A Cleantech

Investment Plan
for European
Competitiveness
How the EU can become the industrial
and climate leader of the next decades

With the support of

EXECUTIVE
SUMMARY
A Cleantech Investment Plan for European Competitiveness 2
 Over the last decade, the EU has become a cleantech innovation
powerhouse, investing billions of euros and developing most
of the technologies we need to decarbonise, become energy
resilient and build industrial leadership. EU-based companies
are ready to manufacture world-leading batteries, electrolysers,
supercapacitors, electric trucks and near-zero carbon steel and
cement. This new generation of industrial leaders could underpin
Europe’s global competitiveness for decades to come, at a time
when peers in America and Asia are investing significantly to take
the lead in these new industries.

However, we still struggle to scale and industrialise these

technologies in Europe, especially when they are developed by
newcomers. At this critical “scale-up” stage, cleantech companies
typically need to shift from raising tens of millions of euros in
venture capital to validate their technology, to hundreds of millions
of euros in debt instruments to build large-scale plants. In previous
research, we have pointed to why this scale-up is so difficult in
Europe: unlevel playing field between newcomers and existing
large industrials, lack of public and private funding, insufficient
demand signals, fragmented markets and lagging regulation
among others.

A Cleantech Investment Plan for European Competitiveness 3

 Some “scale-up” success stories are starting to emerge in
Europe. Companies like H2 Green Steel in Sweden or battery
gigafactory developer Verkor in France are pushing the boundaries
of traditional financing, leveraging a capital stack of equity,
commercial debt and subsidies to build multi-billion cleantech
projects. But these companies are the exception, not the norm,
and their fundraising success must urgently be replicated in other
strategic technologies such as electrolysers, ultracapacitors, long-
duration energy storage, innovative renewables and many more.

Developing a first-of-its-kind project requires

all types of cleantech financing mechanisms
and they need to interact. In H2 Green Steel’s
case, this meant securing €4.2 billion in project
finance, €2.1 billion in equity and a €250 million
grant from the EU Innovation Fund for the world’s
first large-scale green steel plant in Northern
Sweden.

HENRIK HENRIKSSON
CEO
H2 Green Steel

A Cleantech Investment Plan for European Competitiveness 4

01
A €50+ BILLION INVESTMENT
GAP FOR JUST 6 TECHNOLOGIES
In President Ursula von der Leyen’s words, the EU is vying to
become “the home of clean tech and industrial innovation” with
a focus on domestic manufacturing. The Net Zero Industry Act
(NZIA) sets the goal of manufacturing at least 40% of the EU’s
annual deployment needs of strategic clean technologies: solar,
wind, batteries and storage, heat pumps and geothermal energy,
electrolyzers and fuel cells, biogas/biomethane, carbon capture,
utilization and storage, and grid technologies by 2030.

5
 To meet NZIA’s 40% objective for a subset of technologies, the
Commission estimates that the EU will need at least €92 billion
investments over the period of 2023-20303. From this €92 billion,
the European Commission estimates that €16-18 billion should
come from public investments4.

Even if that €16-18 billion materializes, at the current rate of

private investments in these technologies, this leaves a €50
billion gap, which could easily double once other NZIA strategic
technologies are accounted for: solar thermal, tidal and wave
technologies, storage other than batteries, geothermal, fuel
cells, biogas and biomethane technologies, grid technologies.
The investment gap grows larger still when considering clean
technologies not covered by NZIA, like green steel, green cement
and chemical recycling.

While our latest research shows that the EU is closing its

cleantech venture capital gap with the US, we are falling behind
when it comes to investing in cleantech manufacturing and
projects. The United States’ Inflation Reduction Act will unlock
$1.2 trillion of cleantech incentives by 2032.5 China is not only
the global frontrunner in cleantech investments—having spent
$546 billion in 20226 —but also has a growing lead on cleantech
manufacturing over both Europe and the US7. Through the newly
adopted GX (Green Transformation) Promotion Law, Japan will
facilitate the issuance of GX Economic Transition Bonds, a ¥ 20
trillion (€127 billion ) project over a decade, to attract over ¥ 150
trillion (€955 billion) in investments8.

