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LUXEMBOURG, Luxembourg, November 8, 2006
(Refocus Weekly)
The European Investment Bank will focus on
renewable energies as a means of implementing policies of the
European Union.
The EIB has reviewed its financing targets for energy projects
and will focus on renewables and four other target areas, including
energy efficiency and energy R&D. In renewables, the EIB will
continue to support projects at its average financing of Euro 500
million a year, and will emphasize developing markets, both within
and outside the EU, for biomass and other “under-developed
renewables” as well as new technologies.
“Over the last two decades, the expansion of renewable energy in the
EU has mainly taken place in the electricity market, thanks to the
introduction of market access regulations and attractive tariffs,”
the review notes. “Initially, the development of renewables focused
on hydropower (mainly mini-hydro); however, wind energy has been the
main driver of the expansion.”
Wind has increased significantly only in a few countries such as
Germany, Denmark and Spain, but expansion of renewable energy
“outside the electricity sector has been very limited until now.”
The European Commission estimates that the share of renewables in
the EU15 in total gross primary energy supply will increase from
5.8% in 2002 to 10% in 2010, which is less than the target of 12%.
To spur progress, the EU has legislated an indicative target for
green power of 22% by 2010 and 5.75% for green fuels, although the
EC expects the share of green power will not exceed 19% by that
time. Wind energy is “expected to exceed the initial expectations,
but the expansion of other renewables in the electricity market,
mainly biomass, is expected to be significantly lower than foreseen
initially.”
“The expansion of renewable energy markets for heating and cooling
is far less than initially expected,” and the report notes large
differences in the development of the potential for renewables
across countries and types of sources, with only the potential of
hydropower having been substantially developed in Europe “and to
some extent the wind potential.”
“The potential of other renewable energy sources, particularly
biomass, is underdeveloped in the majority of EU countries; however,
biomass is now expected to be among the fastest developing renewable
energy in coming years, particularly biofuels (biodiesel and
bio-ethanol) for transport,” it notes. Biofuels cost “significantly
more” than conventional fossil fuels but renewables “are seen to
have the potential to become economically viable within a reasonable
timeframe, thanks mainly to the development of new technologies.”
“Providing funding to the renewable energy sector in the EU is a
priority of the Bank,” it explains. The cost of most renewables
projects is “rather small in comparison with the minimum size of
projects for direct financing” by EIB, and it is “increasingly
funding renewable projects directly (even if their cost is slightly
smaller than the normal size for a direct intervention), or through
grouping together several small projects.”
Once an adequate policy support framework of renewables is in place,
the development of renewable energy depends on the availability of
capital and access to finance. “Experience from mature markets shows
that development of the renewable energy markets is difficult at the
beginning, because an untested policy supports framework and
administrative process is an obstacle to attracting capital to the
sector.”
EIB can use a combination of instruments to support development of
new renewable energy markets and technologies, through direct
intervention or by developing the appropriate partnerships with
other banks and, in addition to direct financial activities, it can
provide advisory services to help the public sector develop
renewables programs or projects, particularly in less-developed
regions of the EU.
There are substantial differences in the renewable support policies
within Europe, although the EC wants a harmonized framework for
support schemes to be implemented across the continent. “It is hard
to see how an EU harmonisation can integrate the different national
policy objectives (some of them not related to greenhouse
reduction), which are behind the support policies,” and the range of
different support schemes can be problematic “as the Bank uses a
common approach for economic analysis in the Union.”
“Renewable energy projects are often difficult to justify
economically,” even though EIB includes the environmental benefits
of renewables in its economic analysis. Recently, it has enlarged
the scope of its economic analysis of renewable energy projects “to
include the objective of supporting the development of new
technologies.”
The report lists three priorities in the renewable energy sector
that EIB will address: achieving the existing targets concerning
financing of renewable energy projects; developing the less-mature
renewable energy markets in the EU (particularly in new member
states) and developing under-developed renewables and new renewable
technologies with good long term prospects.
The reprioritization of energy within EIB’s activities reflects EU
policy on climate change and the renewed tensions in the oil market.
The new strategy says the bank should evolve from a universal
provider of funds to become a flexible partner acting with more
tailor-made products adapted to local market circumstances and to
the needs of the counterparts.
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