Apr 25 2016

Forms of financing

The idea that ETS Innovation Fund money could be handed out in the form of refundable finance is barely considered in the March 2015 public consultation responses, but it is given serious consideration by the EC, featuring as ‘Option 2’ in its Impact Assessment (see section 8.1.4). Svebio was one of the few organisations to comment on it: “One should consider changing NER financing to an investment support scheme for innovative carbon technologies, and set up an investment fund administered by EIB.” Rockwool is similar: ETS Innovation Fund “needs to be better aligned with other policies and measures where investment efforts are focused on the most cost-effective areas. Good examples can be found in the off-the-shelf financial instruments now being developed to help innovative business models develop in industry as well as in the buildings renovation sector, where public funding (guarantees) and financing are needed to leverage private financing in the European Fund for Strategic Investments (EFSI).”

Scotland Europa: “Its modalities should set minimum parameters which allow packages to be designed to fit projects. This would better take account of the differences for each sub-sector. Flexible risk funding would attract private investment. […] This was shown to work for Scotland (Pentland Firth)”.

WWF + 8 environmental NGOs: “De-risking (venture) capital and debt by grants and loans as a tool to facilitate access and enhance entrepreneurship and the market readiness of low-carbon products and processes [should be an aim of ETS Innovation Fund].”

Estonia: “We suggest to consider the approach where the EIB alone or EIB together with the Member State are co-guarantors of the project. The risks would be shared so that the risk of the Member State will not exceed 50% and will enable the project to receive crucial pre-operation investment.”

Apr 25 2016

DG CLIMA conference on ETS Innovation Fund

The European Commission will host a High Level Roundtable on Low-Carbon Innovation on 9 June in Brussels. The Director General of DG CLIMA, Jos Delbeke, has invited senior people from some organisations to attend in person. His invitation says the roundtable “will enable an exchange of ideas on how to make best use of the opportunities to be provided by the Innovation Fund”. It will be webstreamed here.

  1. NER400.com’s comment

    ***UPDATE 19 June 2016: The SET Plan did, in the end, get a look-in at the roundtable. One of the speakers was Sweden’s delegate to the SET Plan Steering Group, Lars Guldbrand.***


    Neither the invitation nor DG CLIMA’s corresponding webpage make any reference to the SET Plan. The roundtable is not listed in the SET Plan Steering Group’s schedule of meetings, nor was the Steering Group informed of it at its most recent meeting on 13 April. For many stakeholders and Member States the SET Plan and SPIRE are the first places to look for ideas for ETS Innovation Fund.

    The apparent mutual lack of awareness suggests there is still much to do to get DGs ENER and RTD to talk to DG CLIMA and vice versa. Stakeholders have commented on this.

Apr 25 2016

MEP Fredrick Federley sets out his stall on ETS Innovation Fund

He wants

  • 150 M more EUAs for ETS Innovation Fund than proposed by the EC, and for them to be exclusively destined to projects to decarbonise heavy industry
  • to remove all provisions related to the distribution of projects among Member States, unlike the EC, which proposes ‘geographic balance’.

He likes

  • the EC’s proposal to increase the maximum reimbursement rate from 50% (in NER300) to 60% of relevant costs.

He revealed this in interviews with Bloomberg News and Carbon Pulse on 22 April.

  1. NER400.com’s comment

    Federley is from Sweden. Had there been, in NER300, no rules on the maximum number of projects a country could get, Sweden would have got more projects than all other Member States in the first NER300 funding round. (The EC has not disclosed enough information to tell whether this would be true for the second round.) The abandonment of ‘geographic balance’ rules is the position of Svebio — the Swedish Bioenergy Association — and Fortum, which describes itself as “one of the major energy companies of Sweden”. But Federley can expect resistance, as explained here.

    Federley proposes to take his 150 M extra EUAs from the Market Stability Reserve, allowing the release of an equivalent number of tons of CO2. They should be taken from another part of the Emissions Trading Scheme to allow the MSR to do its job of reducing the short- and medium-term availability of allowances.

Apr 25 2016

Money spread evenly to all countries?

Small member states, in particular, speak up in favour of maintaining the rules of NER300 that limited the amount of projects a single country could be awarded.

