Blog entry

Let the sunshine in: how a coal region in North Macedonia can switch to sustainable heating

The current energy crisis has stirred up discussions around Europe, including in the Western Balkans, about alternative district and individual heating solutions based on renewable energy. In North Macedonia, according to data from the Global Solar Atlas, solar radiation enables significant production of energy from the sun throughout the year. This potential must also be used to implement district heating projects based on new technologies, which are becoming ever more affordable and practical.

Unfortunately, North Macedonia still relies predominantly on fossil fuels, mostly low-quality lignite and imported natural gas. Now, the authorities plan to operationalize a decades-old idea: a coal-based heating system for the municipalities of Bitola, Mogila and Novaci using the largest coal-fired power plant REK Bitola located in Novaci. The 675 MW power plant has been in operation for 40 years, and never had a central heating component. But governmental plans foresee one block of the power plant transformed from lignite to natural gas operation, providing a so-called cleaner alternative for power generation and district heating.

Yet, Bitola has much better options for heating. According to a new analysis of alternatives to coal-based district heating for the Bitola region that was recently published by CEE Bankwatch Network and ‘Eko-svest’ the Centre for Environmental Research and Information, coupling inverter air conditioning units with photovoltaic systems would be the most efficient solution for individual heating in the region.

By analyzing different sources of heating as an alternative to the thermal power plant, this study highlights the possibilities of promoting local and sustainable heating solutions by adopting a more tailored and contextualized approach, rather than focusing on large projects with huge environmental impact, low economic profitability and high potential for corruption, while entrenching the dependence on fossil fuels.

In the study, seven different scenarios were analysed in detail for two common types of households: a 60 square metre (m2) apartment and a 100 m2 house. For all scenarios, an increase in comfort in the households was taken into account; two indoor air conditioning units were used in apartments and three units in houses, heating a larger area of each household with the same energy consumption.

Analysis of various scenarios

The first and most basic scenario is without a photovoltaic system and without financial support from the state; it includes only an inverter air conditioning unit. The other scenarios are based on the prosumer mechanism. All are combined with a photovoltaic system and include a different percentage of subsidies (30 per cent or 50 per cent), as well as different electricity prices according to current developments and the expected increase in the upcoming period.

By subsidising such a heating system, taking into account the costs of system installation and the expected increase in the price of electricity, the cost of monthly heating falls by 20 per cent for apartments and over 35 per cent for houses. Such findings only confirm that this sustainable solution will not only help households become much more resistant to changes in the price of electricity, but will also increase their economic stability.

Energy communities – taking it a step further

These systems can be made even more efficient by joining households in so-called energy communities. The field analysis identified eight locations that are favourable for the establishment of energy communities in the Bitola region. For these locations, the study proposes forming communities of 10 households, where each will jointly invest and thereby significantly reduce initial costs and increase savings in the long term.

In fact, with this type of association, it is possible for households to earn small monthly incomes by selling the excess electricity they produce back to the universal supplier, which according to the current regulation and price of electricity would be worth almost MKD 5 000 (EUR 81) per month per community. By improving the regulation and bringing the purchase price closer to the sales price, the monthly income per community could reach up to MKD 8 000 (EUR 130).

Another particularly interesting recommendation from the analysis is that the municipality of Bitola should form an energy community along with the educational institutions that are under its authority, where all buildings would switch to heating using inverter air conditioning units powered by photovoltaic systems.

Such an energy community, in addition to providing cheap, efficient and comfortable heating for these facilities, would also generate a profit from the return of energy to the grid, up to MKD 120 000 (EUR 1945) per month in the summer months. However, the state must improve the legislation regulating energy communities to enable and promote their formation, which could ultimately bring more stability to the energy system and would help the decarbonisation process.

Additional benefits would include a significant reduction in air pollution, increased energy independence for the region and the country, and the stimulation of the local economy. Thus, the investment in an individual heating system using inverter air conditioning units connected to a photovoltaic system is a suitable heating alternative to the proposed central heating system. This setup is a better option because it allows for the stabilization and protection against price changes, compared to the dependence on fossil fuels of the planned district heating project.

