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Slovakia and the Energy Union: Financing for fossil fuels


In a series of blog posts, Bankwatch campaigners and guests are weighing in on the implications that the EU Energy Union, as laid out by Vice-President Šefčovič, could have for each of the countries.

See earlier installations on the Czech Republic, Hungary, Latvia, Croatia and the Western Balkans and don’t miss the next posts.

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If there is one thing I have learned about strategies and long-term plans it is never to underestimate the ability to pay lip-service to a new priority while doing business as usual.

As part of his Energy Union tour, the European Union’s Vice-President for Energy Union Maroš Šefčovič visited his home country Slovakia in June. Sentimentality aside, the European Commission’s assessment and vision for Slovakia (pdf), while including some welcomed reference to renewables and energy efficiency, falls short of what is needed to transform the country’s energy sector towards a more intelligent, climate-friendly energy economy with the engagement of consumers.

As we have seen in other countries, when it comes to concrete projects in Slovakia the Energy Union proposals are so far to a much larger extent aiming at security of (gas) supply than they are at decarbonisation. The fact that Slovakia is one of the most vulnerable countries vis-a-vis Russian gas diplomacy is certainly an important factor. The proposals however do no justice to Slovakia’s potential for renewable energy and energy efficiency.

Energy efficiency

The document includes the formulaic statement we’ve seen for other central and eastern European countries that Slovakia is well on track to meeting its energy efficiency and decarbonisation targets for 2020. It does recognise, however, that „Slovakia still has the fifth highest energy intensity of the economy in the EU, with the industry having large potential for improvement“.

One could argue about the level of ambition of Slovakia’s energy savings targets when we have no problems reaching them even in a scenario that is almost business as usual. A look at graphs showing the development in Slovakia’s energy intensity suggests that the targets were a mere extrapolation of long-term trends in energy consumption (Energy Policy of the Slovak Republic [sk], see page 30). The energy savings so far result mostly from the continued transition of a post-communist economy.

Financing for … fossil fuels

Achievements of Friends of the Earth Slovakia offer good examples for how the development of local, self-sufficient energy systems could be supported. Improving conditions at a local and regional level to systematically invest into local solutions could greatly help renewable energy sources to find their way into the market. For this, Slovakia would need to re-think the distribution of competences and more importantly of financial resources.

The proposals included in Šefčovič’s assessment, however, do not heed these potentials.

Šefčovič proposes „significiant [financial] contributions“ for energy efficiency measures from the European Structural and Investment Funds and the European Fund for Strategic Investments (EFSI) among others. But looking at what has been proposed for EFSI funding, this is not much to hold on to. While refurbishments of residential buildings are few and far between, it is mostly projects of large companies that are proposed for support. It is not obvious to me why a funding scheme that relies on public guarantees should first target virtually riskless efficiency projects that safe corporation‘s costs, while households in central and eastern Europe struggle to set up and finance such measures.

The document also mentions the EU’s Projects of Common Interest (PCI) as a tool to spur market integration of renewables and regional cooperation among Member States. Projects chosen as PCIs are in line to receive preferential treatment and likely funding from European public facilities or bodies such as the Connecting Europe Facility or the European Investment Bank.

Yet, the list of potential PCIs for Slovakia does not include any projects that would help renewables to enter the market. There is for instance the oil pipeline Bratislava – Schwechat leading through one of the most prescious drinking water reservoirs supplying at least a third of the country. And another fossil fuel project that might become a Project of Common Interest is the Eastring gas pipeline which was presented as top priority [sk] during Šefčovičs visit in Bratislava. The project’s consortium is striving to get the pipeline into the new PCI list as soon as possible which would make it eligible for EU funding.

Other major energy projects that are being planned in Slovakia look no more promising. Both shale gas and conventional gas and oil fields are under exploration especially in the eastern part of the country and the construction of a new nuclear power plant is being negotiated between the government and Czech energy giant ČEZ. While these are alternatives to Russian gas (although Rosatom may get involved in the nuclear power plant), they are the opposite of a „wiser energy use while fighting climate change“.

Renewables

Feed-in tarrifs for photovoltaics were cancelled in Slovakia – for good reason. The first support scheme was set up in a way that benefited a rather narrow group of people and has led to a wide misuse of the scheme. Finding adequate ways to support solar power generation should be explored much more within the Energy Union proposals.

Very promising potential to provide Slovakia with a big proportion of baseload energy lies in geothermal energy. Yet it fails to attract the attention of Slovak and EU decision-makers.

