Meet Milena Milosavljevic, our esteemed interviewee and the Senior Energy Expert with versatile experience in sustainability roles in the international finance sector. With a robust foundation in energy engineering and extensive tenure in international banking and sustainable finance, Milena is fervently oriented towards facilitating the energy transition and fostering a low-carbon future. Her passion for renewable energy, sustainability, and decarbonization technologies is palpable and drives her dedication to creating positive impact.
“Sustainable finance will play a pivotal role in delivering EU Green Deal policy objectives and EU’s international commitments on climate and sustainable development. What financial instruments are there to help improve allocation of investments towards sustainable economic activities and projects?”
The main setup for energy transition and for the sustainable finance scene includes various packages of regulations that come as an outcome of the EU Green Deal. The EU Green Deal was approved in 2020, before some of the major geopolitical events that happened over the last 3 years. The Russian invasion of Ukraine scaled up the need for the urgency of energy diversification as well as independence, so the EU commission had brought the REPowerEU package in 2022, which included more ambitious goals. REPowerEU includes 300 billion in funding, out of which 72 billion is available through grants and the rest is available in loans. Considering all available, the total amount of funding under the EU Green Deal is equal to 1.8 trillion.
The second most significant influence that had challenged the EU’s support for the energy transition was the introduction of the Inflation Reduction Act in the USA set in 2022 (set to support domestic production while promoting clean energy, available through tax incentives, loans and grants). As a response, the EU has set the Green Deal Industrial Plan to increase EU competitiveness and allow faster access to funding. In 2023, New Zero Industry Act covering main decarbonization technologies that are subject to 40% local production was proposed and it includes support measures such as reducing the permitting burden and enhancing skills, all with a specific focus on CO2 storage and hydrogen. As such, auctions were announced for hydrogen projects that will be funded under the Innovation Fund. In addition, to drive further diversification and ensure sustainability of critical materials, the Critical Raw Materials Act was proposed, requiring that by 2030, at least 40% of materials come from Europe and not more than 65% from a single source.
From my point of view, these regulations will help overcome the main obstacles Europe has been facing: energy import from Russia, competitiveness mainly in relation to the USA, and reliance on China for providing raw materials needed for the clean technologies. Regulations for sure set the common basis, however if those measures are sufficient it remains to be seen. Depending on the supply chain risks, and set offtake prices, most of the renewable energy projects are now bankable. However, other technologies, specifically hydrogen, still have a long way to reach high profitability rates without the need for support. Most of the projects are financed through project finance, but also include development finance support either through guarantees, grants or preparedness for the projects to be at the mature stage for financing. Other forms of financing are relevant for more mature entities and include issuance of Green Bonds and Sustainability Linked Loans. Those are either linked to a specific Use of Proceeds or KPIs company plans to achieve (e.g. % reduction of CO2, % increase of RE power, etc). Current general investments level has constraints considering the general macroeconomic situation which drives inflation rates higher and as such also weighted average cost of capital. Next few years are crucial for achieving the set 2030 targets and so all the efforts are worth it.
“Recently, the EU Commission has adopted the sustainable finance package, and thus introduced new regulation for ESG rating providers.“
The ESG Ratings have been evolving on its market basis and as the need is growing, new providers are joining the market with their new criteria of evaluation. However, as they become an unseparated part of companies’ evaluation together with financial ratings, consistency between different providers assessment and standardization of its output is much needed. Two things are to be said about ESG ratings. Firstly, ESG rating sometimes wrongly understand the rating as the indication of how sustainable a company is, while the rating is indicating how successfully the company manages Environmental, Social and Governance issues. Therefore, you can have the highest ratings for industries that do not have the greatest impact on the environment e.g. O&G.
Secondly, different providers have different methodologies for evaluating any of those aspects. While one provider would give the highest score for social aspects given that company has HSE policy and HR policy in place and it is signatory to UN Human Rights Guiding Principles, other providers might also evaluate recent controversy and its outcomes and therefore give a lower score. So again, ESG rating regulation that would make the providers methodologies transparent to a degree where it would require audit of the rating providers methodologies’ implementation would be beneficial for the market standardization.
“In 2007 European Investment Bank issued the world’s first Green Bond and ever since green bonds have been recognized as one of the key ways to help drive more capital to climate related projects. Significant progress on standardizing definitions of green investments and transparent rating procedures has been achieved but there are still challenges and barriers related to the further evolution of the green bonds market.”
The volume of Green Bonds depends highly on available volumes of Green Projects or so-called green Use of Proceeds. As discussed above, the current level of profitable projects is still challenged either because of the macroeconomic situation and high inflation rates or in combination with other aspects that I see fall in three buckets. The first includes more mature technologies, like renewable energy projects that are bankable but for its higher penetration in the network, there is still a high need for network development which is both costly and lengthy.
The second one is related to projects regarding the technologies that still have not reached sufficient levels of maturity, e.g. CO2 storage and Hydrogen.
