- The World Bank (WB), acting on behalf of the Green Climate Fund (GCF), has 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 efficient investments, with the total financing support from the GCF also including a US$75 million guarantee.
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Of the total, a sum of US$8.3 million from the grant will be used to build capacities for the private sector in order to identify, appraise, and execute energy efficiency projects. This will also provide technical assistance to the Ministry of Industry and Trade, along with relevant agencies aimed at strengthening policy frameworks and regulations whilst creating an enabling environment that can accelerate the domestic energy efficiency market.
The remaining grant and the guarantee will subsequently be used to establish a risk sharing facility that can provide partial credit guarantees to support local banks, many of whom may risk potential defaults on loans by getting involved in energy efficiency projects. By reducing lending risks, the facility is therefore expected to mobilise approximately US$250 million of commercial financing that will be provided to industrial enterprises and energy service companies at competitive rates along with low collateral requirements.
“Scaling up energy efficiency is the single best and lowest cost option to achieve multiple goals at once by meeting energy demand, preventing pollution and reducing greenhouses emission while also increasing industry competitiveness,” said Carolyn Turk, country director for Vietnam of the WB.
“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,” Turk noted.
The grant and guarantee will be executed under the Vietnam Scaling up Energy Efficiency Project which aims to support the nation in meeting its various energy efficiency targets set out in the Green Growth Strategy, as well as emission reduction objectives pledged under the National Determined Contributions. Boasting a level of energy intensity and emission intensity which is among the highest in the region, Vietnam is actively embarking on a green energy transition and decarbonisation pathway.
The WB’s Low Carbon Study estimates that Vietnam could save up to 11 GW of new generation capacity by 2030 providing that comprehensive demand-side energy efficiency investments are carried out. Indeed, the energy efficiency investment need for key domestic industries was estimated to be at roughly US$3.6 billion.
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