The only largely accepted renewable energy sources in Slovakia are biomass and hydro energy. Biomass in the form of large forests is often seen as „green coal“. It is abundant, supported by state subsidies and EU funding but is weakly regulated which has lead to increasing threat (pdf [sk]) to our country’s forests. Also the state of our rivers is deteriorating as more and more hydro projects are permitted without proper impact assessments. (See for example this map [sk] of the Hron river with 42 small hydro powerplants in operation, under construction or planned.)

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Reading the Slovak country paper I found it hard to detect ambitious and structured elements of an energy transition. Instead, Energy Union looks like business as usual for the coming decades while paying lip service to the low carbon agenda.

[Campaign update] Romanian government support for controversial power plant project to be made public, EBRD loan cancelled

Bankwatch’s Romanian chapter has been granted access to environmental information included in a letter sent by Romania’s Ministry of Economy in support of a loan from the Euoprean Bank for Reconstruction and Development (EBRD) to Oltenia Energy Complex (OEC), Bucharest’s administrative court ruled yesterday.

The letter will shed light on the nature and extent of the government’s support for the project, and whether it was in line with EU regulations.

The EUR 200 million syndicated loan was intended for the rehabilitation and modernisation of unit 6 in OEC’s Turceni lignite-fired power plant, Romania’s largest and Europe’s second most polluting industrial facility in 2009. The support letter was mentioned in a Memorandum of Understanding signed between the Romanian Government and the EBRD in a July 2013 meeting.

Coal in the Balkans

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Earlier this week, Bankwatch had also learned that EBRD had officially cancelled the loan after suspending it in January, following Bankwatch’s repeated warnings about the numerous legal issues surrounding the planned restart of Turceni’s unit 6. Among them are failure to carry out a full environmental assessment and misclassification of the plant as an existing one, instead of a new one, that would allow higher pollution levels.

The court’s decision is final, and the Ministry of Energy, Small and Medium Enterprises and Business is now obliged to make public the letter which offered certain guarantees in order for the EBRD to consider the loan to OEC.

Cătălina Rădulescu, a lawyer and member of Bankwatch Romania explains the importance of the court’s decision: “This information will reveal what guarantees the Romanian government has pledged in order to get the EBRD loan, and whether they fall under the ‘incompatible state aid’, as defined by the EU’s legislation (Art. 107 of TFEU)”.

European regulations stipulate that state aid can only cover up to 85 percent of the loan.

OEC is a state-owned company, responsible for roughly 30 percent of the electricity supply in Romania. It operates the Turceni, Rovinari, Craiova and Ișalnița coal power plants, as well as several open-pit lignite mines.

The court ruling is undoubtedly a victory for transparency. But Turceni’s story is not over. The Ministry of Energy should see the cancellation of the EBRD loan, not as an incentive to locate alternative funding sources for greenwashing dirty coal operations, but rather as an opportunity to pursue other, more sustainable energy sources.

[Campaign update] Petition to clean up southeast Europe’s energy system

By now regular readers of the Bankwatch blog will know that the energy system in southeast Europe is corrupt, dirty and inefficient. But we now have an opportunity to change it.

On 16 October, the region’s energy ministers will meet in Tirana to agree on the revision of the Energy Community Treaty, which has the potential to tighten up environmental legislation, prevent subsidies to dirty energy and increase energy efficiency in the region.

Together with our partners from across the region we are asking the ministers to create a fairer, cleaner and more efficient energy sector by:

  • Investing much more in energy efficiency in homes, to help people reduce their energy bills;
  • Ensuring investigation and prosecution in corruption cases, to encourage responsible new investors;
  • Adopt and fulfill EU climate goals and targets now, with EU funding and support.

Do you live in Albania, Bosnia and Herzegovina, Croatia, Kosovo, Macedonia, Montenegro or Serbia? Then support the action by signing the petition!

You can also read more background on the Energy Community on our campaign page.

The Western Balkans and the Energy Union: Will the EU address carbon lock-in beyond its borders?


In a series of blog posts, Bankwatch campaigners and guests are weighing in on the implications that the EU Energy Union, as laid out by Vice-President Šefčovič, could have for each of the countries.

See earlier installations on the Czech Republic, Hungary, Latvia and Croatia and don’t miss the next posts.

Subscribe via RSS or email

To underline the European Union’s commitment to enlargement towards the Western Balkans region the European Commission and representatives from Germany, Austria, France and Italy meet today in Vienna with EU neighbours from the region to discuss – among other themes – infrastructure, connectivity and regional cooperation.

The European Commission is keen to “better connect the Western Balkans to our own energy systems,” according to a statement by Maroš Šefčovič, vice-president of the European Commission in charge of the Energy Union released ahead of the event. But could this really help bring out the energy transition these countries so desperately need?

A report published today by Climate Action Network (CAN) Europe, aims to shed some light on the implications of the Energy Union Framework for the Western Balkans and proposes improvements to the existing policy tools for effective cooperation between the EU and its immediate neighbours.

