Key highlights of Vietnam’s new Electricity Law

8 January 2025

On 30 November 2024, Vietnam’s National Assembly passed the Law on Electricity, which will come into effect on 1 February 2025 (“Electricity Law”). The Electricity Law sets out a list of key principles that will apply to various aspects of Vietnam’s energy sector, leaving the detailed regulations to be furnished at a later stage by the Government and the Ministry of Industry and Trade (“MOIT”). To this end, the MOIT, on 16 December 2024, released draft decrees on the development of renewable energy and the development of power projects for public consultation. These decrees are currently intended to come into force on 1 February 2025 (being the effective date of the Electricity Law).

This article provides an overview of some of the key principles set out in the Electricity Law.

Investor selection via bidding process

Where two or more investors are interested in the implementation of power projects that fall within the scope of the National Power Development Plan VIII, investor selection will generally be determined via a bidding process in accordance with the Law on Bidding 2023, Decree No. 115/2024/ND-CP, and Circular No. 27/2024/TT-BCT of MOIT). However, this investor selection mechanism will not apply to certain prescribed projects, such as state owned and state monopolised projects for the purpose of ensuring national power security (that is, development of the national grid, nuclear power plants, multi-purpose strategic hydropower plants, and important transmission power grids), hydropower and transmission grid expansion projects, emergency power projects, and offshore wind projects.

In undertaking the bidding process, the Electricity Law contemplates that the evaluation standard relating to the effectiveness of developing the electricity sector will be the electricity price, save for projects that fall within the direct power purchase agreement regime or projects where MOIT has not prescribed a price bracket. The evaluation standard for such projects is not specified in the Electricity Law and will instead be determined separately at a later date.

Where the investor selection mechanism applies, the bid winner and EVN will then conclude a power purchase agreement (“PPA”) with the price offered by the bid winner during the bidding process acting as a ceiling for the PPA’s electricity tariff.

Pass-through of fuel costs and minimum offtake mechanisms

The Electricity Law contemplates that the Government will implement mechanisms to facilitate the development of power projects, which will include a pass-through mechanism for fuel costs, long term minimum contracted quantities and, in the case of small renewable energy plants, avoidable costs tariffs. These mechanisms are likely to increase the bankability of projects. More details on the mechanisms will be released at a later stage. 

Renewable energy, green hydrogen and ammonia and nuclear energy

The Electricity Law reinforces Vietnam’s commitment to expanding renewable energy sources, including solar, wind, and biomass. It also introduces the concept of “New Energy Electricity”, the definition of which includes electricity generated from green hydrogen and green ammonia. The development of New Energy Electricity is to be prioritised, particularly in cases where wind and solar projects are implemented in combination with the production of green hydrogen and green ammonia for the generation of electricity. Nuclear energy is also mentioned in the Electricity Law, but the State is the only entity that may undertake the implementation of nuclear projects.

In relation to offshore wind projects (i.e. projects with all its wind turbines constructed six nautical miles away from the lowest sea level on average over the course of many years), the Electricity Law sets out the grounds and principles for the development of offshore wind projects, including offshore wind projects for the purpose of electricity export. While the development of offshore wind projects by 100% State-owned companies is prioritised, the Electricity Law permits foreign investor participation in such projects. The Electricity Law further contemplates that the State will set out specific regulations and provide further guidance on foreign investor participation (including the conditions applicable to foreign investment and foreign ownership limitations).

Gas and LNG power projects

The Electricity Law prioritises the maximum utilisation of domestic gas and the development of liquefied natural gas (“LNG”) plants. In particular, the development of power projects that use the common infrastructure of LNG import terminals and gas pipelines will be prioritised to reduce the overall costs of electricity production.