Blog entry

If the EBRD does not lead the energy transition, we will have to do it ourselves

Since the EBRD’s new, rather gas-reliant draft energy strategy was published in September this year, the urgency of tackling climate change has once again been underlined by the IPCC. We need to reach net zero greenhouse gas emissions globally by 2050 in order to limit the catastrophic consequences of 1.5°C temperature rise.

In light of this, our hopes were high that the EBRD would significantly strengthen its commitments on fossil fuel lending in the final version.

But reading the adopted version felt like a cold shower: indeed, the EBRD is completely ending any direct support to coal mining and coal-fired electricity generation, but it remains adamant in supporting gas as a transition fuel, falls short of limiting indirect finance to coal and only aligns its climate ambition to the inadequate nationally determined contributions (NDCs) of its countries of operation.

A fixation with gas

Even though the Bank claims that gas “investments will be subject to an economic assessment (which will account for key externalities and apply a shadow price of carbon)”, the fact that it lists Number/volume of investments in upstream gas as one of its performance indicators does not suggest it is serious about minimising its support for the sector.

Yet gas cannot act as a ‘transition fuel’ even to meet the Paris Agreement target of 2.0°C, let alone 1.5°C.

There has been evidence for more than two years now that no more fossil fuel power generation capacity can be built if we are to stay within 2°C climate change. Climate Action Tracker research also showed last year that unabated gas-fired plants are very much unsuited to the targets: the 1.5°C target would require that such plants are completely phased out by 2050.

Even the (so far) conservative World Energy Outlook by the International Energy Agency released recently came with a clear warning “We have no room to build anything that emits CO2 emissions”.

The EBRD acknowledges that “the sustainability, economic feasibility and energy security implications of individual gas options will be context specific and should be assessed on an individual basis against a variety of criteria”. But in an Annex to the strategy, which zooms into Western Balkans energy scenarios, a coal-to-gas switch is presented as the most cost efficient. And this for a region which hardly has any domestic gas resources and relatively little gas infrastructure. This sounds both expensive and risky, not only climate-damaging.

Decarbonisation plans of fossil dependent companies “encouraged”

One of the issues raised by Bankwatch during consultations has been the need for the EBRD to condition any investments in fossil-fuel-heavy companies on decarbonisation plans. Yes, the new policy encourages companies with significant carbon assets to develop decarbonisation plans. But looking back a few years at what else was “encouraged” does not give great hope. The Kyoto Protocol? Encouraged! During this treaty’s lifetime global greenhouse gas emissions accelerated at close to catastrophic rates.

Failing to require decarbonisation plans means that, for example, Serbian state-owned energy mammoth EPS, will be eligible for EBRD financing for renewable energy projects or grid improvements, while it is building a new 350 MW coal power plant and plans to expand lignite mining until at least 2060. Simply put, to have its cake and eat it too.

NDCs – a disclaimer bigger than the title

Responding to the numerous comments received during the public consultations that nationally determined contributions (NDCs), or governments’ climate action pledges, are not enough to meet the Paris Agreement goals and that the revised energy strategy must follow the latest IPCC findings, the EBRD makes the point that it “does not take a formal position on the adequacy of current NDCs of any of its countries of operation and recognises that the quality and ambition of NDCs varies across countries”.

An example of what this means in reality is the Western Balkan countries. While all of them pledge decreases compared to the baseline year, in reality, because of the fact that massive decreases already took place due to de-industrialisation, most of the countries actually plan to increase their emissions year by year and expand their coal fleet. Only Albania has pledged an NDC that will actually require it to make cuts compared to 2012, while Macedonia has also given recent signs of hope by supporting the High-Ambition Coalition in the international climate negotiations.

A ray of hope

In spite of the disappointment of the EBRD’s energy sector strategy, December 13, 2018, should also be remembered as the day when the milestone of one thousand fossil fuel divestment pledges was reached, totalling nearly USD 8 trillion in value.

