Large-scale gas-fired power development in Vietnam and three principles for resolving remaining disagreements

The revised Power Development Plan VIII projects that by 2030, the installed capacity of gas-fired power plants using domestic gas and imported LNG will reach 38.8 GW, up from 7.1 GW in 2021. This represents a considerable growth rate, requiring substantial investment capital that domestic financial resources alone are unable to fully provide. Private and foreign investors, therefore, play a crucial role in gas-fired power development to ensure national energy security, while also supplying a stable and flexible source of electricity during the transition toward net-zero emissions.

Currently, only the Nhon Trach 3 and 4 LNG-to-power projects of the Vietnam National Industry–Energy Group (PVN), with a combined capacity of 1,624 MW, are operational. In addition, one power plant of Vietnam Electricity (EVN) is being converted from oil-fired to domestic gas-fired operation, and one domestic gas-fired power project of PVN has commenced construction. Other domestic gas-fired and LNG-imported power projects remain under negotiation and are facing significant obstacles, making it difficult for them to progress in line with expectations toward 2030.

Following the promulgation of the Law on Electricity No. 61/2024, although the Ministry of Industry and Trade (MOIT) has promptly and actively led efforts to advise the Government in issuing decrees and circulars guiding the implementation of the Law, challenges persist. Within the existing legal framework, EVN has made considerable efforts in negotiating with gas power project investors; however, certain bottlenecks remain unresolved at the EVN or MOIT level. Continued improvements to mechanisms and policies, grounded in practical realities and aligned with the orientation of the Politburo’s Resolution No. 70-NQ/TW, are therefore essential to unlock capital flows for projects that the Government has classified as nationally important and key energy-sector projects.

Members of the Asia Zero Emission Community (AZEC), including Marubeni Corporation, Tokyo Gas Co., Ltd., Kyuden International Corporation, Sumitomo Corporation, and JERA Co., Inc. (hereinafter collectively referred to as the “gas power project investors”), have continued to submit formal letters to the Government presenting a “joint petition to remove obstacles in the development of large-scale gas-fired/LNG power projects.”

In their latest petition dated December 8, 2025, the gas power project investors proposed three main principles to resolve the remaining disagreements, as follows:

Principle 1 – Reasonable and Fair Risk Allocation

The gas power project investors agree that EVN, in its role as the power purchaser, cannot bear risks that fall outside its responsibilities and authority. Likewise, investors and lenders cannot be expected to assume risks over which they have no control. Therefore, a reasonable and fair mechanism-or a Government-level legal instrument-is required to clearly define risk allocation and protection mechanisms for the projects.

One of the legal issues is that since the National Power System and Market Operator (NSMO) was separated from EVN, a clear and significant gap has emerged with respect to “risk allocation” for power dispatch operations under power purchase agreements (PPAs). This institutional restructuring has not been adequately reflected in the key provisions of PPAs or in the relevant implementing circulars.

To ensure reasonable and fair risk allocation, any gaps in the current legal framework preventing the effective implementation of this principle must be addressed through the issuance of new regulations or through amendments and supplements to existing legal instruments.

Principle 2 – Two Key Proposals to Remove Bottlenecks

1. Mechanism for Reserve Capacity Payment and Recovery of Fuel Take-or-Pay Costs

Increasing contracted electricity output (Qc), together with commitments on feasible and favourable actual generation output, may benefit investors but could impose a substantial financial burden on EVN. Therefore, it is necessary to clearly separate, within Qc, fixed costs (primarily capital expenditure and fixed operation and maintenance costs, accounting for approximately 20% of the total electricity price) from variable costs (mainly fuel procurement costs, accounting for around 80%).

The investors propose a reserve capacity payment mechanism that grants the project a conditional right to request standby payments in cases where dispatched electricity output does not reach the pre-agreed level. The purpose of this payment is to enable the project to recover the minimum costs necessary to maintain the project company’s operations, while also fulfilling fuel take-or-pay obligations. This mechanism would reduce the burden on, and enhance flexibility for, EVN and NSMO throughout the operating period.

2. Framework Agreement

A separate document, in addition to the PPA, is needed to regulate the handling of events that fall outside EVN’s authority and responsibility. This document would operationalise “Principle 1 - Reasonable and fair risk allocation for all projects.”

Principle 3 – Other Bankability-Related Issues

Over recent years, the parties have discussed 12 key bankability-related issues as presented in AZEC’s letter dated October 14, 2025. The MOIT has taken the view that these issues “overprotect investors and lenders.” On this occasion, while still believing that the 12 issues are reasonable, the gas power project investors have expressed their willingness to consider certain flexibilities on some of these issues, provided that the two proposals under “Principle 2” are also carefully considered by the Government of Vietnam to a degree sufficient to ensure financing feasibility.

Comments:

As Vietnam’s electricity market is currently on a roadmap toward a fully competitive market and sector restructuring, continued improvement of the legal framework and mechanisms, particularly following the separation of NSMO from EVN to ensure consistency between technical dispatch principles and committed capacity and output under PPAs, is necessary, regardless of whether such improvements are requested by gas power project investors.

Gas power project investors are seeking assurances for the payment of capacity costs, which they refer to as “reserve capacity,” along with fuel take-or-pay guarantees when their contracted electricity output is not dispatched.

This demand indicates that EVN needs to accelerate the implementation of a two-part electricity tariff structure, first on the consumer side and subsequently on the generation side. Under such a mechanism, all gas-fired power plants would be assured of receiving payments for the capacity they provide to the system when their contracted capacity is not fully dispatched. The two-part tariff mechanism has already been stipulated in the Law on Electricity and should be implemented promptly. This is also a critical solution for recovering the substantial upfront investments made by project developers.

The proposed Framework Agreement alongside the PPA is a new concept, intended to address issues that may arise beyond the authority of the two contracting parties to the PPA. However, it remains unclear which authority would sign such a Framework Agreement and whether it would apply to all gas-fired power projects. Therefore, Government guidance is required to authorise the MOIT, in coordination with relevant ministries and agencies, to consider this Framework Agreement as an investment protection measure under the Law on Investment and as a power sector investment attraction policy in specific periods, particularly for nationally significant and strategic projects.

Finally, a thorough and concrete review of the investors’ proposals above, as well as discussions held through policy dialogue meetings, and the early adoption of practical solutions are essential to unlock capital flows, ensure electricity supply security, especially toward 2030, and support Vietnam’s long-term commitment to achieving net-zero emissions./.