Result Based Finance: As Enabler for Renewable Energy Sector Transformation in Developing Countries, the Vietnam Case

1. Result Based Finance
As enabler for renewable energy sector
transformation in developing countries
The Vietnam Case
Miguel Angel Mendez,
Seoul, Korea, Nov 07th, 2014

2. Experts
Market-Based
Solutions Localization
Impact
At Scale
Output
based

3. SNV OVERVIEW
3
722,000
Innovative Market-Based Solutions to Reduce Poverty

4. The Vietnamese national biogas programme
• The need
• Cooperation SNV and MARD since 2003
• Funded by DGIS, En Dev, Carbon Credits
• The Objective
Ø To develop a commercially viable domestic biogas sector.
To improve livelihood and life quality of rural farmer in Vietnam through exploiting the market and
non-market benefits of domestic biogas plants.
• The Program
Ø The Biogas Plant (KT1 model)
Ø Investment subsidy
Ø Quality control
Ø Training
Ø Research and Development
Title 4

5. 5
The Biogas Plant
5

6. Results
• Investment subsidy in place (56.5 USD) per biogas plant
• 1668 biogas mason enterprises installing bio digesters
• Quality control system in place. 1064 biogas technicians
• 159 trainers to assist training activities
• Sector development (PR). Vietnamese Biogas Association
• Research and Development
• 3 international awards
6

7. Impact
Title 7
142,000
700,000

8. Impact…Cont..
Title 8
656,040
45%

9. Benefits
• Improved manure management
• Time savings (gender impact)
• Reduced fuel expenditures
• Strongly reduced smoke in kitchen
• Higher crop yield + price
• Reduced chemical fertilizer and pesticides expenditures
• Improved relationship with neighbours (smell + gas)
9

10. Challenges
• Financial dependence
• Insufficient commitment private sector
• Lack of financing opportunities
• Limited capacity of informal biogas enterprises
10

11. Status of the Biogas Sector in Vietnam
• Current Market Situation asks for new and innovative
approaches – the next steps towards a fully commercial market!
Title
Saturation
Maturity
Growth
Introduction
Development
Market Growth
‘90s ‘03 ‘13 Time
Number of digesters constructed
2017
2016
2015
2014
2013
A new Financing
Mechanism
‘Business as
Usual’
No Support
Timeline

12. Result Based Finance
Move from up-front subsidies to conditional payments for pre-agreed
and verifiable results; shifting risks from donors to
market actors, flexible implementation
Basic characteristics/principles
• no upfront payments, only ex-post after verification of delivery:
no delivery, no payment; risk entirely at private sector
• provides temporary incentive to overcome market failures,
trigger market growth: only nascent markets with growth
potential and no other constraints
• private sector chooses own business models; but safeguards
set for quality, sustainability
12

13. RBF in the biogas programme in Vietnam
• The objective is to create a market based biogas sector by
transferring responsibilities of gov’t and programme to enterprises
• Increasing ownership and capacity of biogas enterprises
• RBF incentive rewards enterprises for increased risk taking: extra
investment without a guaranteed return.
• Enterprises start paying for training and QC services
• Financial incentive (1.2 m VND around 56.5 USD) for the enterprise
after delivering a high quality digester and providing end user training.
Therefore no more end user investment subsidy
13

14. Results
• Pilot in 6 provinces
• Implementation since may 2014
• 57 enterprises upgraded
• 1196 biogas plants built
• Positive reactions from all stakeholders
• Increased capacity of enterprises
• Increased marketing efforts of enterprises
14
Constructed
since May 2014
RBF
enterprises
Hanoi 450 19
Thai Nguyen 272 19
Hai Duong 343 13
Vinh Phuc 128 5
Ha Giang 3 1
Quang Binh 0 0
Total 1196 57

15. Lessons learned from Vietnam
• Availability of qualified enterprises may be more important
than availability of subsidy
• Effective method to increase risk taking behaviour
• It is not easy to implement such a large change in a project
that has existed so long
• RBF can serve as exit strategy
15

16. Other SNV RBF interventions
Kenya: Clean cook stove market acceleration project
• Incentives for MFI’s to provide loans for ‘higher tier’ cook
stoves: 100.000
Tanzania: Rural market development for solar pico-pv
• Improve market access to and use of quality pre electrification
pico-solar devices.
• RBF incentive for suppliers of solar- lanterns, phone chargers
and small multi room lighting kits.
• 115.000 poor rural and off grid households
16

17. Vietnam Business Challenge Fund- Results
402$Exec.$
Summaries$ 38$Short6listed$ 37$Full$Bus.$
Plans$
25$Bus.$
Ideas$for$
Contract$
NegoDaDon$
23$
Contracts$
signed$
DO
Efficiencies
Bottom-up: 4%
Top-down: 18%
Proposed
Investment
Combined: USD 530mm
Req. VBCF: USD 153mm
32,861
Portfolio
composition
LCG#
33.3% AG#
Leveraging PS Co-financing:
8,3
1-3
24,6
~3X
VBCF Co-investment
Private
investment
Total
Portfolio investment composition
$US million
27% 73%
Projected social returns
Deal origination: 2 rounds / 2
approaches
37%
26% 27%
Projected financial
42%
38%
32%
28%
11%
returns
33%
22%
34%
18%
24%
32%
38%
29%
12%
41%
20% 21%
39%
24%
13%
27%
A055 A075 A094 A114 A119 A151 B056 B066 A196 A217 A230 B242 B251 B262 C252 C278 C320 C323 A359 A398 B357 C241 C352 C393
41.67%
IBS#
25.0%
RE-Based energy
solutions:
- LED lighting solutions
- CFL bulbs for agric.
- Recycled plastic bio-digester
- Gasifier cook stove
- Biomass cook stove
VfM
>90%
(E&Y)

18. Thank you!
Miguel Angel Mendez
Country Director
SNV Vietnam
mmendez@snvworld.org
www.snvworld.org/en/countries/vietnam