In stark contrast to the 100 companies responsible for over 70 percent of the world’s greenhouse gas emissions, it will take the power of millions of us to hold the institutions which support them accountable. The EBRD can be sure that we will keep working hard to make sure it does not use a single cent more to finance fossil fuels and other unsustainable energy.

State of play with the energy transformation in Romania

In Romania, the process of an energy transformation is often perceived with scepticism in spite of some improvements in the energy sector since accession to the EU.

Though targets for renewable energy have been achieved, mainly due to previous schemes that helped spur investments, there is still a need for sustainable financing in this area.

Theory versus reality

The Romanian parliament progressed this year and amended the Renewable Law in order to include provisions for prosumers (those who both consume and produce energy) and the subsequent procedure regarding the process for supplying the network with their produced energy.

In addition, there are provisions for prosumers regulating exemptions from tax obligations. Such a framework should have been established by October 2018, but the process was stuck when authorities suspected that the tax exemptions might be perceived as state aid. Until clarification was provided, no provision could be put in place. Earlier this month, the National Energy Regulatory Authority announced that the regulatory frameworks would be submitted to public debate in mid-December and enter into force by 1 January 2019.

While many had hopes for the National Energy Strategy, the strategy eventually failed to live up to expectations: instead of investing in truly clean and sustainable energy projects, the strategy focused on controversial hydropower projects.

In spite of Romania’s great potential for wind and solar energy (with production estimates in 2016 set at 6.25 TWh from wind farms and 1.67 TWh from photovoltaics), their prospects for future exploitation are slim. The Energy Strategy says that the energy system is not able to handle large variations in power injection in the absence of properly-sized balancing and storage systems. With a focus still on fossil fuels and nuclear energy, other renewable sources of energy – biomass, biogas, and geothermal energy – are not given their proper due.

In energy efficiency, the latest initiative of the authorities is a Specialised Energy Efficiency Investment fund. The Ministry of Energy ordered a study to show how such a fund could be implemented.

Another key piece of the energy transformation puzzle, the National Energy and Climate Plan (NECP) was recently published, but unfortunately the draft fails to live up to its potential. The NECP projects a 27.9 per cent share of renewable energy in final energy consumption for 2030, way below the EU 2030 target of 32 per cent. Having registered a share of 26 per cent RES in 2016, Romanian authorities should have opted for a much higher target in 2030. In terms of energy efficiency, Romania registered a value of 31.3 Mtoe in 2016 in primary energy consumption and according to the NECP, it will reach a value of 36.7 Mtoe in 2030 compared to a level of 30.3 Mtoe in 2020. According to projections, Romania’s total greenhouse gas emissions in 2030 (EU-ETS and non-ETS, excluding LULUCF) will be of 118.35 Mt CO²eq. Compared to 1990 total greenhouse gas emissions in national economy’s sectors will be reduced by about 50 per cent in 2030.

Though the NECP is still a draft, stakeholders can still make contributions, although the time allocated for the public debate is limited, with just ten days available for collecting suggestions and recommendations.

Romanian authorities need to be consistent in implementing all policies and measures with transformative potential and to step up their game to create sustainable strategies that will help Romania reach its potential.

Current state of Operational Programmes and perspectives under the new EU budget

The most important source of EU funding in Romania are the Operational Programmes for Regional Development and Large Infrastructure.

For the period 2014-2020, the Regional Operational Programme (ROP) is the main investment policy with an allocated budget of EUR 6.6 billion and national co-financing share of EUR 1.53 billion. It has also established new investments for supporting the transition to a low-carbon economy with a focus on energy efficiency in public and residential buildings, public lightning and urban transport.

For 2017, the signed financing contracts amounted to EUR 1 billion and represented 12 per cent of the total allocations for the programme. The devil is as always in the details. The Priority Axis dedicated to the transition to a low carbon emission economy is not that successful. For the call on energy efficiency in residential buildings, the submitted projects represented 47 per cent of the allocation. Due to little interest in the urban transport section, a reduction of EUR 450 million has been made, and for public lighting, a supplement of just EUR 50 million.

