EBRD promotes auctions as number one tool for renewable energy growth

The European Bank for Reconstruction and Development is committed to supporting the economies in the region in their decarbonization efforts, its Director for the Western Balkans and Head of Serbia Matteo Colangeli told Balkan Green Energy News in the first interview since his promotion. He has been the international finance institution’s top official in Albania since 2016.

Colangeli said EBRD sees renewable energy auctions as the most important tool for the transformation of the energy sector, but that it would continue to finance corporate power purchase agreements as well.

What are EBRD’s priorities in support for the Western Balkan economies to recover from the impact of the COVID-19 pandemic?

The crisis should be used as an opportunity for rebuilding greener, more digitalized and more inclusive economies in the Western Balkans. We are very much committed to play a big role in these three areas. We will invest heavily towards accelerating the green economy transition, in particular, to deliver better environmental and living standards to the citizens of the region, but also to strengthen its economic competitiveness and attractiveness as an investment destination.

We see renewable energy auctions as the number one tool for the deployment of the technology.

On the digital agenda, we will invest in broadband infrastructure, raising digital know-how in the private sector, and supporting the digitalization of the public administration.

When it comes to inclusion, the focus will be on women and youth, with the objective of strengthening access to finance and skills through dedicated credit facilities and advisory programmes. In all three areas, investments will go alongside technical assistance and policy advice to create the conditions for sustainable economic development.

What role will EBRD have in the implementation of the Green Agenda for the Western Balkans?

We have a strong strategic alignment with the Green Agenda for the Western Balkans, in line also with the objective of reaching a green finance ratio at EBRD of more than 50% by 2025. The key element in the Western Balkans will be supporting authorities in formulating and implementing ambitious decarbonization strategies and switch away from fossil fuels, particularly coal.

Sustainable tourism and agriculture are also sectors where the Western Balkans countries can be competitive if supported by the right policies and infrastructure development, including on a regional level. And lastly, the circular economy, which remains largely underdeveloped in the region, will be increasingly in focus for our activities.

You recently said EBRD would invest in smart grids in Serbia. Can you tell us more?

Smart grids are a necessary ingredient for the integration of electricity markets and scaling up the deployment of renewable energy. For this reason, we expect to be very active in this field through providing investment and technical assistance to distribution system operators (DSOs) in the region.

In Serbia, we are preparing a project with Elektrodistribucija Srbije (EDS) for financing the first phase of smart meter rollout. We expect to sign the related EUR 40 million financing package by the end of the year.

What are the results so far of the Green Economy Financing Facilities?

We see strong interest in the GEFF programme in the region and are keen to continue scaling this up.

In the residential segment, we have credit lines available in all markets to households for financing investments such as the replacement of windows and doors, insulation, solar panels or heat pumps. We provided EUR 93 million to 20 partner financial institutions for on-lending to date, which led to over 8,000 households obtaining energy efficiency loans through GEFF.

GEFF Serbia Leasing provided over EUR 15 million so far to small and medium-sized enterprises to make their businesses greener and more competitive

The programme is supported by the European Union and the Austrian Federal Ministry of Finance. On successful completion of the project, end-borrowers are eligible to receive up to 20% investment incentives funded by the EU.

In the SMEs segment, GEFF Serbia Leasing supports renewable energy and energy efficiency projects. In the first 18 months of operations, over EUR 15 million in financing has been provided to help Serbian companies make their businesses greener and more competitive. We plan to extend the facility to EUR 40 million.

The bank participates in the Platform Initiative in Support of Coal Regions in Transition in the Western Balkans and Ukraine. What is your view on the pace of decarbonization in the energy sector?

The Platform aims to facilitate the development of strategies and projects to kick-start a timely transition in regions that are largely coal dependent. It offers financing and policy support, but also an academy for policymakers and twinning of coal regions to share knowledge. Its objectives are fully in line with our strategy in the Western Balkans.

Decarbonizing the energy sector is something that will impact significantly the long-term competitiveness of the region, particularly as regulation comes in to make it harder for exporters producing in countries that do not share the same level of ambition when it comes to emission reductions as the EU to access the European market.

Beyond this, when international corporations assess where to invest, they also look at whether they can source green energy in the new investment location as they have their own net zero carbon targets to meet. So even from the point of view of attracting foreign direct investments, in which Serbia has been very successful to date, I think accelerating on the decarbonization path should be a key priority.