NER300’s rules related to spreading projects between countries were very soft. While it is true that Article 8 (4) stipulated “at least one […] project shall be funded within one Member State”, this was on condition that that project had already been selected as a winning project by the usual mechanisms of proposal evaluation. The rule was therefore redundant.

In favour of spreading the money
between many countries
Keen to allow the concentration of projects

Member States:

  • Hinted at in the European Council’s 23-24 Oct 2014 Conclusions, “Investment projects in all Member States, including small-scale projects, will be eligible”.
  • Stated in the MSR Decision reached between the European Parliament and Council, which was published in the Official Journal on 6 Oct 2015, “… with projects in all Member States including small-scale projects…”
  • Spelt out in the public consultation closing March 2015:
    • Estonia: “Estonia also believes that the new fund should still follow the principle of even geographic allocation of the available financing”
    • Czech Republic: “Also, regional distribution of beneficial projects among Member States should be promoted so that ideally every Member State has at least one project selected.” [Remark: NER300 contained this rule (see introductory paragraphs) but with a caveat that rendered it inoperable. The Czech Republic did not protest at its weak implementation.]
    • Anonymous member state: “The aspect of geographical balance in selection of projects should be strengthened.”
  • Stated at the Environment Council 26 Oct 2015: Bulgaria, Lithuania and Slovakia
  • Fortum and Svebio both say, “There should not be any earmarking between Member States,” with Svebio adding, “The selection of projects should be solely based on their merits.”
  • Projekt21plus says, “For serious progress in innovation and in reaching a lower level of emissions, it should be free how many projects are supported by the new NER400 programme, even at the risk of concentrating several projects just in a few number of Member States.”
Stakeholders:

  • CEEP: “Countries with GDP below 60% of the EU average, should be given priority in access to such funds.” [Remark: This will be the explicit aim of a parallel ETS funding scheme, the Modernisation Fund, detailed in proposed new Articles 10c and 10d of the ETS]

The Impact Assessment says, “[The minimum of three projects per Member State] could be maintained or adjusted to 4 projects per Member State, dependent on other design features such as the maximum funding rate and the resulting total number of projects. This element will be subject to a future implementing measure and will be assessed in this context.”

Apr 17 2016

Who wants it? Is a funding programme created from the monetisation of carbon allowances a good idea in principle?

This article is written from the published responses to the European Commission consultation on revision of the EU Emission Trading System (EU ETS) Directive, which closed on 16 March 2015.

CEPI + 2 explain the situation: “The NER300 program was funded from the sale of 300 million emission allowances from the New Entrants’ Reserve, designed to support new investments in industry, to support research programs focused on renewable energy and carbon capture and storage. As such, it represented a financial transfer from the European industry to the energy sector.” The EC, with the backing of the European Council and European Parliament, wants to broaden NER300 out to industry, yet industry continues to view NER400 with more suspicion than the power sector. The hardest line is taken by Glass for Europe: “the innovation fund should be funded by auctioning revenues and not by the diversion or use of any sort of potentially tradable allowances.” The association (but not its members) added this line: “We consider the financing scheme and the increase in the initial endowment from 300 to 400 million allowances not appropriate.” Why the hostility? Say companies in the non-ferrous metal sector among several others, “Firstly, the availability of funds will be linked to the price of emission allowances (EUAs) and thus will be very volatile, depending on the success of the EU’s climate policy. Secondly, the need for co-financing of such projects depends on the competitive position of low-carbon energy in the market, which is mainly linked to the cost of carbon emissions.”

Shell is anxious not to create redundancy in the EU’s instruments, and for the welfare of industry: “[ETS Innovation Fund should] not replace other existing or future support mechanisms at EU or MS level. The fund should continue to use allowances under the existing cap. The fund should also avoid any impact to the level of free allocation for those on the current carbon leakage list.” (For alternative points of view, see ‘Baby snatching’ on the question of coherence with existing instruments, and the statements of some Member States here and associations here on the question of carbon leakage).

Twenty-one organisations, many from the materials sector and chambers of commerce, say that while “the ETS directive states that half of auctioning revenues should be spent on decarbonisation measures, this has not been the case so far.” BP believes it has economic theory on its side when it says that even this would have been too much. “BP’s preference for EU ETS revenues is that they should be returned to the economy in a non-distortionary manner, e.g. via corporation and income tax reductions.”