Possible solutions are looming everywhere. The availability of technologies and funding for various solutions has changed dramatically in recent years. Therefore, investing in sustainable individual and district heating systems based on renewable energy is the way forward if we wish to speed up the energy transition and decarbonisation process.

Public participation at stake in participatory processes in the EU

The revision of the national energy and climate plans (NECPs) is starting, the implementation of the recovery and resilience plans is ongoing and Member States are preparing a new list of investment proposals under the REPowerEU plan. The investment decisions that are made now will shape the direction of the EU’s energy transformation and will have a significant impact on the lives of European citizens. Member States must make the right choices and adopt policies that are in line with the objectives of the European Green Deal to achieve climate neutrality by 2050.

To ensure that the right decisions are made, proposals must be carefully scrutinised. This is where civil society organisations act as a bridge between EU policies and citizens, regions and cities by analysing and monitoring the preparation and implementation of plans and programmes. Although these organisations have vast expertise and knowledge that could be pivotal for efficient decision-making, their role is often reduced to a formality and they are not given enough space in important discussions. Unfortunately, their exclusion seems to be a growing trend in the EU’s participatory processes and crisis management is not a valid excuse. The preparation of the 2021-2027 cohesion policy is not an exemption.

In the EU’s regional policy, the role of civil society is defined by the partnership principle, which has been regulated by the European Code of Conduct on Partnership since 2014. The code of conduct provides guidance on the engagement of civil society organisations and sets a series of rules to strengthen cooperation between public authorities and partners, including rules on the selection of partners, public consultations and the appointment of monitoring committees. Officially, the code of conduct applies to all phases of the programming of cohesion policy funds for the current 2021-2027 period, starting with the preparation of the plans. Nevertheless, our recent analysis with Climate Action Network (CAN) Europe paints a different picture and reveals the misapplication of the partnership principle in 10 Member States.

According to our findings, most governments failed to conduct consultations with civil society during the preparation of partnership agreements and operational programmes. Overall, the quality of the consultations is judged negatively (or only partially positively) in most countries. In Estonia, for example, the national authorities did not organise any consultation processes with civil society on partnership agreements. In countries where consultations were held, the process was organised in a way that did not allow civil society to have a meaningful say or influence the direction of the programmes. This inevitably affected the quality of final investments.

The same reasoning applies to monitoring committees. Monitoring committees are currently being appointed and will play a central role in monitoring the implementation of the programmes once the European Commission approves them. Although committees have not yet been set up in all Member States, our analysis reveals three main challenges:

There is too little space for environmental civil society organisations on monitoring committees. Considering the amount of funding devoted to climate objectives and the need to check whether programmes are in line with the EU’s climate policy and other EU Green Deal targets, it is not sufficient to have such a limited number of environmental organisations taking part in these committees;
The selection of partners on monitoring committees is not inclusive and fails to achieve an acceptable level of diversity. Relevant groups that are very active in society, like youth organisations and LGBTQ+ activists, are left out of the conversation, as in most cases they are not recognised as relevant partners;

Technical assistance for capacity building for stakeholders is often limited or difficult to receive. With the exception of Slovakia, in the remaining analysed countries, capacity building support provided by the managing authorities is not good enough to strengthen the institutional capacity of stakeholders. In Poland, for instance, some technical assistance is provided, but this is effectively limited to travel reimbursement for members of the monitoring committees.

Our conclusions are twofold. On the one hand, these examples illustrate that governments often fail to apply the partnership principle correctly, despite this being one of the cornerstones of the cohesion policy. On the other hand, our findings also reveal that some of the issues that civil society organisations face are caused by the limitations of the European Code of Conduct on Partnership in its current form. As the need to update the code of conduct is well known by the European Commission, the document is currently being revised. In order to continue guaranteeing the engagement of stakeholders in the budgeting process, this instrument needs to be strengthened and made compatible with the challenges we face today.

If the misapplication of the partnership principle casts a shadow on the 2021-2027 cohesion policy, the status of public participation and stakeholder engagement in other participatory processes is not promising either. Too often, decision-making takes place behind closed doors all across the EU. Last year, civil society organisations were sidelined from the preparation of the plans in most countries, with no mandatory consultation or monitoring committees and very little opportunity to influence investment proposals. Now, unless stronger provisions are imposed in the negotiations between institutions, the preparation of the REPowerEU chapters risks having very little engagement, just as the recovery process did. At the end of the trilogues on REPower this week, the European Parliament announced that the transparency and public participation of the process will be strengthened, still the specific provisions of the text remain unclear and unspecified. At a time when citizens are affected by overlapping crises, European and national institutions must commit to better public scrutiny. The public can and must play a crucial role to avoid greenwashing and achieve a more sustainable future for the EU.

