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EC proposes restructuring of energy funds and increased funding under new EU budget

Friday, June 8, 2018

Under the new Multiannual Financial Framework, the EC proposes to increase the budget for the CEF and Horizon Europe, as well as to merge 14 of the existing financial instruments into one single fund called InvestEU

Major changes to the current structure of EU financial instruments are being considered by the EC with the second set of legislative proposals for the next Multiannual Financial Framework (MFF) – the EU’s 2021-2027 budget.

The EC aims to introduce three major proposals for the current energy fund structure, resources, and priority areas. The EC announced a.o. increased budgets for the Connecting Europe Facility (CEF) and the new Horizon Europe, while 14 of the existing financial instruments will be merged into a single fund called InvestEU.

The forthcoming approval by the EP and the Council of, and agreement on, the next long-term budget would set the entry into force of the new legislative acts to 1 January 2021 for a Union of 27 Member States.

First, the proposed Regulation on the CEF, which once adopted would repeal Regulations (EU) No 1316/2013 and (EU) No 283/2014, aims to set the basis for the CEF beyond 2020. The proposal also outlines a strengthened CEF budget of €42,26 billion to support investments in the infrastructure networks for transport (€30,6 billion), energy (€8,65 billion), and digital (€3 billion). This, according to the EC, represents a 47% increase compared to the previous CEF funding framework (2014-2020). Moreover, the EC proposes for the 2021-2027 MFF an “ambitious overall target of 25% of EU expenditure” contributing to climate goals, for which the CEF might play a significant role by allocating 60% of its budget towards climate objectives. According to the EC, this is expected to “consolidate Europe’s global leadership in the fight against climate change”.

The second major proposal consists of both the Regulation on ‘establishing Horizon Europe – the Framework Programme for Research and Innovation, laying down its rules for participation and dissemination’ and the Decision ‘on establishing the specific programme implementing Horizon Europe’. The two documents introduce the successor of the Horizon 2020 Programme – Horizon Europe – which will continue to promote research excellence and strengthen the focus on innovation, for instance through the development of prototypes, intangible assets, knowledge and technology transfer. Horizon Europe will have a budget of €97,6 billion (€3,5 billion of which will be allocated under the InvestEU Fund).

Finally, in parallel to the increased budgets for the CEF and the new Horizon Europe, the EC introduces one of the biggest energy and infrastructure fund reorganisations in recent years. The proposed Regulation for establishing the InvestEU Programme is undoubtedly going to alter the way the EU funds projects in a number of sectors by bringing under one roof the EU financing tools in the form of loans and guarantees. According to EC President, Jean-Claude Juncker, with InvestEU the EC is “simplifying, doing more with less, and placing a stronger focus on social investments”.

InvestEU would be the successor of EFSI, albeit strengthened and reinforced by unifying 14 existing financial instruments:

The EC also suggests to pool 13 different advisory services into a single InvestEU Advisory Hub, and to create and maintain a one-stop platform for applications and information, the InvestEU Portal.

According to the EC, the InvestEU Fund will mobilise public and private investment through a EU budget guarantee of €38 billion. The EC will count on other financial institutions, especially the EIB, to increase said European guarantee package to €47,5 billion, which would in turn allow to attract the investors to unlock, financing totalling up to €650 billion over the fund’s seven-year lifespan. In order to do this, the EC proposes to diversify the number of financial institutions implementing this future fund. The EIB currently administers the allocation of EFSI funds alone, yet in the future, national development banks or other institutions such as the EBRD will likely also participate in the process.

Unlike the EFSI, which was created as a short-term market-driven tool, the InvestEU Fund is foreseen as a market-based, demand-driven and also policy-focused instrument. The new fund will focus on four main policy areas, which are priorities for the EU: (i) sustainable infrastructure (the EC proposes to allocate €11,5 billion of the available guarantee); (ii) research, innovation and digitisation (which would get €11,25 billion); (iii) SMEs and small mid-cap companies (also €11,25 billion); and (iv) social investment and skills (the remaining €4 billion).

Another novelty of the proposed new fund is that it will feature a Member State compartment for each policy area, which means that each Member State may complement the EU guarantee by voluntarily redirecting up to 5% of its Cohesion Policy Funds to these compartments. This is expected to boost economies of scale by allowing the “Member States to benefit from the EU guarantee and its high credit rating, giving national and regional investments more firepower”.

The proposed InvestEU Programme is foreseen as a complement to grant financing and other actions under the policy areas it supports, such as Horizon Europe, the CEF, the Digital Europe Programme, the Single Market, Competitiveness of SMEs, the Programme for Environment & Climate Action (LIFE) and others. However, when promoters blend grants from other programmes with funding from InvestEU, InvestEU rules will apply to the whole.

The three enhanced and restructured funds, i.e., CEF, Horizon Europe, and InvestEU, are part of the first cluster of the proposed 2021-2027 MFF, for which the EC has earmarked €187,4 billion out of the total €1,279 trillion in commitments (in current prices).

In their capacity as co-legislator and budgetary authority, the EP and the Council will decide on the proposed MFF, enhanced budgets of some of the Funds and the major restructuring under the InvestEU Programme. The two Institutions will oversee the implementation of the InvestEU Fund through annual reporting to the budgetary authority and through a discharge procedure.

The proposals for budget and funds’ restructuring are most likely influenced by the exit of the UK, the aftermath of the financial crisis, and the various assessments of the current funds. As a result, the entry into force of the proposals after their adoption is expected to be 1 January 2021 and will concern a Union of 27 Member States.





Article photo: European Commission

Graphic on InvestEU design: Freepik