Loans to companies with a high share of fossil fuels in their power and heat generation portfolio need to be conditioned on the company committing to a decarbonisation plan aligned with the Paris Agreement prior to loan approval. The first emissions reductions must already be measurable within the lifetime of a project.
Given the danger of carbon lock-in and stranded assets, no financial support should be given to companies planning new coal power capacity at all, including buying or retrofitting existing coal assets. As fossil fuels are becoming not only an environmental but also financial liability, supporting companies planning new coal power plants cannot contribute to creating a transition to stable companies operating on market principles.
The banks need to incorporate the low-carbon transition into its project-level transition indicators to ensure that vulnerabilities resulting from fossil fuel exposure are taken fully into account in project design.
The cases of Energa and CEŽ show that, while the companies were and are benefiting from the EBRD support, and while they are investing into various green projects, their core business is not decarbonising fast enough and in fact both companies invest into new or extension of coal.
The case studies on Elektroprivreda Srbije (EPS) and Bulgarian Energy Holding (BEH) are illustrative of mismanaged EBRD investments where potential emissions reductions gains have not been maximised.
EBRD support to energy companies with fossil fuel production
Comments on the EBRD lending policies for the energy sector.
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PGE Polska Grupa Energetyczna – Poland
- The biggest Polish utility, responsible for more than a third (34 per cent) of country’s electricity generation
- Majority state-owned; follows government’s pro-coal agenda
- 91 per cent of its energy comes from burning hard coal and lignite. Only 4 per cent – from renewable energy sources.
- Very active in coal and lignite mining: operates 2 open-pit mines that together represent 80 per cent of Poland’s total lignite mining output
In 2015, PGE signed two loan contracts with the EIB amounting to about EUR 468 million. Even if the deals were not meant to finance coal, they freed up PGE’s own resources to be spent exactly on that.
PGE, with its iconic 5.3GW brown coal fuelled power plant Bełchatów, remains one of the biggest polluters in Europe. It has been revealed lately that PGE underestimated by approximately 1 800 per cent Bełachatów’s mercury emissions. That is 2 820 kg per year – more than that of the whole Spain’s industry. Bełchatów power plant alone is responsible for almost 1 300 premature deaths annually.
PGE has no plans to decarbonise and no intentions to comply with the Paris Agreement. In fact, it still follows its coal strategy – it develops new coal capacities, modernises the existing coal fleet, and locks itself into coal for years.
PGE’s huge open-pit mines take a toll on local people and agriculture. Expansion means more resettled people and dewatered depleted soils.
To become a leader in clean energy transition, the EIB must stop supporting fossil fuel and coal-heavy utilities and instead invest in renewable energy.
CEZ GROUP – Czech Republic
- 70% owned by the Czech Republic.
- Operations in many countries in central and southeast Europe and Turkey
- Due to its over-reliance on coal, it emitted 28 million tonnes of CO2 in 2017, making it the 10th largest emitter in the EU.
- Accounts for almost 75% of the total electric energy generated in the Czech Republic
Since 2008 CEZ has received 3 loans worth EUR 580 million from the EIB to invest into PV and the distribution network and 3 loans worth EUR 318 million from the EBRD to invest into its projects abroad. This funding, however, potentially freed finances for expensive coal investments.
CEZ group has made progress in reductions of relative emissions per energy produced, partly due to increased efficiency but to a significant extent also due to selling their coal power plants to third parties. Selling a coal power plant might have improved the climate accounts of CEZ, but has not helped to reduce global emissions if the plant keeps being operated by another owner.
CEZ’s overall CO2 emissions are decreasing slowly and their decarbonisation goals for 2035 are not ambitious enough. During the last decade, while CEZ has benefited from cooperation with the EBRD and EIB, the company spent several billions of euro on refurbishing their old power plants which has locked the utility into several more decades of coal business. The loans freed up utility’s money which could be invested elsewhere.
Energa SA – Poland
- Majority state-owned (Polish State Treasure – 51,52% of shares and the State controls 64% of the votes).
- Focus on hard coal mining as well as generation, distribution (covers 20% of Poland) and trade with electricity.
- Fourth largest energy company in Poland and the third distribution system operator (DSO).
Once lauded as the most progressive utility in Poland, Energa SA made a U-turn under the state pressure and embarked on a coal project that would lock the company and the country in a carbon intensive pathway for decades – not without the help of the EBRD and other financiers.
Energa has been also made to invest 500 mln PLN (ca. EUR 115 million) into the biggest EU-28 hard-coal miner. The deal was orchestrated by the Polish government which exercised their voting majority.
Energa has been and is benefiting from support from international financial institutions including the EBRD. Additional financial capital frees up the company’s resources, which could go into investments in grid and RES development or repayment of existing financial obligations (loans and bonds from previous years), but might instead enable Energa to proceed with the harmful coal power plant construction project or have made it easier to spend funds on unprofitable coal mining company PGG.
The lack of any climate targets and decarbonisation plans in this case makes more imminent our call, to introduce a requirement of an effective decarbonisation plan for carbon-heavy companies, as a precondition of any loans granted by the EBRD.
Bulgarian Energy Holding (BEH) – Bulgaria
- A state-owned company with the largest total assets (about EUR 9 billion as of 2015) in energy
- Owns around 60% of installed power generating capacity in Bulgaria
The EBRD’s significant investment of EUR 180 million (EUR 100 million in June 2018 and EUR 80 million in July 2016) in BEH, together with associated technical assistance and policy dialogue, is intended to support the implementation of ‘key power sector reforms’ in Bulgaria. In spite of the significance of the EBRD loan to BEH and to the energy sector in the country, the reforms do not envision measures or conditions aimed at the low-carbon transition needs of Bulgaria’s energy sector.
