Innovation Fund- The new call

On November 23rd, two highly anticipated calls were released. . These are the Innovation Fund grants- call 2023 Net Zero Technologies (INNOVFUND-2023-NZT) and the Innovation Fund Hydrogen Auction - call for RFNBO Hydrogen. As the nomenclature can be confusing, I refer to them as IF Grants and IF Auction. This article focuses on the former, the IF grants or traditional grants, now in their fourth edition.

Topics and sizes

For the first time, all of the opportunities for Innovation Fund grants are included in the same call, with budget split into topics. A total of 5 topics have been announced, with 3 related to the general theme of decarbonization organized by project size (large-, medium-, and small-scale projects) and two more specific topics (Manufacturing/Cleantech and Pilots). The old topic for hydrogen and electrification has disappeared, and those projects must now be presented to a General Decarbonization topic or the IF Auction, depending mostly on their degree of innovation and the strategy they want to play.

As announced by DG Clima in the summer, project sizes have also changed, with CAPEX remaining the reference point. Small projects have CAPEX between €2.5 and €20 million, medium projects range from €20 to €100 million, and large projects exceed €100 million CAPEX. For the two more specific topics, the CAPEX must be over €2.5 million, and there is no maximum. However, for Pilots, the maximum grant that can be obtained is €40 million.

Global budget and breakdown per topic

The budget for the call is €4 billion, which apparently is a 25% increase compared with the third call. However, it should be noted that the third call finally allocated €3.6 billion to the pre-selected projects, beyond the €3 billion announced. This amount increases till €3.7 billion when we include the budget for the Small projects 3rd call, currently under evaluation. Therefore, if no extra budget is allocated to the 4th call, the increase in the budget for the new call would be 8.11%, barely above inflation in some EU countries.

The aid intensity remains up to 60% of relevant costs. The budget is distributed among the different topics as follows: Large - €1,700 million; Medium - €500 million, Small - €200 million: Manufacturing/Cleantech: €1,400 million; and Pilots: - €200 million.

Timeline

The first change is found in the timeline. Although the deadline for submitting proposals (9th April 2024) was already known, the evaluation process has been extended (with results expected in November 2024) as well as the Grant Agreement signing (expected in February 2025). This is normal due to the topics and, more significantly, the timing coinciding with the first Hydrogen European auction (IF Auction). Despite the efforts of DG Clima and CINEA to explain over and over that the two funding schemes are not compatible, a very high number of proposals is expected for both. In my opinion, even February 2025 could be difficult to fulfil. Moreover, we do not know how this extended timeline will affect the 5th call of IF Grants.

Project duration

The maximum between signing the Grant Agreement and reaching Financial Close remains 4 years. The emissions monitoring period must be at least 5 v years for Large, Medium, and Manufacturing projects, and at least 3 years for Small and Pilots). The overall project duration can range from 3 to 15 years.

The proposal structure

Every proposal will be composed of a long list of documents, with minor changes compared to the third call: Application Form Part A —(to be filled in directly online); Application Form Part B — (to be downloaded from the Portal Submission System, completed and then assembled and re-uploaded); Part C (to be filled in directly online); detailed budget table/relevant cost calculator (‘financial information file’); participant information (including CVs and previous projects, if any); timetable/Gantt chart; GHG emission avoidance calculator; Feasibility study; Business plan; Detailed financial model; Knowledge sharing plan; Support to Project (support letters); Terms of supply; Due diligence reports (if any); Permits, licences, authorisations (if any); Documents necessary to assess the credibility of the data of the reference plant (if RC option 2 is chosen)?

There are no major changes in the nature of the documents to be submitted. Part B has a maximum of 80 pages, while the limit for the Feasibility Study, Business Plan, and Knowledge Sharing Plan is 60 pages each.

The two documents that typically cause the most trouble for companies, the two calculators, still exist, and one of them has significant changes.

