New Electricity Law: Shaping The Future Direction Of The Energy Sector

January 23, 2025

Highlights

The National Assembly of Vietnam approved the Law on Electricity on November 30, 2024, which will take effect on February 1, 2025 (the “Law on Electricity 2024”).  This new law primarily establishes principles to guide energy development in Vietnam rather than actionable regulations, necessitating further elaboration for effective implementation.  The new lawempowers the Ministry of Industry and Trade (MOIT) and other relevant authorities  to issue detailed regulations to provide clear guidance for its implementation.

The Law on Electricity 2024 is intended to achieve several policy objectives, with the primary goal of ensuring national energy security.  This is achieved by diversifying energy sources, reducing dependence on any single energy type, promoting renewables, LNG, and new energy technologies, and enhancing infrastructure resilience to ensure uninterrupted power supply.  LNG will play a significant transitional role, serving as a bridge fuel to ensure energy security and facilitating the transition from coal-fired power to renewable energy sources.  Certain projects, including nuclear power plants, strategic multi-purpose hydropower facilities (also providing irrigation and flood control), and critical transmission grids with voltages of 220 kV or higher will be exclusively developed by wholly state-owned enterprises.[1]

Promoting national financial security is another key policy objective of the new law, which seeks to balance costs and revenue for the government and private investors and reduce reliance on government subsidies by incentivizing private investment in the energy sector.  Consequently, the Government continues to transition away from providing Government Guarantees and Undertakings (GGUs) and no longer favors the Build-Operate-Transfer (BOT) model for implementing power projects.  This shift will alleviate pressure on government support.

Additionally, a competitive energy market is on the horizon and the new law aims to establish a market where prices reflect actual costs and market dynamics. It also seeks to promote efficiency in electricity generation, transmission, and distribution.  Power Purchase Agreements (PPAs) for power projects are expected to closely align with the MOIT’s model PPA, which accounts for pricing before and after a power generator participates in the competitive electricity market.  In this market, prices will be determined by competition rather than relying on subsidies or fixed rates.

Finally, the new law prioritizes renewable and new technology in response to the increasing hesitance of international lenders to finance fossil fuel-based projects due to ESG requirements.  This includes advancing renewable energy sources such as wind, solar, and hydropower, as well as encouraging adoption of advanced technologies like energy storage systems and green hydrogen production.

GENERAL ISSUES

Government Support

Government support for power projects is generally provided in Article 5.6 and 12.2 of the Law on Electricity 2024.  These include:

• investment project implementation guarantees (bảo đảm thực hiện dự án đầu tư);
• long-term minimum contractual quantity (Qc); and
• pass-through of fuel costs to electricity prices.

Those forms of support will be decided by the Government from time to time for power projects from time to time, considering factors like developing a competitive electricity market and ensuring national electricity and financial security.  It is possible to interpret that in granting “investment project implementation guarantees,” the Government could in theory consider granting government support to a lesser extent than those provided for traditional BOT power projects.  Two pressing concerns consistently raised by investors include the commitment to a long-term minimum Qc and the pass-through mechanism.  The Government is  expected to provide guidance on these issues.

The MOIT is currently working on a draft decree on planning and development of power projects, which includes two options for Qc for LNG-to-power plants:

• Option 1: Allowing a Qc of 65% for a period of 10 years.
• Option 2: Allowing a Qc period sufficient for the investors to repay the principal and interest on project development loans, while ensuring a reasonable price for the input LNG.

Both options would apply exclusively to LNG-to-power plants that achieve commercial operation before January 1, 2031.

Additionally,  the maximum Qc for projects using domestically produced gas will be determined based on the project’s gas capacity, fuel offtake obligations, and energy output. It appears that such projects will receive a higher level of government support.

The current draft decree also includes detailed provisions on pass-through of fuel input costs:

• For plants with terminal and re-gas facilities, fuel input costs will include total costs for delivery of fuel to the plant, ensuring no double counting of investments in terminals, storage, and pipelines.
• For plants sharing common infrastructure, fuel input costs will comprise LNG import costs along with storage, re-gas, transportation, and distribution costs, subject to valuation by the MOIT.

The Law on Electricity 2024 does not  specify whether these forms of support will extend to power projects with minimal or no government support, where investors have already been selected[2]  It is possible that the implementing decree will specify that the mechanisms outlined in Article 5.6 and 12.2 apply to ongoing projects, effectively “grandfathering” them under the new framework.

