The European Bank for Reconstruction and Development (EBRD) is a multilateral developmental investment bank. It provides lending regionally in the countries it operates in, focusing on private banks and businesses, including new ventures and existing companies. Since its establishment in April 1991, EBRD has disbursed over EUR 190 bln in more than 6,800 projects across three continents. Svetlin Pislenski is an Associate Director and Senior Banker at EBRD in Bulgaria.
What are the main priorities in the EBRD’s financing strategy for the Bulgarian renewable energy sector? How goals set in the country’s Resilience and Recovery Plan drive the appetite for financing renewables?
In recent years, overall sustainability ambition has been rising globally and specifically in our region. The EBRD is at the forefront of this change with green finance accounting for over half of the Bank’s total financing over the past three years. Nevertheless, it is clear that more needs to be done and this higher level of ambition is embedded in the Bank’s country strategy for Bulgaria as well as its energy sector strategy.
As a major investor in Bulgaria, EBRD combines its bank financing with policy advice and technical support for reforms that help improve the overall business environment in the country and mobilise investment from other sources. Since the start of its operations in Bulgaria, the Bank has invested a cumulative amount of EUR 4.5 bln in 292 projects in the country. The Bank‘s focus in the country remains on enhancing the private sector‘s competitiveness, strengthening the financial sector and narrowing the infrastructure gap.
Despite rapid progress in the first decade, Bulgaria’s energy intensity is still among the highest in the EU, and behind national energy saving and efficiency targets. This is also valid for carbon intensity with most CO2 emissions (c. 85%) due to electricity, heat generation and transport. Lignite, used mostly for electricity generation, represents roughly a third of the primary energy supply in the country. Air quality also continues to give cause for concern. In this context, our strategic engagement in Bulgaria focuses on decarbonisation and electrification of the economy as overarching themes that span across all economic sectors. In the energy sector specifically, we want to strengthen the efforts to more green and sustainable energy resources while moving away from coal.
It is clear that investments in renewable energy generation projects of both energy companies as well as other industrials have a pivotal role in achieving these strategic priorities. Bulgaria has a huge potential for renewables, including solar, wind, biomass and geothermal power. Adding this to the already diverse energy mix of Bulgaria, gives the country a potential green competitive advantage that needs to be exploited over the coming years. Strengthening renewable sources of energy will also lessen Bulgaria’s dependence on fossil fuels and imports. The EBRD stands ready to help achieve this transition through both financing and policy support for the energy sector reform.
In parallel, the goals outlined in Bulgaria's Resilience and Recovery Plan, play an important role in bolstering the overall appetite for financing renewables. In addition to the renewables target share of 27.1% by 2030, there are other relevant commitments, such as support for national transmission grid digitalization to facilitate further renewables’ connections, the tendering of 1,425MW of RES with co-located energy storage, as well as the development of standalone grid-scale storage facilities by mid-2026, to name a few. By prioritising clean energy initiatives, the plan signals a commitment to sustainability and economic resilience. Ultimately, the alignment between the Resilience and Recovery Plan and renewable energy targets creates a compelling narrative for investors in renewables.
The sizeable new renewable capacity additions over the past 12-18 months, as well as significant investor appetite for further investments into this sector, clearly indicate that the market in Bulgaria is ready to continue with its green transition.
As the green economy transition is a strategic focus for EBRD in Bulgaria, which are the key drivers and challenges for the domestic renewables market?
Renewable energy capacity additions had almost stalled after the abolition of Bulgaria’s feed-in tariff scheme in 2013, but investment sentiment as regards renewables has turned around completely of late. The strong solar and wind resources in Bulgaria help investors to achieve attractive generation yields while at the same time market signals have mostly been positive recently. This is a good starting point for scaling up renewables much further.
At the same time, we see a number of roadblocks that are currently impeding progress. For example, despite positive market dynamics, we still see limited demand for sizeable long term offtake agreements (PPAs), which would normally serve to bolster greenfield renewables investment by de-risking new projects for investors and lenders alike. Part of the reason for this is linked with the government subsidies and electricity price caps that were in force until recently and which discouraged business consumers from seeking PPAs as a way to limit their exposure to price volatility.
In addition, the integration of intermittent renewable energy sources into the existing grid infrastructure poses technical challenges and requires significant investment in grid upgrades and storage solutions, which will be a lengthy and costly process. While the existing Chaira pump-up hydro storage is a unique energy storage asset being the largest such facility in Southeast Europe, it currently is out of service and getting it back to full capacity will take years.
There are other actions which could help fine-tune the market for renewables, for example the development of a dedicated market platform for guarantees of origin, the further reduction in administrative burden in respect of renewables permitting, etc.
What is the amount invested by EBRD in Bulgaria’s renewables segment in the last five years and which are the top financing instruments promoting the green transition?
The Bank offers various instruments in support of renewable projects, either directly or indirectly via agreements with commercial banks. Over the past few years we signed direct financing agreements with renewables producers amounting to a combined EUR 49 mln (AES St. Nikola Wind and AKUO Svoghe Mini Hydro) as well as EUR 25 mln indirectly under risk-sharing framework with UniCredit Bulbank (Enery Tsenovo Solar). The latter transaction is the first greenfield renewable project financed under the risk-sharing framework and is an example of the innovative financing structures, including risk sharing, the EBRD employs to help partner banks with capital and liquidity constraints.
In addition, EBRD provided EUR 60 mln loan to Bulgaria’s ProCredit Bank for on-lending to green projects in Bulgaria and Greece, including, among others, projects on energy efficiency, renewable energy and climate resilience measures.
The team in Sofia together with sector team colleagues are also actively working on a number of renewable transactions in the EBRD pipeline for Bulgaria.
Do Eastern European countries (Romania, Slovenia, Greece, Serbia and Croatia) face the same challenges in terms of green energy financing?
Indeed other regional markets face similar challenges. One example is the difficult route to market for greenfield renewables. Despite renewables being the cheapest source of new capacity and electricity prices remaining quite high, consumers are sceptical to sign long term corporate PPAs and financiers remain cautious and conservative when it comes to financing terms. Only few lenders in SEE are comfortable to finance merchant projects.
Another challenge shared across most of the SEE region is related to grid capacity constraints which create a bottleneck for new projects obtaining their permits to connect to the grid. More investments are required from TSOs and DSOs in the grids to remove these bottlenecks. In parallel, there needs to be a clean-up of old / dormant connection permits that have not materialised for a number of years and are blocking grid capacity for new projects.
Finally, recent increases in interest rates have also put more pressure on investors‘ returns.
Most recently, which are the most prominent financing deals of EBRD with private investors in Eastern Europe?
In Poland, the Bank financed the development of a 1.2 GW Baltic Power offshore windfarm. It is the first offshore windfarm developed and financed in the EBRD countries of operation. We hope that soon we can replicate such offshore wind financing in the Black sea and in the seas of Mediterranean. Another interesting recent project was Bura, involving two windfarms with combined capacity of 111MW in Croatia. This is the EBRD’s first wind-farm investment in Croatia. Moreover, it showcases a novel financing structure in the country, combining a corporate PPA and merchant-based financing structure.