Few words about the two calculators that you all love so much:

- GHG Calculator: The Innovation Fund's methodology for GHG calculations remains the same, but there are now five GHG calculator models available (for Energy Intensive Industries, Renewable Electricity and Heating, Energy Storage, Maritime, and Aviation). If you have already worked on IF grants, concepts such as the reference scenario, project scenario, project boundaries, emission factors, inputs, transport-related emissions, and end-of-life emissions will be familiar to you. I am happy to say that the guide explaining the methodology is now clearer. It remains to be seen if they update or expand the examples, as they currently seem too basic, and already too familiar to applicants.

- Relevant Cost Calculator: Now, all projects of different sizes and topics will use the same methodology. As expected, the "levelised cost" methodology is removed, leaving only two methodologies:

• "no reference plant" or RC option 1
• "reference plant" or RC option 2

There is no "decision tree" to select between them. The "no reference plant" becomes the default methodology and is valid for all projects, but when a reference plant exists, the applicant can select the second option. A choice which can be crucial for the final results, not only for optimising the grant but also for the scoring of the cost efficiency criteria.

Finally, some technical changes are applied, such as a simplification of the WACC computation with default beta and default equity risk premium proposed.

Evaluation Criteria

The five main evaluation criteria and cascade evaluation process remain the same, but there some significant changes in some of the criteria and scoring. Comments below are valid for the General Decarbonisation topics:

- Degree of Innovation (max. 15 points): No changes.

- GHG Emission Avoidance Potential (max. 12 points): No changes. It remains divided into three sub-criteria with different weights: Absolute Avoidance - 2 points; Relative Avoidance - 5 points; Quality of Calculation - 5 points. Keep in mind the 3rd one is designed to make life easier for GHG evaluators who often have difficulty following the Excel reasoning due to a lack of explanations about hypotheses and sources. So please do make their lives easier!

- Maturity (max. 15 points): No changes. It remains divided into three sub-criteria: technical, financial, and implementation maturity.

- Replicability (max. 15 points): The criterion's name changes from "scalability" for clarity and expands its scope to include six points, although they are not scored separately but globally. Novelties are Resilience of the EU industrial system and Potential in terms of multiple environmental impacts

- Cost efficiency (max 15 points) with two sub criteria. Cost efficiency ratio (12 points) and Quality of the calculation (3 points). The formula for scoring is now: 12 – (12 x (cost efficiency ratio / 200). That is to say, the threshold is now much more demanding: if the cost efficiency ratio is higher than 200 EUR/t CO2-eq, (2000in the case of Pilots) the score is zero points, and the proposal will be rejected. In the third call this threshold was 600 EUR/t CO2-eq!!

- Bonus points: In the calls for Small, Medium and Large projects, this year we can get up 4 bonus points instead of 3, and new one is reserved only for proposals in the maritime sector, described as: " For Maritime sector projects only: demonstrated potential to decarbonising the maritime sector and reducing its climate impacts". My guess is that all proposals from Maritime sector that reach this far will get this extra point.

Bonus points and priority order

In case of two or more proposals with the same score, a new priority order is defined (again we find special treatment for maritime sector proposals):

1. Proposals located in a country (EU Member State, EEA country) with a lower number of higher-ranked proposals will be considered to have higher priority
2. If different sectors, proposals from Maritime sector
3. If different sectors, proposals from Wind energy sector
4. If different sector, considering their ranking (based on the total number of points under all award criteria) within their respective sectors.
5. Higher score in Degree of Innovation
6. Higher score in Replicability

In my humble opinion, this section of the call document requires some explanation or examples. It is not fully clear what happens when the tied proposals are from the same sector, or how you apply the criteria if you have, for example, 3 proposals with 70 points, two from the same sector and one from a different one.

Overall, few surprises in the 4th call of IF grants, which is appreciated. The general feeling I get is that Commission is looking for more cost efficient projects and simplifies the calculation of relevant costs for a better comparison, which is good news.

We acknowledge the great preparation effort from European Commission and CINEA - European Climate, Infrastructure and Environment Executive Agency .

If you are considering submitting a project to the IF Grants and are seeking for support, we at 安永 have wide expertise in the programme, and are familiar with all the sectors and involved technologies, Contact me with a private message and I will connect you with the relevant EY team.

More updates after the InfoDay on 7th December!