Cembureau can say…

“There is a strong argument that with the high carbon prices that MSR [Market Stability Reserve] will generate that power generation does not need a high level of innovation funding and could justify investments using the higher EUA price and their ability to pass on the full EUA cost.”

… but the new reality, accepted by many more today than before the European Council Conclusions of October 2014 (see the responses to the ETS consultation of 2014 on post-2020 carbon leakage provisions), is that ETS Innovation Fund is on its way. Its arrival is greeted with a tone of heavy resignation by GSV

“The steel industry does not in principle support the removal of ETS allowances from the wider market […], but if allowances are to be removed it is vital that there is fair access to innovation funding for all sectors impacted by the EU ETS.”

…and cheerfully by Austrian Federal Economic Chamber — Wirtschaftskammer Österreich (WKÖ)…

“We explicitly welcome the creation of the innovation fund, especially the extended scope to include low-carbon innovation in industrial sectors!”

Apr 17 2016

Merging: towards a “NER 2020” and a “Horizon 400”?

NER400 projects are set to look more like Framework Programme demonstration projects (FP7, Horizon 2020) than NER300 projects do. They will share more of the same features.

Ocean Energy Europe, representing the tidal stream and wave energy sectors, appreciated NER300’s positioning: It “plugs the gap between Horizon 2020, which lacks the scale needed for energy demonstration/pilot projects, and revenue support instruments such as Member States’ renewable energy support schemes, which do not address the risks of early-stage technologies.” ETS Innovation Fund will look more like Horizon 2020 than NER300 does (but enough of its unique features will be retained to keep Ocean Energy Europe happy):

  • The EC proposes that the Innovation Fund allow up to 40% of any award to be disbursed dependent on Project Sponsor effort rather than project performance (ETS proposal, p19). This will add burden to project reporting obligations because (in contrast to NER300) effort will now also have to be proved instead of performance alone. EU Research Framework Programme projects (Horizon 2020 projects) also pay out on effort rather than result.
  • Guided by a mandate from the European Council, the Innovation Fund will be sure to “include small-scale“ projects. It remains to be seen how this will be interpreted. The text in the ETS Directive of 2009, which paved the way for NER300, did not include a reference to small-scale projects. Horizon 2020 also funds projects smaller than many of those funded under NER300.

These proposals are popular with stakeholders (for details on the appeal of small-scale projects, see future article ‘What size of projects for ETS Innovation Fund?’).

Milestones for money

Cembureau wants NER300’s successor to “acknowledge the technical risks involved and provide financing for the development stage without coupling the actual payment to a successful outcome.” CCSA, Scotland Europa, GSV, WWF, Fortum, Fertilizers Europe and two of its members say the same. Électricité de France would additionally like periodic “reviews” at which “one should think about allowing changing the power output of a power generation installation during the development phase, because of technology improvements.”

The renewable energy associations Wind Europe, EGEC, Solar Power Europe and Ocean Energy Europe are also all keen on shifting project risk away from project sponsors, with Solar Power Europe more inclined than the others to look to the Member States to take on risk: “In the future there should be better arrangements between the Member States and the project promoters to alleviate the project failure risk and to cover part of the upfront investment cost.” Svebio will be content with the EC’s proposals, having called for “Payments to the projects [to] be made at least partly up-front, not only after start-up of the operation.”

As for the Member States, one of them, Estonia, proposes a mechanism to pass on its risk to a third party, the European Investment Bank: “We suggest to consider the approach where the EIB alone or EIB together with the Member State are co-guarantors of the project. The risks would be shared so that the risk of the Member State will not exceed 50% and will enable the project to receive crucial pre-operation investment.” (This is not the only example of a move to push risk onto the EIB — see ‘When is the right time to monetise allowances?’.)

Apr 17 2016

Baby-snatching

This article presents the views of stakeholders on the potential for aligning ETS Innovation Fund with other programmes, and their views on which part of the European Commission should be in charge of administering it.

