Innovative financial instruments for First-of-a-Kind, commercial-scale demonstration projects in the field of energy : final report

This study, commissioned by DG Research & Innovation, examined the role of financial instruments in the support of commercial-scale, first-of-a-kind (FOAK) energy demonstration projects focused on Sustainable Energy Technology (SET) sectors in Europe. It was carried out by ICF, in association with London Economics, between March 2015 and June 2016. Extensive research was undertaken to determine the current SET FOAK investment and funding landscape, as was consultation with three main stakeholder groups: technology sponsors, financial market participants, and public support schemes at the EU, Member State and international level. FOAK projects are highly risky and the supply of equity and debt is at much lower levels than the financing of proven low carbon technologies. Market participants have very different appetites for risk, which in turn leads to complex financial structures being required to enable such projects to achieve financial close. Consequently, there is high demand for a suite of public sector funding mechanisms to be made available to fill the commercialisation, 'Valley of Death', funding gap. Two EU financial instruments have been identified as being needed: equity provision and specialist loans (as the latter already being offered by the Energy Demo Projects (EDP) facility), both at a scale of around at least €250 million and ideally €500 million. These were subjected to an ex-ante assessment in line with the criteria laid down in the EU Financial Regulation. Although the equity fund option scored slightly higher than the EDP facility, both the equity fund and EDP facility are deemed to be of strategic importance and should be developed in parallel, as complementary interventions. Additionally, a clear need has been identified for an Advisory Service to help project sponsors navigate public support and plan better the critical steps in achieving financial close.