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Reports & Research

Innovative Financial Instruments for First-of-a-Kind (FOAK)

Commercial-Scale Demonstration Projects in the Field of Energy

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Jonathan Lonsdale
Consulting Director
Consulting Director
Gardiner_James
James Gardiner
Managing Consultant
Managing Consultant
Sep 1, 2016

Background

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. The study was carried out by ICF, in association with London Economics, between March 2015 and June 2016. It aimed to:

  • describe and quantify the investment needs and current financing bottlenecks related to the financing of SET FOAK projects;
  • identify and analyse the market conditions, which affect the investment and lending to SET FOAK projects and the need for further public intervention at EU level; and,
  • formulate appropriate policy options, including financial instruments (FIs), to remove identified investment and/or financing ‘bottlenecks’

Overall, the study sought to bridge the knowledge gap between technology developers and financial market participants, and to generate policy options, which support SET FOAK projects in the EU.

Conclusions

Financing is a critical link between innovation and successful commercialisation. However, SET FOAK projects in Europe face tremendous challenges in raising sufficient funding to achieve financial close, achieve construction, become fully operational, and thereby prove to the market the efficient operational performance of leading-edge SET innovations. The scale of finance required for such projects has hitherto failed to be fully recognised by policy makers.

Investment needs to 2020 across all EU SET FOAK projects are substantial, estimated at between €4.0bn and €28.5bn (equivalent to around half of the current SET-Plan need4) and sectoral investment needs differ widely.

In contrast to this significant future investment need, when measured across both EU support schemes (such as the NER 300 at €2.1 billion) and available through key Member State support schemes, ICF estimates that total current grant, debt and equity provision for FOAK projects at EU and Member State level is around €4 billion. This leaves a public funding shortfall of around €10 billion to achieve maximum levels of FOAK demonstration projects.