Market News

 December 11, 2013
European development bank cuts funding for coal power

 The European Bank for Reconstruction and Development (EBRD) will focus on energy efficiency and renewable energy investments over the next five years and slash its funding for coal projects, a managing director at the bank said.

On Tuesday, the board of directors at the EBRD -- a multilateral development bank set up in 1991 to help former Soviet countries develop market economies -- approved its energy strategy from 2014 to the end of 2018.

The EBRD has been investing in energy projects since 2006 across 34 countries in Central and Eastern Europe and Central Asia.

"The bank will continue operating in all sub-sectors of energy, but everything will come from an energy efficiency viewpoint," Riccardo Puliti, the EBRD's head of energy and natural resources, said in an interview.

The EBRD has invested 6.3 billion euros ($8.6 billion) in power and energy utilities since 2006. Around a third of that, or 2 billion euros, has been directed at renewables, mostly hydroelectric power and wind energy.

Building dams and reservoirs for large-scale hydro plants, however, has been criticised for disrupting river flows, harming local ecosystems and displacing populations.

The bank said it would focus on improving the efficiency and capacity of existing hydro plants and support new plants only when they meet strict environmental rules.

The EBRD will also try to widen its renewables portfolio to include solar photovoltaic, geothermal, concentrated solar thermal electricity generation where it is affordable, and biomass and biogas projects subject to strict guidelines that ensure feedstocks are sustainable.

The EBRD, whose shareholders are 64 countries plus the European Union and the European Investment Bank, has invested 521 million euros in coal projects since 2006, equivalent to 6% of its investments in energy and natural resources.

Puliti expects the bank's coal financing to fall as investments in new plants will occur only in "rare and exceptional circumstances" when there are no economically viable alternative energy sources.

The move comes only months after other institutions such as the World Bank decided to curb lending to coal projects to help tackle the impact of climate change.

Some governments, including the United States, Britain, Norway, Sweden and Finland, have also said they will stop financing coal projects abroad.

"It looks like a concerted effort but the issue of climate change and the role of coal has always been a concern for international finance institutions," Puliti said.

The bank will consider financing efficiency improvements to existing coal-fired plants when there is significant potential to reduce greenhouse gas emissions.

New coal plants would also have to be able to fit carbon capture and storage technology, which traps and buries carbon dioxide emissions underground, when it becomes available on a commercial scale.

The bank will also support the installation of efficient gas-fired plants and back fuel-switching from coal to gas, which produces fewer emissions.

But its strategy was non-committal about financing unconventional gas sources, such as shale gas.

"We may consider funding unconventional hydrocarbons in the future but we will take a final decision only when we see the first commercially viable projects on the horizon," Puliti said.