Connie Hedegaard, the Commissioner responsible for NER300 in the second Barroso Commission, avoided any reference to the SET Plan in either of the two press conferences she gave (Dec 2012, July 2014) unveiling winning projects. This suggests she wanted it to be seen as an instrument that stood apart from the SET Plan, which was (and is) managed chiefly by DG Energy and DG Research & Innovation as a vehicle for coordinating energy research between stakeholders and public administrations, including the EC.

Eurelectric + 2 say, “The new NER400 mechanism needs to be much more aligned with the EU’s wider RD&D priorities for the energy sector and should be designed in such a way that it helps deliver these priorities alongside other key EU innovation funding mechanism such as the EU SET Plan [Editor’s note: which DECC also clocked] and Horizon2020. It should also be evaluated whether the integration of the new ETS Innovation Fund into existing funds (e.g. Horizon 2020, SET Plan etc.) at EU level would be appropriate. This could reduce the complexity when seeking funding for projects and enable a simpler bidding process.” The EC insisted that NER300 was not part of the EU’s Multiannual Financial Framework (7-year budget). Alstom wants a different approach with ETS Innovation Fund: “The Commission should in any case include funding for the EU Innovation Fund in its proposal for the next MFF (starting 2021) to be submitted at the [latest] on 1 January 2018.”

The same thought occurred to stakeholders from industry. CEFIC: “This fund should be also complementary and in full co-ordination with existing EU Research and Innovation programs, such as Horizon 2020, as well as the [Juncker] Investment Plan.” Fuels Europe and its member BP go one step further and call for the aggregation of ETS Innovation Fund with other funds “to minimise administration costs.” “In any case,” says ENAGAS, “it is essential to make sure that EU keeps an overall list of priorities when providing EU funds from NER300/400, Horizon 2020, CEF, or any other.”

The principle of “full coordination” applies within the Emissions Trading Scheme family of instruments, too, with Lewiatan, Bellona, Alstom and ZEP, saying “Member States […] should be given the possibility to combine the [Modernisation and NER400 Innovation] funds and use the revenues in the most efficient way.” This means, says Bellona, that the possibility should exist for funding from the two schemes to be cumulative.

One aspect of coordination is timing. Fuels Europe calls for the timetables of ETS Innovation Fund to be “shared with MSs as early as possible (so these can be accounted for in MSs support schemes).”

The possibility exists to look beyond R&D and climate policy to the approach taken for funding Trans-European Networks in Energy. E3G recommends “that different levels and forms of funding should be available, akin to the approach taken [for] PCIs.” Vattenfall also references these ‘Projects of Common Interest‘, which are energy-interconnection projects that, when approved by the EC, can benefit from a fast-track permitting regime or sometimes grants: “The guiding principles for granting support from the NER400 should be that the projects should be of common interest for the EU, preferably supporting more integration of the internal market.” CEPS notes that European State Aid law refers to another similar-sounding concept, the Important Project of Common European Interest. CEPS says that all ETS Innovation Fund projects should be recognised as IPCEIs, enabling them to quality for the ‘block exemption’ from State Aid rules.

Whose baby should it be?

Given the express desire of many stakeholders to see ETS Innovation Fund articulate with (and in a few cases, carry out the same work as) other instruments and strategies, it is no surprise that some want to see responsibility for ETS Innovation Fund taken away from DG CLIMA.

ZEP wants “The [eligibility] evaluation [to] be made by all relevant DGs.” CEEP: “[The] leading role (primary role) should be played by DG Grow with whom all projects should be co-ordinated in co-operation with DG Energy. The role of DG Clima should be secondary.”

DG CLIMA, for its part, has become somewhat more conscientious in name-checking the SET Plan since Connie Hedegaard’s speeches: references to it do appear in the ETS Innovation Fund Impact Assessment (SWD (2015) 135).

Apr 17 2016

Discussion on options for ETS Innovation Fund’s design in Germany

The consultancy Adelphi has published “three policy briefs compiling the experiences of the forerunner programme NER300, discussing the provisions for distributing the project resources among the EU Member States in a geographically balanced way, and discussing possible criteria for appropriately arranging the co-financing and funding volumes for individual projects.”

They were commissioned by the German Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety (BMUB) in 2015.