Emerging Energy Producers: How International Investors Are Unlocking the Renewable Energy Potential in CEE and SEE

Peter Marx: The momentum of wind power and solar PV of the past years was driven by a mix of factors. The significantly decreasing investment costs per MWh was met by an increasing desire for energy independence from conventional sources and increasingly improving regulatory environments. This introduced the industry to the so-called “post-subsidy” aera, in which energy produced from renewable energy sources is no longer dependent on state subsidized feed-in tariffs, but on the contrary is already extremely competitive if not the cheapest source of electricity generated in the region today. 

And there is still plenty of scope for further development. It has taken at least 20 years to reach the current installed capacities for renewable energies. By 2030, capacities are likely to double from today's levels in just a few years. This will lead to an increase in the number of renewable energy projects under development, an increase in the size of individual projects and an increasing interest in portfolio financing solutions by larger investors. In terms of countries, the Western Balkans countries plus Romania and Bulgaria have great growth potential and already many renewable energy projects under development today. Our clients benefit from our group expert approach and over 25 years of experience in the region.

Kalina Pelovska: The renewable energy market has dramatically changed in the last decade. When our company started investing in solar power 15 years ago, we relied on state support through feed-in-tariffs, and the technology was new, unproven and very expensive.  We saw a period of rapid growth, followed by a period of dis-incentivization through retroactive measures intended to limit the growth of renewable energy systems.  This was followed by a slow period with very little investment activity in the region, but in this period the PV technology dramatically improved in terms of both capacity factors and performance, and following the deployment of huge panel manufacturing facilities in China, also in terms of cost. The improvements in technology and cost have allowed the successful come-back of renewable energy systems without the need for subsidies. 

In terms of future trends, we see that the mass deployment of renewable energy systems in the region has created price volatility and that we see strong price cannibalization in summer due to PV. To address this challenge, our investment strategy is to now add wind assets to our portfolio, and to add co-located battery energy systems (BESS) in order to allow the renewable energy projects to deliver electricity profiles more suitable for market demand. 

Kalina Pelovska: We have had the pleasure to work with RBI on four large PV projects, two in Bulgaria,of which one is now operational and another one is under construction, one in Hungary, now operational, and one in Romania that is under construction).  We are now approaching RBI for a new large PV and BESS project in Hungary, where we think we could further elaborate and strengthen our excellent cooperation for an innovative Hybrid Project. 

Peter Marx: With our track record in renewable energy financing in CEE and SEE, we mainly focus on established technologies of wind power and solar PV. For several years now, we have had a comprehensive renewable energy strategy, which defines market specifics and structuring principles for each country.  In combination with our network banks, we can offer tailor-made financing solutions and local services to our clients from one provider. This includes short-term (construction bridging/mini-perms), long-term project financing, local project accounts, project guarantees, hedging and many more. As many parameters such as prices and regulations are constantly evolving in this sector and in this region, we are accustomed to adapting structures to new circumstances and finding workable solutions together with our clients. One the flip side, the key factors limiting future growth are definitely grid access, cross-country grid links, and a general need to strengthen existing grid infrastructures whether by traditional transmission build out or more innovative storage solutions.

Peter Marx: Benefitting from secured and predictable cash flow financing based on contracted revenues like power purchase agreements (PPAs) or contract for difference schemes (CFDs)  is, of course, still the market standard when it comes to financing renewable energy projects. Nonetheless, the European energy sector was certainly confronted with significant changes in 2022 that will have a lasting impact on the future of our energy production. As a result, we were confronted with skyrocketing electricity prices and a challenge to reasonably project prices into the future that at the same time allow financing structures acceptable to investors. In such an environment we offer solutions that give our customers space to benefit from higher electricity prices and at the same time present an acceptable proposition for us, as the financing bank. We are therefore able to offer a broad range of structures based on a mixture between PPA and merchant prices, or in some cases, even fully merchant-based. 

Kalina Pelovska: As an investor, we have been able to realize projects both with state supported tariffs, with corporate PPAs, with CfDs, so we have experienced the whole range of possible structures that financiers deem suitable to create the solid down-side scenario necessary to raise project finance.  In the last couple of years, we have also been able to raise bank financing on a purely merchant basis, without a guaranteed off-take, and this is our preferred approach. We note that for lenders this is a step-away from the traditional project finance methodology, and that they need a very reputable and reliable sponsor and EPC contractor , as well as conservative levels of leverage, to be able to extent loans to a renewable energy  project on a fully merchant basis.  RBI has been a key partner for us in merchant projects, and we are extremely grateful for having a partner who has profound understanding of the electricity sector and shares our view about the tremendous market opportunities and about the adequate approach to address the potential risks. 

Kalina Pelovska: The key advantage of RBI for us is the bank’s ability to think beyond the classical fully contracted electricity off-take. In the first project that we did together, part of the electricity was contracted through a power purchase agreement (PPA). In the second project, there is a stand-by CfD  which we could activate in case of need, but the project has been operating as merchant. And for the latter two projects, the financing was extended on pure merchant terms. We appreciate that for a lender to do that, it is necessary to have both long-term and successful track record with the sponsor, and to have very deep understanding of market trends and challenges in the renewable energy sphere, and I must say that RBI has been really a though leader in lending renewable energy projects.

Peter Marx: One of the largest advantages for our clients is our deep-rooted and focused interest in CEE and SEE. For us the region is not just another market. For many years we have been building bridges between West and East, and today, we are building more and more bridges across the region itself. Especially regional and international clients value our presence in the many CEE and SEE countries with fully- fledged network banks offering the full range of services. We also support our clients with financings involving international financial institutions (IFIs) such as the German development bank KfW, various export credit agencies (ECAs), or the EBRD (European Bank for Reconstruction and Development). Once again, RBI can look back on a strong track record and close cooperation supporting investments in the region.

Kalina Pelovska: What we especially like about RBI is your international scope, and the fact that they have been able to build on knowing us in one country to collaborate on our next project in another country. In fact, RBI is supporting our growth to be a much stronger regional and international player. 

Peter Marx: Seek out partners that have a strong track-record and interest in the region. This way you avoid getting stuck with partners who look at CEE and SEE purely opportunistically and might not be able to provide you with that successful long-term partnership you are looking for.

Kalina Pelovska: The region provides ample investment opportunities in the renewable energy sphere in order to achieve the ambitious Net Zero goals that the individual countries have adopted.  For newcomers, I would say seek experienced local players to form partnerships and seek a financing bank which has deep understanding of the sector. We recommend working with RBI full-heartedly to professional investors who seek deep expertise, international reach and excellent client service.