The Innovation Fund is one of the world’s largest funding programmes for the deployment of net-zero and innovative technologies.
The Innovation Fund is the EU fund for climate policy, with a focus on energy and industry. It aims to bring to the market solutions to decarbonise European industry and support its transition to climate neutrality while fostering its competitiveness.
The Innovation Fund is a key funding instrument for delivering the EU’s economy-wide commitments under the Paris Agreement and the climate and energy priorities put forward in the REPowerEU Plan, the Hydrogen Bank, the Green Deal Industrial Plan and the Net-Zero Industry Act.
In 2023, the revision of the EU Emissions Trading System Directive strengthened the Innovation Fund as follows:
- The overall size of the Innovation Fund has been increased from 450 million ETS allowances to approximately 530 million ETS allowances
- Scope changes: new sectors (e.g. maritime, aviation); introduction of medium-scale projects; application of the Do Not Significant Harm (DNSH) principle from 2025; stronger reference to multiple environmental impacts
- The introduction of new financial instruments (“Competitive Bidding”)
- Stronger attention to geographical balance, including through technical assistance to Member States with low effective participation.
With these improvements, we are well equipped to contribute to the goals of the European Green Deal, to lead the way in clean tech and set the example on a global stage.
The Innovation Fund’s goals are to:
- help businesses invest in clean energy and industry
- boost economic growth
- create future-proof jobs
- reinforce European technological leadership on a global scale.
This is done by funding innovative projects focusing on:
- innovative low-carbon technologies and processes in energy-intensive industries, including products that can substitute carbon-intensive ones
- carbon capture and utilisation – CCU
- construction and operation of carbon capture and storage (CCS) facilities
- innovative renewable energy generation
- energy storage
new sectors added following the revision of the ETS Directive: net zero mobility (maritime, aviation, road transport) and buildings
In comparison to the previous NER300 programme, the Innovation Fund provides more funding in a more flexible way, through a simpler selection process, and is open to projects from energy-intensive industries.
How is the Innovation Fund financed?
The EU Emissions Trading System (EU ETS) - the world’s largest carbon pricing system – provides the revenues for the Innovation Fund from the monetisation of 530 million ETS allowances. The unspent funds from the NER300 programmme, the Innovation Fund’s predecessor, were also transferred to the Innovation Fund.
The Innovation Fund’s total funding depends on the carbon price, and it may amount to about €40 billion from 2020 to 2030, calculated by using a carbon price of €75/tCO2. In practice, the Innovation Fund allowances from the EU ETS are being auctioned based on the agreed schedule and the revenues perceived are later used to provide support to innovative projects.
What is being funded and how?
The Innovation Fund focuses on highly innovative technologies and flagship projects within Europe that can bring about significant emission reductions. It is about sharing the risk with project promoters and putting the spotlight on first-of-a-kind, highly innovative projects.
The Fund aims to finance a varied project pipeline, achieving an optimum balance between a wide range of innovative technologies in all eligible sectors and countries. It covers all EU countries plus Norway, Lichtenstein and Iceland.
The projects need to be sufficiently mature in terms of planning, business model and financial and legal structure.
The fund awards grants through calls for proposals and through competitive bidding procedures (auctions).
The Commission must report annually to the Climate Change Committee, the EU Council and to the European Parliament on progress in implementing the Innovation Fund.
The first Innovation Fund progress report in 2022 summarised the results of the first 2 calls for proposals under the Fund: the first call for large-scale proposals (projects with total capital expenditure above €7.5 million) and the first call for small-scale proposals (projects with total capital expenditure below €7.5 million).
There will be regular calls for project proposals throughout the duration of the Innovation Fund (between 2020 and 2030).
Project promoters can apply via the EU Funding and Tenders portal by submitting their proposals when there is an open call for projects.
Projects applying to calls for regular grants will be selected based on:
- effectiveness of greenhouse gas emissions avoidance
- degree of innovation
- project maturity
- cost efficiency
Projects applying for competitive bidding are checked based on minimum qualification criteria and then ranked according to the auctioned price.
The detailed scoring and ranking methodology, as well as possible additional criteria for geographical and sectoral balance, are set in each call for proposals.
The Innovation Fund supports up to 60% (in case of regular grants) and up to 100% (in case of competitive bidding) of the relevant costs calculated according to the methodology indicated in each call for proposals (usually covering capital and operational costs minus revenues over the first ten years of operation).
The grants are being disbursed in a flexible way based on project financing needs, taking into account the milestones achieved during the project lifetime.
For regular grants, up to 40% of the grant can be given based on pre-defined milestones before the whole project is fully up and running.
For competitive bidding, on the other hand, the payments are scheduled only during the operational (reporting) period of the projects.
Different parties play different roles in implementing the Innovation Fund:
- European Commission
- European Climate, Infrastructure and Environment Executive Agency (CINEA)
- European Investment Bank (EIB)
- Participating countries
In further developing the Innovation Fund, the Commission is assisted by the Innovation Fund Expert group. Information on the group and its meetings is available in the Register of Commission Expert Groups.
CINEA (European Climate, Infrastructure and Environment Agency)
The Commission has designated the European Climate, Infrastructure and Environment Agency as the implementing body for the Innovation Fund.
CINEA is in charge of:
- managing the calls for proposals and all related procedures both for regular grants and competitive bidding procedures (auctions)
- providing guidance and support for applicants
- managing the project proposal submission and evaluation processes, including eligibility checks and/or minimum qualification criteria
- signing grant agreements
- disbursing the grants
- monitoring the technical/financial management of projects in the Innovation Fund portfolio
- providing expert technical support and services to project promoters
- downstream monitoring and control of projects, including management of recoveries
- ensuring visibility of the programme, available funding, results and achievements via communication campaigns and products, including events
CINEA reports regularly to the Commission and provides feedback on the general direction and further development of the Innovation Fund.
European Investment Bank
The EIB is also in charge of monetising the Innovation Fund allowances from the EU ETS and managing the Innovation Fund revenues. The EIB reports regularly to the Commission.
The countries that are eligible for Innovation Fund financing actively participate in implementing the Fund. They are consulted on key decisions, including:
- decision to launch the call for proposals,
- maximum amount of funding to be made available for the project development assistance
- pre-selection of projects for grants.
Each country has designated National Contact Points to ensure a first point of information at local level.
On request, these countries also advise and assist the Commission in setting the general direction of the Fund, as well as in addressing problems implementing a particular project.
The amount of regulatory and financial support from government (national, regional, local) is an important factor in evaluating the maturity of a project.
Other forms of support
Innovation Fund regular grants can be combined with funding from other support programmes, for example:
Innovation Fund and state aid
The Innovation Fund grant is not state aid. To cover their remaining costs of their projects, applicants can combine the Innovation Fund grant with other public subsidies.
However, the amount of public subsidy a project is permitted to receive will depend on the cumulative maximum amounts set in the applicable state aid rules.
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