Innovation Fund

Objectives

The Innovation Fund is one of the world’s largest funding programmes for demonstration of innovative low-carbon technologies. It is not a research programme, it is about bringing highly innovative technologies to the market (commercial demonstration projects).

The aim of the Innovation Fund is to create the right financial incentives for projects to invest in the next generation of technologies needed for the EU’s low-carbon transition. It supports innovative low-carbon technologies in all EU countries and boosts growth and competitiveness by empowering EU companies with a first-mover advantage to become global technology leaders.

It aims at supporting commercial demonstration, aiming to bring market industrial solutions to decarbonise Europe and supports its transition to climate neutrality. The fund supports cross-cutting projects on innovative low-carbon solutions that lead to emissions reductions in multiple sectors, for example, through industrial symbiosis. The goal is to help businesses invest in clean energy to boost economic growth, create jobs, and reinforce European technological leadership. It is about sharing risk with project promoters through the demonstration of first-of-a-kind highly innovative projects.

What type of hydrogen related actions can be funded

The Innovation Fund is open to projects for breakthrough technologies for all energy-intensive industry sectors covered by Annex I to the EU Emission Trading System Directive, including products substituting carbon-intensive ones; renewable energy; energy storage; carbon capture and storage (CCS); carbon capture and utilisation (CCU). Funding of electrolyser manufacturing projects is possible, as is the use of hydrogen in other applications, such as mobility.

The fund allows for a high degree of flexibility. For example, a project can focus on hydrogen production alone. Alternatively, a clean hydrogen end user could apply alone, and in this way indirectly fund the hydrogen production. A consortium of companies involved along the value chain can apply as well – with flexibility as to how the grant is split between members of the consortium. As a result, the fund can be used to support all types of clean hydrogen production projects and the end-use of clean hydrogen (or clean hydrogen-based products, like e-fuels or steel produced with hydrogen) in all parts of the value chain.

Furthermore, hydrogen transmission and distribution projects can be funded either indirectly or even directly but, on the condition, they are integrated within a larger production or end-use project.

As projects need to be able to demonstrate financial and business maturity, as well as be able to generate the estimated GHG emission savings during 10-year operation period (3 years in the case of small-scale projects), the fund is not applicable to pure research projects.

Details

Financing details

The revenues for the Innovation Fund come from the auctioning of 450 million EU Emissions Trading System allowances from 2020 to 2030, as well as remaining unspent funds coming from the NER300 programme. The Fund may amount to € 20 billion (for a carbon price of €40 ton/CO2 ), depending on the carbon price.

The Innovation Fund supports up to 60% of relevant costs of projectss. In case of large-scale projects, the relevant costs are the net extra costs (CAPEX and OPEX) linked to the implementation during the 10 years after project’s entry into operation. In case of small-scale projects, the relevant costs are defined as the project’s capital expenditure (CAPEX). This means that the remaining project costs need to be covered by the project promoters, either from private or public sources.

Support is already available in the form of grants. Additional support via blending is also possible, with €100 million currently assigned from the Innovation Fund to InvestEU to enable support in the form of financial instruments (i.e., debt or equity-type debt) via the Green Transition Product.

Furthermore, the Green Transition Product can be combined with Breakthrough Energy Catalyst financing (see request for proposals). Clean hydrogen is one of the four technology fields targeted by this call. The Innovation Fund grant alone is not considered to be State aid. To cover the remaining costs, a project applicant can combine the Innovation Fund grant with public support by an EU country, subject to applicable State aid rules.

Conditions for application

The fund is open to large-scale projects with a capital expenditure (CAPEX) above €7.5 million, as well as to small-scale projects with capital expenditure (CAPEX) under €7.5 million. The projects need to be sufficiently mature in terms of planning, business model as well as financial structure.

The Innovation Fund aims to finance a varied project pipeline achieving an optimal balance of a wide range of innovative technologies in all eligible sectors and EU countries, Norway and Iceland.

It is important to flag that although NGOs and Academic institutions are also eligible in principle, in practice they apply only as part of consortia led by Businesses and SMEs since the Innovation Fund is addressed to pre-/commercial scale. Natural persons, scientific researchers and engineers are not eligible.

How to apply and when

Project proponents can apply by submitting their projects when there is an open call for proposals. Projects can apply via the EU Funding and Tenders portal. There will be regular calls for proposals in the lifetime of the Innovation Fund until 2030.

During the first call for large-scale projects, 3 projects out of a total of 7 selected projects have important hydrogen components: HYBRIT, SHARC and Kairos@C.

The second call for large-scale projects received 25 applications focussed on hydrogen out of a total of 138 project proposals.

For the first small-scale call, 4 projects out of 30 applications deal with hydrogen: HyValue, ZE PAK, SUN2HY and H2 Valcamonica.

Award criteria

The assessment of the projects is done according to greenhouse gas (GHG) emission avoidance, innovation, maturity level, scalability and cost efficiency. Projects that meet the GHG emission avoidance, innovation and scalability criteria may qualify for project development assistance under certain conditions. Small-scale projects can benefit from simplified selection criteria, in particular regarding cost efficiency. The detailed scoring and ranking methodology are set in each call for proposals. The Innovation Fund uses dedicated methodologies for calculation of relevant costs and GHG emission avoidance, available on the EU Funding and Tenders portal.

Payment modalities

The grant support is provided in the form of lump-sum payments, upon reaching agreed project milestones. Payment of 60% of the Innovation Fund grant is depending on the delivered GHG emissions avoidance of projects.

Other information

The Innovation Fund grants can be combined with other sources of funding, for example: InvestEU investment support instrument to de-risk big projects; Horizon Europe to help bring such new technological solutions across the ‘valley of death’ and to the market; Connecting Europe Facility for the roll-out of key infrastructure; Modernisation Fund and the Cohesion Fund to boost innovation in all EU countries; national programmes supporting research and innovation for low-carbon technologies; InnoFin Energy Demo Projects and the enhanced European Innovation Council (EIC) and private capital.

Details on how to combine the Innovation Fund with other public support.