Speaking at the Environment Council of 20 June the Commissioner for Climate Action Miguel Arias Cañete said, “Before the end of 2016 we will know how much money remains unused from those projects awarded in the first NER300 call.” By mid-December of this year NER300 rules say that projects in the first call, for which awards totalling 1.089 bn EUR were made, need to reach final investment decision and have secured all the permits necessary for their construction.

The unused money will be recycled to NER400 Innovation Fund, Cañete said: “The EC proposal foresees also that the money remaining for NER300 projects is added to the Innovation Fund. This was envisaged by the co-legislator when the Market Stability Reserve was agreed last year.” He hinted that it could allow NER400 Innovation Fund to start early, i.e. before Phase 4 of the Emission Trading Scheme begins in 2021: “If it turns out that a considerable amount remains unused, we may want to reflect how we can speed up the reuse of this money to boost innovation and accelerate the roll-out of innovative low-carbon technologies.”

The extent to which the following statement by DG CLIMA Director General Jos Delbeke is reality or caricature is unknown. He made it at the 9 June High Level Roundtable on Low carbon innovation (14:40:00). Referring to the risks inherent in designing funding mechanisms, he said that they’re at risk when “the business cycle turns around. The perspectives are less attractive and half of the projects fall apart because while they were put up before Lehman brothers, they were delivered after Lehman Brothers and a lot of the good intentions did not materialise because of that.” There’s an allusion in there to the amount of money that may be at stake. At the same event, Delbeke appealed for leniency when it comes to judging whether NER400 has succeeded or failed.

Sweden senses that many projects will be declared dead in December. In a written statement to the Council of Ministers it commented that “the NER300 program has significant volumes of funds which have not been disbursed,” preferring to use this non-disbursed money to boost the size of NER400 Innovation Fund than to sell another 50 M tonnes of carbon. The country is home to three NER300 projects, including one, GoBiGas Phase 2, that is “not currently being delivered” (presentation of 21 June at Stakeholder Plenary Meeting, European Biofuels Technology Platform). This project was awarded 58 797 168 EUR. The Belgian project ‘SLIM’, on smart grids, is also withdrawn (8 165 192 EUR).

An MEP has joined the chorus of concern over unused funds. Ivo Belet said at the meeting of the European Parliament’s Environment Committee of 21 June 2016 that, learning from the NER300 experience, it will be important in NER400 Innovation Fund to “make sure there’s no money left at the end of the period” (10:34:44).

The agenda for the Climate Change Committee meeting of 22 September carries an item with the terse description ‘Full deployment of NER 300 funds’, indicating that the EC and Member States are considering options.

Maximum upfront financing was limited to 60%

“Maximum 60% of the awarded NER 300 funding can be provided as upfront funding”

This policy had been stated orally by ex-NER300 Head of Unit Piotr Tulej in a meeting with Member States and Project Sponsors on 10 April 2013.

By Jul 2015 the NER300 pot had swelled by 23 M EUR from asset management

The EC reveals that in 2014 23 M EUR was yielded from investment of the money not yet paid out to projects, and claims that this exceeds by “several times” the cost of “the EIB’s involvement” in NER300. It also says,

“All available funds resulting from the monetisation of 300 million allowances are now allocated to awarded projects, with the exception of a minor surplus of €2.6 million.”

1. NER300.com’s comment

   The phrase concerning the cost of the EIB’s involvement is misleading: in a summary paper referenced by the EC in the Impact Assessment, the EIB writes, “The EIB sold 300,000,000 EUAs for a total value of EUR 2,156,830,800 EUR (before deduction of expenses and EIB fees)”. The sum of the total awards made to projects is 2,104,867,924 EUR. If the surplus is 2.6 M EUR, then the cost of administering NER300 (excluding the time of EC personnel) is 49 M EUR, which is double the income so far from asset management. This is consistent with the amount of 34,729,701 EUR used by the EIB to cover “expenses, market fees and its own fee” in the first round, an amount which is disclosed in the above-referenced paper.

