Vietnam mulls 75 per cent power purchase guarantee for LNG-to-power projects

Vietnam mulls 75 per cent power purchase guarantee for LNG-to-power projects

The government has proposed that imported liquefied natural gas (LNG) power projects be guaranteed offtake for at least 75 per cent of their annual output for a maximum of 15 years.

The Quynh Lap LNG-to-power plant

This proposal is included in a government submission to the National Assembly Standing Committee on a resolution aimed at removing bottlenecks and promoting renewable energy development.

In the submission, LNG power plants using imported fuel will continue to receive a power purchase commitment, meaning the state utility will guarantee to purchase a certain portion of the plant's electricity output.

The percentage will be based on agreements between the seller (LNG power plants) and the buyer (Vietnam Electricity (EVN)), but not less than 75 per cent of the plant's average annual electricity generation. The guaranteed offtake period will last up to 15 years from the commercial operation date.

This represents a 10 per cent increase in offtake volume and an extension of five years compared to the current regulations.

Under the revised Power Development Plan VIII (PDP VIII) to 2030, new gas-fired power capacity will reach nearly 37,500 MW, of which 60 per cent (22,524 MW) will be LNG-based, an increase of about 7,000 MW from the previous plan. The government considers imported LNG power projects a crucial baseload source, ensuring reliable electricity supply and supporting renewable energy integration as well as economic growth goals.

During development of this energy source, regulators have received multiple proposals from investors seeking to raise the guaranteed offtake ratio above the current 65 per cent, and to extend contract duration to 20-25 years instead of the current 10 years.

The Ministry of Industry and Trade agrees that a mechanism should be reviewed and submitted to the National Assembly to provide longer-term minimum power purchase commitments, helping to unlock investment challenges. However, this must align with existing laws.

In practice, such guaranteed offtake ratios are essential to secure stable cash flow for project owners to repay loans. Gas suppliers and transporters also rely on these commitments to maintain long-term stability in fuel quantity and pricing.

In a 2024 report, EVN noted that LNG project developers had proposed guaranteed offtake levels of 72-90 per cent throughout the contract period.

However, a higher guaranteed offtake ratio could pose risks of increased electricity prices, as the production cost of LNG-fired power remains higher than other sources due to its reliance on imported fuel.

VIR