Vietnam’s shift to capacity and energy pricing: What the two-component tariff means

This article was written in collaboration with Partner, Vu Le Trung and Associate, Vu Ha Anh of VILAF.

Regulatory developments in relation to the two-component tariff 

The two-component tariff has been mandated in Vietnam pursuant to Article 50 of the amended Electricity Law 2024 and Government Decree 146/2025/ NĐ-CP. 

Under the current draft Decision of the Ministry of Industry and Trade (MOIT) on the roadmap for implementation of a two-component tariff, the roadmap is structured into four phases commencing from 2025. Phase 2 is contemplated to commence from January 2026 to June 2026 to pilot the two-component tariff through a paper-based trial. The trial will apply to large electricity consumers that are directly supplied by EVN’s member distribution units and have an average monthly consumption of at least 200,000kWh/month over the last 12 months. This pilot is limited to notional calculation and assessment only and the actual tariff would not be reflected in actual electricity bills or payment obligations during the pilot period. The two-component tariff is expected to be formally applied in the actual payment and issuance of invoices starting from Phase 3 (from July 2026 to July 2027). 

The official decision from MOIT approving the above roadmap is awaited.

What is the two-component tariff? 

The two-component tariff structure consists of:

• a capacity charge, which reflects generation capacity and transmission costs; and
• an energy charge, which reflects variable generation costs (feedstock etc.)

What does the two-component tariff achieve? 

The two-component tariff functions as a key policy instrument to support Vietnam’s commitments to emissions reduction under the Just Energy Transition Partnership and its target of achieving net-zero emissions by 2050. By accurately reflecting both fixed and variable costs, the mechanism incentivises consumers to modify consumption patterns, invest in energy-efficient technologies, and optimise operational efficiency, thereby contributing to demand-side management and decarbonisation objectives.

The separation of the capacity charge from the energy charge would ensure that infrastructure costs relating to high peak demand are passed on to the consumers who generate such high peak demand. The economic and policy rationale for the two-component tariff is to gradually remove the cross-subsidies which otherwise indirectly appear under a single electricity price which ignores the difference in capacity demand. Under the existing system where users are charged based only on the actual energy they consume, industrial users pay higher tariffs thereby subsidising the tariffs payable by other consumers (e.g. household users) even though these other consumers may have a higher peak demand. As a result, retail tariffs paid by customers do not always reflect the true cost of power supply. The Electricity Law 2024 is attempting to change this and implementing a shift towards market-based retail pricing. 

How does the two-component tariff support development of wholesale and retail power markets?

In order for wholesale and retail power markets to develop properly, electricity prices must be market-based. In a scenario where tariffs are distorted as a result of cross-subsidies (i.e. where certain customers are paying below market cost for their electricity), market based prices are difficult to achieve. The two-component tariff would ensure that retail tariffs reflect actual cost of electricity supply to customers. 

What impact would the two-component tariff have on direct power purchase agreements?

The introduction of the two-component tariff would bring transparency to electricity pricing, thereby removing distortions that generators would experience with agreeing a strike price for supplying energy to private offtakers under direct power purchase agreements (DPPAs). While entering into a DPPA may help to reduce the energy charge component, offtakers would likely still need to pay the full capacity charge to EVN for grid availability (as the offtaker would need electricity from the grid for when there is no electricity being supplied under the DPPA or as back-up to the supply of electricity to the DPPA). The pricing under the DPPA would not impact this capacity charge. The outcome of this is that the amount of total cost savings for offtakers that can result from entering into DPPAs would be reduced. Under Decree 57 the negotiated price under a private DPPA cannot exceed the ceiling generation tariff applicable to the type of renewable energy that is being used to generate electricity, so generators under DPPAs would need to manage their financial ratios more tightly.