International and local banks open tap for energy financing

Newsroom 02/06/2008 | 15:45

The European Union (EU) continues to put pressure on member countries to achieve a 20 percent reduction in greenhouse gas emissions by 2020 from 1990 levels, a 20 percent share of renewable energies in the overall EU energy mix, a 10 percent share of bio fuels in petrol and diesel for transport and a 20 percent reduction in energy consumption compared to baseline projections for 2020. Due to these requirements, dozens of companies, local and international, have announced billions of euros of projects in the areas of renewable energy and energy efficiency, especially for the industrial sector.
International financial institutions are capitalizing on the trend and have created the mechanisms to support this type of investments, with Romania on their list. Representatives of the European Bank for Reconstruction and Development (EBRD) have told Business Review that the new Country Strategy for Romania includes a Sustainable Energy Cooperation plan which identifies and prioritizes actions in the area of energy efficiency and sustainable energy. “Romania attaches a high priority to reducing energy use and has developed new policies to promote this process. However, there is still room to improve its energy efficiency, given the fact that Romania's energy intensity is 1.44 times higher that the average of the EU-25 countries,” said EBRD officials.
Meanwhile, the European Investment Bank (EIB) financed EUR 1.5 billion of green energy projects in the European Union as a whole last year, compared with total loans for the energy sector in the EU of EUR 5.4 billion. EIB has offered in Romania capital for energy projects to the tune of EUR 175 million. “There is a big need and potential for energy investment in Romania and the EIB is actively following developments in the sector. As such, the bank is in contact with several project promoters from the private and public sector for new developments and major rehabilitation of existing generation capacities,” said EIB reps.

Local lenders get in on the game
To find out the potential for future projects the EBRD conducted a sustainable energy market demand study for Romania in 2005-2006. “This concluded that the overall technical potential for sustainable energy projects in the industrial and renewable sectors stands at roughly EUR 4 billion. This is based on an expected financially viable energy efficiency improvement potential of 10 percent for the industrial sector. The concrete market potential of this was estimated at EUR 510 million in sustainable energy projects for the next three years,” said EBRD representatives.
At the beginning of this year banks active on the local market sealed agreements for credit lines to support capital for renewable energy and energy efficiency projects.
“For the preparation of the credit lines in Romania an initial pipeline of 49 renewable energy and energy efficiency project leads was identified for an aggregated investment of EUR 62 million. Going forward not all of these will necessarily be financed, and other projects will also be identified, but this gives an indication of the potential,” said EBRD reps.
At the same time, this year the EIB has signed a credit line of EUR 45 million with four Romanian banks: Banca Comerciala Romana (BCR), Banca Transilvania (BT), CEC Bank and BRD-Groupe Societe Generale. This kind of financing facility is interesting to investors because, for instance in the renewable energy sector, EIB could finance up to 75 percent of a project's total eligible cost. “If it is a large project (over EUR 25 million) a loan can be granted directly to the project's private-sector or public-sector promoter. Alternatively, smaller loans (with project costs below EUR 25 million) for energy-related operations like energy saving projects may be financed indirectly by EIB via local financial partners,” the banks says. More recently, EIB approved a new loan for Banca Comerciala Carpatica (BCC), another of its partners, besides BCR, BRD, Bancpost and Dexia Kommunalkredit Romania.

Romanian banks energize product portfolio
“At the beginning of this year, BCR launched its first financing product dedicated exclusively to energy efficiency projects, from EBRD sources and with the support of the EU. The total value of the loan agreement with EBRD reaches EUR 20 million,” said Ramona Ivan, executive manager at the Financial Institutions Department at BCR.
Elsewhere, since the beginning of this year, CEC Bank, also a partner of the EBRD, has had the capital for energy efficiency investments. “Projects are eligible as long as they can guarantee a profitability rate of at least 10 percent, while energy economy must reach at least 20 percent,” said Mihaela Popa, vice-president of CEC Bank. One of the particularities of this product is that the capacity of energy saved varies from client to client and these indicators are calculated by the technical consultant of the project, paid with EU funds.
Based on the agreement with the EBRD, projects which deal with power stations rehabilitation, power stations which produce simultaneous thermo energy and electricity and implementing systems for energy resources management are eligible to secure capital from BCR. The EBRD has ruled that the technical consultant for this type of financing is TRAPEC, a company which decides the eligibility of the projects.
“The loan cannot be used for investments in production capacities. The maximum value of a loan from EBRD sources is EUR 2.5 million,” said Ivan of BCR.
She added: “The main advantages of this product are the nonrefundable component of 15 percent, free of charge technical assistance, 100 percent financing, the decrease of energy costs and a grace period for capital. To establish the interest rates for this product we will start from the standard level offered by BCR for investment loans.”

Great expectations
Ivan of BCR said that she anticipates that some EUR 20 million will be used by the end of the agreement period with the EBRD, meaning January 24, 2010, to finance energy efficiency projects on the local market. “From our point of view there is high potential on this segment,” said the BCR executive.
Mihaela Popa estimates that CEC Bank will grant loans with a total value of EUR 10 million this year. In the near future, she expects energy efficiency projects to see success, due to energy market fluctuations.
“While now we have in Romania four banks participating in the EBRD EEFF program, where eligible clients are industrial private companies, in other countries like Bulgaria this kind of facility has been successfully implemented, alongside a program of thermo rehabilitation of apartment buildings. These energy efficiency programs will attract special interest as the oil price is reaching new highs from one month to the next,” said Popa.
EIB officials say that, as a new member state, the implementation of these kinds of projects in Romania is in its early stages compared to other member states. The potential (e.g. hydro, wind, biomass, etc) and needs are there but the creation of priorities and an incentives system to support such projects is still developing. The local authorities will play a key role in this financing system, say experts.

By Dana Ciuraru

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