Description
Vietnam is one of the most energy intensive countries in East Asia, and the energy intensity of its GDP is steadily increasing. Improving energy efficiency is the lowest cost option to reduce its greenhouse gas emissions and improve its energy security. The scaling up of energy efficiency investments in the country's industrial sector will provide substantial mitigation impacts and substantially contribute to achieving Vietnam’s Nationally Determined Contribution (NDC); i.e. 25% greenhouse gas (GHG) emission reduction compared to the Business-As-Usual scenario. The Project comprises an integrated package of credit risk mitigation, technical assistance and capacity building activities to various stakeholders from public entities to local financial institutions and industrial enterprises, complemented by an International Bank for Reconstruction and Development IBRD credit line project. This will reduce EE investment market barriers, such as lack of access to finance and capacity of stakeholders, high project risk perceptions, and the existence of an insufficient policy and regulatory framework that governs EE in the industrial sector. The joint implementation of the two components and the IBRD supporting project will promote a market-driven approach to industrial energy efficiency and opening up the commercial lending market to local banks and non-bank financial institutions developing a new EE product line. It will build on ongoing efforts by the Vietnamese Government to promote the efficient use of electricity and reduce consumption and emissions. Financing will be implemented through a Green Climate Fund (GCF) guarantee instrument and technical assistance and capacity building activities, combined with a dedicated credit line from the World Bank. With financial and technical support from the World Bank and the GCF, the Project and the supporting IBRD Loan will mobilize approximately USD 400M of EE investments, supporting over 100 industrial companies to reduce energy consumption and resulting in about 120 MtCO2eq of GHG emission reductions over the lifetime of the investments. Ultimately, the Project will contribute to a paradigm shift in the nascent EE market, by providing know how and experience and by strengthening of capacity and creating an enabling environment for local financial institutions and industrial enterprises to scale up investments in energy efficiency.
Location
Vietnam
Region
East Asia and Pacific
Instrument
Partial or full risk guarantee
Instrument category
Risk mitigation instruments
Secondary instruments
N/A
Project size (range)
> USD 200M
Project size (details)
USD 495.3M
Implementer
Ministry of Industry and Trade (MoIT), State Bank of Vietnam (SBV), Ministry of Finance (MoF)
Year of financial closure
2018
Client
Private sector companies implementing energy efficiency measures
Primary financer
Green Climate Fund
Other co-financers
IBRD-World Bank
Other contributors
GCF Risk-sharing Facility, GCF Technical Assistance
Other transaction participants
N/A
Barriers addressed
Low or subsidized energy pricing: The cost of energy consumption has recently been low and subsidized by government. The share of the energy cost represents a small share of operating costs, which has led to consumers’ low interest in energy conservation. This issue is currently being addressed through a series of energy pricing and electricity tariffs reforms.
Limited financing for the up-front capital expenditure: Despite high financial viability of EE investments in the industrial sector, access to finance has been limited for the majority of industrial enterprises with high energy intensity. Most local financial institutions lack the required technical expertise to appraise EE investments and view EE lending as risky. Credit risk associated with EE lending is perceived high by most local financial institutions, and often leads to high collateral requirements. In particular, the concept of project-based financing that focuses on the cash flows from energy savings has not yet been widely accepted by financial institutions.
Low capacity of stakeholders: The international donors supporting this programme are able to bring in relevant expertise, along with financial assistance, helping to build awareness and develop capacity of government and the private sector.
Financing structure
The project comprises an integrated package of credit risk mitigation, technical assistance and capacity building activities for various stakeholders, from public entities to local financial institutions and industrial enterprises, complemented by an IBRD credit line project: Component 1: USD 78M GCF Risk Sharing Facility (GCF-RSF). The objective of the Facility is to issue partial credit risk guarantees to mobilize private-sector lending and equity and contribute to opening up a market for commercially financed energy efficiency investments. Component 2: USD 10M World Bank and GCF Technical Assistance for Improving Energy Efficiency; and IBRD Loan project: USD 100M World Bank Energy Efficiency Credit Line for Industrial Enterprises.
Suitability for cities in low-and-middle income countries (detail)
Yes. This project is implemented in Vietnam and can be applied to many other LMIC contexts.
Weblinks
Green Climate Fund. (2018) FP071 Scaling up Energy Efficiency for Industrial Enterprises in Vietnam.
References
