Sebastian Staicu – Sustainable Finance Coordinator, BCR
The last year brought a lot of effervescence in the energy market and implicitly in the entire Romanian and European economy. The geopolitical context that came after a socio-sanitary crisis emphasized the need to accelerate the transition to an economy more resilient to the availability of fossil resources and, in general, to imported resources. Local and European governments have made efforts to maintain a reliable, stable environment, both among companies and the population. The state and the banking system had to cover the need for liquidity in the market, which came with the sudden increase in inflation and prices for electricity and natural gas.
As a systemic bank in Romania, we became more aware during this period of the need for economic actors to reduce their externalities on natural and social capital from their economic activity, precisely to avoid such socio-economic shocks. We also believe that measures must be taken to better preserve this natural and social capital, in the face of climate change and complicated international relations. This must be the time when the social, economic and technical sciences sit at the table and learn to work together towards a new business model that better integrates environmental and social components into the way we do business. Business sustainability lies at the intersection between idealism and realism, where governance plays the key role of arbitrating this transition. By implementing an appropriate and transparent governance of (1) measuring the positive or negative impact on the environment/communities (I will further use the term “ESG”) and (2) integrating ESG impact analysis into decision-making processes, companies can thus demonstrate (versus just talk) their commitment to the environment and people and adherence to the new socio-economic perspective of sustainable development.
As a bank, we want to pursue these ESG goals through the lending decisions we make, giving attention and weight to both the negative externalities of the companies we finance and supporting companies that make a positive, measurable impact on the environment or communities , thus supporting new activities or economic sectors such as (1) the renewable energy sector (including biogas and heat pumps), (2) the recovery and waste collection sector, (3) circular business models, (4) repair activities and renovation, (5) urban electric transport, (6) rail (electrified) and naval transport, (7) minimal, renewable or recycled packaging sector, (8) sustainable materials, (9) sustainable equipment and construction, repairable, circular and quality, (10) clean and efficient technologies, (11) agriculture with sustainable and efficient practices and (12) last but not least, the “fast moving consumer goods” industry and especially that of food processing.
European funds are the key to this transition and we rely on the fact that the Romanian state will manage to allocate up to 100 billion euros from the PNRR, the Modernization Fund, the Innovation Fund, the Cohesion Fund, the Regional Development Fund, the Social Fund and the Agricultural and Rural Development – with intelligence and efficiency, towards well-thought-out projects, in cooperation with the banking system, especially in the context of increased interest rates in the market.
We also rely on the support of international institutions such as the EIB, EBRD and IFC to (1) disseminate best practices in public policy, investment and governance models and (2) provide portfolio guarantees for banks with the objective of accelerating bank financing to sustainable sectors, investments and activities.
In 2022, BCR sought to educate and support the development of the ecosystem necessary for the transition to a more sustainable economy through green products and the education of our customers. In the renewable energy sector, we have shown our willingness through offers and discussions to finance new renewable projects, which we are starting to see materialize. We were with our clients with letters of comfort for the PNRR calls intended for renewable projects. Many large projects are also expected to be completed during 2023, while most investors are waiting for the CfD scheme, or European funds, with the prospect of realizing these projects by 2024/2025.
In addition to support for new projects, BCR has provided financing for the sale and purchase of existing renewable energy projects, contributing to the dynamics of the renewables market and freeing up funds for investment in new renewable capacity.
In addition to other round tables on the subject of renewable energies, BCR organized the green financing workshop together with RWEA (the Romanian association of wind energy producers) through which we wanted to seek the answer to the question “How do we develop as much as possible of the value chain of renewable energies in Romania in a healthy way, so as not to contribute to the deepening of the trade balance through this new wave of renewables?”
We came to the conclusion that the European funds – the approximately 6 billion euro from the Modernization Fund, PNRR and operational programs, together with the CfD support scheme, could ensure investments of up to 15GW in renewable projects by 2030, if intelligently allocated, in combination with bank and investors’ capital.
Also, signing PPAs is, from a market perspective, ideal at the moment, with consumers understanding the need to secure long-term fixed prices and producers being able to demand prices that cover a reasonable IRR. We are already seeing more and more PPAs concluded for periods of up to 10 years, but with clear buyer preference for baseload delivery profiles. The biggest challenge, which we notice in the market, is that renewable energy producers deliver directly (through multi-technology PPAs) or indirectly, through suppliers (through sleeved PPAs), specific consumption profiles or baseload profiles, having no control over the moment of production. This can only be solved by collaboration between wind and solar producers with hydro/gas/coal. Gas, hydro and coal have the potential to plan their production so that they cover the production gaps of wind and solar farms and thus become catalysts for renewables in the new energy market.
Prosumers also have an important role in reducing price volatility on the stock market, through demand response systems or flexible hourly rates at suppliers. Distribution systems and their business models also need to be rethought, especially from the perspective of increasing electricity consumption in cities that adopt electric car charging infrastructures. The electrification of road and rail transport could double the electricity consumption in Romania.
Last but not least, it is worth mentioning that, in order to reduce the level of emissions of the national electricity system, it becomes necessary for suppliers to be encouraged to have a mix of purchasing electricity with as few emissions as possible.