EU Renewable Energy Financing Mechanism

The contemporary priority-setting on renewables based on the European Green Deal and REPowerEU is currently supported by a relatively new financial mechanism established by the European Commission.

Introduction

The mechanism is derived from Article 33 of the Governance Regulation (EU) 2018/1999, being in force since September 2020 and having become operational since January 2021. However the operational implementation of this regulation lasted until 2023, where in February the first project was realized (see below).

The goal of this mechanism is to move EU countries to implement at least a 42.5 % share of renewable energy in gross final consumption by 2030, primarily through national measures. National measures include subventions, G2B agreements as well as others.

The second telos of this regulation is furthermore to enhance the cooperational harmonization of the energy infrastructure across the European Union. Member States shall thus based on the solidarity principle check and support each other inter partes to implement the above mentioned goal.

This especially comes in handy from a situational interpretation as this regulation supports member states whose economy has become under pressure on the occasion of the Covid-19 pandemic, that mainly gave rise to the Recovery Resilience Plan of the EU.

The Mechanism

As outlined in (EU) 2020/1294 the cooperational harmonization is illustrated by the following constellation:

Hosting countries (States that receive payments from the mechanism) shall be linked with contributing countries (States that pay into the mechanism) through tender-bidding processes facilitated by the European Commission and CINEA (European Climate, Infrastructure and Environment Executive Agency).

Latter countries are benefiting from this mechanism as:

1. It enables them to establish projects outside of their own territory, where the project management is more cost-effective than in their own country.
2. Gives geographical efficiency for land-locked countries like Austria or Luxemburg to establish off-shore renewable facilities.

Hosting countries in turn:

1. Can receive additional FDIs for economic growth.
2. Implement the economical growth through the optimization of national labour and up to date climate protection measurements.

First and recent example

3 Months ago on February 2023, Finland participated as a hosting country in this mechanism and allowed solar PV projects located in its territory with a total capacity of up to 400 MW.

Land-Locked Countries like Luxembourg have taken the opportunity to voluntarily contribute with €40?million into this project in the first call for investment.

A second call is sought to be announced for the end of 2023, which is another test of the practical feasibility of the theoretically well thought mechanism.

Opinion

In my opinion the connection of FDIs through mediated tenders by the EU is a great opportunity for economic growth. However for the purpose of effective harmonization, the equality of opportunity for all less-developed European countries to contribute as hosting countries must be strictly kept in mind based on up to date statistics.

Raphael Dakik

Sources