Insight from Brussels: EU makes multi-billion euro bet on energy transition tech

Clean hydrogen, renewables, batteries, and carbon capture and storage are among the energy transition technologies set to benefit from billions of euros of public funding as the EU seeks to become climate neutral by 2050.

Much of this is to come from the European Commission’s proposed Eur750 billion ($852 billion) “green” recovery plan, which needs unanimous approval from the EU’s 27 national governments to go ahead.

The proposal includes EU budget guarantees of Eur20 billion for sustainable infrastructure, Eur10 billion for research, innovation and digitization, and Eur31 billion for strategic European investment under the InvestEU program. The idea is that the guarantees help mobilize much higher levels of private and other public investment by lowering potential projects’ financial risk.

Energy transition projects eligible for these guarantees include renewables, energy storage including batteries, sustainable transport technologies, clean hydrogen and fuel cell applications, decarbonization technologies for industry, and carbon capture and storage or use (CCSU), as well as related critical infrastructure such as power interconnectors.

Such projects will have to compete for the money with projects from other critical sectors, including healthcare, digital, strategic raw materials and cybersecurity.

Fossil fuel projects are mostly not eligible, unless there is no viable alternative technology, or they are combined with CCSU technologies to cut their emissions significantly. All nuclear power projects are excluded.

The EC would distribute the money based on requests from governments set out in national recovery plans, so it is not clear yet how much would go to support specific national energy transition policies.

The general push to decarbonize remains a key driver, however, with the EU as a whole already committed to cutting its greenhouse gas emissions by at least 40% from 1990 levels by 2030.

The EC is assessing raising this ambition to a 50-55% cut, and will make formal proposals on this in September. This is part of its European Green Deal strategy to help the EU achieve its 2050 climate neutrality goal.

2020 funding options

The EC hopes to get the recovery fund and an updated 2021-2027 EU budget proposal approved by the end of the year, so the disbursal process would start next year.

Meanwhile there are still EU funding opportunities for energy transition projects this year under current programs.

That includes the EC’s Eur1 billion funding call for large-scale renewables, clean hydrogen, energy storage, and CCSU projects, that opened on July 7.

The money comes from the EU’s Innovation Fund, which is funded until 2030 by selling 450 million EU Emissions Trading System allowances. It has a budget of around Eur10 billion over 10 years at current EU carbon prices.

The EC wants to use this money to kick-start the EU’s hydrogen economy, and to become the first in the world to have CCSU for hard-to-abate industrial sectors, such as cement, steel and chemicals.

It also wants to use it to support innovative renewables, such as offshore wind, ocean energy, geothermal, biofuels and green hydrogen.

Successful innovative projects can receive up to 60% of their additional capital and operating costs compared with current technology for up to 10 years.

The aim is to close some of the investment gap given that innovative projects’ carbon abatement costs start at around Eur80-90/mt CO2 and current EU carbon prices are around Eur20-25/mt CO2.

Only yet-to-be-built projects with a planned total capital expenditure above Eur7.5 million and based in an EU country, Icleand or Norway – countries directly part of the EU ETS – are eligible to respond to the first call. This excludes Switzerland, which is only linked to the EU ETS, and the UK, which will leave the EU ETS when its Brexit transition period expires at the end of this year.

The EC plans to award grants to successful projects in the second half of 2021, and hopes to organize similar annual Eur1 billion Innovation Fund calls until 2030. The EC also plans to open an estimated Eur1 billion European Green Deal call under its Horizon 2020 research program after the summer, with energy transition one of the target areas.

The call is likely to include requests for projects demonstrating large-scale offshore energy technologies, including possible hydrogen applications, and also for projects to develop a 100 MW electrolyzer. Both are part of EU efforts to scale up green hydrogen, made by using renewable power to electrolyze water.

Regulatory support

Potential investors may be encouraged by the public financial support on offer, but they also seek regulatory certainty.

The EC therefore published EU strategies for energy system integration and hydrogen on July 8, and is working on one for offshore energy, due after the summer.