December 27, 2024
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Effective February 1, 2025, Vietnam’s new Electricity Law will address the aching challenges Vietnam’s energy sector currently faces, especially by creating a strong legal framework to support clean energy development. It is seen as a prominent replacement for the outdated law that has been in force for nearly twenty years.

On November 30, the Vietnamese National Assembly approved the amended Electricity Law with a favorable vote of 91.65 percent. This draft amendment aims to create a unified, competitive, and transparent energy market while promoting investment in renewable energy and implementing market-based pricing for different energy sources. Additionally, it seeks to encourage technological advancements and regulate electricity pricing.

Shortcomings of the current Electricity Law

Implemented in 2004, the current Electricity Law has undergone four amendments in 2012, 2018, 2022, and 2023. Despite these changes, the law has proven inadequate in addressing institutional issues within the electricity sector, particularly regarding market dynamics and the absence of specific mechanisms for resource mobilization.

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The Vietnamese electricity industry faces various challenges, particularly related to costs, production, and distribution. According to the Ministry of Industry and Trade, the average electricity price in 2023 is VND 2,088 (US$0.082) per kilowatt-hour (kWh). In contrast, the average selling price is VND 1,953 (US$0.77) per kWh, representing a 6.92 percent shortfall compared to production costs. This gap between selling prices and costs has resulted in financial losses for electricity enterprises and hindered the industry’s overall development.

Furthermore, the current legal framework is inadequate for implementing the National Electricity Development Plan 2021 to 2030, known as Power Development Plan 8 (PDP8). PDP8 aims to shift Vietnam’s energy structure from fossil fuels to renewable sources, targeting over 60 percent of total installed capacity from solar and wind energy by 2050. While wind and solar currently comprise about 30 percent of the country’s capacity, experts emphasize the need for more transparent regulations on bidding and auctions and well-defined responsibilities for investors to meet PDP8’s objectives.

Overview of Vietnam’s new Electricity Law

The 2024 Electricity Law applies to all individuals and entities using electricity in Vietnam, as well as those operating in or engaging in activities related to the country’s electricity sector. The amended law encompasses six main issues:

• Power planning and development;
• Renewable and new energy sources;
• Conditions for electricity operations, including licensing and revocation;
• Electricity trading activities;
• System management and operation; and
• Safety standards for electricity use and hydropower dams.

Rules of application

The new Electricity Law establishes rules that clarify its priority over other laws to ensure the smooth application of the new regulations.

According to Article 3 of the 2024 Electricity Law, this law will take precedence in cases where it conflicts with provisions from earlier laws enacted prior to the effective date of the new law, specifically regarding the same issues. These issues include:

• Competence to approve investment policies for power projects;
• Specific regulations on investment and construction of emergency electricity projects and works;
• Selection of investors for electricity business investment projects; and
• Regulations on the development of offshore wind power.

If any laws are enacted after the effective date of the new Electricity Law and include different provisions on investment, those laws must specify how they relate to and whether they will be implemented alongside or instead of the revised law.

Transition terms

After the new law takes effect on February 1, 2025, most provisions of Law No. 28/2004/QH11 on Electricity will be annulled, except for the following cases:

• Electricity investment projects: The electricity projects approved and with bidding documents issued before February 1, 2025, will continue in accordance with the 2004 Electricity Law. The government will provide transitional bidding regulations.
• Electricity purchase and sale contracts: Contracts of power purchase and sale signed before February 1, 2025, will remain in force. However, they must be amended to align with the competitive electricity market provisions of the 2024 Electricity Law if applicable.
• Operation Licenses: Electricity units with operation licenses granted before February 1, 2025, will continue to operate under their existing licenses. Relevant exemptions granted prior will remain valid.
• Application for licenses: Organizations that have submitted valid applications for an electricity operation license before February 1, 2025, but have not yet received it, will follow the 2004 Electricity Law for licensing until their applications are processed under the new law.

Meanwhile, certain projects on building power grids with voltage levels of 220 kV or lower, which cross the administrative boundaries of two or more provincial-level units, will continue to be implemented according to Law No. 61/2020/QH14 on Investment. This applies to projects for which the Ministry of Planning and Investment has received valid applications requesting approval and adjustment of investment policies before the effective date of the new Electricity Law.

Key provisions from Vietnam’s new Electricity Law

Electricity pricing reforms

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The new Electricity Law aims to reform retail electricity pricing by creating a multi-component pricing system and eliminating cross-subsidies. Currently, retail prices are based on a national standard, which can lead to inequitable treatment across user groups. For instance, households are paying higher prices to subsidize lower rates for production and businesses. 

