Vietnam’s policy environment has promoted a boom in renewable energy investment. In 2019, Vietnam overtook Thailand as the country with the largest installed capacity for solar and wind power in Southeast Asia. Additional capacity estimated at 17.6 GW was added in 2021¹ alone. The country has also introduced innovations in financing such as green credit and preferential loan support for solar power system installation. However, Vietnam’s renewable energy policy only supports large-scale, grid-connected infrastructure, not household-level, off-grid renewable energy investments for using solar energy in agriculture production (e.g.,solar dryer domes (SDDs), solar water pumps or solar lights). 

One specific barrier in Vietnam is that financial institutions do not have specific policies or products that target women farmers. Most of Vietnam’s financial inclusion activities take place through the Women’s Union, and some of it finances farmers. Even the state-owned Agribank uses the Women’s Union to reach clients. However, that does not mean that the loans are specifically for women farmers. 

Based on the technical assistance support provided to Covestro Inclusive Business, through site visits and discussions with financial institutions in Vietnam (Vietin Bank, Joint Stock Commercial Bank for Investment and Development of Vietnam, Agribank, Vietnam Bank of Social Policy, Lienviet Post Bank), there are several key financial barriers to adoption that innovators are attempting to address. These barriers result from a lack of awareness, a perceived high payback period and a lack of affordability of smallholder farmers in the country.

The below case study on solar dryer domes highlights how the above challenges are affecting an off-grid renewable energy agricultural technology while introducing potential solutions to combat financial barriers.

Case Study: Solar Dryer Domes in Vietnam

According to the World Bank, as of 2022, agriculture provides employment for one-third of the population in Vietnam and 29% percent of its women.² To improve farmers’ livelihoods by enhancing their incomes requires access to affordable farmgate infrastructure for storage and transport. These two activities result in a value addition. One method of storage that enhances agricultural commodities’ shelf life and increases their value is drying them. Drying commodities (e.g., fruits, medicinal plants, and fish/seafood) has long been practiced in Southeast Asia. The most common traditional drying method is in the open air under the sun, with firewood and agricultural waste occasionally being burned to accelerate the natural drying. Using traditional open-air methods, however, puts commodities at risk to contaminants, pests, and the weather; if burning materials, it also releases greenhouse gas emissions. 

Luckily, there is a solution to both problems: solar dryer domes (SDDs). Since they are greenhouse-like structures, they protect the commodities from exposure to contaminants while providing a controllable environment to ensure quality. By using the sun – just like in traditional drying methods – SDDs offer a more efficient use of energy and avoid increasing carbon emissions.

Compared to traditional sun drying methods, the quality of agricultural produce dried in SDDs is higher. SDD-dried products have a more consistent appearance, the flavor and color of the product are better preserved, and 80-95% of the nutritional value of the dried product is retained. Drying produce in SDD also ensures better hygiene as they are free from yeasts, molds, other microorganisms, and dust contamination. Furthermore, SDDs are twice as fast as the traditional, natural drying process. However, the innovation is nascent in many Southeast Asian countries and due to its cost, faces several barriers to adoption. 

Barriers to Scale 

As SDDs are a relatively new drying technology, awareness about them is very low among farmers and financial institutions. Most of the customers and users have been collectors/processors who purchase raw and dried produce from other farmers, plus a few cooperatives.

Additionally, for smallholder farmers to accept investing in expensive technologies, they need assurances that the new equipment will generate enough income to validate the expense. In the case of SDDs, this requires access to markets for high-value dried products. However, primary agriculture commodity producers in Vietnam, especially smallholder farmers, tend to not involve themselves in post-harvest processing. Most smallholder farmers in Vietnam who dry their products using traditional methods mainly target local markets, not commercial value chains. To enter commercial value chains, farmers usually sell raw produce to collectors (who may be large-scale commodity producers themselves) or agro-processing companies. Since smallholder farmers do not have direct access to commercial value chains for dried products, they are not sure if the SDD-dried products would sell at higher prices than sun-dried products. 