Less haste, more speed: The European Parliament must support renewables and nature

When the EU wants to do renewable energy, it can. It’s been estimated that almost 40 gigawatts of solar photovoltaics will be installed across the European Union by the end of 2022. This compares to an already record-breaking 27 gigawatts in 2021.

But there are still barriers. Hungary and Poland have spatial planning restrictions so tight that onshore wind farms are effectively outlawed, while Estonia was singled out in an early 2022 analysis as having a particular lack of staff to deal with permit-granting, leading to excessive delays. Bulgaria’s unclear incentives scheme and Romania’s frequent changes of its renewables law were also identified as issues affecting renewables development.

Reading through the European Commission’s proposed amendments to the Renewable Energy Directive under the REPowerEU package though, one gets the impression that EU environmental law is the main problem. It’s not. The Commission has panicked and succumbed to industry pressure to push through a rushed and poorly thought-out proposal that may cause more problems than it solves.

Go-to or acceleration areas

Under the Commission’s plans, each Member State is to identify ‘go-to areas’ – or ‘acceleration areas’ as some prefer to call them – where renewable energy development is considered particularly desirable. These should include e.g. built-up areas or degraded land. Projects in these areas would then be subject to lighter and faster environmental permitting processes.

As spatial planning is a clear problem in some EU Member States, it does make sense to ensure that a reasonable amount of land is allocated for much-needed renewables development, but this will not be a quick process if it is based on proper scientific research and sensitivity mapping.

The Commission’s proposal allows two years for this. This might sound a lot, but since not all countries have sufficiently mapped their biodiversity and that a strategic environmental assessment, including public consultation, needs to be carried out before adoption, adding another year seems more realistic.

Another issue is which technologies should be included in such areas. The Commission’s proposal did at least exclude biomass combustion, but not hydropower. We have serious concerns about loosening environmental requirements for any technologies (see below), but due to their very damaging impacts, forest biomass and hydropower are particularly unsuitable for exemptions in permitting processes.

Environmental safeguards under threat

According to the Commission’s proposal, projects in go-to areas would not need an environmental impact assessment (EIA). And where they may have significant impacts on Natura 2000 sites, they would not need to undergo appropriate assessments as required by the Habitats Directive, either.

This is panic-mode decision-making. The EIA Directive and Habitats Directives are already flexible enough to ensure that benign projects, including many solar projects and some wind projects, are not subject to unnecessary procedures. So the main change would be to let more damaging projects in go-to areas off the EIA hook as well.

The Parliament’s draft report does include a proposal to ensure that small hydropower plants up to 10 megawatts would have to undergo an EIA, but this is not enough. It hardly makes sense to exempt large hydropower. There seems to be an assumption that go-to areas will mostly be on brownfield sites, but if they are to ensure the countries meet their 2030 targets, they will need to go far beyond these.

Legal chaos and damage to Natura 2000 sites

The emphasis in the proposal is supposed to be on low-impact go-to areas, but the Commission is needlessly putting Natura 2000 sites and pristine rivers at risk by introducing a presumption that all renewable energy projects are of ‘overriding public interest.’

A similar, but not identical, provision is also included in the emergency regulation on renewables permitting, whose text was agreed on 24 November and which may also be formally adopted this week.

If a project is likely to have a significant impact on a Natura 2000 site, it has to undergo an appropriate assessment under the Habitats Directive. Currently, if it is confirmed that the project would ‘adversely affect the integrity of the site concerned’, it generally should not go ahead. There are exceptions, however, for projects where there is no alternative and which are of ‘overriding public interest’.

The rules are stricter in cases where the site hosts a priority natural habitat type and/or a priority species – the latter including wolves, bears, or sturgeon, for example. In such cases, generally only protecting human health or public safety can be cited as grounds to declare a project of ‘overriding public interest’.

