The weekend read: A green road to recovery

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From pv magazine 06/2020

Europe’s Green Deal, first presented on Dec. 11, 2019, remains in its infancy. However, as the bloc now faces two major crises – climate change and Covid-19 – its green package might finally start to reach early adulthood.

A key tool behind the EU Green Deal is the so-called Just Transition Mechanism (JTM), which aims to finance the continent’s transition to a climate-neutral economy by 2050. The mechanism will provide “targeted support to help mobilize at least €100 billion over the 2021-27 period in the most affected regions, to alleviate the socioeconomic impact of the transition,” says the European Commission (EC).

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To access the funds, the bloc’s 27 member states need to draw up territorial transition funds that identify regions that would be impacted the most by the green transition effort, while also outlining pathways for the green recovery until 2030. Upon approval by the commission, member states will be able to first draw money from the Just Transition Fund (JTF), which provides about €30-50 billion in grants to support social and economic transformation in Just Transition regions. Secondly, a separate dedicated scheme will crowd-in up to €45 billion in private investment. And thirdly, funds will come from a public-sector loan facility, which will mobilize €25-30 billion in public-sector investment.

To understand the amount of work required for this task, we need to consider that by May 7, the commission had approved all requests made by 18 member states for support with preparations for their territorial Just Transition plans, which the states still have to develop. In other words, there is a need for institutional preparedness and robustness across all levels of governance (supra-national, national, regional and local) that builds on communication across civil society and the public and private sectors.

On May 27, the commission also presented a €750 billion Next Generation EU fund aimed at helping the bloc to recover from the Covid-19 crisis. The proposed recovery fund will turn a challenge into an opportunity, “not only by supporting the recovery but also by investing in our future: The European Green Deal and digitalization,” said EC President Ursula von der Leyen.

Becoming climate-neutral by 2050, argues the commission, will require action in all sectors of the economy: energy, buildings, industry and mobility. Solar PV technology can offer solutions to all four economic sectors.

Laggards vs. vanguards

Attaching green strings and climate action to the Next Generation EU recovery fund, the commission aims to close the gap between the less environmentally active nations – the so-called laggards – and the champions of change, or the vanguards.

So far, there have been a number of immense surprises, among which Greece is perhaps the biggest. Following the election of a new government in July 2019, the country adopted a new energy and climate policy that requires the complete phasing-out of coal from the Greek energy system by 2028. However, the majority of the country’s lignite fleet is expected to be offline much earlier, with only one unit set to keep running until 2028.

Greece’s state-owned utility, Public Power Corp. (PPC), was a laggard until the election of the country’s new government, as it had invested almost nothing in renewable energy. But under new leadership, PPC is now preparing a 3 GW solar PV investment in mining sites. It will install a 2 GW solar installation in Kozani, northern Greece, and a 1 GW PV plant on the Peloponnese peninsula in the southern part of the country.

The utility is moving quickly. It has already been awarded 230 MW of PV capacity in Kozani via Greece’s renewable energy tenders. And it plans to kick-start investment in the Peloponnese mines via a 50 MW subsidy-free PV plant, which will be Greece’s first such installation. And in March, PPC signed a memorandum of understanding with Germany’s RWE to jointly invest in solar in Kozani’s mine fields. RWE said it “can also provide extensive know-how in disciplines connected to mine closure,” while the “demolition of power stations and portfolio optimization in times of plant closures are key experiences to be shared with PPC.” PPC is therefore quickly becoming a solar PV leader in Greece by actively supporting the country’s energy transition.

Funding routes

It is crucial to examine whether and how green transition plans and investment funding aims are directed by the EU’s mechanisms. Greece’s investment again provides lessons.

