The EU’s European Investment Bank (EIB) announced at this week’s COP25 UN climate change conference in Madrid that it will phase out financing for fossil fuel energy projects from the end of 2021 in favor of “energy transition” projects including renewables.
With climate change rising up the political agenda for most of the world’s advanced economies, the EIB’s decision is in line with a recent trend among multilateral banks to back environmentally friendly power projects.
The most high-profile multilateral in Mena, London-based European Bank for Reconstruction & Development (EBRD), has led the charge into renewables. In 2015 its annual worldwide investment in renewables overtook that for thermal power plants for the first time.
EBRD BACKING
EBRD was formed in 1991 to provide European and international finance for redevelopment projects in former Eastern Bloc countries. Its scope has since spread to include additional countries in Europe and Asia and Mena countries impacted by the ‘Arab Spring’.
Since 2012 EBRD has backed a wide range of projects in Egypt, Morocco, Jordan and Tunisia, while in 2018 it provided loans to Lebanon for the first time. Peak Mena funding was $2.27bn in 2017, while total funding amounted to $10.40bn in 2012-18, including $2.74bn in energy (see charts).
In 2018 EBRD invested €1.99bn ($2.24bn) in its five Mena investment countries, which was 21% of the total of €9.5bn ($10.7bn) the bank invested across a total 395 projects. Of this total, EBRD says 36% or €3.3bn ($3.7bn) was invested in the “green economy.”
Egypt has been the leading recipient of EBRD funding, with $5.80bn of loans over the 2012-18 period and peaking at $1.47bn in 2017. This was the year that EBRD provided $498mn for seven companies and ventures building 850MW of solar capacity in the Benban solar park in southern Egypt. EBRD currently estimates its cumulative investment in Egypt at $6.33bn. EBRD recently confirmed full commercial operation of 1.48GW Benban (MEES, 1 November).
EBRD refused to back the Benban project until Egypt’s Ministry of Energy relaxed terms for developers that only allowed the settlement of project disputes in Egyptian courts. With international arbitration allowed, the World Bank’s International Finance Corporation (IFC) joined EBRD at Benban, proving a further $627mn of loans (MEES, 3 November 2017).
This year EBRD has agreed to lend Egyptian transmission grid operator EETC $201mn to help integrate a further 1.3GW of renewables capacity with the national grid. EBRD, IFC and the US government’s Overseas Private Investment Corp (Opic) agreed to provide Netherlands-based Lekala with $252mn to help fund construction of the 250MW West Baker wind farm on the Gulf of Suez (MEES, 18 October).
Morocco is the second largest Mena recipient of EBRD funding, lending $1.79bn over the 2012-18 period which included an annual peak of $478mn in 2015. Among Morocco’s EBRD-backed renewables projects is the 120MW Khalladi wind farm, while EIB is among the backers for a 180MW wind farm to be built at Midelt (MEES, 16 November 2018). EBRD currently estimates cumulative investment in Morocco at $2.31bn.
Jordan received $1.61bn of EBRD loans during 2012-18, with peak annual lending of $446mn in 2016. Jordan’s lending has been for renewables and power grid projects as well as refinancing state utility Nepco’s debt. EBRD currently estimates cumulative investment in Jordan at $1.69bn.
Tunisia borrowed $929mn from EBRD in 2012-18, peaking at $337mn in 2017. EBRD has yet to finance any Tunisian renewables capacity, with most loans going to the financial sector, although it has funded a transmission grid upgrade and a 450MW gas-fired project (MEES, 30 June 2017). EBRD currently estimates cumulative investment in Tunisia at $1.04bn.
Lebanon is the most recent addition to EBRD’s Mena program, lending $275mn in 2018. The dire state of Lebanon’s economy and prolonged anti-government protests suggest further lending from multilaterals is likely (MEES, 1 November). Lebanon’s finance sector was the target of EBRD loans in 2018, while in October 2019 the bank announced a plan for $190mn of new funding for local banks to back investments in renewables and energy efficiency projects. EBRD currently estimates cumulative investment in Lebanon at $636mn.
While EBRD has been among the leaders of recent Mena renewables investment, it may find it tougher in the medium term to raise funds from its European members. After Britain leaves the EU as planned, European participants in EBRD may prefer to redirect their overseas investments via a European institution such as the EIB.
EBRD Total Investment In Mena Countries ($Mn)
EBRD Investment In Mena Countries 2012-18 (%)
CLIMATE-LED PROGRAMS
While all of the multilateral banks provide funds both directly and indirectly for a range of initiatives, meeting international climate change targets is increasing in importance. For example, the EIB aims 25% of its investment at environmental sustainability, but this figure will rise to 50% in 2025 and beyond. EIB plans to lend $100bn on climate-related projects during 2016-20.
IFC has since 1956 “leveraged $2.6bn in capital to deliver more than $285bn in financing for businesses in developing countries.” With Mena region infrastructure remaining “a pressing challenge” the bank’s investment priorities are “developing Mena’s massive potential in clean energy” through solar, wind and hydropower “in an effort to mitigate the effects of climate change.”
