Looming over Viet Nam’s southeast Binh Thuan province, the Dai Phaong windfarm is a testament to international cooperation. The 10-turbine plant was built by the Singapore-based green energy company The Blue Circle and made possible through funding from the United Nations Environment Programme’s (UNEP) Seed Capital Assessment Facility. The facility helps fund private-sector-led renewable energy projects in frontier markets in Africa and Asia.
According to the International Energy Agency, the world will need to invest trillions of dollars annually in renewable energy to zero out its greenhouse gas emissions by 2050, a step considered crucial to slowing climate change. Given their fiscal limitations, many developing countries need support from the private sector to build wind farms, solar arrays and other clean energy facilities.
The challenge: in countries like Viet Nam, private developers often face challenges securing funding for the initial phases of a project, including research and feasibility studies. This is due to the high risks, long timelines and uncertain returns often associated with fledgling green power projects.
“A major challenge in developing countries is this early-stage financing gap,” says Eric Usher, Head of the United Nations Environment Programme Finance Initiative (UNEP FI) who helped set up the Seed Capital Assistance Facility.
The facility helps tackle this problem by providing developers with early-stage financing. It is managed by the UNEP-Frankfurt School Collaborating Centre with funding from the United Kingdom’s Foreign Commonwealth and Development Office, and Germany’s Ministry for Economic Affairs and Climate Action. In the case of Dai Phaong, the facility provided The Blue Circle with a repayable grant, which was paid back when the project reached financial close.
The wind farm is now connected to Viet Nam’s national grid and provides clean energy to more than 65,000 homes, according to The Blue Circle. Most of these households relied on coal-fired and hydro power plants before the wind farm was opened. Some rural areas also used diesel generators, which are both expensive and polluting.
The project avoids approximately 90,000 tonnes of carbon dioxide emissions annually, based on The Blue Circle estimated. That’s equivalent to taking about 20,000 cars off the road.
The wind farm also generated jobs both during construction and after it opened. Its workforce now includes local technicians, site managers and support personnel, with most of the employees trained from scratch.
For The Blue Circle’s CEO Olivier Duguet, it’s important that local residents are involved in the project. “[They] are the ones who are going to see our turbines every day and live with them for 25 or 30 years,” he says. “So, we have to build these projects with them and for them.”
The Seed Capital Assistance Facility has worked in 19 countries, including frontier markets like Malawi, where it backed a solar power plant, and Zimbabwe, where it supported a hydroelectric facility. To date, it has helped finance 49 projects with 500 megawatts of renewable energy under operation and another 2.6 gigawatts in development.
The role of the private sector in countering climate change was a central theme of last year’s UN Climate Change Conference in Azerbaijan. It ended with nations vowing to scale up climate-linked finance from public and private sources to US$1.3 trillion a year by 2035.
The energy sector is responsible for more than 75 per cent of carbon dioxide emissions globally, according to the International Energy Agency.
Following a year of record-breaking temperatures and climate-change-related disasters, experts say the world needs to urgently reduce the sector’s emissions. The good news, say observers, is that the price of renewables continues to drop, making renewable energy projects more attractive to investors.
The Seed Capital Assistance Facility has so far mobilized US$285 million in project financing and is reducing more than 400,000 tonnes of carbon every year through developments like the Dai Phaong windfarm.
“Projects like this show how important climate finance is for developing countries to transition away from fossil fuels,” says Usher from UNEP FI. “The message is that these projects take time, take patience as lots of barriers need to be overcome but the solutions are available today.”
The Sectoral Solution to the climate crisis
UNEP is at the forefront of supporting the Paris Agreement goal of keeping global temperature rise well below 2°C, and aiming for 1.5°C, compared to pre-industrial levels. To do this, UNEP has developed the Sectoral Solution, a roadmap to reducing emissions across sectors in line with the Paris Agreement commitments and in pursuit of climate stability. The six sectors identified are: energy; industry; agriculture and food; forests and land use; transport; and buildings and cities.