And there is need for improvement indeed.

For one thing, the Energy Union’s sheer inception is a bit unfortunate, having resulted from the gas crisis and the conflict in Ukraine and aiming to ensure security of supply. This gives gas a much more prominent place in the package than fossil fuels deserve, and allowed, for instance, for the indigenous fuel formulation to creep into the European Council’s conclusions on setting up the Energy Union. This idea of ensuring energy security through indigenous fuels has opened the door for some of the most polluting and dangerous technologies like coal to continue to be planned with the EU turning a blind eye. It reminds me of the phrase that suicide is a permanent solution to a temporary problem – pretty much like the carbon lock-in the Western Balkans are planning for themselves.

The energy system in this region is currently heavily reliant on coal. About 6 GW of coal power capacity more are planned to be built by 2030, and most of this capacity is to be built in Bosnia and Herzegovina and Serbia. Both countries aspire to become EU Member States in the next decade. At the same time, both countries act as if the EU climate and energy targets did not exist, planning to add over 2 GW of new coal capacity each. Some of these capacities are export-oriented, while existing plants are old and pollute heavily.

A CEE Bankwatch Network analysis released earlier this year showed that if energy export plans of the Western Balkan countries are pursued, they should be coordinated at a regional level; otherwise there is a great risk of stranded assets for the already cash strapped governments in the region, where most of the companies are state-owned.

The benefits of a joint energy market that the Energy Union aims at have been widely discussed, and the prospect of more efficient use of energy, lower energy prices and broader use of renewables should encourage the Western Balkan countries to get their act together and build a cleaner and more sustainable future for the region. But, for this to become reality, the countries should have the same environmental and social standards as the EU, the CAN report rightly points out.

Just to give an example, I am referring to provisions according to which industrial installations, such as coal power plants, must use the “best available techniques” to achieve a high level of environmental protection in order to prevent the danger of emissions leakage. Another example is the legislation on ambient air quality and cleaner air for Europe which defines objectives designed to avoid, prevent or reduce harmful effects on human health and the environment as a whole.

In the meantime, the European Investment Bank is pushing another fossil fuel at the summit, promoting the Transadriatic Pipeline (TAP) as a project currently under appraisal by the bank. While gas is certainly less climate damaging and doesn’t have the same negative health impacts as coal, I cannot understand why there is such a lack of ambition on energy efficiency in the Energy Community agenda.

Unfortunately, the current weak environmental legislation of the Energy Community[*] does not create a level playing field between the EU and its immediate neighbours. The Energy Union must find ways to prevent state support in the production of fossil fuel energy and to incorporate external costs into the price of the energy imported into the EU from the Energy Community countries. The EU cannot afford to have newly acceding members holding up progress towards the new 2030 climate goals or watering down future policy making.


* The Energy Community Treaty brings together Albania, Bosnia and Herzegovina, Kosovo, Macedonia, Moldova, Montenegro, Serbia and Ukraine – and soon also Georgia – with the goal of creating a common energy market between the EU and some of its neighbours.

To mobilise investments for energy efficiency, Commission needs to put money where its mouth is


In a press release today, the European Commission expressed great optimism on how the recently agreed European Fund for Strategic Investments (EFSI) will support the Energy Union’s goals to deliver secure, sustainable, competitive and affordable energy to citizens and businesses. Miguel Arias Cañete, Climate Action and Energy Commissioner emphasised the need to boost energy efficiency investments in Europe. He expects the EFSI will transform Europe to the world’s most energy-efficient economy.

Serious doubts however loom behind the Commission’s self-praise about whether the EFSI would be able to deliver this expected transformation. In contrast to the general commitments to prioritise energy efficiency, the earmarking of EFSi Money for energy efficiency measures was rejected during the legislative process – by the Commission president Jean-Claude Juncker’s very own party. Without this earmarking the fund is guided by EU policy objectives as interpreted by the EIB and incorporated in the bank’s policies and procedures against which all EIB projects are being assessed.

An important harbinger of what this might mean in practice is the EIB’s draft Climate Strategy (pdf), published last week. In its current form the strategy, which will be guiding the EFSI climate impacts, does not emphasise energy efficiency more than the bank’s current energy lending policy. Under this current energy policy, energy efficiency investments are below 3% of the overall EIB portfolio across all sectors.

The EIB is unlikely to make a sudden U-turn without clear policy guidance. Also the current rush with getting EFSI spending rolling will not help with directing funds to usually small scale projects that need bundling up.

The initial phase of the EFSI does not suggest a major breakthrough either – at least for central and eastern European countries. Not a single project for the modernisation of the energy sector and for decreasing the energy intensity of the economy was proposed for lower income regions of the EU. Instead, the Dubrovnik Airport in Croatia was proposed for an EU guarantee, which would lock public money in yet another high-carbon infrastructure project.

