“We are probably going to end up financing only three projects in SEE in 2012 – all three in Romania. There were other projects expected to sign, in particular in Bulgaria, but these are now looking unlikely. Last year we had just two wind power projects in SEE but they were larger and received a total of 94 million euro in EBRD funds,” EBRD director for power and energy, Nandita Parshad, told SeeNews in a phone interview.
She cautioned that the plans for this year are still in flux as the regulatory environment in some countries like Bulgaria has changed and the bank may end up backing only the projects in Romania.
“In terms of 2013, a lot will depend on how the regulatory environment continues to develop and how the credit markets are faring. In some countries, like Bulgaria, we are getting some pushback and it is clear they are reducing substantially the incentives available for wind which means we will see fewer projects there,” Parshad said.
Still, the EBRD hopes to do more business in the region’s wind power sector next year, assuming that the regulatory systems in countries like Montenegro and Serbia, where wind is yet to take off, reach a level of development that would allow some of the projects to go ahead.
“We are in the very early stages of looking at projects in Serbia and Montenegro. Wind sites in Montenegro are good, especially along the Adriatic coast, but the problem there is that land is limited,” Parshad said.
She pointed to Croatia as having a lot of untapped potential to harness wind power. The market there, however, is facing barriers like grid undercapacity as well as environmental and land concerns.
“Croatia depends a lot on its tourism industry. Land is a key challenge there so what we have ended up seeing is smaller projects relative to the potential that the country has.”
Romania, in her view, has done quite a good job in terms of its support scheme for renewables.
“The challenge in Romania continues to be grid capacity and that is something that we also see as becoming an increasingly constraining factor for the development of wind power across the region. Even in countries like Bulgaria, where the regulatory regime was quite attractive, we saw a lot of curtailment of wind projects because the capacity wasn’t there.”
The solutions to the region's grid capacity issues include upgrading the physical grid infrastructure within individual countries, but also the interconnection of national systems in order to create a more integrated market. Interconnected grids can absorb more wind power capacity, which is inherently intermittent, because loads can be balanced across a larger overall system.
To address constraints in grid capacity, the EBRD is currently considering a loan to the Montenegrin transmission system operator (TSO) for new large-scale investments. These will enhance the interconnection with Montenegro’s neighbours and enable the connection with the Italian system via a high-voltage undersea cable. As a result of this anticipated interconnection, investors have already shown an increased level of interest in wind power development in the Balkans.
The establishment of the Coordinated Auction Office (SEE CAO), due to commence operations in 2013 and supported by the EBRD, is also a key step in market integration by allocating cross-border transmission capacity throughout the region.
The main aim of the SEE CAO initiative, involving the TSOs of Albania, Croatia, Bosnia and Herzegovina, Macedonia, Greece, Montenegro, Romania, Slovenia, Kosovo and Turkey, is to harmonize congestion management methods and optimize cross border capacity allocation.
In Albania, the EBRD official said, the renewable energy support mechanism is challenging. “This is one of the examples that you do need to get it right when you set a regulatory framework. They put in a rather peculiar clause that their feed-in tariff is adjusted annually for changes in the import price of electricity and that has basically reduced the country’s attractiveness for investors.”
The EBRD is seeing rising demand for financing for wind power projects in SEE, primarily due to two reasons. The first one is that by now most of the countries in the region have some sort of an incentive scheme in place for renewables and the second one is the pullback on the part of commercial banks in the aftermath of the financial crisis.
What drives the development of wind power in SEE, as well as elsewhere, is the fact that wind among all alternative energy sources is emerging as the most cost-effective one. “We have already seen capital costs for wind projects come down substantially and we believe the subsidy level needed for wind is going down rapidly,” Parshad said.
The EBRD official recommended that governments across SEE address the issue of rampant cross-subsidies in their energy sectors.
“You have got residential consumers paying a lot less than industrial and commercial and that is when the cost of wind power projects becomes an issue as they look to whom they can pass those costs onto. They can’t pass them onto industrial consumers because they are already paying too much and it is politically sensitive to increase residential tariffs. So there needs to be tariff reform in these countries to eliminate cross-subsidies in parallel with the development of renewables.”