We now know what the EC’s ‘eligibility check’ consisted of

***UPDATE 10 Sept 2017: More evidence of the way in which the eligibility criteria assessment was performed appears in DG Research and Innovation’s September 2016 FOAK study. “Independent assessors” were used, who indeed categorised each project’s innovativeness according to the four degrees listed below.***

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As part of the eligibility check, projects were screened for innovation. The EC “estimate[s] that almost 80% of the NER 300 awards went to highly innovative or even potentially game changing projects.” An early draft of the Impact Assessment (which leaked) is more explicit: they were scored 1-4, one presumes according to the same scheme described in footnote 99 of the final version: “1. Little or no innovation 2. Some innovation demonstrated, but mainly incremental 3. Highly innovative project for some component or aspect of technology 4. Highly innovative project that is likely to represent a game changing step in technology.”

To determine eligibility, the EC performed “a qualitative analysis […] based on difference of the project’s technology from existing solutions, availability of the project’s technology amongst other vendors, availability of previous tests for the chosen technology, potential for scale-up and replicability and availability of resources to be used by the project.”

Project sponsors were never officially told their eligibility score, nor what the EC considered distinguished their technology from “existing solutions”, or of the EC’s assessment of the “availability” of the technology their projects would use.

1. NER300.com’s comment

   With the existence of such information now confirmed, Project Sponsors will find it easier to request access to it in respect of their projects. They need to ask for the “report on the verification of Eligibility Criteria Assessment”, which, for first-call projects appears as item 22 on Table 1 at para 80 of the first-call Procedures Manual, or, for second-call projects, as item 14 on the table at para 69 of the second-call Procedures Manual.

White Rose’s award of 300 M EUR was 34% of its relevant costs

…meaning, from arithmetic, that its relevant costs were around 880 M EUR. According to NER300.com’s calculations and on the assumption that the NER300 project corresponds to the full 448 MW_e project described here, the ‘relevant costs’ are about the same as the extra investment costs of applying CCS on the White Rose plant. This is because the ‘avoided cost’ of not having to buy CO2 allowances for the sequestered CO₂ corresponds roughly to the additional cost of the coal needed to power the sequestering process.

EC declined half of applications for upfront finance

“It should be noted that although not all projects that required upfront funding were granted it this has not jeopardised their implementation. (Six projects awarded under the second NER 300 call applied for upfront funding but only three received it.)”

On Weds 21 Sept 2016 in Strasburg, the three NER300 Project Sponsors in geothermal energy will present their “state of play and current developments” as part of EGC 2016.

The session begins at 16:30 with a presentation of NER300 including its knowledge-sharing rules by DG JRC (to be confirmed).

Link to the conference homepage

The consultants hired by the EC to help it analyse the implementation of the NER300 funding programme (see contract award notice of 31 Dec 2015 and specifications) have created an online survey for Project Sponsors to fill in. Access to the survey is restricted to Project Sponsors.

ICFI, SQ Consult, Vito and their client DG CLIMA (who will have direct access to individual answers) commit to keeping the responses secret.

The survey’s questions are available here. They explore many aspects of NER300’s functioning. Although the deadline for responses was 20 May, the survey appears still to be active.

NER300.com has a sister site, NER400.com, providing information on the NER400 Innovation Fund currently at an early stage of development.

***UPDATE 17 October 2016: One first-call project, FI BIOe Ajos BTL was allowed to push back its date of entry into operation.***

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In a letter to Member States dated 22 March 2016 the EC has told them, “We are of the opinion that changes to projects funded under the first call of NER300 […] are not feasible any more.”

This is traditionally the time of year that DG CLIMA invites Member States to make known any changes that Project Sponsors wish to make. The changes may be very substantial, involving changes in project location, Project Sponsor and financial performance. But because in DG CLIMA’s words “there are only 9 months left” for first call projects (i.e. awarded in Dec 2012) to meet a major deadline of 31 Dec 2016, the EC is minded to withdraw the possibility to propose big changes.