As a result, some renewable projects can be built in Natura 2000 areas, and some cannot. This must always be assessed case by case.

Yet the Commission has proposed that renewable energy plants and related grid and storage facilities are to be ‘presumed as being in the overriding public interest and serving public health and safety’.

The appropriate assessment will still have to take place, but its conclusions will be largely pre-defined. Although in theory it will still be possible to argue that a project is in fact not of overriding public interest and/or that there are alternatives, it seems unlikely that the permitting authorities will take this on board. It is not even clear what will be achieved, as Natura 2000 areas are unlikely to offer many quick opportunities for renewables development and legal battles on individual projects will still rage on.

The situation is even more confusing because the emergency renewables permitting regulation mentioned above contains a similar — but not identical – provision. And Member States are allowed to apply it to projects whose permitting starts after the regulation comes into force, but to also those already undergoing permitting, where a final decision has not yet been taken. How this is going to play out in reality is anyone’s guess, because it appears that governments are allowed to cherry pick which projects they will apply this provision to during the 18 months that the regulation will be in force.

It may be too late to stop this provision in the emergency regulation, but the Parliament needs to at least stop it in the Directive. In the coming 18 months we expect substantial confusion stemming from the regulation. After opening this Pandora’s box, the least the Commission can now do is promptly issue some guidance on how it should be applied.

Public consultation on the project level is essential

The EIA and appropriate assessment processes also require public consultations for projects which may have a significant environmental impact, and they guarantee the public the right to challenge the relevant decisions in court. So by exempting projects in go-to areas from EIAs and taking the teeth out of the appropriate assessment, the Commission’s proposals are likely to breach the Aarhus Convention and are almost certain to be counterproductive.

Wind, hydropower and other renewable energy sources have already attracted public opposition, and there is nothing more guaranteed to annoy people than the feeling that something is being imposed on them. The process of deciding on go-to areas is supposed to include public consultation but cannot be a substitute for project-level processes.

Squeezing deadlines is not the answer – other barriers need attention

The approach taken by the Commission in its proposals has been to squeeze the deadlines in the environmental permitting process to a point where meaningful assessment and public consultation becomes impossible. The Parliament must resist this tendency and resolve other barriers – such as those mentioned above – instead.

The Commission’s REPowerEU proposals do address the spatial planning issues. And the Parliament has taken on board other issues such as increasing administrative capacity to process permitting applications. But it has so far shown few signs of understanding the importance of maintaining existing environmental safeguards.

Unless the European Parliament stands up for the principles of the European Green Deal this week by tackling the climate and biodiversity crises together, we can expect to see increased legal uncertainty for developers, more public opposition to renewables slowing down deployment, and more damage to nature.

Almaty’s Green City Action Plan: a plan for destructive creation?

The Kazakh city of Almaty joined the European Bank for Reconstruction and Development (EBRD)’s Green Cities initiative in 2019. In November 2022, Almaty became the first city in Central Asia to approve its Green City Action Plan (GCAP). Bankwatch and Green Salvation have called on the EBRD and local authorities to ensure public participation during the implementation of both the GCAP and some of the more controversial urban development projects in the city. So far, this call has fallen on deaf ears.

This article was written by Green Salvation, Bankwatch’s partner organisation based in Almaty.

On 4 November 2022, the supposed relocation of Almaty’s airport building, built in 1947, began. But instead of being moved 420 metres to the southeast, as stipulated by a decree from the head of the local government – the Akim of Almaty – dated 11 November 2020, the building was moved to the scrapheap. Excavators and bulldozers paid little heed to the ‘integrity and safety of the monument’ as it was cleared to make way for the construction of a new airport terminal, which proponents say the city badly needs.

The participants and investors involved in the old airport’s demolition were the local government, the Akimat and several other stakeholders. This is despite the fact that the building is still included in the current state list of historical and cultural monuments of local importance in Almaty, a list approved by the very same Akim.

This is not the first time the city authorities have taken such a destructive approach to creation. Locals recall the demolition of the Palace of Pioneers and the Alatau cinema, several kindergartens being destroyed, the foothills around the city built up with villas and cottages, and thousands of hectares of apple orchards being cut down. Writing down a complete list of ‘reconstruction projects’ like this would take more than a dozen pages. And then there’s the destruction cause by developers within the Ile-Alatau National Park and the Medeu Regional Nature Park.

