The World Bank’s Carbon Partnership Facility (CPF) has agreed to purchase carbon credits generated through small hydropower developments in Vietnam under the Renewable Energy Development Project (REDP).

The Government of Vietnam and CPF signed the agreement – the first between the two parties – in late December. Under the terms of the deal, the CPF, with Sweden, Norway and Spain as Buyer Participants, will buy the first three million metric tons of carbon credits generated through small hydro plants under REDP, creating a revenue stream for the projects.

“This is a good example of how a climate finance program can demonstrate the synergies between climate change mitigation and renewable energy development," said Victoria Kwakwa, World Bank Country Director for Vietnam. "Carbon credits will help create a revenue stream that enhances the financial attractiveness of private investments in renewable energy, by providing performance-based payments in hard currency. We are extremely glad that IDA is being leveraged for carbon finance."

To date, the Vietnam Ministry of Industry Trade has received around 20 applications to develop small hydropower projects under the REDP. The REDP is expected to add 250MW installed capacity of renewable energy to the grid, with a total of 965GWh of electricity per year and also expand local employment opportunities and increase reliability of the electricity supply especially in rural areas.

About 15-25 subprojects, which have total investment cost in the range $5-20M each, may be financed by the REDP. The program will green Vietnam’s national electricity grid on a commercially sustainable basis by addressing barriers to renewable energy and providing financial support, including carbon revenue provided by the CPF to improve the financial viability of the projects.

“This program is delivering benefits to people in Vietnam by helping them access carbon revenues to support renewable energy development. Signing this agreement with the CPF is very encouraging for Vietnam, which intends to pursue additional opportunities to use carbon credits to support economic development and climate change mitigation goals," said Le Duong Quang, Vice Minister, Vietnam Ministry of Industry Trade.

The REDP is a $202M credit from the International Development Association (IDA), the World Bank Group’s concessional lending window.