By 31 December 2016 all awarded projects from the first call are required to have reached a ‘Final Investment Decision’ based on the financial model of the project that will actually be built, secured all relevant national permits (e.g. for construction or grid connection) and secured the approval by the EC (DG Competition) of any State Aid that will be given to the projects.

It typically takes the EC 4-5 months to declare whether it accepts proposed changes to projects.

Kerstin Lichtenvort, Co-ordinator for the implementation of the CCS Directive and the NER300 funding programme at the European Commission, presented NER300 to the Ocean Energy Europe 2015 conference (Dublin 21 Oct, session “Public Funding for Ocean Energy: Breaking Through to the Mainstream”).

She said two projects would reach Final Investment Decision in 2015, with another four expected to do so in 2016. The 39 awarded projects in the programme have, in her view, “a lot of multiplication impact”. She said thought must be given to “how the performance of such an important programme for innovation should be measured”.

The EC launched the debate with the Council and European Parliament on the successor to NER300, NER400 Innovation Fund, with its proposal of 15 July 2015. “At the moment it’s more the discussion ‘if we will have this Fund’,” Lichtenvort said. Secondary legislation will cover “technical details”.

Lichtenvort said, “If you read the ETS proposal carefully you’ll see it says ‘support’ instead of ‘grant’.” She invited feedback on whether “financial instruments”, including loans or equity, should be given to projects or if the financing should continue to be provided through grants.

Following an ‘access to documents’ request, the EC has published the amended Award Decision that details the current status of NER300 projects selected in the first and second calls.

The document shows changes to the dates that projects intend to begin operating and to the manner in which their award is paid to them, as well as, in two cases, changes to the project name and reductions in the award.

The updates reflect the wishes of project sponsors and their host Member States as at late spring 2015, when the EC initiated this year’s annual process to amend the Award Decision.

Delays

25 RES projects out of 38 have requested a change, including, invariably, a later ‘date of entry into operation’. Of those 25 projects, the mean delay to entry into operation is of 27 months. This figure excludes any requests for extensions already granted to first-call projects in January 2014.

This means that now 17 projects, which is 45% of all projects, are right up against the latest possible date of entry into operation according to current NER300 rules. This compares to 13% in 2012 and 34-36% in 2014. All French, Spanish, Cypriot and Greek projects are in this position.

Money for construction

More and more projects wish to take advantage of the ‘upfront funding’ possibility, where the award is paid in advance, with the risk that it will need to be paid back if the project underperforms. Five projects were granted this in 2015 (the EC suggests half of all requests are declined — see Impact Assessment).

Further interesting features of the Amended Award Decision

• UK OCNb Kyle Rhea Tidal Turbine Array changed its name from ‘Kyle Rhea’ to ‘Stroma’. The most likely reason is to reflect a change of the project’s location as both names refer to places. This is supported by the fact that the project’s award was reduced in January 2014 because of a reduction in its ‘Relevant Costs’, which is to be expected if the new site has a better tidal stream resource than the original one.
• The award of PVa concentrated PV project PT PVa Santa Luzia Solar Farm has been reduced. This implies the Project Sponsor has recently taken his Final Investment Decision, even though the project will only enter into operation in mid-2019.
• Among the seven countries that successfully lobbied for two-year extensions to some key NER300 deadlines, including projects’ date of entry into operation — France, UK, Germany, Italy, The Netherlands, Sweden and Finland — The Netherlands and Italy did not subsequently go on to apply for extensions for any of their projects.

The text of the EC’s amended Award Decision is available here. A file showing the evolving status of each project is available here.

Three projects are operating, two in bioenergy (IT BIOg BEST, DE BIOh Verbiostraw) and one in wind energy (SE WINf Windpark Blaiken).

The CCS project, White Rose, did not request an extension, but the deadline for doing so had passed before Drax announced its pull-out. Also, the result of UK’s CCS Commercialisation competition is not yet known. White Rose is one of two entries in line, potentially, for 1 bn GBP of capital funding.

