Do you know your funding gap?

New guidelines open for more state aid to green investments, but applicants should expect more focus on the economic need for aid.

Aligning the EU state aid guidelines with the EU legislation and objectives of the European Green Deal is the goal of a new set of guidelines for state aid to green investments that the Commission adopted in January 2022.

In this article, we identify two major changes in the new guidelines. First, the new guidelines offer better opportunities for aid due to its broadened scope and higher allowed aid intensities. Second, the control to avoid unnecessary aid has been strengthened through ex-post claw-back mechanisms and cost control.

Our view is that these two changes suggest that funding gap analyses, in this case, the net extra cost of a green investment project compared to the alternative without aid, will become increasingly important going forward.

We also provide hands-on guidance for aid applicants in calculating the funding gap. In short, we emphasize that i) data used should be sufficiently detailed, ii) assumptions should be cross-checked against well-established sources and benchmarks, iii) recent market, policy and political developments should be addressed and iv) sensitivity analyses should be presented.

For further information, please contact the authors.