The third is the cost challenged by supply chain risks, e.g. Battery production. The Green Bonds market is ready and investor hungry, but for that to happen we still need much higher levels of green investments. In addition, EU Green Bond Standards that are supposed to kick in regulation at the end of 2024, requires that at least 85% of use of proceeds are aligned with EU taxonomy. This would definitely additionally impact market volumes as Taxonomy criteria is quite strict in many aspects and not yet widely applicable.
“EU Taxonomy is a fundamental principle of the EU’s sustainable finance framework. Recently it has been expanded and additional economic activities have been included, for instance gas-related activities. Carbon lock-ins, and extended dependency on gas imports are regarded as risks associated with adaptation of this decision.”
Taxonomy criteria for gas related projects are quite specific and require that financed facility replaces other high emitting alternative with 55% emissions reduction over lifetime, that it doesn’t exceed 15% of replaced facility, and that it is built as such to be able to take gases from renewable energy or low carbon source from 2035. All this is quite strict, and it is basically specifying that gas is used to replace coal only in mid-term until we are ready for full penetration of renewables and hydrogen. Currently, we are not at that level, but we still have a high level of coal use. Specifically, coal uptake has been seen post 2022 energy crisis, which is basically intensifying the trilemma between energy security, affordability and sustainability. All these factors need to play a role if the transition is to happen without further ruining economic stability. Will natural gas be a real midterm solution for Europe considering current geopolitical discussion remains to be seen, but one is sure, we are not able to decarbonize and diversify the energy sources on the social burden cost, all this need to be taken into account.
“You have an electrical engineering background and before establishing your career in sustainable financing, you have been working in that field. “
I wouldn’t think of this as a 360 change. For me, this switch was very positive for my career, as it was always my aspiration to work on renewable energy projects. I have done both of my bachelor and master thesis in the renewable energy field. Actually, I have also received an award from BAFA USA for the third best bachelor thesis for a project ”Wind power plant development in Belgrade ”. However, when I was starting my career (2012), no job at the time could be found in Serbia on a given topic. 3 years after starting my career in pure energy related companies, I found the advertised position for renewable energy and energy efficiency finance. I was more than excited to apply but I also was confused why a bank would look for an engineer. Later, it turned out to be the best decision I could make. Not only I worked on most of renewable energy projects in Serbia, but through the green team of the bank I also worked on future consultation for renewable energy support schemes in Serbia, worked on first PV project for self-consumption, first imports of EV cars, first purchase of green electricity and followed up number of similar projects in Europe when I moved to Germany to work for the same banking group as I started in Serbia. Although in the meantime I have changed the banking institution, to date, I find working at the bank as motivational as on day one. Day by day I feel how important the role of finance is. Through work in the finance sector, you can be in touch with the whole economy and not just a particular part you would with as a pure engineer. Deciding both on what to finance and moreover what not to finance is definitely the most impactful part of our job. However, I still use my engineering thinking when discussing various topics. Also, it is a misconception to think that trough sustainability roles, which nowadays have become fashionable, you can change the world, but indeed you can work in your field of influence on small improvements and contributions and that is still a huge satisfaction feeling.
“Besides being involved with sustainable financing, you were an author and project lead of the project “Solar calculator”. For our readers this project is a one stop shop web solution for solar panels in Serbia, that provides end consumers valuable information such as: economic metrics, saving metrics, trusted list of financial providers, and also vendors for installing them.“
Considering that I am for now more than 10 years in the area of Renewable energy and that I have spent the 5 years working on decarbonization projects in Europe, I wanted to use my accumulated knowledge and experience in the Serbian market, for something that will be useful for speeding up of the energy transition in my own country. I realized that interest is increasing, but still, our citizens need help in achieving reliable and independent energy and ultimately cleaner source of energy for which they have more than ever hig need, having in mind day by day higher rates of pollution.
Namely, even though some of the first solar power plants in Serbia were installed 10 years ago, the Serbian solar market was stagnating. Many reasons have influenced this, but firstly higher cost of equipment, low energy price, and very low quotas for subsidies that the government has introduced to support such projects. Even though today we apply modern law for renewable energy, which for the first time allows us to connect prosumers, there are still many open conceptual questions and confusions around how all the regulations function in practice.
Interest of potential investors is increasing but they are still looking for “simple” answers to the questions such as:
- How much installed power do I need for my consumption?
- How much would such a system cost?
- What would be potential savings?
- What would be the payback period?
- What is the procedure for connection?
- Who are possible installers (what are their references)?
- Which banks offer loans for financing solar systems (are there available grant components)?
Platform solarnikalkulator.rs offers all those answers. The goal of the platform is to provide all the needed information to potential investors that they need to install their first solar system. The ultimate goal is to increase energy independence, and secure energy sources, but also have a greener and cleaner energy for all citizens and future generations. Development of the platform is supported by the project “Promotion of renewable energy and energy efficiency in Serbia” which is deployed by German international cooperation, Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH. This support actually made another very important goal, that I had in mind for the platform which is to be a public good and not a commercial webpage, so it can be freely used by citizens/users and all information available to be unbiased, focusing on the user’s needs.