Vietnam's new law evokes cautious optimism for gas-to-power projects

Vietnam's new electricity law, Decree 56, is evoking cautious optimism, experts said. Foreign players may revise their strategy to reflect the changed regulation governing the offtake of the guaranteed electricity output from their LNG-based power plants in the country.

On March 3, the Vietnamese government issued Decree 56/2025/ND-CP outlining guidelines for the development of thermal power plants, including those powered by natural gas and imported LNG. The new Decree, designed to implement the revised electricity law approved by Vietnam's National Assembly in November 2024, aims to overcome challenges in the sector and ensure national energy security.

Under it, fuel costs of power plants using domestic gas and imported LNG are allowed to pass through to electricity prices included in a power purchase agreement (PPA) between the developer and state utility Vietnam Electricity, or EVN.

The regulation also sets the long-term minimum contracted electricity output in the PPA at 65%, with a cap of 10 years from the date the power project is put into operation. After this period, the guaranteed output in the PPA will be negotiated. This regulation will be applied to imported LNG power projects that commence operations by Jan. 1, 2031, and to domestic natural gas power plants commencing operations by Jan. 1, 2036.

"While the tight deadline may drive investors to accelerate their projects, S&P Global Commodity Insights maintains a cautious outlook on the progress of new LNG projects, expecting only 6-7 GW of new LNG power plants to come online by 2030, compared to the government's latest target of 18 GW by 2030 in the draft revision of the power development plan 8," Amanda Kang, senior analyst at Commodity Insights said March 21.

The minimum offtake has been set at 65% for up to ten years, which is lower than what investors had reportedly proposed at 72%-90% for the contract duration, likely posing challenges for investors to have sufficient certainty on returns, Kang said.

Secondly, multiple milestones must be met, including completing PPA negotiations with EVN, reaching final investment decision, tendering for and issuing engineering, procurement, and construction contracts, and completing construction of the power plant and associated regasification terminal. There is a risk of not being able to meet the tight timeline of 2031, raising uncertainty for investors, she continued.

Overcoming hurdles

At least two law firms cautiously expressed optimism over the new rule clearing hurdles for planned LNG power plants in Vietnam.

Hoang Pham, Managing Partner at Ho Chi Minh City-based law firm VSE Lawyers, said on March 19 that the regulation on the minimum contracted electricity output stipulated in the decree is expected to push the negotiations of PPAs higher. This means the parties involved can negotiate higher percentages, such as 70%, 75%, or even 80%, so long as they do not exceed the 10-year cap, Pham said.

Vaibhav Saxena from Ho Chi Minh City-headquartered Vietnam International Law Firm, or Vilaf, agreed that the new decree offered some clarity in addressing issues related to the LNG power sector.

"Yes, Decree 56/2025 does provide certain offtake certainty which shall support bankability," but each investor, project, lender, or syndication may have a varied appetite, Saxena added.

While the contract negotiation process is defined in the decree, its complexity will depend on the investment model and the specific nature of each project, Saxena said.

Pham, however, noted that the minimum output requirement cap may not meet the expectations of foreign developers and their lenders, who normally seek guarantees spanning between 15 and 20 years to secure project financing. As a result, there remains a gap between the regulation and developers' needs.

Miriam Quintos, Delta Offshore Energy Director of Communications and USG Advocacy, said Delta was aiming to execute a power purchase agreement with EVN for its 3,200-MW Bac Lieu LNG power plant in southern Vietnam. DOE has accepted the minimum contracted electricity output of 65% but would like an option to extend the cap to 20 years.

"We looked at [the] 65% load factor. As long as the PPA is bankable, the 65% is take-or-pay, and the fuel price is passed through [to electricity prices], we can make it work. 65% for 20 years is manageable," Quintos added.

EVN did not comment at the time of writing.

State-controlled PV Power's Nhon Trach 3&4 will be Vietnam's first LNG-based power plants, scheduled to commence operations in July and October, respectively. PV Power has already signed PPAs with EVN for the two power plants, with a combined capacity of 1,624 MW.

VSE's Pham said the successful signing of the PPAs between PV Power and EVN highlights the advantages that state-controlled developers have in securing agreements, as their projects are aligned with the government's energy security priorities, rather than being solely driven by commercial considerations.

However, many other LNG power projects in Vietnam are either foreign-owned or structured as joint ventures between foreign and local companies. The terms of the PPAs can significantly influence the foreign developers and their lenders' willingness to invest, as they often determine the financial feasibility and profitability of the projects, Pham said.

It often takes more than five years to complete an LNG-based power plant. Achieving the goal of building 22,400 MW of LNG power by 2030 as outlined in Vietnam's power development plan will depend on various factors including negotiation skills of concerned parties, speed of project execution, access to necessary equipment and technology, and fluctuations in LNG prices during project implementation, Pham added.