EUROPEAN COMMISSION LAUNCHES NER 300 SECOND ROUND

Tamar Hallerman
GHG Monitor
4/5/13

The European Commission launched the second round of its clean energy funding competition this week, calling on the European Union’s 27 member states to submit bids for carbon capture and storage and “innovative renewables” projects to receive funding. The EU’s Brussels-based executive branch said April 3 that member states have until early July to submit bids to the European Investment Bank for its New Entrants Reserve (NER 300) competition. “The overwhelming response to the first call showed that EU businesses have the know-how and the ambition to lead the low-carbon transition. This second round offers all CCS and innovative renewable energy technologies a new chance of applying for funding, including those that were not awarded funding in the previous round,” Climate Action Commissioner Connie Hedegaard said in a statement, adding that the EC hopes to have a “full range” of clean energy projects operational by 2018. The EC has said it hopes to award funding to the winning projects by mid-2014.

Bidders will be competing for a share of funding from a pot whose size will be determined by the going rate of 100 million carbon credits on the EU’s Emissions Trading System (ETS). It will also include an additional €275 million ($353 million) in funding rolled over from NER 300’s first round late last year. That money was initially set aside for the only CCS project selected as a winner under the first round of the competition. But that industrial capture project, a “green” steelmaking pilot in France that was backed by the world’s largest steelmaker, ArcelorMittal, was withdrawn at the last minute due to unspecified “technical difficulties.” The rest of the €1.2 billion ($1.55 billion) pot from the first round was allocated to 23 renewable energy projects in 16 countries.

Round Two Funding Expected to be Small

Hedegaard had indicated during a December press conference that since renewables swept the competition’s first round, CCS projects could have more of a chance in the second. But she also underscored at the time that it is the responsibility of member countries to “do their homework” and provide the EC with the level of financial certainty that it requires. “I know that there are some CCS projects in the pipeline that are very good, but it also goes without saying that we have our requirements,” she said at the time. The EC said during its announcement of first round winners in December that it was not able to approve any CCS projects because member states were unable to provide the level of support the EC wanted in terms of funding or project development. More than a dozen CCS project had initially bid into the first round of the competition.

Looking ahead, many observers are not optimistic about the prospects for CCS projects being able to move forward in NER 300’s second round. Stuart Haszeldine, a professor of carbon capture and storage at the University of Edinburgh, previously told GHG Monitor that he is unsure that projects will be able to prove themselves in the second round if they were unable to do so in the first, especially if carbon prices stay low and developers are required to commit more funding to each project. “It’s very difficult to see how projects are going to reconfigure themselves to fit Hedegaard’s wish to close this off by next year,” Haszeldine said in a December interview. “If the money’s not there now, it’s very difficult to see how the money’s going to get there by a year’s time.”

Kieron Stopforth, a CCS analyst at Bloomberg New Energy Finance, said this week that the low carbon price will likely hurt the prospects of any CCS projects being able to move forward under NER 300’s second round.  “A low carbon price and tight competition rules mean any funding for CCS projects will likely be too low to help developers actually build projects. Any funding gaps must be met by the member state and most have been hesitant to provide enough public money. We think that the chance of the NER300 second round supporting projects is slim,” he told GHG Monitor.

EU Hopes to Bolster Carbon Price

Despite that leftover funding from the ArcelorMittal project from last round, the amount earned in the competition’s second phase is expected to be relatively meager given the record low carbon prices that have stubbornly plagued the ETS in recent months. While the European Investment Bank sold off the first round’s 200 million allowances for an average of €8 per credit, prices currently remain steady at around €5 each.

The 2014 award date for NER 300’s second round is later than Hedegaard had initially hoped—she initially said she wanted the EC to award co-financing by the end of 2013. While the delay further puts on hold the development of a CCS industry in Europe, it does give EU leaders some time to approve a scheme to prop up carbon prices on the ETS. Stakeholders are currently considering a last-ditch ‘backloading’ proposal that would temporarily remove 900 million carbon allowances from the ETS over next three years and reinsert them back into the market in 2019 and 2020 with the hope that it will prop up carbon prices in the near term. The price of emissions allowances sunk to an all-time low of €3 ($3.90) in January, and any increase in the carbon price could help earn more money for clean energy projects under the scheme.

The launch of NER 300’s second round comes at a make-or-break time for CCS in Europe. In a white paper released last week, the EC acknowledged that the polices currently in place to drive investment in CCS like the NER 300 are not doing enough to spur development. It said the EU must do more if it wants to become a leader in the technology. “Despite much effort and significant EU support, CCS commercial scale demonstration projects in the EU are delayed and available funding is not sufficient,” the document stated. It asked stakeholders about new ways to incentivize the technology like an emissions performance standard or a ‘clean coal’ certificate scheme, calling for an “urgent policy response” on the issue.