Behind the smokescreen of public hearings

How can these projects possibly comply with the law that ‘recognizes and guarantees’ public participation in the decision-making process, consideration of ‘public interests’ and respect for human rights? After all, many citizens publicly opposed the demolition of the old airport building; even the Akim of Almaty had made a resolution to protect it. If this can still happen, what do the dozens of agencies responsible for keeping order and ensuring the rule of law actually look out for?

According to ‘highbrow’ scientists, experts and bureaucrats within the city, members of the public don’t understand enough to participate in these processes. One has to wonder what special knowledge is needed to understand that in a state governed by the rule of law, the law must be strictly observed. Still, the city’s experts seem to believe that public opinion can be ignored at the earliest stage of decision-making.

It seems that their approach is to create a smokescreen of public hearings while never actually making any obligations to the opinion of the people. And from there it is a very simple algorithm: we tear it down, build it, grow it or cut it down, depending on what the investment requires. But the investment’s needs always come first.

Only in very rare cases does the public manage to preserve natural landscapes, individual city streets, houses and trees. But this is only a drop in the sea of destructive creation that has engulfed the country.

All of this is already known. What is new in the case described above is that the airport’s destruction was financed by the EBRD. And the bank, together with the city’s leadership, has grand plans.

On 12 October 2022, the fourth consultation workshop with the interested parties was held in Almaty. The local government gave an advance presentation of Almaty’s GCAP. The initiative is part of the Green Cities programme implemented by the EBRD and funded by the Federal Ministry of Finance of the Republic of Austria.

After reading the GCAP, Green Salvation has come to the following conclusions, which we have sent to the authors of the document. No response has yet been received.

The document does not clearly explain how public opinion was taken into account in its preparation. There is no quantitative and qualitative data that could confirm the public’s participation of the public and its effectiveness.
It talks about the need to involve citizens, consumers and the public early in the processes (pp. 24, 41, 101, 109, 118, 126, 133, 134, 137, 144, 155), but there is no clear statement of how this was achieved. This once again confirms that public participation in the preparation of the plan was and apparently will continue to be reduced to formal participation in workshops and conferences during the project’s implementation.

The document lacks a detailed analysis of the legal framework for the implementation of the GCAP and specific analysis of the obstacles that may arise. These potential roadblocks could include the high degree of corruption in the country, legal chaos, limited access to information and poor work by government agencies.

One gets the impression that in developing the document, its authors did not use all available sources and data. This indicates that the GCAP was poorly prepared (see appendix for specific comments).

What can we expect from the EBRD’s activities after such a tumultuous start and a long-awaited but poorly prepared action plan? The question is rhetorical, but apparently both officials and bankers are satisfied with everything they’ve done so far.

Comments about the GCAP, Almaty 2022

Green Salvation submitted the following comments regarding selected actions within the GCAP:

Action 10: Transit-oriented design – application of transit-oriented design in the development of satellite cities.

The plan does not indicate whether new expansion of the city’s boundaries is anticipated.

It does not address the need to move industrial facilities beyond the city limits or to move motor vehicle depots away from residential areas.

Action 16: Develop a citywide blue-green strategy and implementation plan.

The plan does not indicate when the 2030 Green Space Strategy was adopted or where the public can read it.

It does not analyse the condition of the city’s green fund (it does not indicate the percentage of trees that have taken root, diseased trees and the financial costs of replanting).

It is not clear what is meant by ‘withdrawal of lands due to their location in specially protected natural areas of the region’.

It does not take into account that Ile-Alatau National Park is included on Kazakhstan’s preliminary list for nomination to the List of the Convention for the Protection of the World Cultural and Natural Heritage.

It does not mention the creation of a structure for the unified management of the city’s green fund.

Action 18: Increase the water permeability of the city of Almaty.

The plan does not mention the need to upgrade the ‘aryk’ system of irrigation ditches, which prevents soil from absorbing moisture.

It does not consider what measures need to be taken against spot and compressive development that reduces the amount of open space.

Action 19: Prevent and address landslide emergencies.

The plan does not analyse the legal causes of landslide hazards.