In the absence of a decree or official document clarifying whether Article 5.6 and 12.2  apply to ongoing projects, several arguments support applying these mechanisms:

• Consistency of Legal Framework: Ongoing and future power projects should operate under a single legal framework and receive equal investor rights and government support measures.  No policy rationale supports distinguishing between ongoing and future projects.
• Investment Guarantee Regime: Ongoing projects are entitled to protection under the investment guarantee regime under the existing Law on Investment and its implementing Decree No. 31/2021/ND-CP of the Government.  Under these provisions, the Prime Minister has the authority to extend Article 5.6 and 12.2 mechanisms to ongoing projects.
• Change-in-law Protection: Ongoing projects are protected under the change-in-law regime established in the Law on Investment.  However, the change-in-law protection of the Law on Investment only applies to incentives specified in the investment policy approval or investment registration certificate of the project.

The draft decree on planning and development of power projects  is silent on this matter. 

Power Purchase Agreements and Electricity Price

In April 2024, the MOIT issued Circular 07 providing guidance on electricity tariff calculation methods and introducing a standardized model power purchase agreement (the “Model PPA”).  The Model PPA accounts for pricing both before and after a power generator participates in the competitive electricity market.  The Model PPA does not address several critical bankability issues in PPAs, such as termination payment terms, change-in-law provisions, and force majeure clauses.

The Law on Electricity 2024 does not replace the Model PPA.  Instead, it stipulates several provisions for PPAs, including the electricity price, contracted electricity output (if applicable), invoicing and payment procedures, rights and obligations of the parties, and the use of Vietnamese as the contract language.[3]  Additionally, the new law permits the parties to mutually agree to have an English version of the contract if the seller has foreign shareholders.[4]  However, like the Model PPA, the new law remains silent on termination payment terms, change-in-law provisions, and force majeure clauses.

The Law on Electricity 2024 specifies that the  price of electricity must include fixed costs, operation and maintenance costs, and variable costs[5]  Additionally, Article 51.8 authorizes the MOIT to establish a multi-component electricity pricing mechanism for different periods.  This mechanism may include capacity charges, energy charges, fixed costs, variable costs, and other relevant costs.  Thus, a legal foundation for implementing diverse pricing structures is embedded into the law. This is expected to facilitate pricing negotiations, particularly for large-scale projects, thereby addressing a significant bankability challenge.

It appears that the MOIT will update the Model PPA to ensure consistency with the new law. However, the extent to which the updated Model PPA will address bankability issues remains unclear at this time.

Electricity Import and Export

The Law on Electricity 2024 provides for two forms of electricity import and export transactions, namely (i) trading through the national electricity grid and (ii) off-grid trading.[6]

The electricity import price determined at Vietnam’s border will be negotiated between the buyer and  seller, in accordance with the electricity import price bracket issued by the MOIT, ensuring the principle of minimizing electricity purchase costs.[7]

The electricity export price will be determined based on the following principles:

• The export price for transactions through the national electricity grid must be (i) based on the retail electricity price, and (ii) not lower than the maximum retail electricity price in the domestic market.
• The export price for off-grid transactions must not be lower than the ceiling price of the electricity generating price bracket issued by the MOIT for the same power source.[8]

Master Planning

Construction of a power project or power gridline project must be consistent with the national and provincial power development plans, except in specific cases.[9]  For certain types of power sources, like offshore wind, the PDP8 and PDP8 Implementation Plan do not specify individual project names but instead allocate the total capacity of a power source to each region.[10]  The respective provincial power development plans are expected to list the names of specific offshore wind projects, along with their allocated capacities.  However, more detailed project information may be included in the revised PDP8 and PDP8 Implementation Plan, which are being prepared by the authorities.

Several types of power projects are not required to be included in national or provincial plans.[11]  These include small-scale power sources which do not impact, or are not connected to or sell electricity to, the national electricity system (except for import and export), low-voltage gridlines, and upgrading or renovating power projects without changing capacity or voltage level or requiring additional land.  The Government will issue a decree or guidance detailing this topic.

Investment Policy Approval and Investor Selection

Generally, when two or more investors are interested in a power project, bidding for selection of investors is required, except in the following cases:[12]

• Investment projects under the State monopoly, which are developed by SOEs (e.g., nuclear power plants, strategic multi-purpose hydropower plants, and critical transmission grids with voltage of 220 kV or higher);
• Hydropower expansion projects and projects to upgrade or renovate the power grid, for which the existing investors will be approved;
• Emergency projects;
• Offshore wind projects developed by SOEs; and
• When investors are selected through a land use rights auction or investor selection bidding process.

The investors proposed electricity price will be a critical factor for screening investors in the bidding process, accounting for 80% to 90% of the total score.  The price in the winning bid will be the ceiling during price negotiations between the winning investors and EVN.  The Government will issue further guidance on bidding for selection of investors.

