As global economies deal with challenges of energy security in the face of shortages in gas supplies, massive surge in energy prices and increasing climate and geopolitical concerns, renewable energy solutions have come to gain more importance over the past few months. Nations, corporates, and financiers are now reworking their energy transition strategies and striving harder to decarbonise their energy use across power, transport, and industrial sectors, in an effort to reach net zero. The role of investors and lenders has become even more important as this transformation of energy landscape will require significant financing. Against this backdrop, Nandita Parshad, Managing Director, Sustainable Infrastructure Group at the European Bank for Reconstruction and Development (EBRD) talks to REGlobal about the bank’s initiatives and achievements in financing renewable energy projects, the key upcoming opportunities in emerging sectors and the way forward for clean energy transition.
What is EBRD’s current exposure in the renewable energy space? How much capacity has been financed so far? What are some important renewable energy markets for EBRD and how has financing in these markets evolved?
The EBRD began supporting the development of the renewable energy markets over a decade ago, in the early days of the industry, and this support has been growing. Over the period 2012-2021, the EBRD has invested €7 billion directly and indirectly in renewable energy, funding more than 11 GW of capacity.
In many countries where EBRD operates, we were there at the very beginning of the development of the renewable energy sector, financing first projects, helping governments establish an enabling environment and launching renewable energy auctions. We tailor our work to meet priorities and needs across our regions, which stretch from Mongolia to Morocco, and each country represents a unique market with evolving challenges. Financing renewables is only one piece of the puzzle; through policy dialogue we help countries develop low carbon pathways, decommission inefficient thermal generation, strengthen grids, develop hydrogen strategies and certificate of origin schemes, and so much more. We see countries evolving from feed-in-tariff mechanisms to competitive auctions that deliver low prices, for instance in Kazakhstan, and moving from sovereign-backed Power Purchase Agreements (PPAs) to merchant projects like in Turkey or Croatia.
In Europe, where the EBRD first began financing renewables, we are helping transform coal-heavy economies into renewable powerhouses and steering energy-dependant countries toward energy security. Take Poland, for instance, where over 70 per cent of electricity generation still comes from coal-based projects. The country experienced various support regimes at a time when renewables were not as competitive as today. Finally, an ambitious renewable energy programme supported by policy dialogue with the EBRD allowed Poland to hold its first large-scale renewable energy auctions in late 2018. This helped the country to achieve 12.2 per cent of final energy consumption from renewables by the end of 2019. In Poland and more advanced renewable energy markets, we are increasingly financing projects with alternative offtake arrangements including merchant agreements. For example, the EBRD supported the 38 MW wind farm in Szymankowo, Poland. This is the first renewables investment in the country structured purely on the basis of market pricing and with no support from subsidies.
In Ukraine, where the EBRD has supported the development of the renewable energy sector since its beginning and financed almost 1,000 MW of renewable generation capacity, our portfolio continues operating in the most unprecedented times of war.
In Central Asia, Uzbekistan is making impressive progress in the turnaround of its power sector. It was the first EBRD economy that, with the Bank’s help, developed a low-carbon pathway for the power sector with renewables at its core, targeting an ambitious 12 GW by 2030. We financed the first two renewable energy projects in the country – Nur Navoi and Samarkand Solar – with international players Masdar and Total Eren. Further, in September last year, we supported Uzbekistan’s first wind auction, which resulted in a record low winning price by ACWA Power.
In the Middle East and North Africa, the EBRD has been supporting the Egyptian government on meeting its renewable energy targets through a combination of intensive policy dialogue, technical advice, and infrastructure investment. This includes supporting the development and financing of Benban Solar Park, the largest in Africa. And in Morocco, we have just financed the repowering of Africa’s oldest windfarm after having financed the country’s first private-to-private project backed by corporate PPA.
Renewable energy is at the heart of energy transition. Not just because it is low carbon – it is also becoming cheaper than traditional energy sources; on top of the climate benefits it brings. Renewables are quick to build and scale up, provide energy security, and create jobs. In real time and across the EBRD region, we are witnessing this trajectory becoming a staple, as countries evolve to become strong renewable players. We look forward to doing even more as these markets continue to develop.
In real time and across the EBRD region, we are witnessing this trajectory becoming a staple, as countries evolve to become strong renewable players.
Which are the emerging clean energy investment hotspots for EBRD? What lessons can they learn from other markets in your region?
Countries are looking to scale up clean energy investments across the EBRD regions, from solar panels in the deserts of Egypt and Morocco to wind turbines in the deserts of Uzbekistan and Mongolia.
