Global menu

Our global pages

Close

Draft Implementing Act for EU Financing Mechanism for Renewables

  • United Kingdom
  • Energy and infrastructure - Clean energy

14-05-2020

The EU Commission has launched a four-week public consultation on the draft implementing act that is intended to establish a new EU renewable energy financing mechanism to support renewable energy projects.

Background

The mechanism shall offer a third way for Member States to meet their individual binding targets for the share of their electricity coming from renewable energy sources under the regime set by the Renewable Energy Directive (EU) 2018/2001 (“RES Directive”) and the Governance of the Energy Union Regulation (EU) 2018/1999 (“Governance Regulation”).

Currently, the first way for Member States to fulfil their obligations is to increase the number of renewable energy projects in their own territory. The second way is through direct cooperation between Member States and, as the case may be, with third countries. Such direct cooperation may include statistical transfers, joint projects as well as joint support schemes. In each case, it has the effect that the generation of electricity from renewable energy sources on the territory of one country is attributed to the share of electricity from the renewables of another country. This approach is based on the principle that it is more efficient to implement renewable energy projects in areas which, in terms of geography and natural resources, are better suited for it.

Cooperation between Member States through the mechanism

The new third way (to be introduced by the new EU financing mechanism) is fully dedicated to this principle of encouraging cooperation between Member States. In addition, it does not require any direct arrangements between Member States as their cooperation occurs through the mechanism which shall be run directly by the Commission or via an executive agency.

As foreseen in the draft implementing act, the mechanism enables “contributing Member States” to make voluntary payments into the scheme, which will be used to tender support for new renewable energy projects in all Member States willing to host such projects (“hosting Member States”). This has the advantage of enabling contributing Member States that are struggling to meet their targets to finance renewable energy projects elsewhere, which would count towards their targets and are potentially more cost effective than projects on their own territory. For the hosting Member State, the advantage is that it receives additional local investment in renewables projects – and can therefore enjoy the benefits in terms of local employment, lower greenhouse gas emissions, improved air quality, modernisation of the energy system and reduced dependency on imports. To provide incentives for all participants, the hosting and the contributing Member States, the draft implementing act provides that the statistical benefits of the projects should be split between the participants, in proportion to their participation.

Expression of interest by Member States and calls for proposal by Commission

The draft implementing act provides that the Commission shall, at least every two years, call on Member States to express their interest in participating as contributing and/or host Member States in grant award procedures organised by the mechanism. Expressions of interest shall contain information on different aspects of the aspired renewable energy support, e.g. maximum capacity or energy volumes, preferred technologies, maximum intended financial contribution.

On that basis, the Commission shall design and, subject to the participating Member States’ confirmation, publish calls for proposals which shall in particular specify the following:

  • the form of grants, i.e. investment support (which is granted to increase the capacity for renewable energy production) or operating support (which is granted to incentivise the operation of renewable energy installations by providing premiums in addition to market revenues, both fixed and floating)
  • the good (kW or kWh) and volume on which the award will be based (as a general rule, production capacity, in kW, or energy production, in kWh)
  • the eligible technologies (whereas different tender designs are possible, including technology-neutral, multi-technology, technology-specific, project-specific and end-use specific procedures)
  • the pricing rule (pay-as-bid or pay-as-clear)
  • the applicable ceiling price
  • the realisation period

Grant awards and project implementation

The Commission shall evaluate the proposals submitted by project promoters and, as a general rule, grant awards first to the bid offering the lowest price and thereafter in the order of the lowest to the highest price. Diverging award criteria may be applied to demonstration projects that offer significant innovation.

Successful bidders shall implement their projects in accordance with the call for proposals and the relevant grant agreement. As the draft implementing act does not (yet) contain any rules on potential deadline extensions, e.g. due to Force Majeure, this topic would at the latest have to be addressed in the calls for proposals or grant agreements.

The same applies to rules on disbursing investment support up-front or on the basis of the achievement of milestones. These are not (yet) contained in the draft implementing act but merely mentioned in its recitals as potential means to make adequate financial resources available to the awarded projects in a timely manner in order to reduce the project developers’ risk of being dependent on the availability of funds in the mechanism throughout the whole support period.

Further legislative process

Stakeholders may provide feedback on the draft implementing act until 3 June 2020 here.

Pursuant to the applicable comitology procedure, the draft implementing act is under parallel examination by Member State experts forming the Energy Union Committee. Based on the public consultation and depending on the vote in the committee, the Commission plans to adopt the implementing act between July and end of October 2020, to allow the Member States’ effective participation from the start of 2021, as foreseen in the Governance Regulation.

Outlook

It is expected that, once implemented, the mechanism will help achieve the Member States’ energy and climate targets and hence the EU target of increasing the share of renewable energy to at least 32% of EU energy use by 2030, and that ultimately, it will feed into the European Green Deal ambition of achieving EU carbon-neutrality by 2050.

In addition, the Commissioner for Energy, Kadri Simson, considers the mechanism as “especially relevant in the context of the post-crisis recovery, where the mechanism could help stimulate the economy in hard-hit Member States, both by getting large-scale projects off the ground and by supporting local SMEs and creating jobs.”

Project promoters and investors should follow-up the further legislative process and carefully consider the opportunities and challenges of future tenders under the new EU renewables financing mechanism.