The immediate removal of these cross-subsidies is impractical due to the complex restructuring of the electricity sector and the need for financial sustainability. To provide greater price flexibility, facilitate a tariff structure that aligns with the evolving electricity grid, and increase renewable energy use, the Ministry of Industry and Trade (MOIT) will develop a phased roadmap for the Prime Minister’s approval.

Tariff mechanisms

The new Electricity Law establishes tariff mechanisms for both conventional gas-fired and renewable energy projects, with the MOIT responsible for determining the principles of tariff calculation.

The law introduces a long-term minimum contracted quantity, which aims to provide certainty regarding dispatch levels and cash flow for large-scale projects, such as offshore wind and LNG-to-power facilities. Additionally, the law implements capacity charges for projects that do not follow the build-operate-transfer (BOT) model. However, the specifics of this are subject to MOIT’s discretion and remain unclear.

Incentivizing a competitive electricity market

The revised law aims to establish a competitive electricity market and promote strong electricity trading activities. Thus, a variety of new and amended regulations have been introduced, focusing on the following areas:

• The suspension and restoration of operations in the spot electricity market at competitive market levels.
• The types of electricity purchase and sale contracts, as well as electricity service supply contracts, include term contracts, electricity purchase options contracts, and electricity futures contracts.
• Requirements for connecting the national electricity system to foreign power grids.
• The selection of investors and the bidding process for electricity business investment projects.

Importantly, regulations regarding payment for irrigation electricity have been eliminated.

Propelling the development of renewable energy sources

Vietnam’s new Electricity Law establishes a framework to promote renewable energy sources like solar, wind, and nuclear power, along with green hydrogen and green ammonia. Its main goal is to ensure the growth of renewable energy while maintaining power system safety and reasonable electricity prices.

The law plans to provide incentives for various power sources, including small hydropower projects, based on legal requirements and socio-economic needs. It also offers preferential policies for offshore wind power development and encourages investment in competitive electricity market projects.

Direct Power Purchase Agreements (DPPAs)

The new Electricity Law allows projects with DPPAs to bypass the bidding process, offering relief to renewable energy initiatives using synthetic DPPAs. It outlines the basics of forward contracts tied to competitive electricity market regulations. DPPAs must align with competitive market levels, but specific details will be clarified in future regulations. Developers interested in the synthetic DPPA model should understand the competitive electricity market mechanisms and their financial implications.

Special mechanisms for offshore wind power projects

Offshore wind projects will benefit from special mechanisms, including direct appointments for certain projects, minimum electricity output requirements in PPAs, and reduced financial obligations for land leases and sea allocations.

Vietnam’s new Electricity Law also allows for share transfers in offshore projects, with guidance delegated to the government.

Mechanisms for urgent energy projects  

The 2024 Electricity Law significantly streamlined procedures for urgent energy projects, simplifying investment approvals and land use conversion processes to accelerate the construction of essential infrastructure.

Under this explicit mechanism, urgent energy project investors are entitled to decide on all work in construction investment activities, including:

• Assigning organizations and individuals to carry out surveys, design, construction, and other necessary work to serve the construction;
• Deciding on the order of survey, design, and construction; and
• Deciding on construction supervision and acceptance of construction works to meet the progress requirements of emergency works.

After completing the construction, respective investors are obligated to:

• Inspect and re-evaluate the quality of the constructed project and carry out the project warranty; and
• Complete the project completion records and archive records and documents according to Vietnam’s laws.

Liquefied natural gas (LNG) energy development

The revised law clarifies the concept of minimum electricity output, which is expected to facilitate take-or-pay mechanisms and fuel pass-through arrangements in PPAs for future NG projects. This law has the potential to strengthen the Vietnamese government’s policies on domestic gas and LNG power, thereby attracting investment in this crucial energy source.

Other highlights in Vietnam’s new Electricity Law

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It is noteworthy that the state maintains a monopoly over dispatching the national electricity system and operating the transmission grid, except for projects built by non-state entities. In addition, Vietnam’s new Electricity Law has introduced more specific procedures for master planning, investment approval, and investor selection than previous regulations.

The revised law also includes noteworthy provisions that are expected to implement necessary reforms, though they still require detailed regulations from the government. These provisions include:

• Incentives for private investment in energy storage systems;
• A high-level development policy for nuclear energy; and
• An amendment to the 2008 Law on Nuclear Power to strengthen the legal framework for the nuclear sector.

Conclusion

Vietnam’s new Electricity Law represents a milestone in addressing the challenges facing the nation’s energy sector. By establishing a robust framework for renewable energy development and facilitating a transition to a more sustainable energy mix, the law aims to enhance market efficiency and attract investment.

As the nation prepares for the law’s implementation in 2025, it holds the potential to transform the energy landscape, promote financial viability in the sector, and contribute to Vietnam’s broader environmental objectives.

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