Assessment of the Modernisation Fund two years into operation

Energy transition

It has been two years since the Modernisation Fund (based in EU Emmission Trading System) started operating. As NGOs, we have been closely following the spending as we believe it has the potential to be a real game-changer for lower-income EU Member States to achieve the just energy transition and to narrow down the investment gap for 2030 climate targets. Its absorption is still limited (5 EUR bn worth of investments approved, out of assumed 45 EUR bn available) as countries are focused on using resources from the Recovery and Resilience Facility (RRF) and EU Cohesion Funds, but its importance will grow over the coming years because the simple and flexible application process offers fairly easy access to funding for the beneficiary Member States. We want to draw conclusions from this first stage of spending, especially in light of the ETS Directive revision, which will change the scope and increase the size of the Fund. This briefing highlights that fossil gas-based cogeneration projects are strongly supported by the Fund and this direction of investment would create a risk of a gas lock-in in some beneficiary Member States if this pattern continues.

Key conclusions and recommendations

The Fund is meeting the objectives but some elements are needed to improve its operation and expected impact, such as binding national strategies for the spending, a mechanism that will assess the number of gas-based cogeneration units funded via the Fund, and help mitigate the risk of gas lock-in; introduction of incentives to submit more demanding projects like central district heating/cooling, buildings decarbonisation, and energy network modernisation by the beneficiary Member States.

Find the full report here