The new solar power rates proposed by the Ministry of Industry and Trade (MoIT), much lower than the current average electricity retail price of VND1,864 (8 cents) a kWh, would erase all incentive to develop solar power over other sources, the Finance Ministry has said.

The ministry was commenting on a draft regulation by the MoIT, which sets out fixed rates of 7.69 cents per kWh for electricity from floating solar plants; 7.09 cents from on ground plants; and 8.38 cents from rooftop generators, down from the preferential 9.35 cents offered to projects completed before June 30 last year.

Under the proposed regulations, the fixed rates would only apply to projects that come online this year, which have already signed power purchase agreements and have begun construction before November 2019. The rates will apply for 20 years from the date each project comes into operation.

The fixed FIT policy will not apply to projects coming online after 2020, and those investors will have to bid on solar power prices they can offer, the proposal said.

However, MoIT has yet to set out a clear bidding mechanism for solar power, and needs to do so to minimize risk to investors, the finance ministry added.

Last year, 91 solar farms with a total capacity of 4,550 MW began operations, according to national utility Vietnam Electricity (EVN). Most of them were built before June 30 to take advantage of the the price incentive.

However, this exposed infrastructural weaknesses with a surge in output overloading the national grid, stressing the need for an upgrade in the transmission infrastructure.

So far, the licensed capacity for solar power has reached 25,000 MW, far exceeding the government’s initial target of 4,000 MW by 2025.