approach of the government seem clear,” he said.
The PDP8 aims to plan Vietnam’s future power sources and national transmission grid infrastructure, assuming a yearly gross domestic product (GDP) growth rate of 6.5% to 7.5% from 2021 to 2050.
After extensive consultations, a politically viable vision has been developed, finding a middle ground between coal-oriented national utility and decarbonisation-focused international partners.
However, it lacks environmental ambition and may lead to stranded assets, Milliken said.
Another point to consider is that both borrowers and lenders face challenges in navigating the intricacies of green lending. The slow start of green lending in Vietnam can leverage the role of PDP8 in promoting international lenders’ support, which could be a challenge for borrowers.
Better late than never
Green lending is technically a newborn amidst the staggering effects of climate change, not just in Vietnam but also globally.
Businesses in the country may be unfamiliar with the expectations and requirements of foreign lenders regarding sustainability and environmental performance covenants.
“Leaving aside the usual complexities for foreign lenders to Vietnamese businesses, for green lending in particular, the disclosure and reporting requirements could be challenging to negotiate and implement,” Milliken said.
Vietnam has faced limitations in its ability to attract foreign lenders for green projects due to certain technical and commercial obstacles.
Additionally, the viability and bankability of projects often depend on factors like feed-in tariffs and the government’s guarantee policies, which can vary and influence lenders’ decisions.
Likewise, banks like Standard Chartered Vietnam are hopeful to contribute to this revelation.
“Standard Chartered has had a long commitment to sustainable finance and supporting the movement of capital from developed to emerging markets,” Standard Chartered Bank Vietnam CEO Michele Wee said in a separate exclusive interview.
“Businesses should not look at transition as optional, but more like a ‘must’ to ensure medium- and long-term success as the world is increasingly demanding greener products and services,” Wee added.
She further explained what the power a framework emulates.
“International banks like us are able to provide project financing and long-term derivatives such as interest rate and FX hedging to renewable power projects in Vietnam. With the right financing framework in place, international liquidity can be easily mobilised,” she said.
In the PDP8, Vietnam cancelled 13GW of planned coal capacity whilst keeping a pipeline of new coal projects of the same capacity.
This means 11 coal-fired power plants from the revised PDP7 will be completed by 2030, with six under construction and the remaining five in the process of financial arrangements with investors.
Any project unable to secure capital arrangements by June 2024 will be terminated.
Whilst the PDP8 lays out the strategic direction, it is vital to wait for the implementing regulations for specific details.
Nonetheless, the government’s commitment to the plan is evident, and it creates a conducive environment for international lenders to engage in financing projects aligned with Vietnam’s energy transition goals.
What can financers do in this case?
Standard Chartered Vietnam has a comprehensive Sustainable Finance product framework and has mobilised significant funds for green projects worldwide.
“We are also committed to sustainable finance in our markets and to channelling capital where the impact will be greatest. We are delivering on our ambition to support sustainable economic growth, increasing support and funding for financial offerings that have a positive impact on our communities and environment.” Wee told Asian Banking and Finance.
The bank plans to leverage its deep local presence and expertise to create tailor-made financing solutions for Vietnamese borrowers seeking to fund RE projects outlined in PDP8.
By aligning businesses with green practices, Standard Chartered aims to facilitate the flow of international liquidity to support the country’s sustainability initiatives.