Green Finance and its power to augment the Macedonian National Budget

  • {{"article.by"|translate}} Karen McClellan
  • {{"article.posted"|translate}} 22-03-2021

Green Finance and its power to augment the Macedonian National Budget



North Macedonia has many pieces of the green transition puzzle in place to allow it to follow the lead of other European countries and profit from large scale investment into its energy, industrial and built infrastructure. Karen McCellan shares 7 ways the enhanced Nationally Determined Contributioons (eNDC) can stimulate private sector investment and international funding.

Republic of North Macedonia has committed to a stringent climate target by 2030, in line with the EU’s ambition.  As the energy sector accounts for 70 pct of national carbon emissions [1] with a transition away from coal targeted for as soon as 2025, major capital investment in renewable energy and energy efficiency will be needed. Concrete implementation measures reflected in the enhanced Nationally Determined Contributions on Climate Change (enhanced NDCs) point to not only a rapid coal phase-out but also a shift away from oil and gas use.

As someone involved in climate finance for more than two decades, and having launched the first energy efficiency financing vehicles for eastern Europe, it is clear to me that new legislation, availability of public and private sector clean investment targets, the growing market for carbon emissions monetisation and the availability of low-cost debt, can enable the Republic of North Macedonia to mobilise significant capital in addition to -- and way beyond -- its national budget.  There is a clear, profitable opportunity to achieve the GHG reductions which are central to the enhanced NDC. This will also be enhanced throughout the EU accession process. 

The good news is that most of the required regulatory policies are in place to attract private capital and create new markets which will aid this transition.  This translates to a clear opportunity for the country to benefit from positive cash flows and economic stimulus as it implements its Enhanced NDC, as described below.

So, let’s see 7 ways how Republic of North Macedonia’s enhanced Nationally Determined Contributions (eNDC) can stimulate private sector investment and international funding to help meet its ambitious goals

  •  Feed-in-tariff for on-grid solar PV projects

The feed-in-tariff for solar PV requires monthly payments from central government funds to private PV project developers supplying the grid. They have already contributed to significant international and private sector investment in the county, reaching 200 MW, a strategic priority of North Macedonia. 

  • Incentives for strategic investments in renewable energy

To incentivise large investments, particularly for foreign capital, North Macedonia recently adopted the Law on Strategic Investments, a legal instrument designed to attract and optimise conditions for strategic investment in North Macedonia. Priority areas are projects in energy and infrastructure; potential investors in renewable energy will uniquely benefit from the SIP designation.   With large, low risk investment opportunities in renewable energy, investors could initiate a large new investment cycle in the country, which would help the country meet its enhanced NDC. This would positively impact not just in the energy sector as a strategic priority, but could improve the country's competitive advantages and economic growth. Moreover, infrastructure projects would also be natural beneficiaries of a green bond issuance by the Government of North Macedonia.

  • Potential for investment through net-metering

Net-metering is a powerful policy to create investment among residential end-users in small-scale renewables, principally roof-top PV, as residents pay for solar systems by selling unused energy back to the grid. To exploit this win-win opportunity, the government and private sector will need to offset financial constraints to purchasing the solar systems through a dedicated supply of affordable and long-term consumer financing options. There is a case for using public financing to build a technology-specific rooftop solar fund that offers concessional loans, issued through a network of local financial intermediaries. This would help overcome the principal barrier to market entry, namely to bridge the long-term financing gap and mobilize private sector finance for roof-top PV connected to the grid. This could be offered in combination with a partial credit guarantee fund , which would reduce the risk to local financial intermediaries, and subsidize the interest rate paid by residential consumers.

  • Energy efficiency improvements in buildings

Modernisation and efficiency improvements in both the energy sector and heavy industry offers significant economic benefits which will be captured by the private sector. Significant cash savings could be achieved by boosting energy efficiency in public sector buildings and retro-fitting the existing housing stock with more energy efficient technologies, in line with EU standards. The Energy Service Company (ESCO) model is an obvious implementation mechanism. The implementation of ESCO projects is possible in North Macedonia thanks to a new Energy Efficiency Law that the country passed in 2020.

Due to the short pay-back time for investment in basic energy efficiency measures, financing vehicles can be created without significant credit risk. For example, investments in heat pumps and improvements in building envelopes, including windows, could be bundled up into a 'residential decarbonisation financing mechanism'. Such investment could reduce the expenditure of municipal and national governments on energy. 

  • Energy efficiency in industrial processes

Macedonian industrial sectors make up 22% of final energy consumption, 44% of which is accounted for by the Iron and Steel Industry. When heavy industry falls into EU emissions regulations and the EU ETS, North Macedonian output is likely to exceed standard emission budgets upon accession. There is scope to reduce these emissions by increasing the share of co-firing in furnaces with biomass and high-energy content refuse derived fuels (RDF). Waste heat recovery technology represents profitable energy efficiency measure based on mature technology. In China, such projects are implemented on ESCO-like terms with private sector entities entering 6 to 8-year energy performance contracts. These are self-contained projects in the sense that they do not require grid connection.

  • Carbon pricing and emissions trading markets

Putting a national price on carbon offers another source of enhancement of the national budget.  Western Balkans coal plants account for 45 million tCO2 eq annually, and if emitters purchased CO2 allowances, countries in the region would collect at least EUR 1 billion per year. The mechanism should be based on current emissions, and should be aligned with carbon neutrality goals by 2050. Taxing imports of electricity based on their carbon content could help speed up the process.   

  • Circular economy

Lastly, if circular economy regulations were adopted and implemented, EU financing sources can be used for measures such as waste-to-energy generation (non-incineration), waste prevention, recycling, and composting. The experience with the “new” EU Member States shows it is crucial to start early with implementing such legislation. The region can learn much from Ljubljana’s positive experience in this respect.

To sum up, Republic of North Macedonia has many pieces of the green transition puzzle in place to allow it to follow the lead of other European countries and profit from large scale investment into its energy, industrial and built infrastructure.  There is every reason to believe that with the strong commitment of the EU to a zero-carbon transition as well as opportunities from the country’s legacy high emissions, international investment funds, just transition expenditure, green bonds, monetised energy savings and carbon offsets will provide significant capital to finance the enhanced NDC of North Macedonia.


[1] In 2017, coal and natural gas-powered generation made up 69% of total electricity generation and constitutes the single largest share of GhG emissions among all major sectors. 

Karen McClellan

As a Clean tech Chief Financial Officer, project finance banker and asset manager; she has held senior positions related to climate change finance, energy efficiency, and policy in public and private institutions. In addition, she has raised and invested funds, managed teams, implemented low carbon strategies in energy projects around the globe.

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