Bulgarian Development Bank (BDB) is a state-owned credit institution. It was established in 1999 as the Encouragement Bank with the main goal to support small and medium-sized enterprises. It is among the largest development institutions in Southeast Europe and the largest financing facility provider to banks in Bulgaria as well as the only microfinance provider in the country.
Sophia Kassidova is Head of Strategic Development and Green Policies at BDB. She is also a member of the Management Board of the Three Seas Initiative Investment Fund (3SIIF) Mrs. Kassidova, as a representative of a national development bank – has been appointed a member of a new initiative of the European Commission, Investors Dialogue on Energy (ID-E), a structured multi-level stakeholder dialogue to provide a platform for discussion and gather expertise on the role of different financing policies and instruments that can support energy investments helping to achieving the EU’s energy and climate targets.
Does investment in renewables and sustainability really need fostering given that this area is such a hot topic in recent years?
Achieving the EU climate neutrality goal by 2050 will require an unprecedented level of investment. This decade will be crucial to accelerate investments into the European Green Deal. Thus, the European platform ID-E was set up to help assess existing energy financing schemes (private and public programmes, instruments and other) and propose their upgrades. Where feasible and needed, it will develop proposals for pilot financial instruments, programmes or investment products, steer technical assistance and prepare suggestions for modifications to financial or other rules affecting investment in energy at EU and Member State levels.
The results of the Investors Dialogue on Energy shall feed into current work on energy aspects in the current and future programmes under the EU multiannual financial framework and fuel discussions on energy investments and the 2050 objective of climate neutrality.
You are part of the Energy Production working group in ID-E. What are the main barriers to investing in energy production and how can they be addressed?
Indeed, the ID-E consists of five WGs dedicated to the key segments of the energy value chain - energy production, transmission and distribution, energy storage, heating and cooling and services and prosumers.
The initial work of ID-E focused on identifying barriers to financing energy projects at EU and member state level. It develops recommendations on solutions for particular markets. Guidance and best practices to support and help streamline financing in different energy value chain segments have been developed.
Barriers to investments in energy production and electricity generation can be broadly grouped into the following areas:
- Political / Regulatory Risk, which is the risks and barriers from unreliable markets and legal frameworks, market failures which are left untreated by national regulations, issues related to compliance with the regulatory and policy frameworks, the permitting framework, as well as social acceptance by the general population;
- Economic risk, associated with economic factors like market risk and organisation, access to capital, transaction costs, off-taker risks and incentive schemes;
- Technical risk, associated with energy production technology (esp. in the case of unproven or immature technologies) and resource availability;
- Energy market development, barriers resulting from the immature/ emerging nature of the market for a given technology (eg. shortage of qualified labour, inadequate and underdeveloped supply chains).
The analyses and findings of the WGs are still a work in progress. The solutions to limit barriers and unlock investments will vary from tailor-made financing schemes, risk sharing and EU and national level guarantees, recommendations to markets design and PPA structures.
Another investment initiative in which BDB is a core sponsor and a shareholder is the Three Seas Initiative Investment Fund. What are the main areas of investment and what investments has BDB made so far under this initiative?
The BDB is a shareholder and a core sponsor in the 3SIIF as representative of Bulgaria. Bulgaria is a member of the 3Seas Initiative. The other core sponsors are Poland, Romania, Croatia, Slovenia, Hungary, Estonia, Latvia and Lithuania through their national development institutions.
While the Initiative is a political one, the Fund is its major financial instrument and functions on purely commercial terms. The objective of the Fund is to invest its money into commercially acceptable infrastructure assets to enhance the region’s energy security and connectivity.
The characteristics of the targeted assets are to be commercially viable, to be in the energy, digital and transport sectors and be beneficial for the 3Seas Region. Investment decisions are truly commercial, not politically driven. The investment process is independent. I must clarify that it is not the BDB that selects and makes the investment decisions but a professionally selected investment adviser fund, specialised in core infrastructure.
Can you give an example of a successful cross-border cooperation between financial institutions under this initiative?
The 3SIIF had been a great success and an example of common will to pull resources together for joint investments and a greater purpose. The almost EUR 1 bln Fund has been fully invested in long-term projects that are not physically connected but create a cross-border network. Other IFIs, among which the EBRD and the DFC, are also co-financing the Initiative and the underlying projects.
Today the Fund has made two very successful and impactful investments in leading sectors of the Bulgarian economy, in renewables assets and port infrastructure. These investments contribute to the country’s connectivity among member countries as well as to energy market transition to solar and low carbon generation.
The 3Seas Region has significant investment needs in the area of energy, transport and digital infrastructure, as well as in terms of ensuring the security of critical infrastructure and energy transition. These challenges justify the creation of a successor fund that will build the 3SI ecosystem of funds and investors.