Innovation Fund broadens its scope to transform European industry

The Innovation Fund has established itself as one of Europe’s leading instruments for supporting innovative decarbonisation investments. The evolution of projects selected since its first call for proposals in 2020 nevertheless shows that the programme has moved beyond funding clean technologies to play an increasingly important role in transforming European industry.

The first calls for proposals already covered clean energy generation, storage and industrial decarbonisation technologies. More recent rounds have placed greater emphasis on investments that integrate different processes and technologies, the European manufacturing of strategic equipment and the development of the value chains needed to reduce emissions on a large scale.

This evolution does not mean that the Innovation Fund has abandoned its original objectives. Rather, it reflects a broadening of its areas of intervention and increasing specialisation in its support mechanisms. Conventional grants now coexist with dedicated competitive funding instruments targeting specific technologies and industrial applications.

An analysis of the projects selected since 2020 identifies five trends that help explain this evolution and its implications for companies preparing new decarbonisation investments. One caveat is worth noting. This analysis is based on the 491 projects listed in the European Commission’s inventory on 22 October 2026. Of these, 376 relate to conventional grants, six to batteries, 44 to hydrogen and 65 to industrial heat. To compare the programme’s evolution, only projects receiving conventional grants have been considered: 39 in the 2020 round, followed by 36, 59, 92, 73 and 77 in the subsequent years, respectively. Furthermore, as the Commission updates project lists from previous years, the percentages presented in this article reflect the data available on the date of consultation, which may differ from the figures originally published. They do not indicate how funding is distributed among projects.

Technology integration is reshaping industrial decarbonisation

One of the most visible trends in the Innovation Fund is the growing prominence of projects that combine different technologies, processes and infrastructure to decarbonise entire industrial operations. Industrial innovation is therefore becoming increasingly systemic. The challenge is no longer simply to develop effective technologies, but to ensure that they work together under real industrial and commercial conditions.

Renewable energy generation accounts for a smaller share of selected projects

The programme’s earliest cohorts included a significant proportion of renewable energy generation and storage technologies. Renewable energy generation accounted for 15.4% of conventional Innovation Fund grants in 2020, compared with just 3.9% five years later. The share of the renewable energy generation and heat sector also fell from 23.1% to 5.2% over the same period. These figures do not suggest that renewables have ceased to be strategic. Rather, the programme is increasingly seeking added value through their industrial integration, applications in processes that are difficult to electrify and the manufacturing of their components, rather than funding conventional generation facilities.

The same reasoning helps explain the continued presence of cement, steel, chemicals and glass. These industries have high process emissions, long-lived assets and substantial transformation costs. Their share fluctuates between calls for proposals, but their decarbonisation remains central to the Innovation Fund’s industrial rationale.

Sustainable fuels make headway in hard-to-electrify sectors

The sustainable fuels and molecules technology category has followed a particularly notable trajectory, accounting for 7.7% of selected projects in 2020, 19.2% in 2024 and 19.5% in 2025. More recently approved initiatives include sustainable aviation fuels, e-methanol, biomethane and various pathways for converting waste and carbon into fuels and other products.

There is a clear sectoral rationale behind this growth. Aviation, shipping and certain chemical applications cannot always be decarbonised through direct electrification. Producing alternative fuels, however, does not automatically guarantee their viability. The price of renewable electricity, the origin of carbon, the availability of sustainable biomass and sufficiently robust offtake agreements all matter. To some extent, the Innovation Fund is helping to create markets that are still at an early stage of development.

CO₂ capture remains relevant

Carbon capture, utilisation and storage (CCUS) remains a consistent feature of the programme rather than a recent trend. It accounted for 15.4% of projects approved under Innovation Fund 2020, 15.1% in 2024 and 10.4% in 2025. Among these is the Mosusol-NetCO₂ project, led by Molins in collaboration with Enagás and Linde, with support from Zabala Innovation. It has become the first large-scale project by a Spanish cement manufacturer to be selected for Innovation Fund funding.

What is changing is the growing importance of connecting capture facilities with transport infrastructure and industrial customers. A project may demonstrate technically excellent capture technology yet fail if it lacks access to a pipeline or port terminal. Innovation Fund 2025 also included its first direct air capture and storage initiative, signalling technological diversification, although not yet large-scale deployment.

Mobility embraces new decarbonisation solutions

Mobility is also gaining ground, increasing from 8.7% in IF23 to 15.6% in the latest round. Hybrid aviation, maritime electrification, ammonia engines and batteries show that the Innovation Fund addresses not only vehicles themselves, but also their fuels and supporting infrastructure.

Clean technology manufacturing strengthens European industrial autonomy

The evolution of the Innovation Fund reflects another significant transformation. The programme no longer focuses solely on funding facilities that reduce emissions, but also supports the development of industrial capabilities to manufacture the technologies needed for the energy transition. Circularity and critical raw materials are also part of this shift. Projects involving material recovery, recycling, substitution and processing link climate objectives with security of supply and reduced industrial dependencies. In this way, the Innovation Fund is taking on an additional dimension by considering not only the climate impact of investments but also their contribution to developing technological and manufacturing capabilities in Europe.

