EU report listing US$1.6 trillion investment opportunities may spur hydropower development

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A European Union (EU) report released Dec. 9, lists about €1.3 trillion (US$1.6 trillion) of potential investments across Europe that could “kick-start” ambitious plans for infrastructure development. One of the potential investments could result in an enormous pumped-storage hydro project for the Czech Republic and Austria. However, a non-governmental organization opposes the proposed 1000-MW hydropower development.

The EU Economic and Finance Ministers (ECOFIN) reviewed the EU Task Force’s Investment report, Dec. 9. The report is being presented to EU heads of state and government at the European Council on Dec. 18-19, according to the European Investment Bank.

Project

The 1000-MW Lipno-Aschach pumped-storage hydroelectric development is projected to cost US$2.5 billion and the project bears the name of its controlling consortium. According to published financial information, Lipno-Aschach S.R.O. is the proposed project’s controlling organization and it is an Austrian-Czech consortium based in Praha, Czech Republic.

The company earmarked about US$613 million for expenditures on construction between 2015 and 2017. If completed, the project would connect the Vltava and Danube rivers between Lipno in the Czech Republic and Aschach in Austria through a tunnel 27 kilometers long and 10.5 meters in diameter.

Specifically formed for the project in 2011; Austrian companies hold 65% of its shares and Czech interests amount to 35%. The consortium hopes investments made for the EU initiative will eventually lead EU-related organizations, as well as others, to finance the pumped-storage hydroelectric project.

Opposition

Central and Eastern Europe (CEE) Bankwatch Network opposes the plan.

CEE Bankwatch is an international non-governmental organization that monitors international financial institutions and their actions. The organization promotes “environmentally, socially and economically sustainable alternatives to their [financial institutions] policies and projects.”

CEE expressed its doubts about the validity of the endeavor and also said the money for the pumped-storage project could instead be used “to equip about 270,000 or 16% of all homes in the Czech Republic with photovoltaic generators – including phase shifters and consumption regulators – providing about half of their annual electricity consumption.”

The fund, according to the EU, “will work in a wide range of areas and chose the financial instrument most suitable for the project in question: From energy interconnectors to broadband, from education infrastructure to innovative small- and medium-sized enterprises (250 to 3,000 employees), from renewable energy to high-tech healthcare.”

The task force is under the direction of European Commission President Jean-Claude Juncker, former Luxembourg Prime Minister. The European Commission is the executive branch of the EU responsible for proposing, enforcing European law, setting objectives and priorities for action, managing and implementing EU policies and the budget, and representing the Union outside Europe.

Background

When the leader of a powerful, far-reaching organization speaks of relative economic development and uses “risky” and “innovative” to describe the challenge, an atmosphere may result that is a mix of caution and opportunity. This is exactly the scenario surrounding Juncker, with regard to several sub-headings in his plans for investment that directly relate to hydropower.

Point No. 1 in the report sets priority to deal with regulatory aspects:

Priority should be given to removing significant regulatory and non-regulatory barriers across all the important sectors of infrastructure including: energy, telecoms, digital and transport, as well as barriers in services and product markets and further measures to deepen the Single Market. This includes better regulation and deeper, less fragmented capital markets. At the same time, Member States must continue to implement structural reforms that promote a predictable and conducive business climate.

Point No. 5 promotes innovative financial instruments:

The report proposes that the European Commission and the EIB should promote the use of innovative financial instruments to catalyze private investments in projects of EU significance. Member States should also accelerate the use of financial instruments, especially under the European Structural and Investment Funds.

Timeline

In September 2014, ECOFIN appointed a task force “to identify concrete actions to boost investment, including a pipeline of potentially viable projects of European relevance to be realized in the short and medium term.”

On Oct. 22, the European Parliament approved a commission formed by Juncker. The Juncker Commission groups its members together under their designated policy expertise into "Project Teams." The European Council formally appointed the Juncker Commission during its meeting on Oct. 23 and 24.

Juncker was elected European Commission president on Nov. 1. On Nov. 26, the commission released “An Investment Plan for Europe.”  

On Dec. 17, EU released Juncker’s statement on boosting investment in the EU to create jobs and growth.

In his remarks, Juncker said, “As I mentioned when presenting our Investment Plan to you on 26 November, we will set up a European Fund for Strategic Investment together with the European Investment Bank. The aim is to kick-start a string of public and private investment projects in Europe that would not have happened otherwise.

“By its very nature, this new Fund will finance riskier investments, that would not have happened otherwise, and this is why it will particularly benefit countries that have been most hit by the crisis.”

“The crisis” to which Juncker makes reference, according to the EU, is the European recession that began in 2009. European banks invested heavily in the failing U.S. mortgage market suffered staggering losses.

In an attempt to stop some banks from failing, EU governments that include Germany, France, the UK, Ireland, Denmark, the Netherlands and Belgium came to the rescue of many countries. But, the cost of bailing out banks proved very high.

Juncker’s statement continued with a tone serving as the foundation on which project selection will be based.

“Let me also assure you that in order to guarantee that projects are chosen on their merits, investment decisions should be based on an independent and expert analysis of the intrinsic merits and economic and social viability of each project,” Juncker said.

The EU Commission also said, “The task force report concludes that focusing on the right reforms, expanding the role of the private sector and developing an EU infrastructure market will help lift economic growth, competitiveness, employment and social wellbeing.”
 

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