Green initiatives compromised by private equity

A new greenfield gas cogeneration power plant Cogen in the north of Slovakia is planned to produce power and heat. It is to be financially supported by both the European Investment Bank and the European Bank for Reconstruction and Development through the private equity EnerCap Power Fund.

This article is from Issue 52 of our quarterly newsletter Bankwatch Mail

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Located in Považský Chlmec, a town in the Žilina district, the new plant is set to negatively impact on the quality of life of locals who have for decades been suffering from the impacts of a nearby waste disposal site and highway. The inhabitants of Považský Chlmec have been protesting against the Cogen plant since 2007. Its connection to gas and heat pipelines means that 1.3 hectares of woodland from the nearby forests - through which the pipelines would pass - would have to be chopped down.

The Cogen power plant and connected gas and heat pipelines did not undergo a full environmental impact assessment (EIA), but only a so-called exploratory assessment decreed by the District Environmental Office in Žilina in 2007, even though the exploratory assessment showed a threat of serious social and environmental risks

Cogen Žilina is financed via the EnerCap Power Fund, a private equity fund in which both the EIB and the EBRD have committed up to EUR 25 million EUR each (roughly 50 percent of the fund’s total commitments). The EnerCap Power Fund is located in the Czech Republic and operates in central and south-eastern European countries. It is supposed to “support projects based on the use of mature technologies in the wind sector, as well as in the biofuel and other renewable energy sectors considered to be environmentally beneficial and contributing to the reduction of greenhouse gas emissions”.

Contrary to the goals of the EnerCap Power Fund, the EIB has informed civil society organisations that while the majority of the Fund’s investments are targeting the renewable energy sector this does not mean that a project such as Cogen cannot be financed by the fund - the EIB and the Fund perceive cogeneration as a measure for increasing energy efficiency and therefore consider Cogen as eligible for financing from the EnerCap Power Fund.

The involvement of the EIB in the EnerCap Power Fund is classified under the EIB’s Climate Action programme, which is intended to “focus both on low-carbon investments that mitigate greenhouse gas emissions and on climate-resilient projects that improve adaptation to climate change impacts.” Cogen is neither of these things.

Environmental and social problems of the Cogen project

According to Slovak and EU legislation, energy projects under 50MW do not have to undergo a full EIA process if the authorities do not decide otherwise, or if the exploratory assessment does not show possible significant environmental impacts. Cogen has a capacity of 40 MW, which means that initially only a so-called exploratory assessment had to be conducted. However, even though the exploratory assessment showed the threat of serious environmental risks, the Slovak authorities decided that a full EIA was not necessary.

The lack of a full EIA process had several consequences. First, the cumulative environmental impact of the plant in combination with already existing sources of CO2 and dust pollution in the area was never properly assessed. Second, the planned level of noise produced by the plant, together with three existing sources (the nearby highway, a busy main road and trucks bringing waste to the huge local waste disposal site) will be 95 decibels (dB), exceeding the acceptable level for industrial zones by more than 20 dB.

The planned power plant is intended to be built 138 metres from family houses and about 200 metres from the local high school where the allowed level of noise (for schools, housing zones) is 50 dB, which means that the noise will be almost twice the permitted level. Noise levels too have not been taken into consideration in any assessment. Finally, the project documentation fails to take into account the fact that the construction area is a seismic and flood prone area.

The construction of the plant is not in line with the local Energy Strategy, as this document does not envisage the need for more heat and electricity in the town, and definitely not from a new fossil fuel source. In addition, the main heat provider in the region has declared no intention of buying heat produced by Cogen. Thus it is unclear how the heat will be used.

Uncertainty over the demand for the heat to be produced by Cogen has led to the route of the planned heat and gas pipelines to be changed during the project approval process. Because of these changes that have taken place during the permitting process, local people have had no opportunity to respond to them.

Professor Karol Honner from the Department of Energy Technologies at the University of Žilina, and author of the Energy Strategy of Žilina, states that: “Any logic seems absent in the choice of location for this plant. The heat pipelines should be short to prevent energy losses. But, to reach the potential consumers, heat pipelines from Cogen would be 4519 m long and would cross the Rajčianka and Váh rivers and railways, and then go up to the hill and end in the town part Hájik.”

Real responsibility

The EIB can contribute to a real change in the CEE region but this can only happen if the bank ensures that mechanisms created to support energy efficiency and renewables, such as the Climate Action Programme, are indeed used properly and not to promote contrary goals. Alas, private equity funds allow the banks to subcontract much of their due diligence work to the recipient fund, which may not possess either the skills or the interests to conduct proper environmental and social impact analyses.

Europe has limited resources for dealing with the energy crisis. Therefore, its financial arms would be better advised to invest directly in energy savings and new renewable energy sources rather than waste taxpayers’ money on disputable projects that further deepen problems in the energy field. According to the new EIA law of December 2011 passed by the Slovak parliament, an EIA should be completed before planning permission procedures begin. The local community in Považský Chlmec and CEE Bankwatch Network plan to request the reopening of the permitting processes and for a full EIA to be conducted.

The new EIA law thus gives the EIB and the EBRD the opportunity to finally take responsibility for this project that they are clearly helping to finance by insisting on a proper EIA and for public consultations so that the impact of the project on people and the environment is properly measured.