As much as the strong vocal commitments are welcome, they must be backed with more concrete plans on how to make energy efficiency really come first – before other, carbon-intensive EFSI investments.

Guest post: Croatia and the Energy Union: the European Commission’s unwarranted obsession with gas


In a series of blog posts, Bankwatch campaigners and guests are weighing in on the implications that the EU Energy Union, as laid out by Vice-President Šefčovič, could have for each of the countries.

See earlier installations on the Czech Republic, Hungary and Latvia and don’t miss the next posts.

Subscribe via RSS or email

Similary to Hungary and Latvia, Croatia has recently attracted praise from EC Vice-President Maroš Šefčovič for being on track to meet its 2020 targets for greenhouse gas emission reductions and renewable energy. While this is certainly better than not being on track, to anyone looking more carefully, this is more a sign that the targets are too unambitious than that Croatia is doing particularly well.

Croatia produces around 70 percent of its own gas, but the European Commission still emphasises the need to diversify sources of supply.

Croatia’s greenhouse gas emissions fell by 17.3% between 1990 and 2012. So far, so good. But 16.6% of the reduction took place before 2000, when Croatia was first at war and then undergoing a rapid decline in its industrial sector (pdf). Importantly though, these gains will be in danger if Croatia builds the planned 500 MW Plomin C coal power plant, which would prevent the country reducing its greenhouse gas emissions by 80-95% by 2050 as the EU aims to do.

The EU has the power to prevent this: media reports suggest that the EC is currently assessing a request by the state-owned electricity company Hrvatska Elektroprivreda for a long term power purchase contract for Plomin C. Such a contract should certainly not be approved for projects which are so obviously in conflict with EU climate goals and a positive response from the EU would completely undermine Croatia’s apparent ‘good performance’ on climate targets.

As for Croatia’s renewable energy record, the country has a long tradition of using hydropower – in 2005 around 33 percent of the country’s electricity was generated from mainly large hydropower plants. Wood biomass has long been used for heating as well: in 2005 it made up 11 percent of Croatia’s total energy consumption.

However other forms of renewable energy have been slow to get going due to administrative complications. In recent years wind energy has finally taken off, and by the end of 2014, 346.5 MW was installed. Yet the government is still preventing the development of the wind and solar PV sectors by placing extremely low caps on the amount of capacity eligible for feed-in tariffs in the country’s 2013 Renewable Energy Action Plan until 2020. The quotas set out for solar PV (52 MW) and wind power (400 MW) have already been filled, effectively braking further development until unless a new Plan is developed. Solar thermal is also underused compared to the obvious potential in this very sunny country.

State-owned electricity company Hrvatska Elektroprivreda, which even after liberalisation still dominates Croatia’s electricity market, has not installed a single megawatt of wind power nor solar power, instead pushing antiquated, environmentally harmful and risky projects like the recently halted Ombla hydro power plant, the Kosinj hydropower plant, and the Plomin C coal plant.

Against this background, crediting Croatia with a ‘strong performance’ in the area of decarbonisation sends the wrong message that the government has done its bit. Incentivising community-based energy projects, raising the PV and wind quotas and providing financial support and grid access for small producers are measures that still need to be taken for an Energy Union that “will ensure that Europe has secure, affordable and climate-friendly energy”.

If every residential building in Croatia was well insulated and had solar collectors and solar PVs on the roof, and heating from heatpumps or energy efficient biomass boilers became widespread, how much would we still need to care about where gas imports come from?

But what about the rest of the assessment? What are the areas where the European Commission sees need for reform?

Vice-President Šefčovič rightly points to the need to improve energy efficiency, especially in buildings and transport, and points out that Croatia’s efforts for regional cooperation on electricity generation adequacy will be more cost-effective than a national approach. But the rest of the assessment – as is all too common from the European Commission these days – is fixated on gas.

Croatia produces around 70 percent of its own gas, but the European Commission still emphasises the need to diversify sources of supply. It is true that Croatia was one of the affected countries during the 2009 Ukraine-Russia gas disputes, but surely this is a reason to lessen dependence on gas per se, not just on Russia? It’s not as if the alternative sources of gas are any better – Azerbaijan, Algeria, Libya, Nigeria…

If the EU was to join up its thinking a little more, it might find that the gas issues can be solved through the energy efficiency issues it mentions, in combination with the renewable energy issues that it doesn’t mention. If every residential building in Croatia was well insulated and had solar collectors and solar PVs on the roof, and heating from heatpumps or energy efficient biomass boilers became widespread, how much would we still need to care about where gas imports come from?