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Study on innovative financial instruments to support innovative projects finalised for DG Research & Innovation

Study on innovative financial instruments to support innovative projects finalised for DG Research & Innovation

14/12/2016

A new study commissioned by DG Research & Innovation examined the role of financial instruments in the support of commercial-scale, first-of-a-kind energy demonstration projects – with the exception of nuclear energy. It was carried out by ICF International in association with London Economics between March 2015 and November 2016. Extensive research was undertaken to determine the current first-of-a-kind investment and funding landscape, notably through consultation with three main stakeholder groups: technology sponsors, financial market participants, and public support schemes at the EU, Member State and international level.

The study found that first-of-a-kind projects are highly risky and the supply of equity and debt is at much lower levels than the financing of proven low carbon technologies. Market participants have very different appetites for risk, which in turn leads to complex financial structures being required to enable such projects to achieve financial close. Consequently, there is high demand for a suite of public sector funding mechanisms to be made available to fill the commercialisation, ‘Valley of Death’, funding gap.

Two EU financial instruments have been identified as being needed: equity provision and specialist loans. Loans are already being offered by the pilot InnovFin Energy Demo Projects (EDP) facility. Both equity and loans provision need to be increased to a scale of around €250 million and ideally €500 million until 2020. These proposals were subjected to an ex-ante assessment in line with the criteria laid down in the EU Financial Regulation. Although the equity fund option scored slightly higher than the InnovFin EDP facility, both are deemed to be of strategic importance and should be developed in parallel, as complementary interventions. Additionally, a clear need has been identified for an Advisory Service to help project sponsors navigate public support and plan better the critical steps in achieving financial close.

In line with the recently adopted Communication on Accelerating the Clean-Energy Innovation and with the study conclusions, the Commission will work with the European Investment Bank (EIB) to boost public and private investment in innovative energy technologies by at least doubling the budget of InnovFin EDP to more than €300 million.