In the Large Infrastructure programme we find almost the same passivity and indifference.

The energy sector under this OP is represented by three Priority Axis:

Axis 6 – Promoting clean energy and energy efficiency to support a low-carbon economy;
Axis 7 with Specific Objective 7.2 – Increasing the energy efficiency in the centralised system of supply of thermal energy in Bucharest;
Axis 8 – Intelligent and sustainable transport systems for electricity and natural gas. The authorities say the objectives cannot be met due to little interest.

Some of the specific objectives for Axis 6, namely the objective 6.1 – production of renewable energy from less used sources (biomass, biogas and geothermal), and objective 6.4 – increased savings in primary energy consumption produced by high-efficiency cogeneration, do not have a well-developed legislative framework to help their implementation.

The Energy Efficiency Directive effectively established an intermediary body in energy projects represented by energy service companies. In Romania there is no regulation for such companies. The same goes for the high-efficiency cogeneration for which a definition was not yet adopted. With these legislative clarifications absent, no projects were submitted.

The current deplorable state of these Operational Programmes is no news. At the national level media report that there are no issues with the current state of the Operational Programmes, but poor absorption of these EU funds is evident.

The new Multiannual Financial Framework must help boost investments in energy and environment.

Energy transformation bottlenecks

An Energy Transition 2018 conference held in Bucharest in October was an opportunity to push the transition further.

Discussions revolved around the need for a new support scheme for producing renewable energy, different from the previous Green Certificates. How the new system will be established remains a mystery. It will have to support those who already invested in the previous scheme, and also attract new investments.

Those present agreed that the Romanian energy sector also lacks Power Purchase Agreements (PPAs) and the Contracts for Difference (CFD). The lack of PPAs is seen as a serious obstacle to developing the system, because it is crucial in handling energy price volatility. Such an agreement can provide long-term clarity on roles, responsibilities, costs, revenues and probability, and significance of associated risks for stakeholders, being also a key to the bankability of the future clean energy project.

The Contract for Difference is mainly a bilateral agreement in which one party, usually producers, receives a fixed price for the electric energy they sell, plus an adjustment to cover the potential difference between the fixed price and the spot price, in case the values do not correspond to those set in the agreement. The authorities regulating the energy field assure that the process has already been set in motion.

Hoping for the best

While it is obvious that the transformation of the energy sector is an ongoing process, now at full throttle, regulatory coherence from authorities is imperative. There is a dire need for predictability to sustain and encourage investments in the energy system. In addition to reaching all EU targets and objectives, Romania needs to mainstream a sustainable and environmentally-friendly approach to the energy sector.

Challenges of communicating the energy transformation in Latvia [Video]

As a result of these experiences, negative perceptions about renewable energy, including the threats of climate change, are very much alive in Latvian society. The main challenge then to overcome is the lack of trust in policy makers to implement fair and transparent solutions for renewables that benefit the people.

Examples from countries like Germany have shown that in order to achieve a rapid increase and acceptance of renewable energy as a propotion of the energy mix, the support and understanding of society is crucial.

With the news cycle dominated by negative stories, successful examples of renewables projects and initiatives are hardly covered in media. The task then is to spread good case studies to gradually develop more a objective understanding of renewable energy and climate change and to shift public opinion.

One of the biggest problems in previous communications is that more often than not, energy sector experts do not explain how certain changes in sector would impact a person’s life on a daily basis, or explain well what abstract concepts really mean. In this way, understanding about the energy sector and needed reforms mostly stay in the circle of experts, with wider society influenced by emotional, simplified and short-term insights.

