Power offtake guarantee to be expanded for LNG power investment in Vietnam

A ministerial proposal to raise the minimum long-term contracted electricity output ratio, known as Qc, from 65% to 75% is expected to ease financing difficulties for LNG-to-power projects in Vietnam and improve the sector’s investment appeal.

The Ministry of Industry and Trade's (MoIT) proposal is part of a draft amendment to the government's Decree 56/2025/ND-CP.

The ministry recently released a report summarizing feedback and draft revisions to Clause 4, Article 15 of Decree 56, which provides detailed guidance for several provisions of the Electricity Law related to planning, investment and bidding for power projects.

The most closely watched proposal concerns the mechanism for determining the “minimum long-term contracted electricity output” (Qc) for imported LNG-fired power projects.

Under the draft revision, the Qc ratio would be increased from 65% to 75% of a project’s average multi-year electricity output, while the maximum application period would be extended from 10 years to 15 years.

Although Qc is only one parameter in a power purchase agreement, it plays a critical role in a project’s ability to secure financing. Under the mechanism, the electricity buyer commits to purchasing the output corresponding to the Qc ratio under a long-term contract, helping investors maintain stable cash flows for debt repayment and financial sustainability.

The issue has become one of the biggest bottlenecks facing Vietnam’s LNG power sector.

LNG-to-power projects typically require investments worth billions of dollars, with payback periods ranging from 15 to 25 years and heavy reliance on international financing. However, with the Qc ratio currently capped at 65%, many international financial institutions consider the revenue guarantee insufficient to justify long-term lending.

Nguyen Quoc Thap, chairman of the Vietnam Petroleum Association, was quoted on Petrovietnam's website as saying that Qc was not simply a technical figure but a decisive factor in project financing. “With the previous 65% level, many international financial institutions considered the projects insufficiently secure for lending,” Thap said.

State-run Petrovietnam is one the biggest producers of electricity in the country.

According to Thap, the proposal to raise the Qc ratio to 75% sends a positive signal that regulators are seeking to address core market challenges, particularly cash flow and financing arrangements for LNG power projects. However, he said the measure alone would fall short of fully resolving existing obstacles.

“To create meaningful and sustainable impacts, a more comprehensive approach is needed, with coordinated solutions to share risks and benefits among the state, businesses and investors in line with the development of a transparent and efficient electricity market,” Thap said.

Experts said raising the Qc ratio would only partially address financing constraints while broader structural issues in Vietnam’s power market remain unresolved, according to the Petrovietnam website post.

One major issue is that Vietnam’s power purchase agreements, or PPAs, still fall short of international standards. Clauses related to risk-sharing, foreign currency conversion, payment guarantees and dispute resolution continue to make international lenders cautious.

According to Thap, the 75% Qc ratio is merely one technical parameter within a broader and more complex market framework.

“A 75% Qc ratio is only meaningful if it forms part of a comprehensive package including transparent electricity pricing mechanisms, long-term PPAs and appropriate payment guarantee structures,” he said.

“If these root bottlenecks are not addressed, adjusting Qc alone, regardless of the level, is unlikely to create a breakthrough in attracting investment into power projects, especially LNG power,” he added.

Many experts said the proposed 75% ratio is reasonable under current conditions but should not be uniformly applied across all types of power generation.

For LNG-fired power, which requires large upfront investments and faces high fuel costs and international price volatility, a higher guaranteed offtake ratio is considered necessary to reduce financial risks.

However, for renewable energy sources such as solar and wind power, where technology costs are falling rapidly and payback periods are shorter, an excessively high Qc ratio may no longer be necessary.

As a result, experts suggested that policies should be designed flexibly based on the type of power source and potentially the stage of project development rather than applying a single universal ratio. Some proposals also suggested a phased reduction mechanism for Qc over time.

Under such a model, projects could benefit from a higher guaranteed purchase ratio during the initial operating period to support debt repayment and financial stability, before gradually reducing the ratio as projects become operationally stable and more integrated into the competitive electricity market.

In the short term, raising the Qc ratio from 65% to 75% could help ease difficulties facing LNG power projects and encourage investment in new power generation capacity.

Over the longer term, however, the bigger challenge remains balancing investment attraction with Vietnam’s roadmap for developing a competitive electricity market.

As Vietnam requires substantial capital for its energy transition, the debate over Qc ultimately reflects a broader issue of risk-sharing among the government, businesses and the market.

Experts said that only by finding a balanced approach can Vietnam both ensure energy security and attract long-term capital for the next phase of development.