Key bidding requirements of decree 56
Decree 56 confirms that bidding is required if there are at least two investors interested in developing (a) a gas-fired and coal-fired thermal power project and (b) renewable energy power projects including solar power, wind power, hydroelectricity and bioenergy in Vietnam.
Bid package
Bidding documents provided by authorities must include:
- Information about the Buyer2.
- The prefeasibility study of the project.
- A draft power purchase agreement (PPA) proposed by the Buyer and agreed upon with the authority conducting the bidding.
- Localisation percentage requirements for important equipment and consulting services to ensure continuous electricity supply and national energy security.
- Investment security measures as specified in Article 15 of Decree 56.
- Other documents prepared in accordance with bidding laws, including project requirements and those serving as the basis upon which prospective investors are to prepare bidding dossiers and according to which the bid solicitor is to select the investor. Such documents may include the authorities’ approval of the project’s implementation, the approved investor selection plan and bidding invitation notice.
Evaluation criterion
- For projects with an electricity price range issued by the Ministry of Industry and Trade (MOIT), the evaluation criterion is based on electricity price. Notably, the electricity price proposed by an investor must not exceed the ceiling price set out in the bidding documents. This ceiling price is equal to the maximum electricity price tariff issued by the MOIT for the bidding year. Once selected, the winning investor and the Buyer will negotiate the PPA, including the tariff, with the investor's proposed electricity price now setting the ceiling for tariff negotiation.
- For projects without an electricity price range issued by the MOIT, the evaluation criterion is based on a minimum value equal to the annual payment of the project to the State Budget. The value proposed by an investor must not be lower than the minimum value set out in the bidding documents. Once selected, the winning investor shall pay the annual payment value of the project based on the value that it proposed. The form, schedule and duration of the payment shall be specified in the project implementation contract.
Prefeasibility study approval
Upon selection, the successful investor will sign a project implementation contract with the bidding authority. From the signing date of the implementation contract, the investor must obtain approval of the prefeasibility study for the construction of the electricity project within 6 months for bioenergy and solar power projects or 15 months for other power projects subject to bidding (including LNG-to-power projects).
PPA negotiation
The Buyer and the winning investor must negotiate and finalise the PPA within 3 months from the date the investor submits documents required for the PPA execution to the Buyer. The 3-month limit aims to maintain the project schedule in accordance with electricity development planning, provincial planning, and electricity supply security.
Key bankability provisions for LNG-to-power projects
Minimum contract quantity (Qc) for imported LNG projects
Article 15.3 of Decree 56 mandates the following principles for determining the minimum Qc for gas-fired power projects, including LNG-to-power projects, participating in the Vietnam Wholesale Electricity Market (VWEM):
- The minimum Qc for imported LNG-to-power projects is set at no less than 65% of the average power generation (GO) of the power plant.
- This minimum Qc applies during the project loan (principal and interest) repayment period, which is not to exceed 10 years from the commercial operation date (COD) of the power plant.
- After this period, the minimum Qc or the ratio of electricity payment under the PPA for the remaining years of operation will be negotiated and agreed upon in accordance with prevailing laws and regulations.
Determination of GO
The GO will be determined based on (i) the prevailing regulations on the method of determining the price of electricity generation services, (ii) the principles for calculating electricity prices for implementing power projects and (iii) the main contents of the PPA issued by the MOIT. The determination method of GO shall be stipulated in the final PPA.
Fuel price
- The fuel price in the electricity price calculation is based on the fuel supply price at the power plant. If the power seller signs multiple fuel supply contracts, the fuel price is the weighted average of the volume of the invoices of the fuel contracts.
- For power projects with terminals, gas pipelines for direct import and use of LNG, the investor can recover the reasonable and legitimate costs of investing in these infrastructure items through the electricity contract price negotiated with the Buyer, ensuring no double counting of the infrastructure costs in the fuel supply price at the power plant.
- For gas-fired independent power producers sharing infrastructure such as LNG import terminals and gas pipelines to purchase and use regasified LNG, the gas fuel price will be calculated based on the import price of LNG to the relevant LNG import terminal in Vietnam as well as the service price of LNG storage, regasification, transportation and distribution of LNG. The MOIT sets the service price of LNG storage, regasification, transportation and distribution.
Eligibility conditions
To be eligible for the minimum Qc and pass-through mechanisms, the imported LNG-to-power project must have obtained the written notices approving the completion acceptance result of the project and reached the COD before January 1, 2031.
Implications for LNG-to-power projects
Decree 56 does not alter the existing requirement that LNG-to-power projects must participate directly in the VWEM, using Qc and GO factors, and there are no substantial changes in the VWEM rules. However, the newly prescribed minimum Qc and the 10-year maximum period for Qc recovery will significantly impact the financial position of LNG-to-power plants. Developers may find it challenging to secure long-term dispatch and project risk coverage beyond 10 years without additional support. Furthermore, there is uncertainty for gas-to-power plants achieving COD after December 31, 2030, as there are no provisions for minimum Qc payments for these plants. Decree 56 also lacks clarity on payment for available power plant capacity under PPAs or the potential for a separate market for capacity trading. This ambiguity could pose additional challenges and investors, developers and the lending community should evaluate the impact of Decree 56 on their specific projects.
Footnotes
1. The Law on Electricity No. 61/2024/QH15 adopted by the National Assembly on November 30, 2024.
2. The Buyer means Vietnam Electricity (or its authorised representatives), Northern Power Corporation, Central Power Corporation, Southern Power Corporation, Hanoi City Power Corporation and Ho Chi Minh City Power Corporation, major electricity users, other electricity buyers according to regulations of the electricity market.
