Vietnam considers strengthening offtake guarantees for LNG-to-power projects

PDP8 targets and role of LNG in Vietnam's energy mix

Under PDP8, Vietnam targets 22,524 MW of imported LNG power capacity by 2030 and 34,724 MW by 2035, with a long-term orientation toward co-firing or conversion to hydrogen by 2050. The plan identifies 21 LNG thermal power projects, including 15 projects scheduled for operation between 2025 and 2030 and six projects for the period from 2031 to 2035.

Policymakers view LNG as a flexible and dispatchable energy source that is critical for facilitating the integration of large-scale renewable energy and ensuring system reliability. However, LNG-fired generation remains significantly more expensive than many alternatives and is inherently exposed to global commodity price fluctuations and geopolitical risks since LNG represents an imported fuel source for Vietnam. During recent periods of market stress, electricity prices have reportedly surged to approximately VND5,000/kWh. This context has heightened the focus on designing regulatory mechanisms that both secure energy supply and maintain affordable tariffs.

Current Legal Framework under Decree 56

Following the enactment of Electricity Law No. 61/2024/QH15, the Government issued Decree No. 56/2025/ND-CP on 3 March 2025 and Decree No. 100/2025/ND-CP on 8 May 2025 (amending Decree 56/2025/ND-CP) (collectively, Decree 56).

Decree 56 introduced two key mechanisms for LNG-to-power projects in an attempt to alleviate certain sponsor and lender concerns:

• Fuel cost pass-through into electricity tariffs; and
• Minimum Contract Quantity (Qc), which establishes a minimum contracted output over a defined period.

Currently, Qc is set at no less than 65% of a plant’s average power generation output (GO) during the loan repayment period, subject to a cap of 10 years from the Commercial Operation Date (COD). After this initial period, Qc levels or payment ratios under power purchase agreements (PPAs) revert to applicable laws and market rules.

GO is determined in accordance with Ministry of Industry and Trade (MOIT) regulations on generation charges and is incorporated into PPAs. Notably, Decree 56 limits eligibility to projects achieving COD on or before 31 December 2030, thereby leaving uncertainty for projects scheduled for commissioning thereafter.

Early implementation and market feedback

Implementation of the Decree 56 framework is underway. The Nhon Trach 3 and 4 LNG power projects (1,624 MW) commenced operation and participation in the competitive electricity market on 1 January 2026. In addition, Phase 1 of the Hiep Phuoc LNG Power Plant has signed a PPA with EVN and entered the construction phase.

Notwithstanding these developments, the current Qc framework has elicited mixed feedback:

• Investors and lenders: While an increase to 75% over 15 years, as proposed by MOIT, would be viewed positively, many stakeholders consider this insufficient to fully support project financing. Concerns include:
  • constrained early-stage cash flows;
  • dispatch uncertainty leading to potential mismatches with LNG take-or-pay obligations; and
  • the importance of reliable and timely payment mechanisms over nominal contracted output levels.

Lenders continue to emphasize the need for stronger take-or-pay features, enhanced payment security, and lender protections such as step-in rights.

• EVN: The state utility has urged caution, noting that LNG-based generation is relatively expensive. EVN claimed that even at the current 65% Qc level, there have been instances of contracted output exceeding actual system demand, resulting in “over-contracting.” Increasing the Qc to 75% could raise fixed payment obligations and elevate average electricity procurement costs, particularly during periods of low dispatch. EVN has recommended maintaining the current threshold while exploring alternative measures to attract investment.

Regulatory consultation and policy direction

MOIT, as the lead drafting authority, has conducted extensive consultations involving 16 ministries, agencies, and major energy stakeholders, including EVN, Petrovietnam, TKV, and LNG project developers¹.

In its summary of stakeholder feedback, MOIT clarified that:

• Qc, as defined under the Electricity Law, represents the minimum electricity output specified in PPAs and related market instruments; and
• within the competitive electricity market, Qc is a financial commitment rather than a physical dispatch guarantee or an unconditional payment obligation.

To inform potential adjustments, the National Electricity System and Market Operator (NSMO) and the Institute of Energy conducted modelling across multiple load scenarios using PDP8 data. Their analysis suggests that Qc levels of 80% or higher would likely result in systemic over-contracting across most scenarios, increasing cost burdens due to payments for unused contracted capacity.

Against this backdrop, MOIT has proposed increasing Qc to 75% as a balanced, targeted adjustment to strengthen investment signals while mitigating systemic risks. Market discussions also include extending the Qc duration to up to 15 years to better align with project financing tenors.

Implications and outstanding issues

MOIT proposes increasing the Qc from 65% for 10 years to 75% for 15 years to strengthen investment signals and align with typical project financing tenors. This is a welcome adjustment that should improve revenue certainty. However, to achieve full bankability for LNG-to-power, the Qc enhancement must be accompanied by reforms that address dispatch risk, LNG fuel contract alignment, payment structures, and counterparty credit support.

Key outstanding issues include:

• Dispatch uncertainty and a lack of robust curtailment compensation, risking revenue shortfalls when plants are available but not dispatched.
• Misalignment between PPA offtake and LNG take or pay obligations (including terminal capacity charges).
• Insufficient clarity in PPA payment structures (capacity vs energy split), indexation, and FX treatment for LNG-linked costs.
• Inadequate credit support and payment security from the offtaker absent Government backstops.
• Uncertainty as to whether enhanced Qc applies to projects with COD after 31 December 2030 (critical for the 2031–2035 pipeline).

Interestingly, given EVN’s claim of instances of over contracting as a basis for maintaining Qc at 65%, it would be helpful for EVN to clarify where and how such over contracting has occurred in practice. With LNG to power operations currently limited, primarily to Nhon Trach 3 and 4, specific examples or data would strengthen this assertion and help distinguish LNG related over contracting from broader system wide contracting dynamics.

The market interprets EVN’s preference to retain Qc at 65% as an indication of sensitivity around payment obligations under PPAs. This underscores the need for stronger credit support and targeted Government backing to address counterparty risk and lender concerns. To mitigate payment risk and enhance bankability, a robust payment security package should be implemented, including:

• escrow accounts,
• rolling letters of credit covering 3–6 months of payments, and
• enforceable payment timelines with late‑payment interest.

Further, for strategic LNG‑to‑power chains, a Government Guarantee and Undertaking (GGU), aligned with Vietnam's precedent BOT framework for large power projects is recommended to bridge the gap between sponsor and lender expectations, on the one hand, and MOIT's position, on the other hand, which would cover: EVN payment obligations, change‑in‑law compensation, convertibility and transfer risks, and termination payments – recognizing the practical constraints on SOEs in pledging cash flows at levels typically required by international lenders.

Market feedback indicates that a minimum offtake level of 65–75% remains below investor expectations (often 85–90%). Without addressing this gap and the associated payment and credit protections (e.g., targeted GGU for priority projects), many LNG-to-power projects are likely to continue experiencing delays in their ability to obtain international project financing and commence construction.

Conclusion

The contemplated increase of Qc to 75%, with a longer applicability period, represents a careful policy balance: bolstering investment signals for LNG-to-power while avoiding the systemic cost risks associated with higher Qc levels. However, raising Qc alone will not resolve core bankability issues.

A more coherent package – including at least calibrated Qc, clear curtailment and payment mechanisms, alignment with LNG supply obligations, robust payment security (and targeted GGU for priority projects), and a flexible pricing framework —is needed to meet lender requirements. Decisions on the scope, duration, and applicability of the enhanced Qc framework will be decisive for Vietnam’s LNG-to-power development over the next decade.

Authored by David Harrison and Hai Ha.