Managing Director of the European Fund for Strategic Investments (EFSI)
© European Investment Bank
Investing in clean energy makes economic sense as the accelerated deployment of efficient and low-carbon technologies can reduce energy import dependency and lower emissions. However, many low-carbon technologies are expensive. Therefore there is still a need for research, development and innovation (RDI) to reduce costs. Given the different development stages that these technologies are at (RDI, early market penetration and maturity), the European Investment Bank (EIB) has divided commercially proven technologies into mature and emerging categories, with a separate economic rationale for supporting each. The EU´s Strategic Energy Technology Plan (SET-Plan) is the core element of the EU policy for RDI in the energy sector, setting measures to coordinate RDI activities across national public funding initiatives. It targets key priority sectors including bioenergy, CCS, electricity grids, fuel cells and hydrogen (FCH), nuclear, solar, wind, ocean, geothermal, and energy efficiency.
When you compare renewable energy generation to conventional generation you should take into account both the environmental benefits (in terms of reduced CO2 emissions) as well as the additional costs that the electricity system needs to bear to connect and operate. Some energy generation technologies like hydro and onshore wind are already cost competitive today. Other energy generation technologies – like offshore wind and concentrated solar power (CSP) – are considered emerging technologies as they are not yet competitive compared to their fossil fuel alternatives. Nonetheless the Bank supports them as it believes they will become competitive in a reasonable time frame. The best example in this respect is solar photovoltaics – a technology that has been strongly supported by the Bank over the last years. Last year around 70GW of solar farms were installed globally making this technology the largest contributor to new capacity additions, surpassing wind for the first time. The costs of solar modules have decreased by 70 % over the last six years and this technology has now become cost competitive in many markets enjoying a good solar resource. Though we are still at an earlier stage of development we are beginning to see a similar trend in offshore wind where auctions in Denmark and the Netherlands last year have achieved unprecedented low prices. The Bank has been a pioneer in supporting offshore wind technology also at a time where costs were much higher as the industry was still developing and facing severe difficulties in implementing projects within initial budget and timelines. Things are looking much brighter for this industry nowadays and while we maintain a cautious approach, as there is still a way to go, we are also proud to say we played a role in taking it where it is today.
A major issue with funding projects is the considerable uncertainties that exist in energy markets – even in a sector like renewable energy that has been in the past highly regulated. RE projects are capital-intensive, and in today’s market, project developers often run into difficulties in securing long-term financing. This partially reflects concerns around the future of renewable support schemes, but also the inherent project risks of construction and long term operation – particularly for relatively new technologies such as offshore wind being designed to operate for 20 years or longer in hugely challenging offshore conditions. This risky environment is where the Investment Plan for Europe and the European Fund for Strategic Investment (EFSI) comes in. EFSI significantly increases the risk bearing capacity of the Bank, and allows us to scale up existing risk sharing instruments and launch new products that are both more scalable and more flexible than we could provide before. It also enables us to significantly increase the overall investment volumes supported by the EIB. Out of the EFSI transactions approved by the EIB so far (until January 31 2017), 23 % are in the energy sector.
Another set of low-carbon technologies are at an even earlier stage of development and undergoing first technical or commercial demonstrations. These technologies include whole sectors like e.g. ocean energy technologies, including converting waves, tides, currents, etc., but can also be applied to certain specific applications like e.g. floating offshore wind turbines or enhanced geothermal technologies. Ad-hoc financial products are needed to support such technologies. The EIB has provided technical and financial assistance to the European Commission under the NER 300 initiative to fund innovative low-carbon technologies. More recently the EIB and the European Commission created a new facility under Horizon 2020 called Innovfin – Energy Demo Projects (Innovfin EDP) which was designed to address a financing bottleneck identified in the EU's SET-Plan. Innovfin EDP supports first-of-a-kind demonstration projects in the field of renewable energy and hydrogen/fuel cells by covering the higher risk faced by these technologies during the construction and initial operating stages. A first loan under this facility was signed last year with a pioneering start-up company that has developed an innovative wave energy device. More projects are in the pipeline in sectors such as floating offshore wind and tidal energy and discussions are ongoing at the moment with the EC to expand this facility, which is currently in a pilot phase.
These innovative energy technologies are extremely important because, while we may see their limited applications today, we are confident that many of them will become an integral part of the future decarbonised energy systems. It is only through a wide portfolio of renewable energy technologies that we can succeed in substantially reducing GHG emissions in the longer term. Therefore we need these new technologies to meet our longer term climate goals and we should not make the mistake of fully relying and concentrating our efforts on the most mature technologies (such as onshore wind or solar PV).