Existing landslide hazard maps and studies have not been taken into account in the development of the plan.

It does not take into account that the violation of architectural and urban planning laws is one of the most serious legal problems in Kazakhstan.

Action 21: Develop a comprehensive waste management strategy.

Local governments do not have sufficient authority to develop their own waste management strategies.

Action 22: Establish a construction and demolition waste recycling facility.

The plan does not address the issue of reducing waste production by reducing the destruction and demolition of existing facilities, including those already built during independence and illegally built facilities.

It does not consider the possibility of reconstructing exploitable facilities instead of demolishing them.

It does not take into account that the inexpedient ‘relocation’ (and in fact demolition) of the old airport building (which is a GCAP project) will be a source of construction and demolition waste.

It fails to consider that one source of construction and demolition waste is substandard construction and outdated technology.

Action 27: Develop a water conservation plan.

The plan does not take into account that water loss occurs in large part due to the destruction of watersheds, forests and air pollution over mountain ranges.

It does not take into account that water resource shortages are increasing due to spontaneous urban growth.

The EBRD must finally leave fossil fuels behind

In recent weeks, dozens of environmental groups in Romania, Estonia, Poland, Czechia, Georgia, Slovakia, Hungary and Latvia have sent letters to the European Bank for Reconstruction and Development (EBRD) representatives in their countries. In these letters, the NGOs demand the Bank stops direct finance to oil and gas and indirect support for coal, oil and gas and instead shifts its investments to help step up energy efficiency and expand sustainable renewable energy.

The groups underlined that such investments are needed for the reduction of these countries’ dependence on fossil fuels and that they would increase energy security and reduce CO2 emissions as well.

The EBRD is currently drafting its next Energy Sector Strategy that will determine which energy projects could be eligible for the Bank’s support.

The letters make clear that, rather than continuing to entrench dependence on volatile, polluting fossil fuels, the EBRD could play an important role in catalysing the energy transition in its 38 countries of operation.

In Romania, there is an urgent need to modernize and shift district heating systems from fossil fuels to renewables, and investments in industrial-scale heat pumps and the utilization of waste heat from cooling and industrial processes could really move the needle.

EBRD money could also support the development of solar capacities in Estonia, chiefly in communities that can use municipal buildings and facilities or former industrial sites.

There is also a great potential for investments in energy efficiency measures in Latvia in multi-apartment buildings, municipality-owned buildings, single family houses, small businesses and industry.

SlovSEFF, Slovakia’s sustainable energy financing facility developed by the EBRD itself could use an upgrade to bring it into the 21st century, by excluding support for both fossil fuels and false solutions such as biomass or waste-to-energy projects.

In Georgia, the EBRD’s long-standing, generous support for controversial hydropower projects needs to be replaced with promoting decentralised renewable systems that tap the country’s vast wind and solar potential while ensuring the protection of biodiversity.

And in Poland, EBRD financing could help step up the development of energy communities and the realisation of the geothermal potential in the country.

‘The recent energy crisis has shown us that we cannot base our energy systems on fossil fuels that increase the cost of living and lead to climate degradation,’ wrote a group of Romanian organisations.

EBRD support to fossil fuels continued to rise 2014-2020

The EBRD has long been boasting about its green credentials, all while channelling millions to the fossil fuels industry. Our analysis has shown that between 2006 and 2020 the EBRD forked out over EUR 9 billion in public money to the fossil energy industry. Worse still, of the four leading multilateral development banks, the EBRD was the only one that kept increasing its investments in fossil fuels during the warmest decade on record.

In 2021 Bankwatch analysed the EBRD’s energy-related operations for 2014-2020 and found that overall, the Bank had invested more in fossil fuels than in renewables. Of the EUR 11.8 billion lent by the EBRD for energy projects during this period, fossil fuel operations made up 43 per cent, followed by renewables (excluding large hydropower plants), which made up 26 per cent. Although the EBRD’s lending in the power sector has made strong progress towards decarbonisation in the recent years, this has been undermined by its continued support for fossil fuels and for fossil-fuel dependent utilities, both in the power sector and natural resources sector.