District heating systems in the region still heavily rely on fossil fuels. EBRD has become known for its regional facility Renewable District Energy in Western Balkans (ReDEWeB) for decarbonization in the sector. What does the bank see as the way forward? Are renewables a good fit for district heating systems?

We launched the ReDEWeB Programme in 2019 with the support of funding from the Government of Austria and are stepping up its implementation in Serbia with additional grants from the State Secretariat for Economic Affairs (SECO) of Switzerland.

So far Serbia has been a frontrunner among the Western Balkan countries in the decarbonization of district heating systems

The aim of the programme is to introduce renewable energy in district heating systems, with a special focus on large-scale solar thermal plants and heat pump solutions, through the preparation of project documentation and creating an enabling environment for financiers. We believe that investments in renewable heat production can have strong potential and economic feasibility.

So far Serbia has been a frontrunner among the Western Balkans countries. In March this year we signed a memorandum of understanding with the Serbian Ministry of Mining and Energy on assessing the potential for renewable heat generation and identifying concrete investments. As a result, we are structuring the Renewable District Energy in Serbia (ReDE Serbia) Programme with the objective of decarbonizing district heating systems in nine cities.

We expect to sign financing for these projects in 2022. In addition to the investment component, ReDE Serbia will include technical assistance to establish a regulatory framework incentivizing renewable heat generation.

EBRD helped Albania devise the system for renewable energy auctions. What is your take on the benefits that were achieved and when do you expect auctions to begin in Serbia and Kosovo*?

Albania imports electricity at an average EUR 60 per MWh when rain patterns are unfavorable. So having secured solar power at below EUR 30 through the two recently completed auctions is a great result.

The beauty of auctions is that they allow a lot of flexibility. You launch the first auction and see what the market response is. If favorable, you may do more of the same. If not, you can tweak the structure to generate a better outcome in the next round.

Auctions also provide a clear and predictable regulatory framework and allocation of project risks, which are important factors from an investor’s perspective. We are offering our support to governments across the region in terms of making available technical expertise to prepare the regulatory framework for auctions and conduct the first rounds. We have worked closely with the Serbian authorities in recent months and hope that Serbia could be next by launching the first renewables auction before the end of the year.

What about projects under development that don’t succeed in the auctions, as the quotas are limited?

It is clear that not all renewables development in the region can happen through auctions. There are different channels and we plan to step up our investments through all of them.

We expect state-owned enterprises also to increase their investment in renewables and we will look at ways of supporting these

Merchant projects or structures where the power is offtaken entirely by an industrial consumer through direct agreements with the producer can also be attractive. We would look at the risk profile of each individual project when deciding what we can finance. We expect state-owned enterprises also to increase their investment in renewables and we will look at ways of supporting these.

We may invest in solar projects on former coal mining sites, for example, as we are considering doing this year in North Macedonia.

You have been the bank’s top manager in Albania since 2016. Can you give us some highlights from the country’s green development efforts?

Albania is blessed with rich hydropower resources but historically it has been exposed to volatile energy production linked to rainfall patterns. We are proud of having supported the starting up of the solar power sector in the country through competitive auctions, which have delivered quality foreign investment and highly attractive prices. We are continuing to work with the authorities to enable the launch of the first competitive tender for wind soon.

When it comes to state-owned enterprises, we have contributed to important reforms in the energy sector through our project with KESH, the country’s hydropower producer, and also supported the company in becoming more resilient to climate change risks. We are particularly pleased with the floating solar power project that we helped KESH preparing and financed earlier this year and are keen to continue supporting such innovative renewables technologies in the region.

The European Bank for Reconstruction and Development recently bought green bonds from the Public Power Corp. (PPC) and the National Bank of Greece (NBG). Can we expect lenders and companies in the Western Balkans to begin raising funds with such debt securities?

Supporting the development of capital markets, and green bonds in particular, is an important priority for us. We expect access to finance, particularly for energy intensive companies, to increasingly depend on having clear commitments to decarbonization in place.

For example, green bonds can be an effective funding source for coal-dependent utilities in the region looking to finance investments in renewables. We stand ready to assist our clients in the Western Balkans on this path and gradually build deeper and greener capital markets in the region.