1 https://single-market-economy.ec.europa.eu/system/files/2023-03/SWD_2023_68_F1_STAFF_WORKING_PAPER_EN_V4_
P1_2629849.PDF
2 Venture capital, debt and project finance invested into EU developers of Solar PV, wind, batteries, heat pumps, electrolysers and
CCS (€3.2 billion in 2022, multiplied by 8 to cover the 2023-30 period), Cleantech Group
3 https://commission.europa.eu/system/files/2023-07/SFR-23_en.pdf
4 https://commission.europa.eu/system/files/2023-07/SFR-23_en.pdf
5 https://www.goldmansachs.com/intelligence/pages/the-us-is-poised-for-an-energy-revolution.html
6 https://about.bnef.com/blog/global-low-carbon-energy-technology-investment-surges-past-1-trillion-for-the-first-time/
7 https://iea.blob.core.windows.net/assets/0a421001-6157-436d-893c-c37eeab54967/TheStateofCleanTechnologyManufacturing.pdf
8 https://grjapan.com/sites/default/files/content/articles/files/gr_japan_overview_of_gx_plans_january_2023.pdf
6
 To compete on the global stage and stand a chance at becoming
a climate and industrial leader of the next decades, the EU
urgently needs an ambitious Cleantech Investment Plan.

CLEANTECH VENTURE CAPITAL BY REGION, 2018-2023

Europe is at risk of losing the cleantech race.

It urgently needs a Cleantech Investment Plan
to turn its innovation edge into industrial
leadership.

ANN METTLER
Vice President
Breakthrough Energy

A Cleantech Investment Plan for European Competitiveness 7

 02
A CLEANTECH INVESTMENT
PLAN FOR EUROPEAN
COMPETITIVENESS

Europe’s cleantech ambitions are meeting the hard reality

of a challenging economic environment. High energy prices
and interest rates are hurting EU manufacturing, and political
resistance to the Green Deal is on the rise. In this context, it is vital
to adopt a Cleantech Investment Plan that is both fiscally efficient
and at a large enough scale to meet our ambitions. This will require
the EU to embrace a public sector-enabled, private-sector-led
transition to mobilise significant pools of private money.

1. Unleash institutional capital to create a step-change in EU

cleantech investment
While US insurers and pension funds are prolific investors
in venture and growth capital, this is not the case for their
European counterparts. EU pension funds in 2021 invested
less than 0.018% of their total assets in venture funds9, while
in the US public pension funds invest 1.9% of their assets in
venture funds.10

9 https://2021.stateofeuropeantech.com/chapter/attracting-world-class-investors/article/fundraising/#:~:text=20%25%20of%20
funding%20was%20captured,than%200.018%25%20of%20their%20total
10 https://www.jstor.org/stable/43503370#:~:text=Similarly%2C%20venture%20capital%20investment%20accounts,but%20
only%201.3%25%20in%20Canada.&text=counterparts%2C%20while%20the%20venture%20capital,to%201.3%25%20and%20
3.1%25.&text=invest%20in%20private%20equity%20as%20compared%20to%20American%20funds.

A Cleantech Investment Plan for European Competitiveness 8

 This 100x difference has massive implications for our ability
to scale the innovations we develop. Cleantech for Europe’s
plan includes reviewing prudential rules to make it easier for
institutional investors to fund the cleantech revolution and
developing the de-risking instruments and fund-of-funds to
crowd in private capital.

The European cleantech VC ecosystem cannot

match the fundraising capabilities of its US
counterpart without institutional investors
stepping up.
PATRIC GRESKO
Head of Division - Sustainability & Innovation
European Investment Fund

2. Mobilise public guarantees to catalyse private investment

To build up manufacturing capacity, cleantech companies
need access to affordable debt instruments. When selling
innovative equipment, cleantech manufacturers are asked
for a series of bank guarantees, to mitigate the buyer’s risks in
purchasing this equipment. Because of their lower bankability
compared to industrial incumbents, innovators are not able
to finance these guarantees at a reasonable cost, tying up
precious working capital in collateral that could be used to
ramp up manufacturing capacity.

A Cleantech Investment Plan for European Competitiveness 9

 Public guarantees offer policymakers an efficient instrument
to mobilise more private capital towards cleantech
manufacturing. Our Plan proposes to urgently expand the
recently announced European Investment Bank (EIB)
instrument for the wind sector to manufacturers of innovative
cleantech equipment, for instance electrolysers, long-
duration energy systems and innovative renewables.

