Result Based Finance As enabler for renewable energy sector

transformation in developing countries

The Vietnam Case

Miguel Angel Mendez,

Seoul, Korea, Nov 07th, 2014

Experts Market-Based

Solutions Localization Impact

At Scale Output based

SNV OVERVIEW

3

722,000

Innovative Market-Based Solutions to Reduce Poverty

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

4 Title

5

The Biogas Plant

5

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

Impact

7 Title

142,000

700,000

Impact…Cont..

8 Title

656,040

45%

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

Challenges •  Financial dependence

•  Insufficient commitment private sector

•  Lack of financing opportunities

•  Limited capacity of informal biogas enterprises

10

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

Sat

urat

ion

Mat

urity

Gro

wth

Intr

oduc

tion

Dev

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t

Mar

ket

Gro

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Time ‘90s ‘03 ‘13 N

umbe

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dig

este

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onst

ruct

ed

2017

2016

2015

2014

2013

A new Financing Mechanism

‘Business as Usual’

No Support

Timeline

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

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

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

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

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

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

8,3

24,6

VBCF Co-investment

Private investment

Total

Portfolio investment composition $US million

73% 27%

~3X

Leveraging PS Co-financing: 1-3

Projected social returns

Deal origination: 2 rounds / 2 approaches

37%

26% 27%

42% 38%

32% 28%

11%

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

Projected financial returns

41.67%

25.0%

33.3% AG#

IBS#

LCG#

Portfolio composition

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)

Vietnam Business Challenge Fund- Results

Miguel Angel Mendez

Country Director

SNV Vietnam mmendez@snvworld.org

www.snvworld.org/en/countries/vietnam

Thank you!