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ESG reporting and diversified renewables: how to fix the region’s energy investment landscape?

Narratives about energy investment in Central-Eastern Europe (CEE) tend to focus on needs and prospects, like high return on investment, green transition and energy independence. Much less attention, however, is given to barriers that prevent or slow down energy investments in the region. The reason for that could be that discussing challenges require action from the regional actors, while discussing opportunities encourages other to take action. In this editorial, I explore key barriers to CEE energy investment. It must be mentioned that those challenges are not necessarily unique to the region, nor are they of equal importance in each country of the region. Nevertheless, identifying them is a necessary step to overcoming them.

The main obstacle, or the one that appears to be mentioned most often, is financing. On the one hand, the region is said to have insufficient resources for infrastructural investment in general, as seen in the creation of financial vehicles like the Three Seas Initiative Investment Fund aiming to attract foreign capital for infrastructure. According to SpotData, demand for investments in energy networks in the Three Seas region is estimated at 87 billion US dollars (2020-2030). On the other hand, CEE governments provide inadequate financial support for small-scale private energy projects. This includes insufficient subsidies, reimbursement delays, time-bound incentives, or disadvantageous billing for prosumers.

Another challenge is the lack of clear, favourable and stable regulatory frameworks, especially regarding renewable energy generation. There have been several controversial regulations like Hungary’s solar tax, Poland’s wind energy restrictions which effectively made it impossible to build new wind farms, Czechia’s solar subsidy cuts, or Romania’s retroactive changes to renewable energy laws that reduced subsidies to existing projects and led to several legal challenges. The region has seen a mix of supportive and restrictive policies concerning renewable energy and the debate over the best way to encourage the transition to clean energy is ongoing.

An important barrier to energy investments in CEE is also the lack of diversification of the energy supply. The countries of the region are heavily dependent on a single energy source, such as coal or natural gas, which increases the vulnerability of the energy system to supply disruptions and price fluctuations. What is notable, however, is that a similar lack of diversification can be seen in the development of renewable energy infrastructure. Most countries focus on developing just one type of renewable technology, almost exclusively wind and hydropower. Focusing on the development of one renewable technology is undoubtedly easier from a legislative, technical, promotional and financial perspective. It can also lead to cost savings due to economies of scale by reducing the price of the chosen technology for large orders. However, this is a risky practice in the long term as renewable energy production is largely beyond our control. While it is unlikely that all three main renewable energy sources (water, sun and wind) would fail at once, relying primarily on one of them makes a blackout only a matter of time. Although, focusing primarily on a single renewable technology may be sufficient when simultaneously developing nuclear energy and investing in energy storage systems produced from renewable sources.

In addition to increased and diversified investment in renewable energy projects, Central-Eastern Europe has to improve the sustainability of regional companies. Environmental, Social and Governance (ESG) considerations are becoming increasingly important in the energy sector as investors and stakeholders demand greater transparency and accountability from companies. In CEE, the energy sector is often dominated by state-owned/controlled enterprises, which are less incentivised to improve on ESG issues due to a lack of market competition and political interference. At the same time, such companies are responsible for maintaining ageing infrastructure, which can be challenging and costly to upgrade to meet modern environmental and social standards. State monopolies also often result in less transparency and accountability, which directly affects ESG reporting. It must be said, however, that many private energy companies in the region still fail to prioritise their ESG performance or provide in-depth reporting, especially in English.

As outlined above, the energy sector in CEE faces a number of challenges, most notably in ESG reporting and the need for diversification of the energy supply. These challenges and barriers can be overcome by making a coordinated strategic decision to support accelerated green transition in the region. While many complain that such transformation can be very costly, both in terms of necessary infrastructure and prices to be paid by the consumers, delaying this transformation will be even costlier, especially when considering environmental impact and competitiveness. Robust support for renewable sources would mean more financing for large and small-scale energy projects, cross-party backing for regulations promoting renewable energy, and increased focus on ESG reporting.

It would also require a commitment to the diversification of the energy supply and investments in the necessary infrastructure to support this transition. A decisive pro-environmental stance in energy investment would give the region wider access to international funding, including EU and private funds, as the sustainability of infrastructural projects is a key aspect. It would also open up possibilities for engagement in international partnerships and collaborations, resulting in the exchange of best practices and technologies.

In conclusion, the challenges and barriers to energy investment in Central-Eastern Europe are complex and multifaceted but not insurmountable. Overcoming these challenges will require strategic action and a commitment to sustainability – but the long-term economic and environmental benefits are worth the effort. It is important to remember that countries of the region do not need to face those challenges alone. A framework for energy cooperation exists within the region and with outside partners, as does the financing for infrastructural investments. By working together, the region can accelerate its transition to a greener, more sustainable energy future and reap the benefits of increased competitiveness, greater energy security and reduced environmental impact.

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