It has long been clear that progress must be made in developing a variety of forms of renewable energy if the European Union (EU) is to meet its aim of rapidly increasing the overall share of renewables in the generation mix. Yet, while thousands of wind turbines are being erected in Denmark, Germany, the UK and Spain, there is still evidence that slow administrative processes are holding up the construction of new small hydro projects. Different interpretations of directives from the European Commission (EC) also translate into vastly differing approaches to applications for new developments.

The EC is certainly keen to promote small hydro and considers it the best proven of all renewable energy technologies, both as part of the overall European generation mix and as a means of cutting EU carbon emissions. Its energy sector policy states that ‘small hydroelectricity plants, defined by installations with capacities of less than 10MW, are an integral part of the EU electricity production system. Ideal for the electrification of isolated sites, small hydro power also provides an extra contribution in case of consumption peaks.’

According to EU projections, total small hydro generating capacity within the Union will increase by 2% a year over the next five years, although it remains to be seen whether the target of 14GW in the EU15 can be reached by 2010. However, about 70% of all small hydro schemes in member states are more than 40 years old and so upgrading and refurbishing existing plants could lead to a substantial increase in overall generating capacity in the sector.

Although EU figures are a little out of date, they do highlight the geographical concentration of small hydro in a small number of member states. Total small hydro generating capacity for the EU15 stood at 11,601MW at the end of 2005, of which 84.5% was located in just six countries: Italy (2405.5MW), France (2060MW), Spain (1788MW), Germany (1584 MW), Austria (1062MW) and Sweden (905MW).

The Thematic Network on Small Hydropower (TNSHP), which was set up by the european-small-hydropower-association (esha), says there are 14,000 small hydro projects in the EU15, with average generating capacity of 0.7MW; in comparison with 2800 schemes in the EU10 – the ten countries that joined the EU in 2004 – with average plant size of just 0.3MW.

However, the EC concedes that existing incentives to development are often outweighed by regulatory and environmental constraints. The most significant constraint is the framework directive on water and its interpretation in national legislation. The EC concedes: ‘This directive, which obliges the member states to preserve the correct ecological state of the water of rivers, can have negative consequences on the electricity production of small hydro power plants. But at the same time, the countries of the EU have to take into consideration the directive establishing the increase in their share of renewable origin electricity production. The future of small hydro power shall therefore depend in part upon a good balance being achieved in the transposition of these two directives.’

This balance may be reached in some countries better than in others but at least the requirement to implement the two directives forces member states to reassess their national hydro potential and hopefully create clear regulatory frameworks.

As Table 1 highlights, there is huge variation across the EU in the time it takes to obtain a licence to develop a small hydro scheme. While the process can take as little as a year in some of the new accession states, such as the Czech Republic, Estonia and Romania, ESHA insists that this can rise to as many as ten or twelve years in Portugal and Spain, while delays in Denmark make it virtually impossible to develop small hydro ventures and government policy means that even existing schemes must operate with reduced flows. If small hydro is to make a serious contribution to achieving region-wide, emission reduction targets, then a decade-long application process cannot be acceptable

There is no doubt that mitigating the various negative environmental affects of small hydro schemes is vital if licensing procedures are to be completed promptly and funding is to be secured from international financial organisations. In line with changes in World Bank lending rules in recent years, the European Bank for Reconstruction and Development (EBRD) and other European sources of financial support insist that measures are taken to reduce the impact of dams on flora and fauna, existing leisure uses of water courses and cultural remain. While standard environmental impact assessments (EIAs) may have been sufficient in the past, more detailed guidelines on the evidence required are now provided by funding organisations.

Table 2 lays out the EBRD eligibility criteria in full.

Better targets needed

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.

Bulgarian situation

The EBRD has been particularly active in the Bulgarian small hydro sector as well as the country’s renewable energy sector in general. It has provided credit of D100M (US$155M) to Bulgarian banks for investment in renewable energy and energy efficiency projects, enabling the development of 16 small hydro schemes by the end of 2007. Complementary technical assistance is also provided by the Kozloduy International Decommissioning Fund. In November 2007, the EBRD agreed loans of Euro 54M (US$84M) for the construction of nine new small hydro schemes on a 33km stretch of the river Iskar under its Sustainable Energy Initiative (SEI), launched in May 2006.

All nine projects will be developed, owned and operated by Vez Svoghe, which is 90% owned by Petrolvilla Bulgaria, a local subsidiary of the Italian firm Petrolvilla & Bortolotti, with the remaining 10% equity held by the local Svoghe municipal council. Carbon credits produced by the first two hydro projects under construction, Lakatnik and Svrazhen, will be bought by the EBRD’s Netherlands Emissions Reduction Co-operation Fund. Previous EBRD funding for the Bulgarian power sector has focused on improved transmission and distribution infrastructure.

The money for the nine new run-of-river projects will be provided in the form of a D34M (US$57M) direct loan from the EBRD and another D20M (US$31M) package that will be by international bank syndication. Additional finance to fund environmental and technical due diligence on the schemes has been provided by the UK Department for International Development and by the Italian Government.

On signing the lending agreement, the president of the EBRD, Jean Lemierre, said: ‘The EBRD is supporting Bulgaria in its efforts to diversify its energy sources and has played a prominent role in financing the construction of new generation capacities in the country. The Bank is committed to supporting sustainable energy projects and financing renewable energy is an important aspect of ensuring energy security for generations to come.’

Knowledge transfer is one of the main aims of the venture. Petrolvilla & Bortolotti has considerable experience of building and operating small hydro plants in Italy in conjunction with local municipal authorities and the EBRD hopes to encourage such public-private partnerships (PPP) in East and Central Europe. The new hydro projects, which will be located about 40km north of Sofia, will be fully automated to maintain constant water levels and power production. They are expected to produce 137.2GWh per year from combined generating capacity of 25.7MW. Concrete weirs at each of the nine sites include fish passages and slide gates to reduce the build up of sediment.

There is no doubt that EU directives on renewable energy and cutting carbon emissions can help the small hydro sector to expand both through the construction of new projects and the refurbishment of existing schemes. It is equally clear that although member states are working within the same regulatory framework, progress varies a great deal from country to country, particularly because of licensing delays. Yet if the evolving targets on the proportion of renewables in the generation mix for the next decade are to be met, it is vital that all member states try to copy the best practice of the most efficient nations.


Table 1
Table 2