Last updated: June 28th 2024

Innovation Fund

The Innovation Fund is one of the world’s largest funding programmes for demonstration of innovative low-carbon technologies, with the possibility to amount to about €40 billion for the 2020-2030 period (depending on the carbon price). Funding capacity stems from revenues of the EU ETS allowance auctioning system and from unspent funds of the NER300 programme.

The Fund acts as a risk sharing mechanism which can support up to 60% of the additional costs related to the innovative technology in case of regular grants, while it can support up to 100% in case of competitive bidding procedures. This covers both capital costs, as well as operating costs (up to 10 years) and depends on verified emissions avoidance. Prior to financial close (i.e. the moment in the project development cycle where all the project and financing agreements have been signed and all the required conditions contained in them have been met), up to 40% of the grants can be given based on pre-defined milestones before the whole project is fully up and running. This is different for competitive bidding procedures, where payments are scheduled only during the operations period of the projects. 

The Innovation Fund's scope covers:

  1. Innovative low-carbon technologies and processes in energy intensive industries (e.g. introduction of renewable and low-carbon hydrogen in refineries, steel, cement, and in other energy intensive where hydrogen is used);
  2. Construction and operation of carbon capture and storage (CCS) as well as utilisation (CCU);
  3. Energy storage;
  4. Innovative renewable energy generation;

Clean Hydrogen technologies will have to compete with other means of CO2 emission avoidance technologies, as funded projects will be selected based on:

  1. Effectiveness of greenhouse gas emissions avoidance;
  2. Degree of innovation
  3. Project viability and maturity;
  4. Scalability,
  5. Cost efficiency (cost per unit of performance).

The Innovation Fund support to the project may take the following forms:

  1. grants;
  2. contributions to blending operations under the Union investment support instrument;
  3. where necessary to achieve the objectives of Directive 2003/87/EC, funding in any of the other form laid down in Regulation (EU, Euratom) 2018/1046 (the ‘Financial Regulation’), in particular prizes, and procurement.

As the Innovation Fund is established by the EU Emissions Trading System Directive, the revision of the latter under the Fit for 55 Package, directly impacts the fund. This revision of the ETS Directive, together with the update to the Innovation Fund Delegated Regulation in September 2023 extended the scope of the IF, including the maritime and aviation sectors, introduced medium-scale projects, the application of the Do No Significant Harm principle as a criterion. It introduced the competitive bidding process under the IF, fixed premiums, contracts for difference and carbon contracts for difference, while giving stronger attention to geographical balance, including through technical assistance to Member States with low participation efficiency.

The revision of the Innovation Fund also made it possible to organise the first auction of the Hydrogen Bank domestic pillar, whose main funding of €800 million came from the IF. Said first auction took place between November 2023-February 2024 and received 132 competitive bids from 17 EEA countries. The results were announced on the 30th of April 2024, with 7 renewable hydrogen production projects being selected, amounting to 1.5. GW capacity and receiving an overall amount of 720 million from the Innovation Fund. Grant agreements for these projects are expected in autumn 2024, while the second domestic auction of the Hydrogen Bank is set to be launched by the end of the year.   

 

What's in it for hydrogen?

The Innovation Fund represents a major funding opportunity for the hydrogen industry and its scaling up. The Fund is a highly relevant  tool to deploy clean hydrogen technologies, as its project eligibility scope covers areas where, in each of them, clean hydrogen technologies could have significant potential (energy-intensive industries decarbonisation, energy storage, and innovative renewable energy generation) or be positively impacted (CCS/U).

The Fund also supports cross-cutting projects on innovative low-carbon solutions that lead to emission reductions in multiple sectors, for example through industrial symbiosis or business model innovation, as well as small-scale projects with total capital costs under €7.5 million, which can benefit from simplified application and selection procedures. Finally, in light of the nascent hydrogen economy and technologies, through its Project Development Assistance (PDA) support the Fund can also support hydrogen projects not having reached a sufficient degree of maturity required in the application process, so that these projects receive further support to become eligible for funding. 

It is expected that hydrogen, as a versatile low- or zero-carbon energy carrier, will be able to significantly benefit from the funds made available by this programme, especially for technological scaling up.

 

Links to the original document and additional information:
Commission Delegated Regulation (EU) 2019/856 of 26 February 2019 supplementing Directive 2003/87/EC of the European

Commission Delegated Regulation (EU) 2019/856 of 26 February 2019 supplementing Directive 2003/87/EC of the European Parliament and of the Council with regard to the operation of the Innovation Fund (Text with EEA relevance.)

Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions on the European Hydrogen Bank.