Event: Forbes Polska Conference
Date: 4 November 2009
Thank you for inviting me to speak about the role of the financial sector in funding sustainable energy projects as seen through the experience of EBRD. There are nine lessons we have learned from our successful experience which I would like to share with you today.
EBRD´s mission is to promote the development of market economies in the former communist-ruled Europe and the former Soviet Union. We have been doing this for almost 20 years, and together with our partners we have successfully invested more than €135 billion since 1991. But many challenges remain—and at the top of the list I would place energy security and related considerations.
Some of the countries we invest in are among the most energy-inefficient in the world. Russia uses three times the amount of energy per unit of GDP that Germany does. The problems are not just in the larger, more industrialized nations. Per capita CO2 emissions in Uzbekistan are 5.5 times those of the Philippines. In light of such disparities, our transition mandate has lead us to address issues related to energy use and supply.
In 2006 we launched our Sustainable Energy Initiative under which we have provided €2.7bn (4.2 bn Canadian dollars), financing 166 sustainable energy projects in 24 of our 30 countries of operation. This is 20 percent of the total EBRD financing during the period. We supported €14bn (C$22bn) in gross investment resulting in 21 million tonnes per annum of reduced CO2 emissions, equal to the emissions of Croatia.
Our goals for the next 3 years are more demanding. We now aim to invest €3 - 5bn in sustainable energy and to achieve annual CO2 reductions of 25 to 35 million tonnes.
Our investments in sustainable energy are covering every sector of energy generation and consumption. We have also established credit line facilities for small-scale projects, which stimulate a change in attitude at local banks by leading them to open new lines of business for energy efficiency lending to consumers and SMEs.
We have just begun operations in Turkey, and our first project is a wind farm. In Bulgaria we have financed the major part of the renewable electricity capacity, making it the leader among new EU members in moving towards the 2020 climate change targets.
Both countries also provide examples of how funding for wind projects can be secured in this period of financial strain. We worked closely with the International Finance Corporation, and the European Investment Bank, and succeeded in bringing in private banks as well. While access to finance has become more difficult, we are open for business.
What are the lessons we have learned from this effort that are relevant to our discussion today?
Obviously, investing in sustainable energy is challenging, often due to factors such as subsidised energy prices which reduce incentive for efficiency, lack of understanding of patterns of energy consumption and lack of expertise to identify and realise opportunities for energy saving. Often projects are complex and have significant social implications: for example: refurbishing district heating, introducing metered billing for heat, and renovating or replacing leaky, poorly insulated Soviet era housing stock.
Lesson one: market signals must be made clear.
Lesson two: decision makers need to be made aware of the cost of inaction, and the benefits of action.
Our tools are those of policy dialog—engagement with government decision makers and technical assistance to educate and demonstrate the benefits of a sustainable approach. This work is often supported by donor countries that have generously provided €218m of such funding, equivalent to just under 2% of the investment value of our sustainable energy initiative projects.
We view sustainable energy investment as a cross-sectoral issue that matters to all banking teams in the EBRD, and we expect them to consider sustainable energy when developing their projects. This has made a great difference not just to delivering our targets, but also to the mindset of our banking teams, who are the ones who have to develop and implement the projects. To support them, we have established a team of sustainable energy experts, consisting of engineers and specialists in renewables, policy, and carbon markets.
Lesson three: sustainable energy efforts need to be a core mission, and embraced as such by the deal teams.
Lesson four: invest in new skills to build capacity.
Earlier I mentioned our accelerating volume of business. This brings us to lessons 5 and 6. Success repeats itself, and scale is important.
I have given a few examples of transactions we have financed, and noted that these deals are often rather complex. Often one needs to demonstrate a series of smaller successes before convincing sponsors to make more dramatic change. Lesson 7: repetition is your friend in making change. It reinforces new habits and enables bigger change.
How do we achieve such repetitive success? We use lesson 8: convert new ideas into products which can be deployed by a broader number of generalist bankers—for example our energy efficiency credit line programs. Products can be understood and sold on their merits.
My final and most important lesson is number 9. Opportunity is everywhere—seize it.
Incorporation of energy efficiency and sustainability considerations into our investments makes them more robust and more profitable. When evaluating business plans with our clients, we actively look at sustainability considerations and try to identify opportunities for improvement.
An example is a recent financing of a food processing company in Serbia where we identified the potential use of residues as a fuel source and supported inclusion of a biomass boiler in the project which resulted in reduced waste for disposal, decreased fuel costs, and increased resilience which enabled continued operations during a subsequent natural gas shortage.
For the EBRD, promoting and supporting sustainable energy investment means finding the opportunity embedded in almost any investment we consider. It is a core mission of our bank which benefits our countries, our business partners and, ultimately, the people the EBRD was created to serve.
Thank you for your attention.