SPECIFIC ISSUES FOR DIFFERENT POWER SOURCES

Gas-fired Power Projects

Policies for gas-fired power projects, especially LNG-to-power projects, have attracted special attention.  LNG-to-power projects are eligible to receive Government support under Article 5.5 and 12.2 of the Law on Electricity 2024.  In addition, the new law emphasizes using domestic gas resources to promote gas-fired power generation and accelerating LNG-to-power projects, including those utilizing imported LNG.  Projects that share LNG import terminal infrastructure and gas pipelines receive priority because they reduce electricity production costs.  By focusing on shared infrastructure and cost optimization, the policies support affordability and sustainability in electricity production.[13]

The Law on Electricity 2024 authorizes the MOIT to regulate pricing for services related to transporting natural gas  via pipeline, as well as storage, regasification, transportation, and distribution of LNG for power generation.  These long-awaited regulations will provide a standardized framework for negotiating logistics costs, which is currently absent.  Once issued, these regulations are expected to streamline and expedite the LNG procurement process[14]

Renewable and New Energy Projects

The new law defines “renewable energy” and “new energy,” using a list-based approach.^[15]  In particular:

• Renewable energy refers to electricity generated from (i) solar energy, (ii) wind energy, (iii) ocean energy, including tidal, wave, and current energy, (iv) geothermal energy, (v) hydropower, including hydroelectric energy, (vi) biomass energy, including biofuels and energy derived from plant-based sources, (vii) energy derived from waste generated by production, business, and daily activities, excluding waste from production and business activities that use fossil fuels and waste classified as hazardous under environmental protection laws, or (viii) other forms of renewable energy as prescribed by law (if any).
• New energy refers to electricity generated from (i) hydrogen produced from electricity generated from solar energy, wind energy, ocean energy, including tidal, wave, and current energy and geothermal energy, (ii) ammonia produced from solar energy, wind energy, ocean energy, including tidal, wave, and current energy and geothermal energy, or (iii) other forms of new energy as prescribed by law (if any).

The new law promotes investment in wind and solar power projects, particularly when combined with electricity storage systems or production of green hydrogen or green ammonia.  Investors are permitted to determine the installed capacity of wind and solar projects with storage systems, provided that the combined capacity (generation and storage) does not exceed the capacity allocated in the national or provincial power development plan.[16]

The Government may introduce the following mechanisms and policies for new energy power projects: (i) exemption or reduction of fees for the use of marine areas; (ii) exemption or reduction of land use fees and rent; and (iii) minimum long-term contracted electricity output for projects selling electricity to the national grid.[17]  The Government will determine the specific conditions and duration of these incentives.

Offshore Wind Projects

The Law on Electricity 2024 defines “near-shore” and “offshore” wind projects to clarify the differences between these two types of wind power projects at sea:

• A near-shore wind project is a wind project with all turbines built inside the sea area of 6 nautical miles from the mainland’s long-term lowest average sea level edge line.
• An offshore wind project is a wind project with all turbines built outside the sea area of 6 nautical miles from the mainland’s long-term lowest average sea level edge line.^[18]

Given the complexity, both technically and in terms of national security, of offshore wind projects compared to near-shore, the new law includes a separate Chapter providing strict requirements and incentives which apply only to offshore wind projects.

Site Survey and Investor Eligibility and Selection

SOEs that are wholly owned by the Government (e.g., PetroVietnam) are eligible to conduct site surveys and develop offshore wind projects.  Under the draft decree on renewable energy currently being considered by the Government, when an SOE forms a joint venture with foreign investors, the SOE’s equity interest in the joint venture must be greater than 50%.  The Prime Minister is authorized to assign SOEs to conduct site surveys.  The assigned SOEs will be (a) responsible to mobilize financing to fund the site survey activities and entitled to invest in the offshore wind project in the survey area, or (b) reimbursed for the survey costs if other investors are selected to implement the project.  The SOE assigned to survey an area for a potential offshore wind project will have priority to develop the project.[19]

Depending on socio-economic conditions, the Government may permit non-SOEs to conduct site surveys.  The investor ultimately licensed to develop a project is expected to reimburse the expenses incurred by the entity that conducted the site survey.  The Government is also authorized to issue implementing regulations governing the conditions and ownership caps for non-SOE investors, considering the country’s socio-economic development needs, power supply security, and other relevant factors.[20]

The Government is working on a draft decree on renewable energy, which includes the following provisions:

• Approval Requirements: Investment in offshore wind projects requires consent of the Ministry of Defense, the Ministry of Public Security, and the Ministry of Foreign Affairs.
• Developer Requirements: Developers must meet specified technical and capital requirements.
• Foreign Ownership Cap: Foreign ownership in offshore wind projects is capped at 65%, necessitating participation of a Vietnamese developer.  This ownership cap ensures that domestic entities retain a significant role in offshore wind development.

