Powering up renewables in Eastern Europe

ESG+ Matters

Powering up renewables in Eastern Europe

Eileen Gavin - 15 June 2022

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Russia's invasion of Ukraine has served as a wake-up call for Eastern European countries heavily reliant on Russian oil & gas, and should provide strong incentive for these countries to accelerate their (lagging) transition to renewables.

On 18 May, the EU Commission published its REPowerEU plan, proposing to allocate EUR300 billion (USD323 billion) for the energy transition.

Some 4% of the package is earmarked for new LNG infrastructure, to facilitate the bloc’s diversification away from Russian fossil fuels.

But it also sets a higher renewable energy target for the EU of 45% by 2030 (up from 40% previously).

This goal is not achievable, however, if Eastern member states are left behind. As things stand, the EU’s Eastern countries states lag their Western counterparts on carbon reduction and environmental policies. In part this relates to weaker political ambition, but it also owes to a lack of dedicated funding.

Nevertheless, most Eastern EU states have also registered some of the strongest renewable energy consumption growth rates in the past eight years (albeit coming off a low base). Indeed, five of the top 10 renewable energy performers in the EU in 2020 were Eastern members.

Our Europe team expects the REPowerEU Plan to accelerate this positive trend by providing Eastern member states – highly dependent on carbon-intensive energy and industries – with the necessary funding (and pressure) to divest towards greener alternatives. It should also provide ESG-minded investors with new opportunities: green bonds have become an increasingly popular option to fund the energy transition, notably in Poland, Slovenia and Romania.

One sticking point, however, is that the EU plan could modify Environmental Impact Assessments (EIAs) so as to speed up the permitting process – one of the largest barriers to the efficient roll-out of renewable energy projects. The aim is to speed up the permitting process for renewables projects to circa 12 months (from 24-34 months currently).

This could increase the risk of regulators fast-tracking renewables projects that have unintended, negative impacts on the environment (and potentially also negative social impacts) in pursuit of rapid decarbonisation.

It could also prompt a wave of litigation. As our Europe Analyst Capucine May notes, even under the current EIA requirements, activists have begun resorting to litigation to challenge projects, with communities in both Western and Eastern states (including France, Germany, Ireland, Spain and Serbia) organising against wind farms in particular, but also solar projects. May notes that if EIA requirements such as public consultations are watered down, there is a risk that national courts could find in favour of local communities looking for redress.

Even as Brussels proposes such potential ‘short cuts’ on EIA regulations, it is simultaneously introducing other legislation, such as the SFDR, that will require institutional investors and other stakeholders to make ever more rigorous demands of corporates looking for green finance.

As any fund manager looking to implement the SFDR will attest to, resolving these push-and-pull tensions around the EU’s transition agenda and policies will be no easy task.

But in the wake of the Russia—Ukraine war, it seems clear that there is little other choice.

Eileen Gavin

Principal Analyst, Global Markets & Americas

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