New financing mechanism for renewable energy projects

19/09/2013

On September 5th, 2013, in Hanoi, General Department of Energy (GDoE) – Ministry of Industry and Trade held a workshop to announce the new financing mechanism about lending schemes of renewable energy development projects (REDP).

Mr. Pham Manh Thang, GDoE’s General Director said that the main purpose of REDP project is to provide power generated by renewable sources for the whole country. It also focuses on small hydropower plants based on commercial investment, ensures the stable development for the environment and society. The total budget is about $318.05 million, in which $204.275 million comes from ODA and $113.78 million is domestic capital. The project duration is 6 years, from 2009 to 2014.

REDP includes 3 components, namely to invest on renewable energy project constructions, to establish development policies and to develop the future renewable energy projects. Accordingly, the first component is to support the investment in renewable energy projects in the form of allowing small hydropower facilities under 30 MW with loans from the World Bank (WB) disbursed through six commercial banks. Up to now, 9 small hydropower plants with the total capacity of 127.2 MW and the total investment of $132.6 million are approved for $78 million of loan proposal from REDP project, reaching 39% of the total capital for the project. The disbursed amount of money is over $54 million. Five of these have been completed. They are providing electric power with the total capacity of 68MW. Other four projects with the total capacity of 58MW are still under construction. They are planned to be completed from now to 2014.

According to Mr. Thang, after 3 years of implementation, the disbursements of projects are still slow, only 39%, caused by the banks’ unreasonable lending conditions, the large variable interest rate loan and high interest rate.

To improve the efficiency of REDP loans, on August 9th, 2013, the government issued document number 6597 approving the adjustment of financial mechanisms in the credit component of the WB funded REDP project.

At the workshop, the adjustment policies were introduced to all investors. Accordingly, from July 16th, 2013, investors are allowed to get a loan for 12-15 years at 1.5% interest rate. The projects will be extended for 2 years until June 30th, 2016. The common commercial limitation for buying goods increases from $1 million to $3 million, those for construction and installation increases by $15 million. Additionally, authorized accounts at commercial banks are being considered to encourage the investors.

Many finance programs in REDP project and loan process are also introduced to investors.

According to Mr. Thang, besides small hydropower, other types of renewable energy such as biomass and wind power are able to join REDP project.

By Thanh Thao

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