Transition boosts CEE energy deals

Across the CEE countries that are also EU member states − Bulgaria, Croatia, the Czech Republic, Hungary, Poland, Romania, Slovenia, Slovakia, and the Baltic States − there is significant impetus for change, but with varying degrees of success so far.

Compared to the EU average of 23.8%, the share of renewable energy consumption last year ranged from Latvia (43.3%), Estonia (38.5%), Croatia (29.4%), and Romania (24.1%), to Slovenia (22.9%), Bulgaria (19.9%), the Czech Republic (18.2%), Slovakia (17.6%), Poland (16.9%), and Hungary (15.2%). 1
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Competing interests also play a role, mainly from companies with ambitious exploration plans to develop the region’s rich reserves of fossil fuels. The oil and gas companies involved are largely controlled or influenced by their respective governments, which have lobbied the European Commission to accept that transition from coal and oil will involve a move to natural gas rather than a direct switch to renewables − at least for a while.

Overall, CEE currently generates just 25% of electricity from renewables, compared to 55% from fossil fuels, making the region vulnerable to both volatile costs and supply issues. It also means that there is greater potential for renewables, particularly in wind and solar capacity, as well as in nuclear.

Eva Talmacsi, Partner at CMS in London, notes, “The CEE region, however, will only be able to benefit from the full potential of renewables by collaborating across borders. This is especially important given its close proximity to Russia: the historical over-dependence on Russian fossil fuels has become a key security threat over the last two years.“

Dimitar Zwiatkow, Partner at CMS in Sofia, says, “One impact of Russia’s unprovoked invasion of Ukraine is that politicians are increasingly talking about the importance of energy independence; it’s been a wake-up call for the green transition. There’s a huge appetite in Bulgaria for new renewable projects with significant potential for interconnectivity between systems and storage solutions. The government wants to support the green transition.”

EU support schemes are critical for the green transition to be achieved. Bulgaria’s resilience plan includes a focus on the energy efficiency of buildings, rooftop solar installations, thermal energy, and particularly, energy storage. “This is very important for the green transition due to the technological challenges of renewables,” says Zwiatkow.

Poland is the CEE’s largest energy producer and consumer. Like the Czech Republic and Bulgaria, coal is still its predominant energy source. To reduce this dependence, the Polish government has devised a strategy, Energy Policy of Poland, which outlines how half of Poland’s energy demand will be met from renewable sources by 2040.

Energy security will be achieved through new capacity, especially renewables, and technological diversification: the construction of 11 GW of offshore wind power, the development of nuclear power, grid and energy storage, and a greater focus on energy efficiency.

Błażej Zagórski, Partner at CMS in Warsaw, says, “Poland has much to do in terms of energy transition.” He points to the increasing popularity of solar power in Poland, which has the fourth biggest photovoltaics (PV) market in Europe, behind Spain, the Netherlands and Germany.

Nuclear technology also features on the future agenda. “Poland does not yet have any nuclear power plants, although nuclear projects are developing regarding both large scale projects as well as small and medium reactors (SMRs),” he says. A joint venture in Poland, ORLEN Synthos Green Energy, plans to develop small nuclear reactor technology, particularly GE Hitachi Nuclear Energy’s BWRX-300 reactors.

Romania is another hotspot of renewables’ activity. Alongside considerable installed hydroelectric power, Romania also aims to expand its nuclear power capacity. Contributing to the country’s total energy mix, the Cernavoda nuclear power plant currently provides approximately 20%, while 208 hydropower and pumping plants deliver more than 25% of the total. In scaling up renewable projects, Romania is expected to install more than 6 GW of new wind power and solar PV capacities by 2030.

Horea Popescu, Partner at CMS in Bucharest, says, “Across the CEE region, more countries now look at developing their standard nuclear power plants: Poland, Hungary, Slovakia, and Bulgaria among them. In Romania, we’re looking more attentively at building the third and fourth reactors for Cernavoda and will start revamping and upgrading reactor number one.”

Croatia benefits from hydro and thermal power plants, as well as the Krško nuclear power plant, which is co-owned by Croatian and Slovenian state-owned power companies. Croatia’s deployment of renewable energy, which accounts for 29.4% of its energy mix, is notably above the EU average. The Croatian government’s Energy Strategy, focused on lower dependence on fossil fuels, predicts that renewable energy resources as a share of total energy consumption will grow to 36.4% in 2030, and to 65.6% by 2050.

According to Marija Musec, Partner at CMS in Zagreb, Croatia is ahead of many CEE countries for two reasons. “The first is historical, because we have a history of well-developed hydro power plants,” she says. “The second is Croatia’s participation in the ownership structure of the Krško nuclear plant. This is a good basis for building up the renewable energy component. We’re seeing huge interest for solar, both utility scale and rooftops, as well as for wind facilities.”

In terms of deal drivers across the CEE energy sector, Zagorski suggests that “major utilities need to switch to clean energy and they’ve become increasingly active as long-term investors in assets. In the entire region transition drives the market. There’s lots of activity in solar − with bigger portfolios of projects in development being put up for sale. Onshore wind remains active too. We’re also seeing that hybrid renewable projects, combining wind and solar sources, come to the market.

Prominent energy M&A deals include the EUR 7.9bn merger between refiner PKN ORLEN and Poland’s gas company PGNiG (the largest recent CEE deal in any sector), the acquisition of 25% of the shares in Austrian company Immofinanz by the Czech company CPI, and Polish group PGE’s EUR 1.3bn acquisition of electricity distributor PKP Energetyka.

Renewable deals also feature: Octopus Renewables Infrastructure Trust plc recently sold two onshore wind farms with a combined capacity of 59 MW in Poland to an affiliate of Orlen SA; EDF Renewables Poland acquired a 50 MW battery energy storage project in Poland; and Energa Wytwarzanie, a subsidiary of an ORLEN Group member, has agreed with Greevolt Power to buy a wind farm cooperating with a photovoltaic farm and three photovoltaic parks.

In Romania, Nofar Energy acquired a 255 MW solar photovoltaic (PV) project under development from Portland Trust and TotalEnergies acquired five solar projects with a total capacity of more than 200 MW from PNE; and HELLENiQ Energy Holdings acquired a 211 MW portfolio of four solar projects developed by Mytilineos Energy & Metals.

Bulgaria has also seen renewable deals: Renalfa IPP acquired the 72.5 MW Vetrocom wind park from the Alpiq Group while Rezolv Energy, the clean power platform launched by Actis, bought the rights to build and operate a 229 MW solar plant capable of producing 313 GWh of electricity per year.

Musec points to the development and expansion of two wind parks. “We acted for the pool of banks that were supporting Taaleri Energia, a Finnish company,” she says. “In rooftop solar panels, we are working with Sunbird, GreenVolt, a Portuguese biomass company, as well as the Spanish companies Acciona and Araguaia.”

Popescu notes: “With EU funds available for energy transition and a sudden demand for additional energy resources, there’s been hectic activity across the entire CEE region, particularly in developing new wind and solar projects during the last 18 months, with many significant projects of over 100 MW being developed in solar.