Guarantees for first-of-a-kind project funding

and manufacturing scale up could be the
cheapest way for policymakers to target the
mainstream financial firehose at European
cleantech.
BEN MURPHY
Investment Director
Kiko Ventures

3. Mobilise revenues from the EU Emissions Trading System

(EU ETS) to scale up cleantech manufacturing
Bridging the EU’s cleantech investment gap requires
refocusing the EU’s funding architecture on the challenge
of cleantech industrialisation. In the wake of the Inflation
Reduction Act and changes to State Aid rules, some Member
States are forging ahead and providing large subsidies to
cleantech manufacturing projects. While positive, it risks
fragmenting the EU’s cleantech scale-up and leaving behind
large swathes of the EU.

A Cleantech Investment Plan for European Competitiveness 10

 One significant – and growing – pool of capital the EU could
leverage further is ETS revenues. In particular, our Plan
recommends the Innovation Fund is made more accessible
to cleantech companies. We also recommend Member
States invest 25% of their ETS revenues into cleantech
manufacturing. Lastly, the EU should consider front-loading
cleantech investment, for instance by borrowing against
future ETS revenues to invest in manufacturing capacity now.

ETS revenues are set to grow significantly over the next decade,
but investments in cleantech need to happen now. The EU can
find a way to front-load the investment, for instance by bor-
rowing against these future ETS revenues. In short: use debt to
increase the size of the carrot now (cleantech investment plan),
and use the money generated by your stick (ETS) to pay back
that debt.

THOMAS PELLERIN-CARLIN
EU Programme Director
Institute for Climate Economics (I4CE)

A Cleantech
A Cleantech Investment
Investment Plan Plan for European
for European Competitiveness
Competitiveness 11
Contents

Executive Summary___________________________________________________________ 2

State of play of cleantech investment in Europe _____________________ 7

Defining the EU’s cleantech capital stack_____________________________ 10

Grants_________________________________________________________________________ 10

Equity_________________________________________________________________________ 10

Debt___________________________________________________________________________ 10

Subsidies____________________________________________________________________ 10

Stacking it all together for First of a Kind Projects_______________ 10

A €50+ billion investment gap for just 6 technologies_____________ 13

Building an EU Cleantech Investment Plan___________________________ 17

Authors
SOFIA KARAGIANNI JULES BESNAINOU
Senior Policy Officer Executive Director
Cleantech for Europe Cleantech for Europe

A Cleantech Investment Plan for European Competitiveness 12

Acknowledgements

This report benefited greatly from the perspectives and insights of the following
contributors:

Isabelle Canu, Green European Tech Fund

Sergio Carvalho, Planet First Partners
Vaitea Cowan, Enapter
Fridtjof Detzner, Planet A
Ola Hansén, H2 Green Steel
Patric Gresko, European Investment Fund
Henrik Henriksson, H2 Green Steel
Peter Hirsch, 2150
Martin Kroener, Green European Tech Fund
Thomas Labryga, Vireo Ventures
Tobias Lechtenfeld, Tech for Net Zero
Maria Leis, Breakthrough Energy
Matti Leppälä, Pensions Europe
Ben Murphy, Kiko Ventures
Phillip Offenberg, Breakthrough Energy
Thomas Pellerin-Carlin, I4CE – Institute for Climate Economics
Julia Reinaud, Breakthrough Energy
Alicia Sanchis Arellano, Santander
Claudio Spadacini, Energy Dome
Peter Sweatman, Climate Strategy & Partners

The cover image shows electrolyser manufacturer Enapter’s Campus in Saerbeck, Germany, which includes
both a production centre and extensive R&D facilities that will enable scaled-up manufacturing of their
modular systems for green hydrogen production.

A Cleantech Investment Plan for European Competitiveness 13

STATE OF PLAY
OF CLEANTECH
INVESTMENT
IN EUROPE
A Cleantech Investment Plan for European Competitiveness 14
The EU cleantech ecosystem started some 25 years ago. In the early
2000s, while solar, wind and biomass innovators were sprouting up
in Silicon Valley, European venture capital investors took notice.
Some of the best-known names in EU cleantech investing, such as
Demeter IM in France and Munich Venture Partners in Germany set
up shop between 2004 and 2005, closely followed by SET Ventures in
the Netherlands, Capricorn Partners’ cleantech fund in Belgium and
others.

At the time, the innovative companies they financed were developing

technologies in solar, wind and geothermal power generation, home
energy efficiency, recycling and wastewater treatment. Some were
already looking at the early market for electric vehicles. A few hundred
million dollars were invested each year. Public subsidies in Europe
favoured biomass, wind, hydro and solar investments.

