The EU’s Renewable Energy Financing Mechanism
The European Commission has recently launched the Renewable Energy Financing Mechanism (REFM) to support renewable energy projects, enable EU countries to work more closely together and achieve both their respective and collective renewable energy targets.
The REFM works as a pooled cooperation mechanism whereby Member States cooperate multilaterally. This provides a way for Member States to contribute to the energy and climate targets, while investing in locations that have a greater access to natural resources and where developing them makes the most sense.
Call for proposals
The mechanism and the cooperation between Member States are facilitated by the European Commission. The Commission intends to launch a call for project proposals on an annual basis.
The auctions implemented through the REFM may either be technology-neutral, technology-specific or even project-specific. Implementation periods reflect realistic delivery periods and are technology-specific and uniform across the EU.
Source: European Commission
Financial aid will be provided in the form of grants, either as investment aid (to increase renewable energy production capacity) or operating aid (to give incentives to operate renewable energy installations by providing premiums in addition to market revenues).
The grant award system contains principles to ensure a competitive process, mitigate financial risk and limit transaction costs, and provide scope for different procedures depending on the technology or projects involved. The grants will be allocated according to the tenders, on the basis of the competitive process. The most competitive bids will be selected and implemented on the territory of the Member States that agreed to host such projects.
According to the Commission Implementing Regulation on the Union renewable energy financing mechanism, the Commission is obliged to inquire about Member States' preferences every year. Therefore, if there was, for example, an interest to organise investment aid for solar, a call for proposals of this type would be launched. If there are several dominating interests from Member States, several calls for proposals might be launched in a year. If there is no interest, the Commission is not obliged to organise a call.
The funding will come from three sources. First of all, Member States may provide voluntary payments. Secondly, the private sector may offer financing, with the option of indicating which type of technology or end-use it would like to support. Thirdly, projects can be supported by other EU programmes and funds as long as the principles of EU funding are taken into account (such as prohibition of double financing and over-subsidising).
Participation in the REFM by Member States is voluntary. The European Commission will ask Member States' governments each year whether they would like to provide voluntary payments (as contributing countries) or whether they would like to allow renewable energy to be installed on their territories (as host countries).
Host countries must provide information such as maximum total capacity of renewable energy available to projects financed by the mechanism, preferred technologies or end-use sectors, and any sites or geographical restrictions. Contributing countries must inform the Commission about the volume of renewable energy they can support, their maximum financial contribution, and preferences regarding the technologies or projects they wish to support.
Member States will be able to statistically count the renewable energy from the installations* towards their national renewable energy targets, regardless of where and how the actual energy is consumed. Contributing countries receive 80% of such transfers while hosting countries receive 20%.
The calls under the financing mechanism are not subject to State aid regulations for participating Member States.
* Note: the statistical transfers pursuant to Art. 8 RED II are dealt with through a different cooperation mechanism.
- as investors, by making a financial contribution to the mechanism in order to support the deployment for renewables
- as project developers, by participating in a tender for support for renewable projects, which the Commission will open in the second half of the year. Under this call, project developers will compete to receive financial support to build renewable energy installations.
An additional incentive to private contributors is the possibility to request guarantees of origin for the energy production that corresponds to their contribution. Such guarantees of origin could be issued for the renewable energy production in accordance with Article 19 of the Directive and subject to the national legislation in the country hosting the project. Beyond these benefits, private investors can use the financing mechanism to broaden their sustainability and decarbonisation portfolio and diversify their investment agenda. In addition, the renewable energy generated by projects receiving support from private sector contributions may be linked to the EU-wide green label, referred to in the recast RES Directive, consistent with the EU sustainable finance taxonomy.
Updates on the first call will be published on the REFM webpage in the second half of 2021.
For more information, get in touch with our EU Green Deal team.