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Internal Market, Industry, Entrepreneurship and SMEs


The Modernisation Fund is a dedicated funding programme to support 10 lower-income EU countries in their transition to climate neutrality by helping to modernise their energy systems and improve energy efficiency. The beneficiary EU countries are Bulgaria, Croatia, Czechia, Estonia, Hungary, Latvia, Lithuania, Poland, Romania and Slovakia. It includes support investments in energy storage, generation and use of renewable sources and modernisation of energy networks, including pipelines, grids and district heating, as well as just transition in carbon dependent regions.

The Modernisation Fund envisages two types of investments:

  • Priority investments that have to fall into at least one priority area as defined by the EU Emission Trading System (EU ETS) Directive, namely:
    • generation and use of electricity from renewable sources;
    • improvement of energy efficiency (including in transport, buildings, agriculture, waste, and except in energy efficiency related to energy generation using solid fossil fuels);
    • energy storage;
    • modernisation of energy networks (including district heating pipelines, grids for electricity transmission, increase of interconnections among EU countries); and
    • support to a just transition in carbon-dependent regions in the beneficiary EU countries (including support to the redeployment, re-skilling and up-skilling of workers, education, job seeking initiatives and start-ups, in dialogue with social partner).
  • Non-priority investments that do not fall into a priority area but meet the Modernisation Fund objectives and demonstrate reduction of greenhouse emissions.

The majority of the resources of the Modernisation Fund (at least 70%) must be invested in priority areas.

What type of hydrogen related actions can be funded

Looking from the hydrogen sector perspective, the following activities could be funded via the Modernisation Fund as priority investments, among others:

  • Generation and use of electricity from renewable sources
    • Production of green hydrogen from renewable electricity
    • Use of hydrogen produced from renewable electricity
    • Zero direct emission mobile assets based on renewables (for instance electric green hydrogen-fuelled trains, trucks or cars).
  • Improvement of energy efficiency:
    • High efficiency hydrogen CHP investment if major amount of electricity is cogenerated at high efficiency on an annual basis
    • Energy Efficiency in industrial ETS installations, which do not prolong the use of solid fossil fuel assets
  • Energy storage and modernisation of the energy networks, including district heating pipelines, grids for electricity transmission and the increase of interconnections between EU countries.
    • Upgrading electricity grids for e-mobility/deployment of charging stations;
    • Energy storage (electricity, heat, cold, etc);
    • Natural gas infrastructure projects to facilitate the use of low carbon/renewable hydrogen in existing gas network;

See a non-exhaustive and non-binding list of priority investment examples (Appendix 1), for guidance purposes only.

Furthermore, the Modernization Fund cannot finance investments which involves solid fossil fuels, while gaseous fossil fuels are not excluded, providing that a significant greenhouse gas (GHG) reduction can be achieved.


Financing details

The Modernisation Fund is not part of the EU budget nor the NextGenerationEU. It is funded from revenues from the auctioning of 2% of the total allowances for 2021-30 under the EU Emissions Trading System (EU ETS). At a price of allowances at €40/tCO2, total revenues of the Modernisation Fund could amount to over €25 billion, with Romania and Czechia the biggest beneficiaries, followed by Poland .

The fund can cover up to 70% of the relevant costs of non-priority investments, as long as the remaining costs are financed by private legal entities. It leaves the beneficiary EU countries the freedom to decide on the form of support: they can use grants, premium, guarantee instruments, loans or capital injections. Modernisation Fund support is subject to State Aid clearance and other conditions as stated in the Commission Implementing Regulation (EU) 2020/1001 of 9 July 2020.

Note: Investments are submitted by the beneficiary EU countries, who are responsible for the implementation of the Fund.

Conditions for application

The specificities of the conditions for application will be defined in specific calls organised by individual EU countries. The beneficiary EU country is fully responsible for the definition of expenditures to be covered by the Modernization Fund. The Modernization Fund is not expected to cover the costs related to recoverable VAT and salaries for public servants. In case of Just Transition measures, only costs related to soft investments (e.g. training, reskilling, upskilling, etc.) are expected to be covered by the fund.

How to apply and when

Rules for application and process can be found in the FAQ and the fund's website.

The Modernisation Fund operates under the responsibility of the beneficiary EU countries, who will work in close cooperation with the European Investment Bank (EIB), the Investment Committee set up for the fund and the European Commission. Key steps in the financing process are:

  • EU countries select the investments they wish to submit for Modernisation Fund support. No direct applications by project proponents can be sent to the EIB or the Commission.
  • EU countries submit the proposed investments to the EIB, the Investment Committee and the Commission. Submissions can be made on a rolling basis, but the Investment Committee will meet twice a year, as of 2021.
  • The EIB confirms if the investment is a priority investment as defined by the EU Emission Trading System (EU ETS) Directive. For non-priority investments, the EIB conducts a technical and financial due diligence assessment and the Investment Committee assesses the proposal and makes its recommendation on its financing.
  • The Commission takes a disbursement decision once an investment is confirmed as priority by the EIB, or recommended for financing by the Investment Committee as non-priority. There will be two disbursement decisions per year, covering investments in all beneficiary EU countries.
  • The EIB transfers the resources to the beneficiary EU countries in accordance with the disbursement decision within 30 days.

Award criteria

To obtain financing, the beneficiary EU country has to:

  • demonstrate that the investment complies with the Modernisation Fund requirements set in the EU ETS Directive and the Implementing Regulation
  • have sufficient funds available on its Modernisation Fund account
  • provide evidence that the investment proposal is in line with the State aid rules
  • confirm that the investment complies with any other applicable requirements of Union and national law
  • confirm that there is no double funding of the same costs with another Union or national instrument.

Payment modalities

The disbursement process is organised in two 6-month (i.e. biannual) cycles (linked to the two meetings per year of the Investment Committee), and the milestones of this process are set by the date of the meeting of the Investment Committee.

Investments financed by the Modernisation Fund need to meet the following deadlines:

  • the investment has to be financed at least once every two consecutive years – for instance the project proponent or the scheme managing authority have to provide proof of financial activity (paid invoices) on the project or within the scheme; and
  • the total amount received by an individual investment needs to be spent within five years from the disbursement decision; this deadline does not apply to multiannual schemes, which can last longer than five years, provided that there is a proof of payment at least every two years.

Additional Information

The Modernisation Fund leaves the beneficiary EU countries the freedom to decide on the form of support: they can use grants, premium, guarantee instruments, loans or capital injections. Co-financing from private and public entities is possible, as long as State aid rules are respected and the same costs are not already funded by another Union or national instrument (no double funding).

EU countries could draw on existing national funds and/or European instruments, such as [node:32073:link]{InvestEU as Link} , [node:32074:link]{Connecting Europe Facility - Energy as Link} and [node:32075:link]{Connecting Europe Facility – Transport as Link}, including its energy projects (Project of Common Interest), the [node:32070:link]{European Regional Development Fund, Cohesion Fund and REACT-EU as Link} and the [node:32071:link]{Just Transition Fund as Link}.

Specific websites

DG CLIMA website dedicated to the Modernization Fund

Modernisation Fund webpage


Implementing Regulation

Example(s) of supported projects

Not available yet.

Database of examples

Not available yet.