Egypt is a good example of an emerging hotspot, both in terms of scaling up renewables and innovative ways of attracting capital into renewables. The country is home to the massive Benban 1.5 GW solar complex, powering 1 million Egyptian homes and reducing GHG emissions by almost 2 million tonnes a year. The EBRD supported the authorities in developing a bankable framework, we provided $368 million of our own financing to develop the park and helped mobilise more than $476 million from co-lenders. The next round of renewables in Egypt is being driven by competition. Last year we financed the 200 MW Kom Ombo solar plant – the country’s first solar tender prepared with the Bank’s assistance. Also in Egypt, earlier this year we supported the first private green bond issuance in the southern and eastern Mediterranean region, backed by six solar power plants in Benban owned by Scatec ASA, through an innovative de-risking structure which paves the way for attracting new classes of private and institutional capital.
As we learned from earlier engagements, in Egypt and Uzbekistan, investors and capital will look for countries that offer a strong commitment, predictable framework, well-structured competitive process, and importantly – potential for scale. Countries need to demonstrate a longer-term vision in terms of GWs of planned renewables capacity, ideally in the broader context of the energy sector decarbonisation targets in the Nationally Determined Contributions (NDCs) they have adopted to meet their Paris climate targets. Strengthening grids to better absorb intermittent wind and solar energy sources is another pre-requisite for successful scale up of renewables.
Lessons learned in Advanced Transition Countries – for example Poland, a country that became one of the most dynamic solar PV markets in Europe, and where EBRD has just financed the largest solar PV plant in the country – help us in other regions where EBRD plays an active role to develop the renewables markets with its policy engagement. We hope new renewable energy auctions in Serbia, Romania, Montenegro, and in due course in more countries, will open up these markets for new investments. That also includes Greece, where we support development of offshore wind regulations. And offshore wind is expected to be a new big renewable energy source in a number of countries in the region, including Poland, the Baltic States and Croatia.
What is the role of emerging technologies in supporting energy transition? What are some emerging technologies with high potential?
Emerging technologies can help deliver the full potential of the renewables revolution and unlock a swifter energy transition.
We have already seen breakthrough technologies that enable us to build renewables in previously unthinkable places – for example, last year we financed a 12.9 MW floating solar PV farm atop a hydropower plant reservoir in Albania. In the future, we expect to also see floating offshore wind that is going to be particularly important for the Adriatic Sea countries. We are also eager to support new energy storage solutions, for instance the first hybrid renewable generation and battery storage projects in Poland or grid support battery storage in Croatia.
Another crucial subset of emerging technologies will allow us to harness renewables to decarbonise other sectors, including those that are hard to abate. We see this in Egypt, where renewables at scale are fuelling a new stage of innovation and investment, including in electric vehicles (EVs), green hydrogen, and even green desalination. We are currently working with the Egyptian authorities to develop national strategies for e-mobility and low-carbon hydrogen, as well as investing in EV charging infrastructure, green desalination and so much more.
Once such emerging technologies become scalable, bankable, and affordable, we will see them growing exponentially.
However, we can only meaningfully introduce new technologies in the emerging world once they become affordable. This means supporting the first projects and pushing for scale in the largest markets to drive down costs. With green hydrogen, this is already happening. Once such emerging technologies become scalable, bankable, and affordable, we will see them growing exponentially. If we act quickly, invest wisely, and build out policy and regulatory support while scaling up where there is a strong political buy-in, emerging technologies can and will take the energy transition to the next level.
What is EBRD’s near-term and long-term plan in clean energy financing?
The drive towards net zero carbon emissions by mid-century is a dominant theme in the energy sector across the EBRD region. To achieve decarbonisation goals, we must electrify economies and industry, which will require massive investment in renewables in the coming decade. The IEA estimates that, to reach net zero emissions by 2050, annual clean energy investment worldwide will need to more than triple by 2030 to around $4 trillion.
This year in particular has brought into focus that turning to renewables is not only needed to achieve net zero targets, but to provide an immediate solution to the growing energy security crisis.
Under the new GET approach the EBRD is set to further increase green financing to more than 50 per cent of its annual business volume by 2025 in line with its strategic priorities.
The EBRD is working to make this vision a reality, helping the countries throughout its regions build green, low carbon and resilient economies through its Green Economy Transition 2021-2025 (GET) approach. Under the new GET approach the EBRD is set to further increase green financing to more than 50 per cent of its annual business volume by 2025 in line with its strategic priorities. The GET approach builds on more than two decades of EBRD experience in financing green investments, with an initial focus on energy efficiency and renewable energy. Responding to the increased urgency of the climate emergency, the EBRD will also align all its activities with the goals of the Paris Agreement from the end of 2022, aiming to accelerate decarbonisation across the regions where it invests and supporting countries in reaching net-zero emissions by mid-century.
In this context, the EBRD will significantly scale up policy advice and institutional capacity building for low carbon and climate resilient strategies, promoting and supporting ambitious action in, and with, its countries of operations. The way this will happen will vary, as every country is so different. We will support our countries as they grow their green ambitions and accelerate build out of renewables.