After a peak in 2008, the “cleantech 1.0” ecosystem was hit by a

downturn. High-profile bankruptcies of cleantech innovators led to a
common observation of the mismatch between the venture capital
model and cleantech innovation, which requires significant patient
capital and time to reach market. Strong competition and dumping
from China decimated solar producers in the EU and North America.
Yet, this first wave of innovation was instrumental in the global rise of
affordable solar and wind power, as well as electric vehicles. We are
still reaping the benefits of the efforts invested by these cleantech
pioneers.

Fast forward to today: cleantech has entered into a 2.0 phase,

transitioning has gone from a niche category to a key investment
focus. The cleantech 2.0 phase is associated with strong policy
signals to stimulate demand for cleantech solutions and support
Europe’s green reindustrialization.

Cleantech for Europe data reveals that in 2023, more than €11
billion of venture and growth capital was invested in EU-based
cleantech, representing a 15x increase over 2011. A third generation of
entrepreneurs and investors is emerging, with more appetite to tackle
capital-intensive bets with strong decarbonisation potential.
15
 EU27 CLEANTECH VENTURE & GROWTH INVESTMENT, 2014 - 2023

Compared to global peers, cleantech venture capital investments

are still largely dominated by the United States, with the Asia
Pacific region in second place and growing consistently over
the last five years. While cleantech investment in the EU grew
significantly over the last decade, and proved more resilient to
high interest rates than US cleantech investment in 2023, it has
reached a plateau at €11 billion with early-stage deals representing
more than four times of the total number of deals. The difference
is even starker when considering scale-up capital, where the US
has been attracting most investments for the past years.

CLEANTECH VENTURE CAPITAL BY REGION, 2018-2023

A Cleantech Investment Plan for European Competitiveness 16

 The growth of cleantech venture capital in Europe hides a more
challenging reality, which is that we still struggle to scale and
industrialise these technologies in Europe, especially when they are
developed by newcomers. At this critical “scale-up” stage, cleantech
companies typically need to shift from raising tens of millions of euros
in venture capital to validate their technology, which is relatively costly
and limited in volumes, to hundreds of millions if not billions of euros
in debt instruments to build large-scale plants. Building a green steel
plant, or an electrolyser factory, is very capital-intensive, and requires
going beyond venture capital. To assess the availability of EU funding
for cleantech, and develop a viable EU Cleantech Investment Plan, we
need to look beyond venture capital and analyse the full capital stack
available to cleantech companies in Europe.

Unleashing Europe’s cleantech prowess requires more than just

some light-weight venture capital injections. Let’s break out of the
green ceiling by leveraging heavyweight players such as insurance
firms. They’ve got the climate know-how and the resources to
supercharge Europe’s climate transition!

TOBIAS LECHTENFELD
Executive Director
Tech for Net Zero

A Cleantech Investment Plan for European Competitiveness 17

DEFINING
THE EU’S
CLEANTECH
CAPITAL
STACK
A Cleantech Investment Plan for European Competitiveness 18
 The cleantech capital stack is the pool of public and private
funding and investments available to cleantech companies and
projects in their journey from innovation to impact. It consists of
various layers including: grants, equity including venture capital,
venture debt, infrastructure investors, subsidies and guarantees.
In this section, we provide an assessment of how these different
instruments contribute to the cleantech journey in Europe.

A Cleantech Investment Plan for European Competitiveness 19

 GRANTS
Grants are non-dilutive funding instruments, meaning they provide
funding to companies without asking for equity in return. Grants
are provided both at the EU and national level and cover different
stages of a company’s development.

Available EU grants to consider:

→ Early-stage grants: Horizon Europe Climate (Pillar 2, Cluster
5), Innovation Fund grants, Interreg, Just Transition Fund,
European Innovation Council (Pathfinder, Accelerator, Transition),
Connecting Europe Facility, European Research Council, EIT
Climate KIC.

→ Late-stage grants: EU Innovation Fund, EU-Catalyst Partnership.

