The World Bank, acting on behalf of the Green Climate Fund (GCF), on Monday signed a US$11.3 million grant with the State Bank of Vietnam to support the development of a commercial financing market for industrial energy efficiency investments, the bank said the same day in a press release.
The total financing support from GCF includes a separate $75 million guarantee.
US$8.3 million from the grant will be used to build capacities for the private sector to identify, appraise, and execute energy efficiency projects.
It will also provide technical assistance for the Ministry of Industry and Trade and relevant authorities to strengthen policy frameworks and regulations and create an enabling environment to accelerate the energy efficiency market in Vietnam.
The remaining grant funds and the guarantee will be earmarked for establishing a risk-sharing facility to provide partial credit guarantees to support local banks who may risk potential defaults on loans for energy efficiency projects.
By reducing lending risks, the facility is expected to mobilize around $250 million of commercial financing, to be supplied to industrial enterprises and energy service companies with competitive terms and low collateral requirements.
“Scaling up energy efficiency is the single best and lowest cost option to achieve multiple goals at once: meeting energy demand, preventing pollution, and reducing greenhouse emissions while also increasing industry competitiveness,” Carolyn Turk, country director for Vietnam, was quoted as saying in the press release.
“Against the context of limited public financing for energy, the risk-sharing facility is an innovative financial instrument to crowd in private sector investment financing for a greater uptake of industry-wide energy efficiency measures.”
The grant and guarantee are executed under the Vietnam Scaling up Energy Efficiency Project, which aims to support Vietnam in achieving energy efficiency targets set out in the Green Growth Strategy as well as emission reduction objectives pledged under the National Determined Contributions.
As a country whose level of energy intensity and emission intensity is among the highest in the region, Vietnam is actively embarking on the green energy transition and decarbonization pathway.
The World Bank’s Low Carbon Study estimates that Vietnam could save up to 11 GW of new generation capacity by 2030 if comprehensive demand-side energy efficiency investments are carried out.
The energy efficiency investment need for key industries in Vietnam was estimated at around $3.6 billion.