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Scaling up renewable energy solutions: what is needed in CEE

A recent report by the energy think tank Ember noted that Central and Eastern European countries cover roughly 20 per cent of the EU population and territory, 15 per cent of the EU’s GDP and 17 per cent of the electricity demand, but still account for just 7 per cent and 12 per cent of EU wind and solar capacity, respectively. However, the potential is enormous: CEE countries could deliver 200 gigawatts (GW) of wind and solar by 2030 and regional collaboration could open up over 100 GW of offshore wind potential.

To untap this capacity, CEE countries must make good use of important upcoming milestones such as the revision of the National Energy and Climate Plans (NECPs). For example, Estonia’s new plan has a significantly stronger focus on the green transition, devoting 59 per cent (up from 41.5 per cent in the original plan) of the available funds to measures that support climate objectives: a plan that is now worth 953 million euros in grants.

But setting renewables targets in line with EU climate policy will also open up at least 136 billion euros in EU funding for CEE’s energy transition from the Recovery and Resilience Facility, Just Transition Fund and Modernisation Fund. 

Bart Dujczynski, Managing Director at Proventus Renewables and Partner/Founder of BBA Solar (Poland) & BBM Offshore. Photo courtesy of the CEE Sustainable Finance Summit.

Thus, what needs to change for the region to live up to its full potential? Bart Dujczynski, Managing Director at Proventus Renewables and Partner/Founder of BBA Solar (Poland) & BBM Offshore, mentioned Poland as a good example of addressing grid challenges. In fact, today the main obstacle to scaling up renewable energy, not only for CEE but for the whole EU, is the ability of the grid to absorb this enormous new power. In Poland, as explained by Mr Dujczynski, these issues were addressed from the bottom: the country’s TSO, PSE, prepared an investment plan to achieve the national renewable targets (50 per cent of renewable capacity by 2030) by modernising and upgrading the grid. The plan was presented to the regulators and after its approval, it has been used by the government to update the national strategy.

“Taking information from the grid and making a strategy around it,” summarised Mr Dujczynski, speaking at the CEE Sustainable Finance Summit, which took place in Prague, on 15-19 May.

“On top of that,” he continued, “the TSOs, DSOs and the regulators came together to create a charter of the energy transition of the infrastructure. This is what we need to do in order to have the grid ready.”

On the other hand, Czechia has proven to be a quite difficult market. For George A. Formandl, Chief Business Development Officer at Rezolv Energy, there are not enough projects in the country, compared to other States like Romania or Bulgaria. Plus, renewables were sort of demonised in the Czech Republic, leading to a distrust in this form of energy.

“Also there is a gap between the expectations of what people think projects are worth and what investors think they are worth,” he said.

Gábor Molnár, Director of Development and Engineering at MET Group, argued that the first thing we need to understand is the ultimate goal of policymakers: providing reliable, stable, cheap and green electricity. That’s why investments must be made not only on the generation side but also in the grid infrastructure and the flexibility side.

“Policymakers must find the right balance between State intervention and market-based solutions,” he pointed out. “Because if they intervene too much, then we can easily end up in similar situations like what we had a decade ago across Europe, with the feeding tariff fuelled, boom and bust cycles, whether it was wind or solar. But if they don’t act, the only actor left is the State which sometimes can be sluggish in understanding and implementing these needs.”

Gábor Molnár, Director of Development and Engineering at MET Group. Photo courtesy of the CEE Sustainable Finance Summit.

The US is providing what can be considered as a solution, with the Inflation Reduction Act (IRA), but Mr Molnár questioned if the IRA will be something that is going to be copied in Europe as a whole and therefore implemented in CEE as well or if we will see different policies schemes and unintegrated approaches in Europe and in CEE in particular, due to its scattered markets and different policy schemes.

Indeed, disparities are still present and Jan Cornillie, Regional Manager Europe, Middle East and Asia at 3E underlined how, generally speaking, the least resourceful countries in the world are the ones that have the best regulatory systems and also have been able to stabilise the business models. Comparing the Netherlands with Italy, it might be obvious that the country most suited for solar power plants is Italy. Yet, the Netherlands has doubled the capacity of solar power per inhabitant. 

“The Netherlands even has surpassed Germany and they are the biggest solar power in Europe because there is a stable support system and a stable regulatory environment,” he said.

According to him, the targets are there and they are ambitious, the subsidy schemes are there whether we are talking about the US IRA, EU policies or Chinese ones, we see massive support for the clean energy industry but still, the business model has some challenges, that is why stabilisation mechanisms like the Contracts for Difference (CfDs) are so important.

And while the regulatory environment and the policy measures are crucial, for Martin Dratva, Fund Manager at REDSIDE investiční společnost, sometimes the best way to act is by not acting. In his point of view, investors need security, to see a return on investment in 30 years (in the case of solar PVs) and they might be more confident if there are no interventions. For example, the introduction of a cap fee for PVs in Poland at 90 euros per MWh limited the appetite of investors a few years ago which made them postpone their entrance into the Polish market waiting for more stability.

“I am not a supporter of feed-in-tariffs or auction systems but capital expenditures incentives are the right way,” he said. “However, there are also some disadvantages. For example, in the past years, almost nothing has been done in the Czech Republic and suddenly there is too much money in circulation and the environment is not used to, which in turn makes developers greedy, something that financially doesn’t make sense.”

For him, PPAs might work in countries like Germany where they are widely accepted, but in Czechia and in this part of Europe they are not the way to go. 

“I am positive that banks can support the so-called merchant regime where I can sell electricity on the spot market, evaluating the risks and making forecasts myself.

Concluding on the role of the private sector, George A. Formandl focused on three elements: first the importance to reduce the variance of revenues and cash flows through PPAs and CdFs. Secondly, to have a regulatory framework that actually supports these tools in place. And finally, how public money is spent and how affects the way the private sector invests.

Independently from the actors involved or the financing mechanisms and incentives preferred, one thing everybody can agree on is that grid stability is a sine qua non for a successful scale-up of renewable energy sources in CEE.

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