Energy efficiency projects face difficulties in accessing capital

Energy efficiency projects face difficulties in accessing capital

Access to medium- and long-term financing is emerging as a key constraint on energy efficiency investment in Việt Nam's industrial sector, where cutting energy use could reduce costs, boost competitiveness and help strengthen energy security.

Xuân Thành Cement's waste-heat recovery system generates electricity from gases released during clinker production, producing more than 300 million kWh a year and saving the company up to $2.7 million in electricity costs each month. — Photo courtesy of Xuân Thành Cement

Access to medium- and long-term financing is emerging as a key constraint on energy efficiency investment in Việt Nam's industrial sector, where cutting energy use could reduce costs, boost competitiveness and help strengthen energy security.

Việt Nam's industrial sector accounts for more than half of the country's total energy consumption, according to Ministry of Industry and Trade data. Yet a ministry survey estimates it could still cut energy use by up to 30 per cent. 

The Vietnam Scaling Up Energy Efficiency Project is currently promoting higher energy efficiency and technological innovation, while the ministry is helping connect businesses with medium- and long-term financing for energy efficiency projects.

Energy efficiency is no longer simply a technical issue. For businesses, it is increasingly an investment challenge tied to green growth, competitiveness and access to medium- and long-term capital for technological upgrades.

The challenge is to mobilise financing that is large enough and has a long enough tenor to turn that potential into viable energy efficiency investment projects, helping achieve the national target of cutting total energy consumption by 8-10 per cent by 2030.

The main bottleneck for energy efficiency investment is no longer technology, but financing. Such projects typically require medium- and long-term capital, while commercial lending remains largely reliant on short-term funding, collateral and existing cash flows.

This mismatch means many projects are waiting for financing rather than technology. Energy savings only materialise once a project is operational, while banks must make lending decisions at the outset of the investment.

For projects that require 10-15 years to recover their investment, the gap is wider. Meanwhile, the Green Taxonomy remains incomplete and the legal framework for the energy service company (ESCO) model lacks consistency, creating difficulties in assessing projects and structuring loans.

Đỗ Tuấn Linh, PIE programme coordinator at SHB, said the bottleneck in green lending is not the size of available funding, but mechanisms for sharing risk.

When banks have to bear the entire credit risk, projects with long payback periods find it very difficult to meet lending conditions, he said.

To address this bottleneck, a US$75 million Risk Sharing Facility (RSF), funded by the Green Climate Fund through the World Bank, provides partial credit risk guarantees rather than direct financing. This helps broaden access to capital for energy efficiency projects.

The RSF does not repay the debt on behalf of businesses, but shares part of the credit risk, Linh said. This helps reduce collateral requirements and broaden access to financing. With risk more appropriately distributed, credit can flow more readily into energy efficiency projects.

Once financial barriers are removed, the benefits of energy efficiency investment extend beyond lower operating costs. In energy efficiency projects, the costs saved are the project's first profits and can provide funding for the next investment cycle.

Xuân Thành Cement is one example. Its waste-heat recovery system, which generates electricity from gases released during clinker production, generates more than 300 million kWh a year, meeting about 30 per cent of the plant's electricity demand and saving the company around VNĐ65 billion ($2.5 million) in electricity costs each month.

Those savings not only improve production efficiency, but also generate cash flow for subsequent investments. The company becomes less reliant on borrowing, while strengthening its resilience to fluctuations in energy prices and input costs.

Xuân Thành Cement is not alone. A growing number of companies are shifting their focus from simply saving electricity to managing energy costs. 

VNSTEEL Thăng Long has invested in energy optimisation solutions, while Vianco has improved the efficiency of its air conditioning, compressed air and lighting systems to reduce costs per unit of output.

Dương Chí Công, technical director of VETS Energy, said many businesses still view energy efficiency investment as a cost.

In reality, it is an investment that generates long-term cash flow, turning energy savings into a source of capital for technological innovation and improved competitiveness, he said.

Alongside completing the legal framework for the ESCO model, businesses need to seek green financing and technical assistance, Công noted, adding that when policymakers, lenders and businesses share risks, capital will move more quickly into energy efficiency projects.

A fund to promote efficient and economical energy use is also currently under consideration. The RSF and the Vietnam Energy Efficiency Community are helping to build a financial market for energy efficiency investment, rather than providing support only to individual projects.

Việt Nam's industrial energy transition is increasingly becoming a financing challenge as well as a technological one. While technology can deliver energy savings, the availability and structure of capital will determine how quickly businesses can invest and realise those gains.

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