How the EBRD is fostering green investment
As the COP26 summit approaches, the question on all minds is: what can save the world from climate catastrophe? The widely accepted answer – among the governments, international organisations and multilaterals like the EBRD that are already spending billions on the green transition – is getting the private sector to spend the necessary trillions in green investment.
“Of course this has to involve the private sector,” says the EBRD’s Harry Boyd-Carpenter. “You need huge investment. Today’s energy mix is round about 80-83 per cent hydrocarbons. By 2050 we have to be at zero per cent. It’s an extraordinary rewiring of the economy.”
But how? The good news, Boyd-Carpenter says, is that private-sector interest in green investments is growing sharply. “There is lots of private money keen to find a green home.”
The EBRD view, he adds, is that “the trick is really to create the right enabling environment. That’s still missing in a lot of places.” (This is why the EBRD, which aims to make a majority of its investments green by 2025 and to align with the goals of the Paris Agreement on climate change by 2023, is stepping up green policy engagement across its regions.)
Two things are needed, says Boyd-Carpenter. One is a reliable policy framework in the country where an investment is made “for governments to really get on board and say, ‘we’ve signed up to net zero’, or ‘we’ve produced an ambitious Nationally Determined Contribution (NDC)’, and then, ‘What does that mean? What’s the policy we need to change in our steel sector? What’s the signal we need to send investors in transport?’ And that takes time. That’s an area we are putting a lot of effort into.” The second is catalytic finance to de-risk the investment – the kind of finance that the EBRD provides.
The results of combining them can be transformative, as the EBRD’s engagement in developing solar power in Egypt show.
A 2012 crisis in the Egyptian energy sector prompted the government to make more use of its abundant solar and wind resources. Egyptian officials initiated a feed-in tariff scheme for solar power and concentrated it all on one very big site in southern Egypt. Then they came to the EBRD for advice on how to make the scheme attractive to private investors.
Two years of work on bankability later, the 37-km2, 1.5 gigawatt (GW) Benban solar park attracted strong investor interest, with 80 private-sector candidates shortlisted and about 20 selected to set up projects. The EBRD was the biggest lender. Benban was completed in 2019.
“The message Benban sent to investors was, ‘you can come to this country, you can find the technical expertise you need, you are going to be treated fairly by the government and you have a viable long-term project’. That got all these investors in, and gave them confidence,” says Boyd-Carpenter.
With an enthusiastic pool of investors now in place, Egypt has moved to a still more market-friendly approach – competitive auctions rather than fixed-rate feed-in tariffs, bringing prices lower still.
“When they’ve run these competitive processes, they’ve been getting fantastic prices – solar under two-and-a-half US cents, wind between three and four US cents per kilowatt hour (kWh),” says Boyd-Carpenter. “The electricity price at Kom Ombo, the next big solar project financed by the EBRD in Egypt, earlier this year, is less than a third of the price of Benban per megawatt hour, because it was done competitively.”
Separately, Egypt has decided not to invest in coal. Adds Boyd-Carpenter: “That’s partly a climate decision, but it’s also partly a pragmatic economic decision. Solar is cheaper. Why would you pay twice the price?”
This trajectory is being followed in other economies where the EBRD invests, which are also seeing high-quality international investors appear.
Uzbekistan, perhaps the most stunning transformation in the EBRD regions, has made impressive progress in the turnaround of its power sector, with a focus on green solutions. It was the first EBRD economy that developed (with the Bank’s help) a low-carbon pathway for the development of the power sector. With current installed power-generation capacity of 14 GW, the country has committed to building 8 GW of new solar and wind power generation by 2030, and is currently considering increasing this target to 12 GW. Since 2019, with the help of international financial institutions, it has designed and launched a number of solar auctions that resulted in record low winning bids. And in September 2021, the first wind auction in the country supported by the Bank was successfully completed with a winning bid of just 2.57 US cents per kWh – among the lowest tariffs seen anywhere in the world.
Kazakhstan – with an extreme climate and an economy traditionally dominated by fossil fuels – is moving away from coal-fired power plants and was the first country in the Central Asian region to turn to private renewables. To date, it has created legislation to which the EBRD contributes (including a long-term cooperation strategy to achieve carbon neutrality in its power sector by 2060), which has encouraged private developers to tender for wind and solar projects.
In September 2020, US$ 42.6 million of EBRD, GCF and CIF finance was committed to the construction of a 76 megawatt peak (MWp) solar plant in the Karaganda region. The Karaganda plant – which will use innovative technology and will be one of the first completed renewables projects under an auction scheme – is being developed by the established German firm Joachim Goldbeck Holding GmbH, which previously developed the 100MWp Saran solar power plant, at that time the largest solar power plant built in Central Asia.
Similar progress is being made in Albania, which is diversifying energy sources to increase climate change resilience, and working with the EBRD on policies to make itself an attractive renewables investment destination. The EBRD has also provided technical assistance and investment.
Private investors have followed and renewables projects are snowballing. In spring 2021, France’s Voltalia won the contract to construct and operate a 100 MW solar plant at Spitallë, after winning an earlier competitive process at Karavasta for a 140 MW solar plant. At Karavasta, the winning bid of €24.89 was less than half the price ceiling of €55 – the lowest price in the Western Balkans. The EBRD is also supporting Albania in its first auction for utility-scale onshore wind power plants.
In nearby Serbia, creating an enabling environment for investors quickly resulted in privately financed wind farms being built both at Cibuk – the biggest in the Western Balkans region – and Kovačica, helping Serbia reduce its dependence on ageing coal-fired plants running on polluting lignite.
Likewise, Armenia’s work on energy policy, part of efforts to reduce its reliance on imported fuels, has borne fruit in the shape of the 2020 launch of the country’s first utility-scale solar power plant at Masrik, developed by Fotowatio Renewable Ventures (FRV), part of Abdul Latif Jameel Energy, a global leader in utility-scale renewable energy projects.
“You need the private sector for the money, but also for the human resources, the ingenuity and the innovation,” says Boyd-Carpenter. “When you have well-structured competition, and all these private sector operators moving in trying to win bids, the price just goes through the floor – there’s no central state-owned utility that can match that. It’s a really powerful reason why we’re so keen on the private sector.”