***UPDATE 18 Apr 2016: ICIS reports that on 14 April 2016 White Rose was refused planning consent, further jeopardising the project.***

***UPDATE 26 November 2015: All UK CCS projects are dealt a severe blow by the UK government’s cancellation of the CCS Commercialisation competition, which would have awarded 1 bn GBP in funding to large-scale CCS demonstrations.***

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The future of the UK’s White Rose CCS project is in doubt, and with it up to 300 M EUR of NER300 money. Drax, one of the consortium of three companies developing the project, announced that it would not join its partners in proceeding to the investment phase.

Speaking on the UK radio show, The Today Programme, Drax CEO Dorothy Thompson said she “thought [White Rose] was a really good project and important technology”, but Drax lacks the cash to construct. “We’re in a different financial situation today than we were two years when we decided to invest in the [White Rose] project. There have been some changes to the government’s renewable policy but there have also been dramatic movements in the commodity markets that have greatly reduced our profitability. The government has removed a tax exemption for renewable power sold to industry and we’re the largest generator of renewable power in the UK,” she explained.

The CEO is referring to the climate change levy, which is a tax on UK business energy use (details on OFGEM website — UK electricity market regulator). Businesses could escape the tax by handing in Levy Exemption Certificates covering their energy use. Until 1 August 2015 (when a change in the law came into effect), a renewable energy supplier like Drax could create Levy Exemption Certificates, which it could sell to its customers for a price up to the value of the tax. Drax had warned in July that it expected its revenue to drop by 30 M GBP in 2015 and 60 M GBP in 2016 because of the end of LECs.

Carbon Pulse reported that the other two partners in the White Rose consortium, Alstom and BOC “were committed to completing the project”. Drax, meanwhile, will pursue “rapid decarbonisation with the deployment of the latest biomass technology, which is the most affordable, reliable and fastest way to move away from fossil fuels.”

Bellona, a pro-CCS NGO, said Drax is one of many utilities seeking capacity payments in order to survive. Bellona decries such payments “as a form of blackmail to ‘keep the lights on'” and would prefer to see an electricity market design that would encourage Drax to invest in CCS instead. Its statement is here.

Drax’s press release is here.

DG CLIMA has launched the second public consultation in a year explicitly asking about NER300. In the table below, the questions it asks are compared with the earlier consultation, which closed on 31 July 2014. The deadline for responses is 16 March 2014.

Latest consultation: Consultation on revision of the EU Emission Trading System (EU ETS) Directive — closing 16/03/2015

Earlier consultation: Consultation on Emission Trading System (ETS) post-2020 carbon leakage provisions — closed 31/07/2014

Do you see reasons to modify the existing modalities applied in the first two calls of the NER300? Are there any modalities governing the NER 300 programme which could be simplified in the design of the innovation fund? If you see the need for changes, please be specific what aspects you would like to see changed and why. Do you consider that for the extended scope of supporting low-carbon innovation in industrial sectors the modalities should be the same as for CCS and innovative renewable energy technologies or is certain tailoring needed, e.g. pre-defined amounts, specific selection criteria? If possible, please provide specific examples of tailored modalities. Are there any complementary aspects regarding innovation funding you would like to add to the replies given to the previous written consultation in the light of the European Council conclusions?

Currently the European Commission implements the NER300 programme to provide from EU ETS specific support for large-scale demonstration of Carbon Capture Storage (CCS) projects and innovative renewable energy. 300 million allowances, representing ca. 2% of total phase 3 allowances, are dedicated for this purpose. What share of the post-2020 allowance budget should be dedicated to such innovation support? At the moment, EU ETS rules do not contain a specific support scheme for industrial innovation and deployment of new low-carbon technologies (apart from support for CCS and renewables under the NER300). Do you think there should be such a financial support scheme? If innovative low carbon technologies in the industry are to be further supported, which could be possible sources of funding?

The reponses to the earlier consultation, which were analysed by NER300.com have now been analysed by the EC. The NER300.com article has been updated with a link to the EC’s official summary of the responses.