Of the more than 1 billion dollars invested in Romania, IFC placed almost 56% in green investments, and last year the share of projects with a green component represented 73% of the total projects supported. At the same time, IFC’s exposure to the most important green bond issues in Romania was 76 million euros, said for Energynomics, Cristian Nacu, Senior Country Officer for Romania and Moldova, IFC – International Finance Corporation. “Although our recent lending activities for energy have fallen short of our ambitions, we see good potential in stimulating lending to private energy actors if structural reforms are implemented in line with the EU’s Fourth Energy Package. We aim to support key companies in the energy sector, said Cristian Nacu, in an exclusive interview for Energynomics.
What is the portfolio of projects financed by IFC in Romania so far and what are the most important energy projects financed recently?
At the end of the last fiscal year, in June 2021, IFC’s total portfolio in Romania reached $ 1.025 million. 56% of this is green projects, including green mortgages, energy efficiency and renewable energy. Last fiscal year, in June 2021, the IFC program was $ 429 million in 6 projects, $ 377 million on its own account and $ 52 million representing mobilized resources. Green projects accounted for 73% of IFC’s commitments.
IFC was among the first financiers of projects in the Romanian energy sector. Together with another international financial institution (IFI), IFC was the pioneer of the first large-scale transaction with renewable sources in the country, in the Cernavoda and Cave wind farms, together with the main sponsor – EDPR. IFC committed $ 100 million in 2011 to these projects. However, the pace of investment slowed significantly with the first government measures at that time, which reduced the facilities initially granted, thus diminishing the appetite of investors and financiers.
Also, the dominance of state-owned enterprises in the country’s electricity market often limits IFC’s ability to borrow, given our focus on stimulating the market for the private sector. Although recent lending activities for energy have fallen short of our ambitions, we see good potential in stimulating lending to private energy actors if structural reforms are implemented in line with the EU’s Fourth Energy Package. We aim to support key companies in the energy sector in initiatives to facilitate the energy transition.
What is IFC’s strategy for future funding, especially in the context of Fit for 55?
Together with colleagues from the World Bank, the main objective for IFC is to support Romania in its decarbonization efforts, by switching to more renewable sources. Natural gas, as a transition fuel, can be a viable solution to balance such additional intermittent capacity. At the same time, a new strategy for switching to low-carbon fuels, such as biogas and hydrogen, needs to be created.
Here we see the role of the World Bank Group, to help create the legal framework, but also for IFC to support its clients to finance projects with large demonstration effects.
Another objective of our work is to support Romania in its development for the capitalization of the offshore wind potential in the Black Sea. Romania has enormous exploitable potential, up to 76 GW and could take the lead in the regional development of the offshore wind sector. We see that the Romanian government has already started adapting the legal framework, which is a good first step. Although it will take some time for offshore projects to be funded, the World Bank is ready to support the government in its ambitions and create a roadmap for the sector.
Other important strategic initiatives to strengthen the electricity grid are being considered – a prerequisite for the addition of more intermittent renewables, for example through the implementation of battery-powered solutions.
How do you appreciate the development of the green bond market in Romania?
IFC is actively leading this market segment after investing in the country’s second green bond issue in June 2021, less than a month after supporting the first national currency green bond issued by Raiffeisen Bank. In total, our exposure to both shows is 76 million euros. Recently, in June, the Bucharest Stock Exchange and IFC organized the event “Green financing through capital markets”, with the participation of representatives of the Ministry of Finance, the Central Bank and the FSA. Also, on July 6-7, IFC hosted a “Deep Dive in Green Social and Sustainability Bonds” seminar for issuers interested in exploring these financing alternatives, as well as investors or consultants.
However, the green bond market started late and lags behind expectations, partly due to uncertainties about the old green bond framework, but also to current market conditions. While green bonds are driven by the use of income directly from climate or environmental projects, IFC has also strengthened its so-called “sustainability-linked bond” financing activities. In an internationally recognized sustainability framework, our customers implement, with the support of IFC, their own sustainability policy and definitions, sustainability goals related to the environment or climate (eg low emissions or higher share of their energy consumption). from renewable sources etc.), but could also be social goals (e.g. improved diversity and education, inclusion etc.).
In addition to highlighting the positive contributions of companies to society, these tools can also enable companies to gain access to a larger pool of investors and potentially better prices. IFC has successfully implemented sustainability loans and bonds in other parts of the world, such as the recent issuance of a $ 500 million sustainability bond for Sembcorp Industry Ltd. in Asia, in which IFC has invested $ 110 million from its own funds. IFC wants to bring this expertise to Romania as well.
What should Romania do to attract as many European funds as possible, in the context of the Fit for 55 targets?
Romania has had access to European funds in the past and has been allocated a significant amount of funds from the European Union, within the PNRR. What is important now is the ability to use the money for the right initiatives and follow transparent rules. Administrative capacity must be increased at all levels to prepare the projects and programs that Romania needs to achieve its decarbonisation and energy efficiency targets. All the ambitious reforms we have committed ourselves to must be implemented because the financing from PNRR is strictly conditioned by all these reforms, which are for the benefit of the Romanian citizens. There is money, but it must be accessed and it can only be accessed through good projects and predictable rules. There is the Modernization Fund, the financing from PNRR, the 2021-2027 operational programs, and reforms in the functioning of institutions and markets will accelerate private investment to amplify the effect of European grants.
What is the optimal energy mix that IFC supports for the next period?
Decarbonisation remains the focal point of the energy transition in Romania, which the World Bank Group actively supports, in cooperation with the government. As mentioned earlier, the key is to increase the role of renewables in the energy mix, but it needs a balance of energy to address the intermittency of renewables and here energy produced from sources such as natural gas, followed by fuels with low carbon emissions, such as biogas and hydrogen, can play a very important role. Hydropower continues to play an important role in the Romanian mix, and offshore wind energy could make a significant contribution in the next decade. Another renewable source with good potential in Romania is geothermal energy, which is worth exploring as an alternative source for heating.
What are the consequences of the Price Capping Act, the failure to transpose Directive 944 and instruments such as bilateral market contracts (PPAs) on investment, and how do you see these issues resolved in the future?
IFC is very active in interacting with many players in the renewable energy market. The legal uncertainty and the real capacity to conclude bilateral energy purchase agreements (PPAs) were mentioned by our clients, being among the main bottlenecks in making bankable investments. Investments from renewable sources in Romania no longer need state support for implementation but need a solid legal framework for investors and creditors. IFC is currently working with customers to establish banking transactions based on PPA structures.
First and foremost, investors want credible and predictable rules. The adoption of laws with a significant impact on the functioning of the market should be done only after adequate impact studies have been carried out, which should be made public and through transparent consultations with all those affected before the law is adopted. Without such impact assessments and proper consultation with those affected, there is a risk that the law will have consequences that were not taken into account from the outset, requiring ad-hoc corrections, which would again lead to legislative instability and lack of predictability.
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This article first appeared in the printed edition of Energynomics Magazine, issued in December 2021.
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