European production of strategic equipment receives dedicated support

Clean technology manufacturing has become increasingly prominent in the design of the Innovation Fund. Although the earliest calls for proposals already funded industrial projects of this kind, the 2022 round introduced a dedicated funding category for manufacturing. This approach would be consolidated the following year through a separate category alongside those for large-scale, medium-scale, small-scale and pilot projects. This change reflects a broadening of the programme’s objectives. In addition to supporting facilities that reduce emissions, it seeks to strengthen Europe’s capacity to manufacture the technologies required for decarbonisation.

This evolution reinforces the link between climate funding and European industrial policy. The energy transition depends not only on the ability to develop and deploy clean technologies, but also on having a manufacturing base capable of producing them. Funding new manufacturing capacity in Europe therefore helps reduce dependence on external suppliers and strengthen the security of supply of strategic equipment and components. The Innovation Fund is thus taking on a role that goes beyond directly reducing emissions, connecting climate objectives with the strengthening of Europe’s industrial base.

The results of Innovation Fund 2025 confirm this priority. The European Commission has selected 12 clean technology manufacturing projects, requesting a combined total of nearly €895 million. The initiatives cover technologies such as heat pumps, solar panels, electrolysers, electric vehicle batteries and rare-earth magnets. Beyond the number of projects, this direction shows how the Innovation Fund is also becoming an industrial policy instrument, linking emissions reductions with the competitiveness of European companies and reduced dependence on external technologies and manufacturing capacity.

Recycling and critical raw materials gain strategic importance

The share of projects involving circularity, recycling and material substitution rose from 10.3% in 2020 to 20.5% in 2024, before standing at 14.3% in 2025. These fluctuations mean that it would be misleading to describe the trend as continuous growth. They nevertheless confirm that industrial decarbonisation is increasingly being assessed in terms of the materials industry consumes and recovers.

The European Commission identifies six critical raw materials initiatives selected under Innovation Fund 2025. Metal recovery, recycling and the production of essential components therefore sit at the intersection of emissions reductions, security of supply and reduced external dependencies. These objectives must, however, be distinguished. A facility that is strategically important for Europe does not necessarily deliver substantial direct CO₂ emissions reductions.

The Innovation Fund diversifies its funding mechanisms

Auctions reshape the funding landscape for hydrogen

The share of hydrogen and electrolysis projects selected through the Innovation Fund’s general calls for proposals has declined in recent rounds. According to the technological classification used in this analysis, these solutions accounted for 23.7% of projects in 2022 and 22.8% in 2023, compared with 7.8% in 2025. This trend does not, however, necessarily indicate that hydrogen has become a lower priority within the programme as a whole.

The Innovation Fund also supports renewable hydrogen production through competitive auctions linked to the European Hydrogen Bank. This mechanism operates separately from the general calls for proposals and awards support based on verified production. The third auction, the IF25 Hydrogen Auction, selected 13 projects, including those subsequently added from the reserve list.

The coexistence of these two instruments shows that European support for hydrogen can no longer be assessed solely on the basis of its presence in general calls for proposals. Determining whether that support is genuinely increasing or decreasing would require a combined analysis of selected projects and, above all, the financial resources committed through each instrument.

Industrial heat also benefits from a dedicated funding instrument

The electrification of industrial processes and thermal energy storage feature regularly among projects receiving conventional grants. Nine of the 77 projects selected under Innovation Fund 2025 have electrification or heat as their primary technology. However, the strongest signal comes from another instrument. The first dedicated industrial heat auction selected 65 projects, with a planned thermal capacity of 766 MW and an estimated 16.3 TWh of decarbonised heat production over their first five years.

Combining existing technologies is also a form of innovation

The analysis of selected projects also reveals different forms of industrial innovation. Some investments are based on fundamentally differentiated technologies, materials or processes. Others use established technologies but combine them in novel configurations, adapt them to new industrial applications or overcome complex integration and scaling challenges.

This second form of innovation is particularly prominent among large-scale projects. Under Innovation Fund 2025, nine of the 12 selected Large-Scale projects are primarily characterised by the innovative integration of existing technologies and processes, according to an independent analysis of their publicly available technical descriptions.

Medium-Scale projects present a somewhat different profile, with six of the 17 selected projects showing significant differentiation in their core technological processes, materials or devices.

Although the European Commission’s official innovation scores are not publicly available for all projects, the analysis shows that the Innovation Fund supports both fundamental technological innovations and industrial solutions whose distinctive features lie in their integration, configuration or commercial application.

Project implementation remains the greatest challenge

The most demanding measure of the Innovation Fund’s success is not how many projects appear in a presentation, but how many secure financing, are built and become operational. In this respect, 197 projects were ongoing at the end of 2025, but only 42 had reached financial close and 20 had entered operation, according to the 2026 knowledge-sharing report. These milestones follow different timelines and should not be interpreted as a failure rate. They do, however, illustrate the gap between selecting innovative projects and bringing them to fruition.

The same obstacles recur across projects, including permitting, energy costs, equipment supply, grid access, CO₂ infrastructure and offtake agreements. Against this backdrop, the Innovation Fund is evolving in two complementary directions. It is broadening its scope beyond individual technologies to encompass industrial value chains, while diversifying its funding instruments to stimulate production and demand. Its future success will depend less on identifying promising new solutions than on turning an increasingly sophisticated portfolio of projects into competitive, connected and operational facilities.