But there is a growing recognition that business as usual is no longer an option. In May 2021, the executive director of the International Energy Agency Fatih Birol told The Guardian that ‘if governments are serious about the climate crisis, there can be no new investments in oil, gas and coal, from now – from this year.’

What happened to the EBRD’s Paris alignment pledge?

Two months later, the EBRD announced that all its operations would be in line with the Paris Agreement by end of 2022, then repeated this rhetoric ahead of this year’s UN climate summit.

And yet, even though the impacts of a rapidly warming planet are already taking a deadly toll on communities around the globe, the EBRD is apparently getting cold feet. In a recent briefing, the Bank’s managing director Harry Boyd-Carpenter, reportedly told journalists the public financier will not divest from existing oil and gas exploration and production projects and that, because of the ongoing energy crisis, the board might not support ending financing for fossil fuels just yet.

Except the EBRD is already lagging behind. The European Investment Bank (EIB), the world’s largest multilateral lender, was the first to cease all investments in fossil energy starting at the beginning of this year. And in a September interview the EIB’s President rightly rejected the suggestion that, due to the energy crisis, the Bank might reconsider this decision.

Against this backdrop, Bankwatch and over 90 civil society groups are now urging the EBRD to recognize the climate emergency the world is in and divest from fossil fuels once and for all.

In a letter sent on Monday (5 December) to the EBRD’s President and board directors, the NGOs are demanding that the Bank lives up to its climate pledges and works to exclude all fossil fuels – upstream, midstream and downstream – from its investment portfolio to facilitate the energy transition.

According to the letter, ‘The EBRD needs to signal to its countries of operation that the clean energy transition represents the best way out of current crises: climate, energy, and cost of living,’ the letter reads. ‘Structural changes in the EBRD’s countries of operation must be accelerated. With the limited resources that the Bank has at its disposal, this cannot be achieved if it is trying to balance between scaling up the energy transition and financing dirty technologies.’

As a development bank owned by governments, the EBRD’s financial capacity needs to facilitate, not hamper, the international community’s effort to address the biggest crisis humanity has ever faced. The urgency to break free from fossil fuels could not be clearer. The Bank’s new Energy Sector Strategy must not perpetuate countries’ dependence on coal, oil, and fossil gas but rather help them speed up the deployment of sustainable renewables and energy savings.

REPowerEU is a chance to prioritise renovating buildings in Latvia

For Latvia, the renovation of multi-apartment buildings is a huge challenge. More than 23,000 multi-apartment buildings need to be renovated, but only 1,600 buildings have been insulated since 2009, a renovation rate of 0.5 per cent per year. Energy consumed in the residential sector accounts for up to 30 per cent of the country’s entire energy usage, which means that this sector has great potential for reducing greenhouse gas emissions and air pollution.

The national energy and climate plan for Latvia (NECP) from 2019 aims to increase energy efficiency in at least 2,000 multi-apartment buildings by 2030 by installing non-emitting renewable energy technologies or by connecting them to district heating. The NECP will soon be revised to renew the targets, and it is clear that the target for renovated apartment buildings will be raised. The funding allocation in the Recovery and Resilience Facility (RRF) and the cohesion policy alone will not achieve this goal. Thus, the renewed targets will reinforce the fact that changes are needed in the current approach to the renovation of multi-apartment buildings.

When the existing version of the NECP was prepared, this need was already recognised; the current NECP aims to develop and start to implement a comprehensive long-term solution for increasing the energy efficiency of the housing stock by 2030, which hasn’t yet been realised. There have been improvements made in recent renovation programmes and regulations – for example, now, it is sufficient to have a majority (51 per cent) of a building’s residents vote in favour in order to start renovations, and the costs of preparing technical documentation for renovation (up to EUR 10,000) will be eligible for funding from the state. Yet this is not enough, especially given the current energy and climate crises.

On a positive note, The Riga Energy Agency is working on the creation of its own fund, which would combine financing from various investment funds at national and international levels to ensure that the residents of Riga have continuous access to financing for insulating their buildings. This could have a potentially significant role on the performance of the whole country, since almost 30 per cent of all multi-apartment buildings in Latvia are in Riga. However, Riga won’t be able to decarbonise its building stock without state support.

