Unlocking Vietnam's energy future hinges on green finance
Vietnam aims to transform its green finance sector into a driver for its energy transition, but faces several challenges. By 2024, green credit accounted for only 4.5% of total outstanding loans, and less than half of this was directed towards renewable energy.
Without systematic reforms to credit, taxation, risk allocation, and public-private partnership (PPP) frameworks, Vietnam may miss its opportunity to catalyse green investment at the scale required. Key elements such as bankable power purchase agreements, payment guarantee funds, and transparent investor selection procedures have yet to be clarified in the PPP framework.
To address these challenges, a national energy transition fund is proposed. This fund would provide concessional lending, credit guarantees, and technical assistance for strategic projects in renewable energy, smart grids, and energy storage. The State Bank of Vietnam should issue a dedicated circular defining green project eligibility, interest rate policies, and green credit key performance indicators.
Commercial banks should be incentivized to develop green lending portfolios through favourable credit limits, reduced refinancing costs, and access to green liquidity. The cost of green capital has fallen, but without long-term guarantees, hedging instruments, or clear credit rules, the financial flows needed for large-scale decarbonisation will not materialize. A legal framework for electricity derivatives, including contracts for difference, futures, and revenue insurance products, is proposed to ensure cash flow stability and reduce capital costs.
The electricity markets in Vietnam expose investors to risk due to volatility and the absence of hedging instruments. To mitigate this risk, the government should expand the scope of accelerated depreciation, especially for high-technology assets, and consider introducing investment tax credits. Import tax exemptions for advanced energy-saving equipment and reduced land rent for early-stage renewable energy projects are suggested to improve project economics.
Vietnam's energy sector requires more than $130 billion in new investment between 2024 and 2030. A public support fund is proposed to cover early-stage costs and reduce the financial burden on pioneering developers. Renewable energy projects in Vietnam are particularly vulnerable due to their capital-intensive nature and reliance on stable electricity sales revenue to meet debt obligations.
To strengthen PPPs in power sector investment, clearer guidelines, stable pricing mechanisms, and government-backed guarantees are needed. Drawing on international experience, Vietnam can adapt models like Germany’s Climate and Transformation Fund, South Korea’s green development banks, and China’s integrated green credit standards to establish flexible financial and policy tools tailored to its context.
In summary, Vietnam’s transformation of green finance into an energy transition driver hinges on building robust credit and risk frameworks, comprehensive tax incentives, and strong PPP support, combined with capacity building for verification and cross-agency coordination to create a stable, attractive investment environment for clean energy.
Investing in renewable energy is crucial for Vietnam's energy transition, but the current green credit accounts for only a minor percentage of total loans. To catalyze green investment at the scale required, systematic reforms in credit, taxation, risk allocation, and public-private partnership (PPP) frameworks are needed. To achieve this, a national energy transition fund could be established, providing concessional lending, credit guarantees, and technical assistance for strategic projects in renewable energy, smart grids, and energy storage.
