With its large power capacity and high stability, gas power is considered a supporting pillar to ensure stability and safety for the power system while contributing to the net zero goal by 2050, as committed by Vietnam.

According to the Power Development Plan VIII (PDP8), in the power source structure by 2030, liquefied natural gas (LNG) power will have a total capacity of 22,400 MW (accounting for 14.9%), onshore wind power will reach 16,000 MW (11%), and offshore wind power will reach 7,000 MW (4.8%).

These figures show Vietnam’s high ambition for new energy sources. However, the lack of a proper legal framework system could have negative impacts and adversely affect national energy security.

Legal obstacles hinder project progress

The Nhon Trach 3 & 4 Thermal Power Plant, located in Nhon Trach District (Dong Nai Province), is a national key project invested by PV Power and has a total investment of 1.4 billion USD and a capacity of 1,624 MW.

This is Vietnam’s first power plant using LNG as fuel. It’s equipped with modern gas turbine technology provided by GE, with the highest current capacity and efficiency. When the project officially enters commercial operation, it is expected to add more than 9 billion kWh of commercial electricity annually to the national power system, ensuring national energy security and socio-economic development.

However, during the implementation process, the project had to face many challenges in terms of mechanisms, finance and prolonged legal procedures. From the feasibility study report and the negotiation of the power purchase agreement (PPA) and gas sale agreement (GSA) to the EPC bidding and capital mobilisation, the project implementation was delayed by up to 8 years.

In particular, the legal procedures alone accounted for about 70% of the total project implementation time. This shows that the relevant ministries and agencies must develop appropriate policies and create a legal framework to shorten the time and increase the efficiency of other gas-fired power projects.

In late October, the Nhon Trach 3 & 4 Thermal Power Plant project was adjusting its cooling water supply system with five large capacity pumps, each with a capacity of nine cubic metres per second, equivalent to 32,000 cubic metres per hour, on par with Hanoi’s flood control pumping system. On the construction site, nearly 1,500 engineers and workers are installing and calibrating equipment to prepare for the first ignition in the fourth quarter of 2024, and the entire plant is expected to enter commercial operation in 2025.

PV Power Deputy General Director Nguyen Duy Giang shared that during the implementation, many gas-fired power projects faced obstacles in the financial model, with lenders unable to identify the source of funds. Enterprises face many difficulties due to fluctuating raw material prices, so the price transfer mechanism is crucial.

The Nhon Trach 3 & 4 project is one of the first in Vietnam to have a credit loan contract without a government guarantee. PV Power used the shares and cash flow from the Nhon Trach 1 & 2 Power Plant as collateral for this first LNG gas-fired power project in Vietnam.

“If the mindset on the power purchasing mechanism is not changed, it is impossible to accelerate the development of LNG gas-fired power projects. The relevant ministries and agencies should apply the lessons learned from Nhon Trach 3 & 4 to future LNG projects. We propose that the financial model of these projects must have a mandatory power purchase agreement,” Giang suggested.

Making gas power a pillar

Nguyen Hong Sy, Director of the Nhon Trach 3 & 4 Power Project Management Board (under LILAMA), stated the current results came from the collective effort of thousands of engineers and workers, who have been working tirelessly on the construction site regardless of sunshine or rain. Along with that is the effort and determination of the relevant ministries, agencies and the project management board to resolve the arising difficulties and problems.

As of the end of October, the total value of the EPC contract package has reached about 95%, the design work is about 98.5%, and procurement and equipment manufacturing has reached 99.8%. The systems have undergone pre-commissioning and commissioning work, such as the 220 kV substation, which has already been put into operation. The services supplied to the plant, the water treatment system, the compressed air system and the gas system have been tested and are ready to provide services to bring the plant into operation according to the plan.

Lai Hai Trieu, Deputy Director of the Nhon Trach 3 & 4 Power Project Management Board (LILAMA), evaluated that, at present, the project's progress is completely dependent on the installation of the steam turbine, gas turbine and generator.

According to the expected schedule, the first ignition process of Nhon Trach 3 Power Plant will be carried out in October, and Nhon Trach 4 Power Plant in April 2025. However, the delay in approving the technical design, the delay in handing over the construction site, changes in the design of reverse power reception, and delays in the supply of some materials due to the Red Sea conflict have impacted the implementation and completion as planned.

“Currently, the project has entered the main part of the test run, and it needs a connection point to handle the wastewater. However, the new industrial park has only agreed for the project to discharge 1,000 cubic metres into the system, so the investor needs to quickly finalise the contract with the industrial park to ensure continuous wastewater discharge without interruption, which would otherwise impact the test run schedule,” emphasised Trieu.

A representative from PV Gas analysed that in the process of implementing the Power Development Master Plan VIII, investors in LNG gas-fired power projects have been implementing the approach of investing in separate LNG port storage facilities, scattered according to the “one plant, one port” configuration, which is not cost-optimised to reduce electricity costs, and carries the risk of not implementing the projects in a timely manner, affecting national energy security. However, the draft revised Electricity Law does not stipulate the construction of LNG-fired thermal power projects in a centralised LNG port storage chain.

Recognising this risk, PV Gas has proposed that the Electricity Law should include the mechanism for building thermal power projects using natural gas and LNG in a chain linked to a centralised liquefied gas storage port (LNG Hub). This would allow leveraging the existing infrastructure and ensure efficiency.

Additionally, the draft law does not have provisions for green energy projects involving hydrogen and ammonia, which risks causing investors to not have a sufficient basis to carry out research and investment in these projects, leading to a disruption of the Power Development Master Plan VIII. Therefore, PV Gas has proposed developing a chain of hydrogen and ammonia production projects, gradually replacing natural gas in power generation, leveraging the existing gas transport and distribution infrastructure.

According to economic experts, the regulatory authorities have not yet thoroughly researched and developed mechanisms and policies strong enough to promote gas power as the pillar of Vietnam’s power mix by 2030 in order to maintain national energy security.

Dr Ngo Tri Long recommends that the price of LNG-fired power should follow market mechanisms, as the cost of importing LNG often accounts for a large proportion of the total cost of power generation. If the electricity price is administratively set and does not accurately reflect the actual costs, it will lead to the power sector incurring losses and supply shortages. Therefore, long-term commitments are needed to help stabilise the supply of LNG for power generation. This is important given that LNG prices can fluctuate greatly over time due to market factors.

Additionally, the scope of direct power purchase should be expanded to include gas-fired power and LNG, creating competition, improving efficiency, and reducing electricity prices for consumers.