Green finance the key to unlocking Vietnam’s energy future

Despite promising policy developments and increased attention from investors, Vietnam’s green financial ecosystem remains fragmented, underutilised, and constrained by legal, institutional, and technical barriers. Without systematic reforms to credit, taxation, risk allocation, and public-private partnership frameworks, the country may miss its window to catalyse green investment at the scale required.

This article analyses the key constraints preventing capital from reaching renewable infrastructure and presents a strategic roadmap to transform green finance into a genuine driver of energy transition.

Vietnam’s electricity sector will require more than $130 billion in new investment between 2024 and 2030. This includes expansion of transmission infrastructure, scaling of wind and solar energy, and integration of storage systems and smart grids. Yet capital mobilisation from private sources remains insufficient.

Although nominal interest rates have declined, with green loans in VND averaging between 6.4 and 10 per cent annually and concessional official development assistance loans as low as zero to two per cent, investors still face a narrow lending corridor. Banks continue to demand equity contributions of 30 to 40 per cent, require high-value collateral, and remain reluctant to offer long-term finance for projects exposed to electricity market volatility and policy uncertainty.

The issue is not the price of capital but the absence of a robust risk allocation framework. Without reliable long-term power purchase agreements, credit guarantees, and risk mitigation tools, medium- and long-term capital will not flow.

Green credit is growing, but still lacks structure

Green credit accounted for just 4.5 per cent of total outstanding loans by the end of 2024. Less than half of this was directed to renewable energy. The remainder was disbursed across other sectors such as green construction, agriculture, and waste management.

Even for renewable developers, access to truly preferential green finance remains limited. The lack of a unified national definition of “green” has resulted in inconsistent application of credit incentives across provinces. Financial institutions lack the technical capacity to evaluate environmental, social, and governance compliance, further constraining capital access for sustainable projects.

Vietnam’s Green Project Classification List, issued under Decision 21 of 2025, was a necessary first step. However, it requires a detailed implementing circular to operationalise the taxonomy and set out evaluation criteria, lending requirements, and eligibility thresholds.

Electricity markets still expose investors to risk

In May, Vietnam Electricity (EVN) increased retail tariffs by 4.8 per cent, reflecting exposure to international fuel price shocks. While this price adjustment improved EVN’s cost recovery, it also underscored the volatility that project developers must contend with.

Renewable energy projects are particularly vulnerable. These assets are capital-intensive and rely on stable electricity sales revenue to meet debt obligations. Yet Vietnam currently lacks hedging instruments such as electricity futures, contracts for difference, or revenue insurance.

Although Decree 57 of 2025 introduced direct power purchase agreements between energy producers and large customers, the scope of this mechanism remains limited. Electricity is still not included in the list of approved commodities for derivative trading under Vietnamese law. As a result, investors cannot access the tools necessary to lock in long-term prices.

Tax incentives are positive, but depreciation limits remain

Vietnam offers a corporate income tax rate of 10 per cent for 15 years for renewable energy projects, including a four-year exemption and a 50 per cent reduction for the following nine years. Accelerated depreciation up to twice the standard rate is also available.

However, these tools are not sufficient for high-capital projects such as battery storage or rooftop solar. Investors require greater flexibility, particularly in the early years of the asset lifecycle, to support cash flow and achieve break-even targets.

The Ministry of Finance’s Circular 30 of 2025 did not address these issues. It focused on public sector projects and did not introduce tailored tax treatment for emerging technologies. The absence of consistent implementation guidance across ministries and local governments further dilutes the impact of tax policy.

PPP projects need clearer risk sharing

According to the revised Power Development Plan VIII, Vietnam will require $136 billion in energy infrastructure investment through 2030. Yet private sector participation remains low, largely due to unresolved risk allocation issues in the public-private partnership framework.

The 2020 PPP Law allows for revenue guarantees, foreign currency support, and interest rate subsidies. However, in practice, implementing guidelines are fragmented, approvals are slow, and standardised project structures are lacking.

Key elements such as bankable power purchase agreements, payment guarantee funds, and transparent investor selection procedures have yet to be clarified. Without these mechanisms, PPPs cannot attract international financiers or deliver value-for-money outcomes.

A comprehensive green finance ecosystem

Vietnam must shift from fragmented initiatives to a coordinated ecosystem that directs capital into strategic projects. This will require the following interventions.

Establish a national energy transition fund

A state-backed extra-budgetary financial vehicle should be created to provide concessional lending, credit guarantees, and technical assistance for projects in renewable energy, smart grids, and energy storage. The fund should adhere to best practices in governance, transparency, and monitoring, reporting, and verification of emissions and capital impact.

Funding sources should include budget allocations, official development assistance, carbon credit auction revenue, and sovereign green bonds. The fund should also play a catalytic role by de-risking commercial finance.

Issue a green credit regulation

The State Bank of Vietnam should issue a dedicated circular that clearly defines green project eligibility, interest rate policies, and green credit key performance indicators. Commercial banks should be incentivised to develop green lending portfolios through favourable credit limits, reduced refinancing costs, and access to green liquidity.

Reform depreciation and tax policies

The government should expand the scope of accelerated depreciation, especially for high-technology assets. It should also consider introducing investment tax credits, which allow deductions from tax liabilities instead of simple exemptions. This approach has proven effective in other markets.

Import tax exemptions for advanced energy-saving equipment and reduced land rent for early-stage renewable energy projects would further improve project economics.

Develop financial instruments for hedging

A legal framework for electricity derivatives should be introduced, enabling contracts for difference, futures, and revenue insurance products. These instruments are essential for ensuring cash flow stability and reducing capital costs.

Such tools would enhance credit ratings, improve financial visibility, and attract institutional investors.

Strengthen the PPP framework

Public-private partnerships must be underpinned by clear risk-sharing rules. The government should introduce standardised documentation, revenue support mechanisms, and budgeted guarantees for clean energy projects.

A public support fund should be established to cover early-stage costs and reduce the financial burden on pioneering developers.

Conclusion: Vietnam cannot afford delay

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 materialise.

Vietnam now has a foundational green taxonomy and a nascent direct power purchase agreement mechanism. The path forward is to complete the architecture, build risk-sharing mechanisms, enable electricity derivatives, reform tax incentives, and create a robust energy transition fund.

Green finance is not just a catalyst. It is the platform upon which Vietnam must construct its sustainable energy future. The window is open. The time for execution is now.