The European Renewable Energy Council (EREC) argues that more detailed targets across the energy sector would encourage investment in small hydro and other forms of renewables. At present, the EU wants renewables to comprise at least 20% of total energy use in the Union by 2020 but EREC wants separate goals for, and within, power generation, heating and cooling, and biofuels. It argues that specific targets for different forms of generation within the renewables sector would make a big difference.

In a recent report, EREC argues: ‘Reaching technological diversity within the renewable energy sector is crucial and the aim of any support mechanism should be to encourage and strengthen this diversity. Different renewable energy sources cover different energy needs; for instance, hydro power and biomass can be used easily for peak electricity demand as well as for base load.’

The message is clear: while wind power may be the most economically competitive form of renewable energy, its role in the generation mix will be limited until power storage technology improves. Small hydro, particularly in the more temperate parts of Europe, is more reliable and can be used to balance out variations in wind power production.

EBRD, which invests in the former communist countries of East and Central Europe, has become increasingly interested in small hydro over the past two years and lists one of its main objectives as improving ‘the environmental performance and long term stability of the power sector, including supporting actions to address issues of climate change, energy security and diversification of supply’.

Investment can take various forms, including direct equity participation, project finance and corporate debt to fund the development, construction and operation of small hydro schemes.

One of the biggest problems the bank faces is the generally low level of power tariffs in the countries within which it operates. It states that it faces ‘significant challenges in identifying those projects with sufficiently robust economics to make financing possible’, although progress is being made most quickly in the new EU accession states, as these have been required to introduce legislation to ensure that they generate a certain percentage of power from renewables, as agreed with Brussels.

Some countries, such as Austria, Germany, Italy and Spain, provide good financial support for small hydro in the form of feed in tariffs or green certification. The Bank reports: ‘This new supportive environment is enabling this new sector to emerge with the inflow of capital and expertise to these markets combining with the entrepreneurship of local companies and individuals. Nevertheless, many hurdles in testing, implementing and refining the support structures for this new market still remain, and transparency and consistency is key to its successful long term development’ of the small hydro sector.

Yet, even in more supportive investment environments there can be problems. Under its Renewable Energy Plan (PER), the Spanish government aims to achieve installed small hydro generating capacity of 2199MW by 2010 but the Spanish Association of Renewable Energy Producers complains that licensing procedures of six to ten years make such goals unattainable. In particular, the Association argues that official bodies exaggerate the extent of the environmental mitigation measures required under EU legislation and adds that there is too little scientific evaluation of the minimum water flow demanded for each river basin.

28 May 2008