The total support from GCF also includes a US$75 million guarantee. US$8.3 million from the grant will be used to build capacity in the private sector to identify, appraise and execute energy efficiency projects.
It will also provide technical assistance to the Ministry of Industry and Trade and the relevant authorities to further strengthen policy frameworks and regulations and create a helpful environment aimed at accelerating the energy efficiency market in Vietnam.
The remaining grant funds and guarantee will be used to establish a risk-share facility to provide partial credit guarantees to local banks who may risk potential default on loans for energy efficienct projects.
By reducing lending risks, the facility is expected to mobilize around US$250 million of commercial financing, to be provided to industrial enterprises and energy service companies at competitive terms and with 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 gas emissions while also increasing industry competitiveness, Carolyn Turk, Country Director for Vietnam said.
In a context of limited public financing for energy, the risk-share facility is an innovative financial instrument in private sector investment financing for a greater uptake of industry-wide energy efficiency measures, she added.
The grant and guarantee are to be executed under the Vietnam Scaling up Energy Efficiency Project which aims to support Vietnam in achieving the energy efficiency targets set out in the Green Growth Strategy as well as emission reduction objectives pledged under the National Determined Contributions.
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 investment takes place. The energy efficiency investment need for key industries in Vietnam has been estimated at around US$3.6 billion.