LNG-fueled power projects struggle with power purchase negotiations, finance sourcing

All 16 LNG-to-power projects scheduled to take shape until 2030 are facing difficulties in negotiating power purchase agreements and investment capital arrangements, according to a ministerial report.

The latest draft power development plan VIII (PDP VIII) says 16 liquefied natural gas (LNG)-to-power projects should generate 23,900 megawatts, or 16.4% of the country’s energy mix, by 2030. Of the figure, 17,900 MW would come from projects incorporated into the adjusted PDP VII.

The remaining 6,000 MW belongs to new projects in the northern and central regions including Thai Binh, Nghi Son, Quynh Lap, and Quang Trach 2. These projects aim to hedge against the currently visible power supply instability risks in the regions.

But a recent report by the Ministry of Industry and Trade to elaborate on its draft PDP VIII pointed out difficulties in the execution of these projects.

The report said for independent power projects (IPP) invested by domestic companies like Nhon Trach 3 and 4 of PV Power in Dong Nai province or Hiep Phuoc of Hiep Phuoc Company Limited in Ho Chi Minh City, the biggest difficulty is the acquisition of loans from domestic and foreign institutions.

"But those projects are being implemented as planned," it noted. They are scheduled to enter operation in the years 2024-2025.

The 1,200 MW Hiep Phuoc phase 1, which had its feasibility study approved, is arranging investment capital and being implemented. Nhon Trach 3 and 4 got the okay for its feasibility study and already selected an EPC contractor that is implementing the project.

As for IPP projects with the participation of foreign investors including Bac Lieu of DOE, Long An 1 and 2 of the VinaCapital-GS Energy consortium, Quang Tri of a consoritum between Vietnam’s T&T and a group of Korean companies, common difficulties include potential creditors requiring guarantees from the Vietnamese government, which sometimes exceeds the country’s current legal framework like Bac Lieu, the report added.

In the same report submitted to the government, the industry ministry also reiterated that an LNG power capacity of 23,900 MW by 2030 was “essential.”

Prime Minister Pham Minh Chinh had last month ordered the ministry to recalculate the ratio of LNG power in the country’s energy mix under PDP VIII as soaring prices of imported LNG might make LNG-based power generation plants unbankable.

“Due to the Russia-Ukraine conflict, the price of imported LNG has soared to 15-20 U.S cents/kWh, while the current selling price of power is 6-7 cents/kWh,” the prime minister said in a document sent to the ministry.

Up to now, no LNG-to-power plants operate in Vietnam.

American corporation AES and PV Gas in May this year secured an investment certificate for their $1.4 billion Son My LNG terminal project in Binh Thuan province, south-central Vietnam. It is expected to achieve financial completion in 2023 and begin commercial operations by 2026. The terminal will receive, process and supply LNG reprocessed as fuel for Son My 1 and Son My 2 power plants.

PV Power on March 14 awarded a $940 million contract to build Nhon Trach 3 and 4, Vietnam's first LNG-fueled power plants, to a consortium of Samsung C&T Corp and Lilama Corp, a leading Vietnamese construction company. With a total capacity of 1,500 megawatts and capitalized at $1.4 billion, Nhon Trach 3 and 4, located in Nhon Trach district, Dong Nai province are important national projects under the PDP VIII. The government has assigned PV Power as investor.