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Investing in renewables is the right response for the climate change challenge

Investments in renewable energy capacity in the European Union reached 66 per cent in the first half of 2020. The highest figure since 2016, as shown in the Investing in renewable energy projects in Europe’s report prepared by global law firm Dentons.

Overall, the EU seeks to have a 20 per cent share of its gross final energy consumption from renewable sources by 2020. Norway tops the list with already 72.7 per cent of energy coming from renewable energy sources (RES). Also, many countries from Central and Eastern Europe register high proportions of renewables, above the European average: Latvia (40.2 per cent), Montenegro (38.8 per cent), Bosnia and Herzegovina (35.9), Albania (34.8), Estonia (29.9), Croatia (27.2), Kosovo (24.8), Lithuania (24.4), Romania (23.8), Slovenia (21.1), Bulgaria (20.5) and Serbia (20.3).

CEE must use the recovery fund to support the right priorities

When it comes to specific sectors, wind (both offshore and onshore) was by far the largest one in terms of investment, attracting 20.1 billion US dollars, followed by solar (9.7 billion US dollars) biomass and waste-to-energy (768 million US dollars).

This huge increase in renewable investments is also a consequence of the COVID-19 pandemic which hit very hard the energy industry but, at the same time, highlighted the importance of uninterrupted sources of energy.

What couldn’t be done over the past months due to lockdowns in many countries, will receive a new push from the EU’s Recovery Strategy which is putting 1.85 trillion euros forward for the recovery. However, Dentons noted that for it to be a success, it must be supporting the right priorities.

Already 30 per cent of the total expenditure from the multiannual financial framework (MFF) and the Next Generation EU (the additional post-pandemic recovery fund) will target climate-related projects

Central and Eastern Europe was hit to a lesser extent by the coronavirus, but these funds could be crucial for the region. Given the comparatively high carbon intensity of CEE economies and therefore the high costs of complying with the climate objectives, these countries could benefit from money already planned to target climate-related projects.

“Investing in renewable energy sources is undisputedly the key response we are capable of providing to the climate change challenge,” wrote Michał Motylewski, Managing Counsel at Dentons Warsaw in his recent oped for CEENERGYNEWS. “However, we are already past the stage where this can be narrowed down to adding new power generating capacity to each system. Over the next decade, the renewable effort has to combine replacing reliance on energy sources from fossil fuels with a combination of measures focused around renewable energy in the overall power system, including networks, but also in transportation, heating and cooling but also building on synergies with water supply, waste management and many other areas.”

In particular, he argued that CEE countries made insufficient use of the National Energy and Climate Plans (NECPs).

“In order to succeed CEE States and market players need to engage increasingly in projects that combine efforts of all parties involved most effectively and efficiently,” he continued. “What is lacking is the cohesion among different policies proposed by CEE Member States. Where policies today are fragmented, they need to be aligned and supplemented by measures of such quality, that they will attract actual deployment of projects.”

Hungary steps up green bond issuance to mobilise additional funds

In August, the Central Bank of Hungary (MNB) announced that it would start to support the introduction of green finances in the capital market in co-operation with other authorities and market participants to reduce risks related to climate change and other environmental issues and to raise the volume of green market financing in Hungary.

Stepping up green bond issuance would mobilise additional funds and new foreign investors for investments that serve the country’s sustainability, climate and energy policies. International experience shows that green bonds are suitable for the diversification of investors, as they give access to Environmental, Social and Governance (ESG) managed funds which could be an important advantage, especially for corporate green bonds.

Although green bonds have a significant potential of becoming flagship instruments, they are still at an early stage in Hungary and in CEE in general. 

“We have acted for the issuer (CPI Property Group) on the very first corporate green bond issue in August 2020, almost coinciding with the first-ever green sovereign bond issued by Hungary,” Gergely Horváth, Partner at Dentons’ office in Budapest tells CEENERGYNEWS. “These are, however, the very first steps and several similar issues shall follow. Luckily, the National Bank of Hungary published its plans and guidelines to facilitate further issues.”

Successful policies in the Caucasus

A little bit more remote region has shown its interest to be present on the map or renewable investments: the Caucasus. 

Azerbaijan is mainly known for its oil and gas reserves, but the Ministry of Energy of Azerbaijan has recently revealed its goal to increase the capacity of RES (including large hydropower plants) from 17 per cent to 30 per cent by 2030.

Already in 2017, the Strategic Road Map on the Development of the Economy of Azerbaijan proposed the installation of new RES capacity of 420 megawatts (MW): 350 MW of wind, 50 MW of solar, 20 MW of bioenergy. 

“It is well known that Azerbaijan’s growing economy is based primarily on the development of the oil and gas sector,” comment James Hogan, Managing Partner for Dentons’ office in Baku and Lala Aslanova, Associate at Dentons Baku. “At the same time, Azerbaijan has significant development potential in renewable energy, particularly in wind and solar power, creating opportunities for innovation and new employment opportunities and ensuring economic value and GDP growth.” 

According to them, a steady increase in the use of renewable energy sources will lead to a reduction in domestic oil and gas consumption, the generation of additional revenue through an even greater export potential for hydrocarbons, as well as satisfying the country’s commitment to reduce greenhouse gas emissions by 35 per cent by 2030 under the Paris climate accords.

The signing of agreements between the government and international developers for a 240 MW wind farm and 200 MW solar project earlier in 2020 was a significant milestone in the development of the renewables sector in Azerbaijan.

Also, a fair legal framework for RES is being created. As reminded by Dentons, last May a Presidential Decree encouraged the use of RES and the creation of a favourable investment climate in this area. The decree has led to the preparation of a draft Law on On the Use of Renewable Energy Sources in the Production of Electricity, which addresses taxes and duties, guaranteed tariffs, rebates on buyer’s obligations, as well as foreign investment and other support mechanisms, such as scientific research. 

“Considering all of the above, we believe that the legal and administrative framework for the development of renewable energy sources is quickly coming into view and the resulting opportunities will lead the renewable energy sector to grow alongside the country’s leading role in the oil and gas industry,” they tell CEENERGYNEWS. 

Azerbaijan’s neighbour Georgia has recently adopted the Energy Performance of Buildings Law and the Energy Efficiency Law, an outstanding achievement for the country. Also, it adopted a law that provides a legal basis for the promotion and use of energy from renewable sources and establishes mandatory national targets for energy from renewable sources in terms of total energy consumption (35 per cent by 2030) and energy consumption by transport (10 per cent).

Furthermore, at the end of September, the Georgian government has asked the European Bank for Reconstruction and Development (EBRD) to explore the country’s potential for generating green hydrogen which could then be blended and transported to end-users through existing gas pipelines.

Last in the ranking

Indeed, the EU seeks to have a 20 per cent share of its gross final energy consumption from renewable sources by 2020. Despite the numerous positive examples, there are still countries very far from reaching this goal: Poland closes the ranking with only 11.2 per cent of RES in its energy mix, preceded by Slovakia (11.8) and Hungary (12.4).

Giles Dickson, CEO of WindEurope, noted Poland’s plans to auction new wind capacity. Wind farms could actually help Poland to increase its share of RES. Now, the Recovery Strategy should focus on technologies and projects that support the climate and energy targets. But it is also in the hands of national governments which will play the key role in setting policy priorities and channelling the green recovery investments.

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