Communicating about the energy transformation and climate change is complex, since the public is not a unified mass: values and beliefs depend on generation, social status, material wealth and other factors. What is most important is to ensure the interaction and collaboration among NGOs, the media, scientists, universities, companies and ministries in the production and distribution of information explaining and promoting the sustainable energy transformation.

Here are two examples of how we’ve tried to do so in Latvia:

Another half a million euros for coal from Romania’s state budget

According to the Council of Europe Decision 2010/787, state aid for the coal industry is only legal for closure and conservation works. But the Government Decision’s explanatory memorandum mentions the opposite: the purpose is to “continue the activity of the plant for energy production”.

This year, Oltenia Energy Complex’s Valea Mânăstirii ash storage made headlines after its dust cloud covered the city of Craiova, reducing visibility on many streets. The company reported then that the phenomenon was caused by “global climate changes”, failing to mention that these changes are produced by greenhouse gases such as those emitted from burning coal.

This is not the first time Oltenia Energy Complex receives money from the state budget. In June, the company received RON 7.8 million (EUR 1.68 million) through a Government Decision (399/2018) for expropriations in the Roșia mine expansion corridor. Two months later, an almost identical Government Decision (552/2018) resulted in the allocation of RON 4.2 million (EUR 902 000) for Jilț Sud mine.

This year alone, the Company received in total RON 14.7 million (EUR 3.2 million) from the state budget.

While Romania wastes important resources to keep the coal industry alive, ten EU countries have strategies to phase out coal from the energy mix by 2030 and another seven have no installed coal units. The rest are working on strategies for a just transition to clean energy that does not affect workers and mining communities.

The European Commission supports the search for alternatives to coal through the Platform for Coal Regions in Transition, providing technical assistance to finance projects that create low-emission jobs in these areas. Yet only Hunedoara, the hard coal region, was included in this initiative. Authorities in Oltenia continue to imagine a future where lignite is at the front and centre of the economy, despite national and global signs to the opposite.

In Slovakia, a shining example of EU funds for renewables and families

In a 2018 review of the Slovakia’s energy policy, the International energy agency (IEA) confirmed the tragic situation. System operators stopped in 2013 accepting requests for connecting renewables above 10 kilowatts to the distribution grid because of concerns over grid stability and security of supply. This regulatory measure still applies. In addition, Slovakia plans to meet its national renewables target mostly with unsustainable biomass, placing pressure on the stability of the country’s ecosystems.

In spite of these challenges, promising signals suggest that maybe Slovakia will right its policy framework for renewables, and EU funds will play an integral role. The Ministry of Environment and the Slovak Innovation and Energy Agency (SIEA) have begun distributing EU funds for photovoltaic, photothermic, heat pumps and sustainable biomass boilers up to 10 kilowatts in a programme called ‘Green to the households’.

This has enabled family and residential houses not only to connect solar panels directly to the grid but also receive subsidies for their installation. Priority is given to installations with the highest use of produced electricity through the accumulation of electricity to support the stability of the electricity grid. Surplus electricity is supplied free of charge into the distribution network. Wind installations were not supported due to current legislative restrictions. So, no household could get support for a small wind turbine.

While Slovakia has had difficulties in using EU funds for sustainable development, the ‘Green to the households’ programme is a shining example for its rapid deployment. For example, SIEA distributed EUR 1.78 million through 786 vouchers in just eight minutes in one round in August 2018.

The total budget for these activities is EUR 115 million plus national funding. The first pilot project with a budget of EUR 45 million lasts from 2015 until the end of 2018, and the successful project is planned to continue in the next years.

Hope for larger solar installations

In October 2018, the Slovak parliament amended the law on renewable energy sources and combined heat and power. The renewables sector succeeded in the first area with a so-called ‘local power generation,’ which will enable installations of up to 500 kW to be connected to the grid for their own electricity consumption. This solution suits mostly small and medium enterprises. Feed-in-tariffs will be changed to auctions and feed-in-premiums. Slovakia still lacks data about the technical potential of renewables, transparency and proper participation in decision and policy making, not mentioning other struggles in the CHP sector.