The Government is authorized to issue further detailed regulations on investor eligibility and selection.[21]

Project Transfer

The Law on Electricity 2024 includes a general provision requiring that the transfer of an offshore wind project complies with laws related to national defense and security, cross-border data transfer, and other relevant regulations.  The Government is tasked with issuing detailed guidelines to implement this provision.[22]

The current draft decree on renewable energy mandates obtaining opinions from the Ministry of Foreign Affairs, the Ministry of National Defense, and the Ministry of Public Security for any transfer.  If there are conflicting opinions among the ministries, the matter will be escalated to the Prime Minister for a final decision.

Incentives

With respect to offshore wind projects selling electricity to the national power system, the long-term minimum Qc will be applied as a special policy encouraging development of offshore wind projects, but the Government will set conditions and duration from time to time, based on the socio-economic development conditions and other factors.  The current draft decree on renewable energy sets an 80% Qc for offshore wind.[23]  Investors may also be eligible for exemption or reduction of sea use fees, land use fees, and rent.[24]

Importantly, SOEs are exempt from the investment deposit under the Law on Investment and the Prime Minister may permit SEOs to exceed the single borrower lending limit under the Law on Credit Institutions when borrowing from local banks.[25]

Nuclear Power Projects

The Law on Electricity 2024 categorizes nuclear power as a new power source. It provides general provisions for nuclear power development planning while deferring detailed regulations on nuclear power plants to the Law on Atomic Energy which took effect on January 1, 2009, as amended on January 1, 2019.[26]  The Law on Atomic Energy is currently under review, with the Ministry of Science and Technology proposing drafting a new law on atomic energy for public consultation.

The Law on Electricity 2024 imposes State monopoly over investment, construction, and operation of nuclear power plants.[27]  The choice of State monopoly reflects international practice, particularly in the early stages of nuclear power development.  Nuclear energy involves highly sensitive subjects such as uranium usage, radiation risks, and sophisticated technology, necessitating strict oversight to ensure safety of the population and the environment.

Conclusion

The Law on Electricity 2024 establishes a robust framework for Vietnam’s energy transition, focusing on energy security, renewable energy growth, LNG-to-power projects, and advanced energy technologies.  Its effectiveness hinges on the timely issuance of detailed implementing guidelines and resolution of persistent challenges, particularly around bankability and regulatory clarity.  The new law primarily outlines principles rather than actionable regulations, requiring further elaboration for immediate implementation.  Collaborative efforts between the government, investors, and international partners are essential to balance stakeholders’ interests and unlock Vietnam’s potential as a regional leader in clean energy and broader power development.  While the policies introduced in the new law may reinvigorate existing investors in Vietnam’s market—especially in the LNG-to-power sector—and attract new entrants, delays in implementing regulations and ongoing bankability issues could delay significant market activity.

[1]             Law on Electricity 2024, Articles 5.2 and 11.2.

[2]             Law on Electricity 2024, Article 81.

[3]             Law on Electricity 2024, Article 44.2.

[4]             Law on Electricity 2024, Article 44.2(e).

[5]             Law on Electricity 2024, Article 51.1.

[6]             Law on Electricity 2024, Article 46.1.

[7]             Law on Electricity 2024, Article 46.5.

[8]             Law on Electricity 2024, Article 46.6.

[9]             Law on Electricity 2024, Articles 5.4, 10.1, 10.2 and 11.3.

[10]            PDP8 and PDP8 Implementation Plan divided Vietnam into 6 regions for the purpose of allocating capacity.

[11]            Law on Electricity 2024, Article 10.5.

[12]            Law on Electricity 2024, Articles 18 and 19. Note that selection of investors for a PPP project or a project in the public investment sector will be carried out in accordance with the PPP law and the Law on Public Investment accordingly.

[13]            Law on Electricity 2024, Article 5.8.

[14]            Law on Electricity 2024, Article 79.3.

[15]            Law on Electricity 2024, Articles 4.13 and 4.14.

[16]            Law on Electricity 2024, Article 20.3.

[17]            Law on Electricity 2024, Article 23.2.

[18]            Law on Electricity 2024, Article 20.5(a).

[19]            Law on Electricity 2024, Articles 27.2, 27.3, 28.1 and 29.2.

[20]            Law on Electricity 2024, Article 26.5(b).

[21]            Law on Electricity 2024, Article 29.4.

[22]            Law on Electricity 2024, Article 26.8.

[23]            This contradicts the current perspective of certain private investors in offshore wind, who argue that Qc should not be applied as it is not viable from a financing standpoint.

[24]            Law on Electricity 2024, Articles 26.3 and 26.5.

[25]            Law on Electricity 2024, Articles 26.4.

[26]            Law on Atomic Energy No. 18/2008/QH12 (National Assembly, June 3, 2008), as amended and supplemented by Law No. 35/2018/QH14 (National Assembly, November 20, 2018).

[27]            Law on Electricity 2024, Article 5.2(b).

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