Vietnam guarantees 65% power offtake for imported LNG-to-power projects over 10 years

Vietnam will guarantee an offtake of at least 65% of annual electricity output from projects using imported liquefied natural gas (LNG) power for up to 10 years, under a newly-issued government decree.

Decree No. 100, released on Thursday, establishes a development framework for gas-fired power projects.

It states that LNG power plants using imported fuel will receive guaranteed power offtake commitments. The specific offtake percentage will be negotiated between the seller (the LNG power plant) and the buyer (Vietnam Electricity, or EVN), but must not fall below 65% of the plant’s multi-year average annual output.

This guarantee applies throughout the loan (both principal and interest) repayment period, and will last no longer than 10 years from the plant’s commercial operation date. After that period, electricity transactions will be based on negotiated terms between the parties.

The mechanism applies to LNG-to-power projects that begin commercial operations before January 1, 2031.

This guaranteed offtake is intended to provide stable cash flow, helping investors meet debt repayment obligations. LNG suppliers and transporters also typically require such guarantees to ensure long-term predictability in fuel volume and pricing.

While the 65% threshold aligns with EVN’s previous recommendations, it falls short of investor expectations. According to an April 2024 EVN report, many project developers have pushed for guaranteed offtake levels between 72% and 90% over the full contract term.

However, higher guaranteed rates could raise the risk of increased electricity prices. Given LNG’s relatively high cost, power generated from imported LNG is more expensive than from other sources.

EVN has also expressed concern that elevated offtake commitments could significantly inflate its input costs, ultimately driving up retail electricity prices once LNG power plants come online.

Additionally, the state utility giant noted that such long-term guarantees could create an uneven playing field, as most other power plants operate under annual contracts based on real-time supply and demand.

In the long term, the aim is to phase down guaranteed offtake levels and promote greater competition through the spot market.

Decree 100 also sets out provisions for gas-fired power plants using domestically sourced natural gas. These projects will be dispatched at maximum capacity based on available gas supply, provided they meet certain fuel, capacity, and output criteria as well as technical requirements of the national grid.

These plants must commence operations by January 1, 2036, and the mechanism remains in effect as long as they continue using domestic gas.

Under the draft amendment to National Power Development Plan VIII (PDP VIII), by 2030, Vietnam needs nearly 37,500 MW of new gas-fired power capacity, of which 60% (or 22,524 MW) will be based on imported LNG, a roughly 7,000 MW increase compared to the pre-adjustment plan.

Vietnam currently has only one operational LNG-fired power project - the Nhon Trach 3 and Nhon Trach 4 in the southern province of Dong Nai.

The Vietnamese government has asked relevant agencies to speed up the progress of LNG-fired power projects towards completion and operation in 2028, earlier than the deadline specified in PDP VIII.

They include those already having investors such as LNG Quang Ninh, LNG Thai Binh, LNG Quang Trach II, phase 1 of LNG Hai Lang, LNG Son My I and LNG Son My II, and LNG O Mon II III IV; and projects without investors like LNG Quynh Lap, LNG Nghi Son, and LNG Ca Na.