More efforts needed

The IEA continues in its 2018 review:

“These EU-level targets appear to lack ambition and may not serve the country to trigger progress towards the 2050 long-term decarbonisation goals. The IEA encourages the Slovak Republic to set more ambitious national targets and continue to reap multiple benefits from reducing energy-related CO2 emissions.”

The agency recommends that Slovakia:

Assess the technical and economic potential of individual domestic sources of renewable energy, taking into account environmental sustainability, and design promotion policies on that basis; ensure that the biomass used is from sustainable sources.
Require the DSOs to analyse how to prepare the electricity system to integrate higher shares of solar and wind power, for example by looking for international best practices.

EU funds, as a significant source of public investments, can contribute to the necessary energy transformation for the protection of climate and biodiversity and support of the local economy.

Coal supplied by Hungary’s BAZ county mines to blame for growing air pollution

Unlike Romania or Bulgaria, Hungary has not been referred to the EU Court of Justice for failing to implement the air quality legislation. But a quick visit to BAZ county – Hungary’s coal heartland – suggests the air pollution problem persists just as well in Hungary.

Sajókápolna is a small village in the centre of BAZ county in north-eastern Hungary. The entire region has a long tradition of coal mining, with dozens of underground and open-cast coal mines operating throughout the last two centuries. Coal is also one of the main energy sources for household heating in smaller settlements, which inevitably results in deteriorating air quality.

We monitored the air quality in Sajókápolna over a 28-day period. During the observed time, the EU 24-hour average limit of 50 micrograms/m³ for coarse particles (PM10) was exceeded on 5 days. It may not sound like much, but the EU Directive on Ambient Air Quality actually allows only 35 exceedances in a year. With additional mines in the pipeline, the air quality will most certainly worsen.

For fine particles (PM 2.5), the EU Air Quality Directive does not have a 24-hour average limit, only an annual one, which in theory should never be crossed. The World Health Organisation, however, does have a 24-hour average limit of 25 micrograms/m³ and this limit was breached on 18 days, or 64 % of the observed time.

The high percentage of fine particles (PM2.5) indicates that the biggest contributors to air quality deterioration in the village are local households that heat their houses with coal (which is provided at a low price). In fact, the sole consumer of Sajókápolna coal is local communities.

Even in a remote village surrounded by forests, the level of air pollution is not in line with the EU and WHO recommendations.

With the official shift in EU policies towards clean and renewable energy, there were hopes that the region would slowly move away from coal, but plans to open new coal mines keep resurfacing.

Sajókápolna is no exception, with its latest open-cast lignite mine just a hundred meters away from residents’ houses. The close vicinity of the new mine provides villagers with easy and cheap access to coal. At the same time, it doubles local people’s exposure to polluting particles and dust: not only do they burn coal in their inefficient boilers, but they also breath in coal particles produced during coal excavation and transportation. What is even more troubling – two more mines are planned nearby.

Air pollution in the Balkans – independent monitoring

With our own particulate matter (PM) measuring device, we aim to provide independent data on air quality in a few selected sites in the Balkans.

For every citizen to have access to clean air, the whole energy sector of the country must be considered. Individual household heating practices should be included in the energy transformation of the country, as they constitute an important part of the decarbonisation process.

This is addressed in the BAZ County Climate Strategy. The fact that burning cheap lignite for household heating damages air quality and seriously contributes to greenhouse gas emissions is generally acknowledged, but not acted upon. So far, the local government has been persistently ignoring the issue. No wonder air pollution levels in the region regularly exceed the EU’s daily and annual limits.

Local environmental NGOs and community members demand:

a review of the air quality plan at the regional Governmental Office
a national- and EU-level assessment of regional climate strategies
a review of climate protection action plans
a ban on the sale of lignite for the public
a transition towards cleaner options for individual household heating, with significant support for heating renovation targeting the energy-poor.

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