When announcing the European Strategic Energy Technology (SET) Plan, in November 2007, the European Commission had promised to come forward with proposals on financing energy technologies before the end of 2008. A year on from that deadline, this is now clearly a case of better late than never, even if no new money or financing sources are to be found in latest drafts of the Commission’s communication obtained by Europolitics.Nonetheless, the ideas to be put forward by the Commission, on 9 October, will undoubtedly eventually work themselves into the debate on policy and budgets as well as the European Investment Bank. The Commission also makes a call for clearer, greater and more independent funding for energy research and technologies.

The Commission is in no doubt that the funding of energy research, technological development, demonstration and early market take-up has to increase substantially – starting immediately. An additional injection of public financing is fully justified in the Commission’s view in order to overcome market failures and achieve public energy policy goals. Stronger intervention at EU level is the most effective way to bring forward the desired broad portfolio of technologies, believes the EU executive.

Central in the Commission’s aims is developing, in 2010, a concept of a dedicated Community budgetary framework. The mid-term review of the EU budget (2011-2013) should also lead to additional funding being dedicated to support the SET plan’s European industrial Initiatives, joint programmes of the European Energy Research Alliance and the Smart Cities Initiative. A call is also made for an increase in the energy technologies budget within the next Framework Programme for research, technological development and demonstration (2013-2020). Member states, too, should increase their (financial) efforts to support low carbon technologies.

Central to financing the SET plan objectives (see separate article) is to find out who pays for what. Here, the communication puts a cost price - on top of the current level of investment - of an additional investment, public and private, of €50 billion (figures appear in brackets in drafts). This would be required, over the next ten years, to effectively move forward those actions proposed. The Commission works out that this represents an increase in investment intensity from the current €3 billion per year to some €8 billion per year.

The Commission further calls for the public share of the burden for new energy technologies to rise significantly in the short term towards a more equal level of commitment. The communication cites figures as to the burden of non-nuclear energy research financing, in 2007, being shouldered to 70% by the private sector and 30% by public funding. The current ratios in all SET plan priority technologies (including nuclear fission and fusion) are given by the Commission as being based upon 56% (private) to 44% (public) financing ⁽¹⁾. The Commission would also like, backed by February 2008 European Council conclusions, to “substantially” increase the ratio of Community investment, currently only 20%, as opposed to national investment in non-nuclear research (80%).

EXTRA PUBLIC FUNDING

In a section on where extra public funding will come from, the Commission cites the amended Emission Trading Scheme (ETS) Directive (2009/29/EC) that, from 2013 onwards, proposes member states reinvest at least 50% of auctioning revenues in climate change-related activities. The 300 million EU allowances set aside under the ETS’s New Entrants Reserve are also listed as supporting carbon capture and storage (CCS) as well as innovative renewables. Nonetheless, the Commission admits that this scheme will not cover technological risks, only market risks.

The Commission thus proposes - albeit without giving any concrete general figures - an increase in funding from the EU budget from 2011 to 2013 (in the current financial perspectives). This would take place in the framework of the budgetary mid-term review. There should also be a continued increase from 2013 to 2020. It admits that current EU programs, such as the research framework programme, the Intelligent Energy-Europe programme and the European economic recovery plan are insufficient to finance the SET plan initiatives.

FROM PROJECT TO PROGRAMME FINANCING

The communication notes that additional funding is only half the story. Maximising the incentive and leverage effect of public financing requires, according to the Commission, “progressively” moving away from the current paradigm of financing individual projects to one of co-investing in programmes. This would lead to greater combining of public resources (EU and national) as well as creating effective public-private partnerships with industry. The Commission will also seek to mobilise resources to finance large-scale demonstration projects, first of a kind plants and market replication for SET plan technologies.

The wide range of funding instruments available at regional, national and EU levels includes RTD and innovation programs at national and EU level, debt-based financing, venture capital funds, infrastructure funds and market-based instruments. Such instruments, however, tend to lead grant, subsidy, loan and equity providers to act individually without any overall guiding strategy or optimisation process.

EUROPEAN INVESTMENT BANK

The European Investment Bank (EIB) is not spared in the Commission’s document even if the bank has increased its lending target in the energy field to €9.5 billion in 2009 and €10.25 billion in 2010. Back in 2008, the target was only €6.5 billion. One primary focus here is reinforcing the Risk Sharing Finance Facility (RSFF). The latter combines resources from the FP7 budget with those of the EIB to finance higher-risk R&D projects, including in the energy sector. The RSFF, in the Commission’s thinking, should be allowed to target specific support to SET plan projects, including large-scale demonstration projects.

There should also be “significantly” increased resources for the new 2020 European Fund for Energy, Climate Change and Infrastructure - the so-called Marguerite Fund that is being set up by the EIB and other public financing institutions. The Commission also talks of developing a dedicated joint energy efficiency and renewable energy instrument to finance the wider roll-out of low carbon technologies.

⁽¹⁾ For nuclear research, 100% public funding is achieved for fusion and 50% for fission.