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“Lignite plants are no longer competitive in the wholesale market, and they constitute a financial burden to the viability of the company,” a PPC spokesperson told pv magazine. “Hence, the phase-out of lignite will improve the financial position of PPC very considerably, allowing it to stream revenues to other more profitable and sustainable projects (such as renewable energy systems, e-mobility, and energy efficiency services). The capital needed for the physical decommissioning of lignite assets (power plants and mines) and their environmental restoration is expected to be a mix of equity and funds from the Just Transition Mechanism set-up by the EC.”

German utility RWE, headquartered in Essen, also aims to receive JTM and EU recovery funds. A spokesperson for RWE explained that “as a company that is heavily investing in renewables on the one hand, and phasing out coal and nuclear on the other, we are looking at funding opportunities from the European Green Deal – such as the Just Transition Fund. However, as no legislation and no funding program under the Green Deal is finalized yet, we cannot concretely say which funds we will aim to use in the future.”

The RWE spokesperson also added that the commission’s recovery fund might bring additional opportunities. After an asset swap with E.ON, also headquartered in Essen, RWE now owns the utility’s renewable energy assets. However, it currently only owns about 10 MW of PV capacity in Europe, which means the collaboration with Greece’s PPC could help it to avoid becoming a solar laggard.

Not everything is rosy, though. Sweden-headquartered Vattenfall, which owns only 34 MW of solar PV in Europe said that it is investigating the possibility of using JTM funds. “However as the application processes are often complicated and long, we have to balance what we spend our time on,” it added.

Similarly, Germany’s EnBW “has until now applied very little for EU funds,” a company representative told pv magazine. “However, the coronavirus impact on energy markets and the size of the challenge to scale up necessary new solutions might [lead the company to] consider more seriously to apply to EU funds,” EnBW, which, like Vattenfall, runs an extensive fossil-fuel power fleet, owns 153 MW of PV capacity in Germany and also has a 800 MW solar pipeline.

It is clearly apparent that different companies have different visions, and the European Green Deal has only just started to influence their corporate strategies. PPC’s new business strategy, for example, was announced on Dec. 16, 2019, just a few days before the European Commission’s first presentation of the Green Deal. “Our strategy is one of the most aggressive and ambitious for decarbonization and sustainability across Europe,” claimed the PPC spokesperson.

PPC changed its business focus because the structure of the market did not allow it to keep clinging to its old, outdated lignite business model. Political change in the country and the shift in PPC’s leadership accelerated the transition, which is now crowned by the commission’s new schemes. The EU’s Green Deal and the Next Generation EU fund have the potential to convince more firms across Europe to join the green transition effort.

Transition plans

Nikos Mantzaris, a senior policy analyst at The Green Tank, an Athens-based think tank, said that according to EU regulations for the JTF, the development of territorial Just Transition plans need to be consistent with member states’ National Energy and Climate Plans. Member states have also been asked to conduct public consultations and involve all relevant partners in preparation, monitoring and implementation processes.

This is positive, said Mantzaris. “(But) the criteria proposed by the EC for the allocation of funds are unfair and do not take into account key considerations,” he added. “The speed of transition away from coal and lignite is not accounted for, and the same is true for the extent of dependence of the local economies on coal and lignite. As a result, member states which have not yet committed to phase out coal – such as Romania, Czech Republic, or Bulgaria – or have not yet accepted the climate-neutrality objective, such as Poland, receive very large sums. Leaving countries like Greece, Slovakia, Portugal or Hungary, which have made far more ambitious commitments regarding the dirtiest fuel on the planet, with utterly insufficient funds to implement the transition.”

Mantzaris spoke to pv magazine before the EC presented new funding for the JTF, so his final comment might now differ. What remains, though, is his argument that for the transition to be successful, “it needs to be well-balanced and avoid only investments from big companies such as energy utilities. Diversification of economic activities and support for SMEs should be a fundamental component of the territorial transition plans, to ensure a stable and sustainable future for these regions, which for decades have largely been relying on a single economic activity. Hence, access of energy utilities to these funds, should be constrained by these considerations.”

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