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The EBRD has become the latest development bank to eschew funding for coal-related projects, after revising its energy strategy.
Previously, coal-related projects accounted for 6% of the bank's total expenditure. Following the review, it has decided that it will provide funding for coal projects only where no energy alternative exists.
The EBRD's managing director of energy and natural resources, Riccardo Puliti, explains the new policy to GTR: "We may finance coal in the rare circumstances when coal is the only physical alternative. If it's not, for example if there's a possibility to build a power line to another country or a gas pipeline, then coal can't be financed by the EBRD. In the event that it can be financed, the EBRD will require the adoption of the best available technique, as defined by the EU."
For example, the development bank is currently considering whether to fund a 450MW combined heat and power (CHP) plant in Mongolia known as CHP5.
Projects that have already been finalised will not be subjected to the new strategy, which will be revised again in five years. Puliti explains that Mongolia has no oil worth talking about, nor does it have a gas pipeline to China or Russia.
He continues: "Ulaanbaatar now receives power from very very old plants. I'd also like to point out that the only wind farm in Mongolia has been financed by the EBRD. As you know a wind farm can produce power but not heat, which is not very good in a country where winter hits minus thirty degrees.
"The question of heating and power in a country where heat and power security are issues can't be solved by commercial banks only. The population can't afford to pay very high rates. No commercial bank can go there and finance something because the rates are too low. DFIs are well designed to lead and if commercial banks come as well, we'd be very happy."
The new directive covers only coal, and doesn't extend to other fossil fuels such as oil and gas, nor does it cover unconventional fuels such as shale.
It will be addressed again in five years, when shale may be a viable commercial option in the EBRD's countries of operation, or when countries with known reserves (such as Ukraine) may be looking at getting large projects online.
Tags: European Bank for Reconstruction and Development (EBRD), Metals & Mining, Mongolia, Multi-laterals & Development Banks, Project Finance, Renewable Energy
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