Round and round they go, what they finance next ... nobody knows

There is more or less consensus among various stakeholders that developing decentralised renewable energy sources (RES) to feed local energy demand is the only way to build a long-term, truly sustainable, effective and fair way to satisfy Europe’s energy needs.

This article is from Issue 51 of our quarterly newsletter Bankwatch Mail

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Realising such a decentralised RES-based system is indeed a challenging task. It requires a major shift in thinking, a shift away from modes of living based on constantly increasing energy consumption. Meanwhile, time is running out for irreversible climate changes to be prevented, and financial resources are arguably more limited now than ever before. Thus, any steps taken along the well-trodden path of conventional energy sector development, such as investing in fossil fuels or nuclear power, should be viewed as diverting attention and – crucially – funding away from accomplishing this task.

In this context, what to make of the EU’s investments – already underway and planned – in the energy sectors of the neighbouring states? Backing the production of unsustainable electricity elsewhere and importing it to cover the EU's own gap between demand and internal production is no contribution to a sustainable energy future.

An unfortunately clear example of the type of investment tendencies that should be avoided has been provided by EBRD and EIB 'support' for Ukraine’s energy sector in recent years. EUR 650 million has been provided by the European public banks to enable the construction of sections of a 1500 kilometre high-voltage transmission corridor in Ukraine that will deliver nuclear and coal derived electricity to the EU.

Now another EUR 300 million loan has appeared in the EBRD’s project pipeline (in tandem with a Euratom loan) to upgrade old Ukrainian nuclear units. The EBRD describes the aim of the program as “safety upgrades only, at all 15 operating nuclear power units in Ukraine to bring them in line with internationally accepted safety standards and the Ukrainian requirements.” This seven year program, however, will enable Energoatom, Ukraine’s state-run nuclear operator, to prepare old reactors for lifetime extension so that they can run for another two decades and provide electricity for export. Given the widespread unpopularity of nuclear power in western Europe, it's perhaps no surprise that these kind of deals, backed moreover by EU taxpayers' money, are being justified on the back of some very slippery logic.

The contrast with much more straightforward announcements of RES investments is palpable. The EBRD’s recently announced intention to support the Novoazovskiy Wind Park, the first direct EBRD loan for the Ukrainian RES sector, is to be welcomed. The project's success, of course, will still depend on the quality of the bank's due diligence and the actual implementation. But it clearly supports the EU objectives of tackling climate change and promoting the shift among the EU's neighbouring countries to more sustainable energy sectors.

More's the pity, then, that it would be naive and premature to hail this kind of promising news as a 'new dawn'. In central and eastern Europe, fossil fuel projects in need of a lift up (read 'major project finance support to get off the ground') will keep on coming, and if they are deemed to be 'bankable' then at least for now the EBRD and the EIB will continue to be ready with a very familiar list of reasons to justify their involvement.

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Quick facts and analysis of the proposed nuclear power plant safety upgrades in Ukraine are available on our web page dedicated to the project.

Bankwatch has also just published an expert report examining how the EU is supporting nuclear life time expansion in Ukraine, see: http://bankwatch.org/sites/default/files/Ukraine-SUP-review.pdf