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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
elop
men
t
Mar
ket
Gro
wth
Time ‘90s ‘03 ‘13 N
umbe
r of
dig
este
rs c
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 [email protected]
www.snvworld.org/en/countries/vietnam
Thank you!