Frequently Asked Questions

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1. Key features of the Modernisation Fund as established in the ETS directive 1

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The Modernisation Fund supportsinvestments consistent with the 2030 climate and energy objectives
of the Union, as well as the Paris Agreement. The majority of the resources of the Modernisation Fund
(at least 70%) must be invested in priority areas specified in Article 10d(2) of the ETS Directive.
Investments in these areas are referred to as ‘priority investments’:

  • generation and use of electricity from renewable sources;
  • improvement of energy efficiency (including in transport, buildings, agriculture, waste, and
    except in energy efficiency related to energy generation using solid fossil fuels);
  • energy storage;
  • modernisation of energy networks (including district heating pipelines, grids for electricity
    transmission, increase of interconnections among Member States); and
  • support to a just transition in carbon-dependent regions in the beneficiary Member States
    (including support to the redeployment, re-skilling and up-skilling of workers, education, jobseeking initiatives and start-ups, in dialogue with social partner).

All investments qualifying for the Modernisation Fund, but falling outside the priority areas are
considered as ‘non-priority investments’. The Modernisation Fund can cover up to 70% of the
relevant costs of non-priority investments, as long as the remaining costs are financed by private legal
entities.

The Modernisation Fund cannot finance investments, which involve solid fossil fuels. Exceptionally,
under certain conditions, it can finance such investments relating to efficient and sustainable district
heating in Bulgaria and Romania (Member States with a GDP per capita below 30% of the Union
average in 2013).

1.1 What investments can be funded by the Modernisation Fund?

The Modernisation Fund supports investments consistent with the 2030 climate and energy objectives of the Union, as well as the Paris Agreement. The majority of the resources of the Modernisation Fund (at least 70%) must be invested in priority areas specified in Article 10d(2) of the ETS Directive. Investments in these areas are referred to as ‘priority investments’:

  • generation and use of electricity from renewable sources;
  • improvement of energy efficiency (including in transport, buildings, agriculture, waste, and except in energy efficiency related to energy generation using solid fossil fuels);
  • energy storage;
  • modernisation of energy networks (including district heating pipelines, grids for electricity transmission, increase of interconnections among Member States); and
  • support to a just transition in carbon-dependent regions in the beneficiary Member States (including support to the redeployment, re-skilling and up-skilling of workers, education, jobseeking initiatives and start-ups, in dialogue with social partners).

All investments qualifying for the Modernisation Fund, but falling outside the priority areas are considered as ‘non-priority investments’. The Modernisation Fund can cover up to 70% of the relevant costs of non-priority investments, as long as the remaining costs are financed by private legal entities.

The Modernisation Fund cannot finance investments which involve solid fossil fuels, unless such investments relate to efficient and sustainable district heating in Bulgaria and Romania (Member States with a GDP per capita below 30% of the Union average in 2013.

1.2 How does the assessment of priority and non-priority investment proposals differ?

The Modernisation Fund is geared towards priority investments, with a view to achieve the EU climate and energy targets, and therefore such investments benefit from a simpler, faster and cost-efficient pathway to funding. All other investments qualifying for Modernisation Fund support but not falling into the priority areas are considered as non-priority and they follow a different and more complex procedure.

Once a priority investment is submitted to the EIB, the EIB confirms whether the investment falls into at least one priority area listed in the ETS Directive. On the other hand, the assessment of non-priority investments is more complex and requires more time and resources. Non-priority investments undergo in-depth technical and financial due diligence by the EIB. The EIB will provide more details on the assessments of both priority and non-priority investments to the Investment Committee.

 

1.3 How much money does each Member State have in the Modernisation Fund?

The revenues of the Modernisation Fund come from the auctioning of the ETS allowances in equal annual volumes. The amounts available to each beneficiary Member State are calculated according to its share in the Fund. 

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2. Operations of the Modernisation Fund as established in the Commission Implementing Regulation 3

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2.1 How are Modernisation Fund resources allocated to priority and non-priority investments?

The ETS Directive foresees that at least 70% of the Modernisation Fund’s resources are to be used to support priority investments.

Remaining, a maximum 30% of the Modernisation Fund’s resources can be allocated to non-priority investments, provided that at the same time at least 70% is spent on priority investments. This ‘70/30 rule’ applies to each beneficiary Member State. As foreseen in the ETS Directive, up to 70% of the relevant costs of a non-priority investment can be covered by the Modernisation Fund.

2.2 What form can investment take?

The following two types of investments can be distinguished:

  • individual investments;
  • multiannual schemes.

An individual investment or a multiannual scheme can either fall under the category of priority investment or of non-priority investment.

2.3 What are schemes?

Schemes have the following characteristics:

  • have a consistent set of priorities coherent with the objectives of the Modernisation Fund;
  • have a national or regional scope;
  • have a duration of more than one year;
  • aim to support more than one public or private person or entity.

Special rules apply to the financing of schemes. A scheme undergoes a comprehensive assessment only once, when the first disbursement to the scheme is requested. When the next disbursement(s) are requested, the checks are limited to verification of the available funds and, for non-priority investments, to the ratio of non-priority investments in the total investment portfolio of the beneficiary Member State and the financing not exceeding 70% of the relevant costs.

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2.4 How are funds disbursed?

The disbursement process is organised in two 6-month (i.e. biannual) cycles (linked to the two meetings per year of the Investment Committee), and the milestones of this process are set by the date of the meeting of the Investment Committee.

Before every Investment Committee meeting, the EIB calculates the funds available at the disposal of each beneficiary Member State.

Following the meeting of the Investment Committee, the Commission adopts a single disbursement decision for all priority and non-priority proposals to be financed. The disbursement decision is published and notified to the beneficiary Member State(s) concerned.

Within 30 days of the date of the disbursement decision, the EIB transfers the relevant amounts to the beneficiary Member States. The beneficiary Member States are responsible for payments to the final beneficiaries according to national procedures.

2.5 When does an investment need to be completed? Can an investment be discontinued?

Investments financed by the Modernisation Fund need to meet the following deadlines:

  • the investment has to be financed at least once every two consecutive years – e.g. the project proponent or the scheme managing authority have to provide proof of financial activity (e.g. paid invoices) on the project or within the scheme; and
  • the total amount received by an individual investment needs to be spent within five years from the disbursement decision; this deadline does not apply to schemes, which can last longer than five years, provided that there is a proof of payment at least every two years.

If an investment fails to respect these deadlines, it is considered discontinued. Any unspent funds from discontinued investments will need to be returned to the Modernisation Fund and directed to other investments of the beneficiary Member State.

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