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Energy, Climate change, Environment
Energy

EU renewable energy financing mechanism

Helping EU countries cooperate on renewable energy by hosting or contributing financially to each other’s projects.

To support EU countries in achieving their renewable energy ambition and encourage a greater uptake of renewable energy sources across the EU, Regulation (EU) 2020/1294, establishing the EU renewable energy financing mechanism, entered into force in September 2020. It stems from Article 33 of the Governance Regulation (EU/2018/1999).

Objective

The main objective of the financing mechanism is to enable EU countries to work more closely together on the uptake and promotion of renewable energy, making it easier to achieve both EU and national targets, in line with the European Green Deal. The Renewable Energy Directive (EU 2018/2001) provides different measures to encourage this cooperation, such as cooperation mechanisms, statistical transfers or joint projects. The financing mechanism is another option, which builds on joint efforts between countries where renewables development is naturally constrained and countries that have a higher potential to host new generating installations.

©Adobe Stock_vladim_ka

Contributing and hosting countries

The mechanism links countries that voluntarily pay into the mechanism (contributing countries) with countries that agree to have new projects built on their territory (hosting countries). 

There is no need for a direct negotiation between contributing and hosting countries, as is required under other EU cooperation mechanisms. Instead, the Commission directly facilitates the common agreement on the conditions and criteria under which the support to the projects will be granted.

The advantages for contributing countries include

  • financing renewable energy projects where the local geography makes them more cost-effective than they would be at home
  • accessing renewable energy production that is absent or scarce on their own territory - land-locked countries, for example, can benefit from offshore wind projects

The advantages for host countries include

  • investment in local renewable energy projects with no burden on the national budget
  • 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.

Statistical benefits

Participating countries share the statistical benefits of the renewable energy produced towards their national targets.

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

Grants and selection of projects

The mechanism allocates funding to new renewable projects through competitive tenders for grants. Projects located on the territory of any EU country that agreed to participate as a host country are eligible to participate.

The grants cover either the installation of a renewable production facility (investment support) or the actual production of renewable energy (operating support). 

The mechanism can support all technologies that are referred to as renewable energy in the Renewable Energy Directive (EU/2023/2413) and is 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).

Role of the private sector

The private sector has 2 possibilities to participate in the mechanism

  • competing for project support in the Commission's tenders
    The successful participants will conclude a grant award agreement and will turn the financial support into new renewable projects across the EU
  • making a payment to the mechanism as a private investor 
    While not linked to financial return, the payment can form part of a company's sustainability and decarbonisation portfolio and diversifies its investment agenda. In addition, subject to the hosting country's rules, private contributors can request guarantees of origin for the energy production that corresponds to their contribution.

First tender

Following the binding commitment by Finland and Luxembourg, the first cross-border tender for renewables successfully concluded 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. 

In November 2023, 8 solar PV projects with a total capacity of 282.77 MW were awarded funding and invited by the European Climate, Infrastructure and Environment Executive Agency (CINEA) to prepare a grant agreement and commence their project within 24 months following the grant signature. In the end, 7 projects made it through and have signed grant agreements with CINEA. The total support of the mechanism to these projects amounts to 27.5 million, which will contribute to the achievement of the national targets for renewables in Finland and Luxembourg.

Second tender

As part of the second tender, €52 million in funding was allocated to 9 renewable energy projects in Finland and Estonia. The awarded projects will add a total capacity of 445.65 MW of renewable energy installations, and are expected to be commissioned between 2027 and 2028. In this case, Luxembourg acted as the contributing country by providing the financial resources, while Finland and Estonia serve as hosting countries, offering suitable sites for renewable energy development.