BEH’s power plant GHG emissions have actually increased rather than decreased in the past few years, while its overall emissions performance standard has remained steady.
It remains unclear whether the EBRD discussed with BEH its exposure to risks of stranding of carbon assets in the mid to long term, in view of evolving climate policies, the EU’s commitments under the Paris Agreement and the imperative to keep global temperature increases under control. Through strategic investments like the BEH project the EBRD should aim to reform the sector not just in view of achieving financial sustainability, but also deliver on the low-carbon transition objectives.
Elektroprivreda Srbije (EPS) – Serbia
- A vertically integrated power company with a monopoly in generation and distribution of electricity in Serbia.
- 9 lignite thermal power plants and combined heat and power plants generate 70% of the company’s electricity.
In the last 5 years, EPS has also been considering more seriously the development of renewables other than hydropower. Most noticeably EPS has stepped up efforts to develop wind and solar capacity in the Kostolac mining region as a step towards more diversified and sustainable mix of its fleet.
However, in the Energy sector development strategy of Serbia, among the priority projects envisaged for the period 2017 – 2023 is the construction of the 350 MW lignite power plant Kostolac B3 and the expansion of the Drmno opencast mine. This dwarfs any of EPS’ and Serbia’s plans to increase their share of renewables as well as Serbia’s future commitments to reduce GHG emissions.
EBRD has a long history of lending to EPS. The investments were supposed to bring environmental improvements but, in reality, hardly contributed to the reduction of GHG emissions or decreasing EPS carbon intensity in electricity production. On the contrary, the EBRD funding enabled the company to maintain the same levels of lignite production.
In addition, currently the bank’s Project Complaint Mechanism (PCM) is conducting a compliance review on the EPS Restructuring loan and a problem-solving initiative on resettlement of a community by Maritsa East Mines, daughter company of Bulgarian Energy Holding.
* According to our research published in March 2018
- 2 112 greenfield plants planned or operating since 2005
- 767 greenfield projects are in protected areas or internationally recognised areas of high biodiversity value
- The EBRD, EIB and World Bank Group – supported 82 hydropower plants the region with €727 million in investments.
At least 82 plants have been financed by multilateral development banks since 2005. 37 of them are in protected areas or internationally recognised areas of high biodiversity value.
The European Bank for Reconstruction and Development (EBRD) has been the most important actor (at least 61 greenfield plants supported with at least EUR 126 million).
The European Investment Bank (EIB) has provided the largest amount of financing by volume (EUR 445 million for 11 plants).
Recognising the damage being done to Southeast Europe’s unique biodiversity by hydropower, in recent years the European development banks have tightened their environmental policies somewhat with regard to this sector, however more still needs to be done to take account of the poor environmental governance standards in many of their countries of operation.
In 2018-2019, the EBRD and EIB will review their environmental and public information policies, while the EIB will draw up guidelines for hydropower lending and financial intermediaries. This provides an ideal opportunity to introduce clear no-go zones and to tighten up environmental and disclosure standards for their financial intermediaries.
Even if the MDBs are not involved in each and every project in the region, they are usually seen as trend-setters. Their moves are usually followed by other financiers, so stopping financing in a particular sector or in certain areas would send a strong signal to other investors to do the same.
- Estimated costs: USD 45 billion
- Annual capacity: 16 billion cbm of gas
- The project would widen surplus in Europe’s gas import infrastructure and likely turn into stranded asset, while strengthening Azerbaijan’s dictatorial regime and causing upheaval for transit communities in Turkey, Greece, Albania and Italy.
Colossal amounts of public money are being put on the line for a project that would lock in Europe with higher fossil fuel dependence. The EU already has an overall surplus of gas import infrastructure and its gas demand has significantly decreased in the past decade. Worst still, the SGC goes against the EU’s fundamental values and principles.
Transparency: the construction is marred with serious corruption concerns. No less than 15 firms contracted to build TAP and TANAP, the two main sections of the Southern Gas Corridor, have been implicated in various forms of corruption in the past.
Public participation: local people across the affected region have been vocal about their opposition to the project that threatens their homes and livelihoods.
Democratic values and rule of law: In Azerbaijan the Aliyev family’s dictatorship has held onto power for the past two decades through a combination of holding fraudulent elections, prosecuting and assaulting critics and curtailing media freedom.
Without properly functioning democratic institutions, rule of law and effective checks and balances for the president’s powers, investments in Azerbaijan’s oil and gas sector will further cripple democracy in the country.
Press release | 9 November, 2020
With the EU actively debating the reshaping of its development role in the context of the current global health and economic challenges and the ‘Finance in Common’ summit kicking off today, the European Investment Bank (EIB) is looking to take center stage as the new ‘EU Development Bank’.
Blog entry | 16 June, 2020
Like many other financial institutions, the European Bank for Reconstruction and Development (EBRD) has responded to the call to join the global effort to tackle the climate crisis. And yet, over the past decade, while growing its support for renewable energy, the bank has continued to hand out public money to the fossil fuels industry.
Blog entry | 2 April, 2020
The EIB-financed Ilovac hydropower plant was built on the river Kupa in north-west Croatia at around the same time as scientists established the existence of a new fish species there – Alburnus sava. Since the dam’s construction, the species has not been found at the site. Has Alburnus sava’s habitat been degraded for just 1.4 MW of installed power?
Publication | 13 December, 2019
The EIB had already proclaimed itself the EU’s climate bank long before the vdLeyen EU Commission presented the idea of transforming a part of the Bank into Europe’s Climate Bank. It has been over a decade now since the EIB committed at least 25% of its finance to support the transition to a low-carbon and climate-resilient economy.