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Energy

EU renewable energy financing mechanism

Helping EU countries to work more closely together, hosting or contributing financially to new renewable projects.

To better support renewable energy projects, and thereby encourage a greater uptake of renewable energy sources across the EU, the European Commission established the EU financing mechanism. It stems from Article 33 of the Governance Regulation (EU/2018/1999) and has been in force since September 2020. Its implementation process is ongoing.

Closer cooperation on renewable projects

The main objective of the mechanism is to enable EU countries to work more closely together in the take-up and promotion of renewables. In so doing, they can more easily achieve both individual and collective renewable energy targets.

The mechanism will also boost renewable projects in line with the European Green Deal. By realising the untapped potential of cross-border cooperation between EU countries, it will facilitate a more cost-effective roll-out of renewables across the EU, particularly in areas that have greater access to natural resources, or are better suited for it, in terms of geography.

In the context of the European recovery and the energy crisis, the financing mechanism will make it easier for regions to get projects off the ground at a time when their local economy is under pressure. To this end, EU countries can use the mechanism as an instrument to implement their recovery and resilience plans.

EU countries should contribute to the EU target of at least a 42.5 % share of renewable energy in gross final consumption by 2030, primarily through national measures. There is, however, a second option, using cooperation mechanisms with others, such as statistical transfers or joint projects. The new financing mechanism opens a third possibility, which also builds on cooperation and joint efforts.

Contributing and hosting countries

The mechanism is based on the idea that the collective nature of the renewable energy target for 2030 should reflect the EU countries’ collective efforts. It allows 2 or more countries to jointly support new renewable projects, by providing the funding and the territory.

As outlined in the Regulation on the EU renewable energy financing mechanism (EU/ 2020/1294), the mechanism links countries that voluntarily pay into the mechanism (contributing countries) with countries that agree to have new projects built on their soil (hosting countries). There is however no direct link or negotiation between contributing and hosting countries, as is required under other EU cooperation mechanisms. Instead, the Commission facilitates the common agreement of the contributing and host countries on the conditions and criteria under which the support to the projects will be granted.

The advantages for contributing countries are that they can

  • finance renewable energy projects elsewhere, that are potentially more cost-effective than renewable energy produced on their own territory would be
  • access renewable energy production that is absent or scarce on their own territory; land-locked countries can for example benefit from offshore renewable projects

The advantages for host countries are that they can

  • receive additional local investment in renewable energy projects with no burden on the national budget
  • enjoy the benefits in terms of local employment, lower greenhouse gas emissions, improved air quality, modernisation of the energy system and reduced dependency on imports.

State aid rules do not apply to the mechanism, neither for contributing nor for hosting countries.

The first step towards implementation of the mechanism was taken on 27 February 2023 by a binding commitment by Finland and Luxembourg. Finland participates as a host country, allowing solar PV projects located in its territory with a total capacity of up to 400 MW, whilst Luxembourg voluntarily contributes with €40 million.

Tender and selection of projects

The financial contributions that enter the financing mechanism scheme are allocated to new renewable projects through competitive tenders for grants. Eligible to participate in these tenders are projects located on the territory of the EU countries that agreed to participate as host countries.

The grants cover either the installation of a renewable production facility with a certain capacity (investment support) or the actual production of renewable energy (operating support). The size of the grant is determined by the outcome of the tender procedure, where only the most competitive projects will be selected and receive support, corresponding to their bid in the tender. In the standard scenario, the bids with the lowest price will be awarded first.

The mechanism can support all technologies that are referred to as renewable energy pursuant to the Renewable Energy Directive (EU/2023/2413) and are applicable across the electricity, heating and cooling and transport sectors.

The Commission runs the process together with the European Climate, Infrastructure and Environment Executive Agency (CINEA).

Statistical benefits

The key element of the mechanism’s collective nature is that all countries that take part will share the statistical benefits of the produced renewable energy.

It means that a contributing country counts part of the statistics from a financed project in a host country to their own national renewable energy target. The other part of the statistics remains with the host country.

Graphic showing financing from the contributing country as an input and jobs, solar power and wind power as an output.

Role of the private sector

The private sector has 2 possibilities to participate in the mechanism

  • as a private investor making a payment to the mechanism
    This payment is not linked to a financial return but can form part of the sustainability and decarbonisation portfolio of the company and diversifies its investment agenda. Such financial contributions will count toward the 2030 EU binding target of renewable energy. In addition, subject to the hosting EU country's rules, private contributors can request the guarantees of origins for the energy production that corresponds to their contribution.
  • as a project developer competing for support in the tender that is published by the Commission
    The successful participants will conclude a grant award agreement and will turn the financial support into new renewable projects across the EU, which will contribute to the national targets for renewables in both contributing and hosting countries.

The first tender

Following the binding commitment by Finland and Luxembourg, the first cross-border tender for renewables opened on 18 April 2023 and closed on 27 September 2023. It provides investment support to solar PV installations located in Finland with a minimum capacity of 5 MW and a maximum of 100 MW. The maximum total capacity of the call is 400 MW.

In parallel, the Commission launched a new call for expression of interest among EU countries. Based on the preferences of interested countries, the Commission plans to organise the second tender in the first quarter 2024.

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