Innovation Fund revolution: a hydrogen auction and a single call for all scales

The EU Innovation Fund is one of the world’s largest funding programmes to demonstrate innovative low-carbon technologies that contribute to greenhouse gas reduction. The programme is funded by the European Emissions Trading Scheme (EU ETS Directive) and supports investment projects whose implementation will lead to significant emission reductions over a 10-year period. These are projects for CO2 capture and storage/use, renewable energy production, energy storage and/or emission reductions in industry (in energy-intensive sectors such as refining, iron and steel, non-ferrous metals, cement, glass, ceramics, building materials, paper, chemicals, and hydrogen). It also includes factories for renewable energy production systems (wind turbines and solar panels, among others), as well as for the manufacture of batteries or storage systems, heat pumps, or their components.

Launched in 2020 and managed by the European Climate, Infrastructure and Environment Executive Agency (CINEA), the Innovation Fund has completed three large-scale calls (for projects with investments of more than €7.5 million), which have funded 64 projects with an average grant of around €95 million each. In addition, the two small-scale calls conducted so far (for projects with investments between ¤2.5 million and ¤7.5 million) have provided financial support for a further 47 projects, with an average grant of around ¤3.5 million. The third small-scale call will close on 19 September and the results will be known in the first quarter of 2024.

Ongoing changes to the EU ETS Directive will mean, among other things, the inclusion of the maritime, buildings and land transport sectors in Innovation Fund’s list of energy-intensive sectors, as well as the possibility of using other financing schemes than grants, such as auctioning.

Auction and call Innovation Fund

As a result, based on the experience gained by CINEA in previous calls, the Innovation Fund is expected to implement major innovations.

Pilot auction for renewable hydrogen production

With a budget of 800 million euros, the call for this innovative auction is expected to open on 23 November, with an estimated bidding deadline of 8 February 2024. The objective is to produce renewable hydrogen (renewable fuel of non-biological origin or RFNBO), which meets the conditions defined in the recently updated Renewable Energy Directive (RED II Directive).

Through the European Hydrogen Bank initiative, CINEA is looking for mature projects that produce hydrogen at an individual location for a period of 10 years and that do not present technical, operational, economic, or social uncertainties that could prevent or delay their implementation. To participate in this auction, the business plan must be clear. In addition, contracts, or pre-agreements with suppliers of renewable electricity and the electrolyser (if needed for the project), as well as end-user sales, must be established in advance. Once produced, hydrogen can be used for any application (energy, chemical, transport, etc.).

Fourth call for proposals

Throughout various information days held over the last few months, CINEA has been indicating some significant changes in the next Innovation Fund call for proposals. Although this information has not yet been officially confirmed, the forecasts are as follows.

• Scale of projects. The categories into which Innovation Fund projects are divided will change from the current two (small and large scale) to three: small, medium, and large scale, for investments of up to €20 million, between €20 million and €100 million, and over €100 million, respectively.
• Single call. The projects will all be presented in the same call, regardless of the scale to which they belong. In other words, the current system of separate calls for each scale will disappear. The publication of the fourth call is scheduled for November 2023. The deadline for submission is unknown but is likely to be in the first or second quarter of 2024.
• The budget for the fourth call, which includes the hydrogen pilot auction, is expected to exceed €4 billion, which is almost four times the funds allocated to this programme by the European Commission in 2020 (€1.1 billion). The next two editions of the Innovation Fund could have around €1.6 billion and €3.1 billion, respectively.
• New sectors. Projects in the maritime sector and land transport, among others, will also be eligible.
• Changes are also foreseen in the methodology for calculating relevant costs, which influences the calculation of the maximum grant to be applied for, and some other minor improvements.

When the calls are officially opened – at which time, the application templates and other governing documents will also be published – we will be able to corroborate these developments. At Zabala Innovation we have accumulated a lot of experience since the start of the programme, with relevant results such as 45% of projects funded in the last large-scale call, and we can offer our collaboration both in the preparation of applications and in the subsequent management in case of success.