Low-income households excluded

To reduce the most emissions per euro invested, it makes sense to provide a minimum support intensity (grant or financial instrument) relying largely on households’ capacity to fund projects using bank loans. If the grant is kept to a minimum, provided that there are households still able to fund renovations with that level of state support, then more houses can be renovated with the same amount of money. Relying on middle-class households to participate in these schemes is also much less risky from a financial standpoint than getting involved with low-income households, which might not have secure income and might struggle to pay their energy bills on time. However, in the long term, largely excluding vulnerable households only aggravates social inequality.

If we want to be serious about social cohesion and reducing energy poverty, programmes funded by the EU must be designed to overcome social inequality. So far, EU funds for building renovation are used quite inefficiently given that 65 per cent of the funding across the EU is absorbed by high-income households that would have renovated their buildings regardless of the existing grants. (See Quentin Jossen’s 2022 report Pre-financing mechanisms for climate renovations accessible to all Flemish homeowners for CLIMACT (not available online)).

Short-sighted administrative cuts cause problems

Technical assistance from state and local governments would increase the capacity of apartment building owners and managers to properly renovate their buildings. This is supported by the Ministry of Economic’s ex-ante evaluation of the availability of finance for increasing the energy efficiency of multi-apartment buildings, which came to conclusion that the state and local governments must provide technical assistance to increase the capacity of apartment building owners and building managers. A lack of resources for Altum Financial Development Institution, the administrative body managing this money, is also causing problems. The current political paradigm is to cut administrative costs as much as possible without truly considering the long-term consequences of such a policy. High-level ministry officials have informally said that the number of staff could be approximately only 10 per cent of that of similar agencies in other Member States with a comparable population size.

This lack of capacity means that work is either not being done or is being done too slowly on measures that would speed up and make the building renovation more efficient. Latvia must include a long-term strategy and financial mechanisms that combine different sources of funding; offer long-term structure and stability for construction and material supply chain companies; and provide financial support continuously, regardless of EU planning periods and the availability of EU funds. The European Commission has also repeatedly indicated that Latvia must strengthen the capacity of this agency.

The energy crisis has put an immense strain on our economies, so it is understandable that state authorities wish to save money on administrative capacities and design uniform support programmes for various cases. But at least in terms of building renovation, the approach should be different. It should offer various financial support schemes and conditions (intensity of non-refundable financial support, pre-financing availability, length of repayment period) for different households, depending on their income level and building type. These proposed measures are supported by studies (see Jossen) differentiating social groups by their ability or inability to fund renovation projects and apply for different loan schemes, as well as their corresponding need for support from state programmes. Furthermore, the acceleration of investments in energy efficiency is one of the most concrete and immediate measures that will help citizens address energy prices.

A chance to prioritise and invest smartly

The REPowerEU plan and the option for Member States to request additional funds that will add to existing recovery and resilience plans are a chance to address some of these needs. Apart from the aforementioned challenges and the simple need for a greater amount of funding, the following measures or programs could provide the necessary boost for housing renovation in Latvia:

A programme for local governments to receive support for increasing their capacities. This could include measures such as educating and employing project and energy managers who would help communities or residents to successfully apply for funding and implement the renovation.
A programme for cities to support the district renovation approach. The precondition of this program could be that local governments must speed up the approval process within building administrations and prioritise projects that increase energy efficiency.
Introducing a ‘stick’ element by establishing penalty fees similar to a CO2 tax. This could be a long-term penalty for those who have a house of a certain type/age/technical condition and who do not decide to start renovation within a reasonable period or do not achieve specific energy efficiency results by implementing individual measures. At the same time, a specific financial support mechanism for vulnerable households needs to be in place.
Implementing a standardised approach. The state should organise tenders for the insulation of multiple apartment buildings of the same type as part of one procurement, including the mass production of insulation elements, like what is being implemented in Estonia. Latvia could also develop pilot financial mechanisms for energy efficiency measures targeting energy-poor communities following the example of the Lithuanian government.

Instead of investing in large-scale fossil gas projects in the name of energy security, the Latvian government should use REPowerEU funds to reduce energy demand and turn the EU renovation dream into a reality. This includes expanding special programmes for vulnerable households, designing programmes to help municipalities hire and train residential building project managers, implementing a standardised approach where possible and ensuring continuous funding.

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