To help smallholder farmers and banks overcome the sticker shock, Covestro conducted research and provided calculations showing that the upfront cost of the equipment will be covered by increased revenue and/or reduced expenses, and will outperform electric dryers. However, these generic calculations are rarely convincing enough for either farmers or their lenders (and they usually do not include the cost of the loan in the model).

Potential Paths Forward

In the absence of strong market demand or policy support encouraging banks to finance renewable energy equipment, there is a strategic goal to facilitate installations that demonstrate the value of SDDs. Potential activities include conducting awareness campaigns with financial institutions and building awareness and end-user financing pathways, while enabling farmers to design strong business plans that demonstrate returns and value addition. 

Awareness campaigns with financial institutions and government

Covestro and other local partners conducted demonstration activities, which raised some awareness. Nonetheless, there is still a need for government-led campaigns to promote awareness and elicit buy-in from farmers. Developing targeted marketing collateral for these stakeholders can emphasize the social, environmental, and financial impact of SDDs.

Building end-user financing pathways

Blended finance, the leveraging of non-commercial funds (grants or zero-interest credit) to catalyze commercial finance, aims to increase installations rapidly. Financing of SDDs from provincial-level Departments of Science and Technology has been on a case-by-case basis. Despite its success in financing SDDs, no formal scheme is available in Vietnam to subsidize SDD investments by smallholder farmers. Although there are national and many provincial-level guarantee funds, these are only available to registered SMEs, not farmers. Banks will not accept a guarantee from Covestro or its sales partners since they are not legally registered as guarantors. They are willing to lend against a deposit that is at least equal in value to the loan, but this model is not necessarily attractive because it essentially requires pre-paying for each sold installation with companies only receiving the money back after the loan is paid off. 

Even if official programs and institutions are not appropriate, other blended finance options exist. For example, crowdfunding sites could be mobilized to subsidize the cost of SDD. Many crowdfunding sites in Vietnam are designed to support start-ups.

Figure 3: Proposed blended financing approaches

Improving confidence of financial institutions through strong business planning support for farmers and farmer groups: 

In scenarios where policy support or market demand aren’t robust enough to drive financial institutions to lend for renewable energy equipment, a key strategy involves meeting lender requirements using available products. For example, agricultural cooperatives already collect and sometimes process the produce of their members. There are more than 15,000 agricultural cooperatives in Vietnam with VND 14 trillion (USD 580 million) in total capital––an average of USD 37,000 per cooperative. 

Assisting groups in developing business plans, including credible revenue forecasts, is crucial. Detailed cost assessments and production impact evaluations will help convince farmers and lenders of the investment’s viability. Support should extend to helping end-users complete loan applications, attending meetings between end-users and lenders, and fostering strong working relationships with financial institutions. While innovators need not provide support indefinitely, a clear action plan, in consultation with partners, is crucial for reaching enough installations where the cost-effectiveness of the product is widely recognized. 

Table 1: Information on banks’ renewable energy loans

Conclusion

Scaling innovative technologies requires access to affordable financing for smallholder farmers, especially women. Based on the experience in Vietnam, stakeholders interested in enabling the adoption of climate-smart solutions should consider the following steps. While they may not fall in the purview of directly providing finance, they will enable access to financing for farmers. 

Potential steps:

1. Create a credible business plan with farmers/groups for banks to see the economic viability. This includes a focus on market access, revenue, and cash flows.
2. Build farmer capacity to connect with markets, or facilitate the activity through partners and existing institutional structures such as marketing cooperatives. 
3. Support steps like the completion of loan applications for farmers and facilitate their direct engagement with banks.

To learn more about the water-energy-food nexus in Vietnam, read the Country Profile https://bit.ly/3m0mKjw 

This blog is developed by WE4F in partnership with ACCESS Advisory, a service provider for Covestro Inclusive Business. It delves into the insights gained from a technical assistance assignment with Covestro Inclusive Business, focusing on solar dome dryer (SDD) solutions in Vietnam and the exploration of end-user financing support for smallholders. The views expressed in this guide are those of the authors and do not necessarily reflect the views and policies of the WE4F or any of the funders and stakeholders associated with the program.

This blog has been adapted for readers by Tran Thi Tuyet, Country Coordinator for Vietnam.