Reality check:
The wide availability of research and innovation grants, including
the Horizon Europe program, has contributed to Europe becoming
a powerhouse of cleantech innovation over the last 15 years.
However, few grants focus on the critical scale-up stage, and those
that do are hard to access for cleantech innovators. For instance,
in the 2021 EU Innovation Fund result, in the call for small-scale
projects, big industrial companies were 70% of the recipients,
and 100% of the recipients respectively in the large-scale call
projects.11

11 https://s3.amazonaws.com/i3.cleantech/uploads/additional_resources_pdf/95/295/Innovation_Fund_Letter.pdf
20
 Case Study:
In December 2023, the European Commission announced the EU-
Catalyst Partnership. The EU-Catalyst Partnership is a partnership
between the European Commission and Breakthrough Energy to
fund cleantech first-of-a-kind and demonstration projects in the
following sectors: clean hydrogen; sustainable aviation fuels; direct
air capture; long-duration energy storage; and decarbonisation of
industry, starting with steel and cement. The funding comes from
both Catalyst and the European Commission. For demonstration
projects in particular, grant funding comes from Catalyst, while the
EIB provides venture debt.

Under the EU-Catalyst Partnership, Energy Dome received

a project-level grant commitment of up to €35 million from
Breakthrough Energy Catalyst and €25 million venture debt
financing commitment from the EIB for its first storage facility in
Italy.12 In The award of a grant from Breakthrough Energy Catalyst
and debt from the European Investment Bank for Energy Dome’s
energy storage facility is a great example of the combination of
funding structures needed to support first-of-a-kind projects.

12 https://energydome.com/energy-dome-announces-funding-commitments-from-breakthrough-energy-catalyst-and-the-
european-investment-bank-to-support-construction-of-its-first-standard-commercial-scale-co2-battery/

A Cleantech Investment Plan for European Competitiveness 21

 EQUITY
Equity financing involves taking ownership shares in cleantech
companies. Equity funding can come from a variety of sources,
including angel investors, incubators, venture capital funds, private
equity firms, and public funders both at the EU and national
levels. In turn, these equity funds must raise money from larger
investors, such as institutional investors (pension funds, insurance
companies etc.)

Available EU grants to consider:

European Innovation Council (Accelerator, Fund), EIT InnoEnergy,
InvestEU, World Fund, Planet A, Matterwave Ventures, Munich
Venture Partners, Verdane, Eurazeo, Demeter, Meridiam, EQT
Ventures, Vargas Holding, Wallenberg Investment, Macquarie
Group, Ava Investors, IMAS Foundation.

Reality check:
While Europe is very good at deploying early-stage equity (up to
Series A), growth equity remains a significant challenge. Innovators
are left facing a funding cliff at the early industrialisation stage,
especially for capital-intensive ventures. This dearth of capital
for the cleantech scale-up comes from the fact that cleantech
funds are failing to attract large institutional investors that could

A Cleantech Investment Plan for European Competitiveness 22

 increase their firepower. EU pension funds in 2021 invested less
than 0.018% of their total assets in venture funds13, while in the US
public pension funds invest 1.9% of their assets in venture funds.14

Case study:
In March 2022, Sunfire raised closed its series D funding round
with €195 million.15 In July 2022, following the closing of its series
D funding round, Amazon invested in Sunfire via its Climate Pledge
Fund.16

13 https://2021.stateofeuropeantech.com/chapter/attracting-world-class-investors/article/fundraising/#:~:text=20%25%20of%20
funding%20was%20captured,than%200.018%25%20of%20their%20total
14 https://www.jstor.org/stable/43503370#:~:text=Similarly%2C%20venture%20capital%20investment%20accounts,but%20
only%201.3%25%20in%20Canada.&text=counterparts%2C%20while%20the%20venture%20capital,to%201.3%25%20and%20
3.1%25.&text=invest%20in%20private%20equity%20as%20compared%20to%20American%20funds.
15 https://www.sunfire.de/en/news/detail/sunfire-secures-further-growth-capital-and-an-agreement-for-up-to-640-mw-
electrolysis-offtake
16 https://www.sunfire.de/en/news/detail/sunfire-secures-investment-from-amazon

A Cleantech Investment Plan for European Competitiveness 23

 DEBT
Debt involves companies contracting loans from public or private
lenders, either to increase their liquidities or to finance specific
projects. To simplify our analysis, we distinguish three types of
debt in the context of the cleantech scale-up.

Available EU grants to consider:

→ Venture debt: loans to innovative companies, typically between

equity funding rounds, and that can in some cases be converted
into equity. In Europe, the main provider of venture debt is the
European Investment Bank (EIB).

→ Corporate debt: traditional loans to companies, with recourse

on the company’s assets. In Europe, this type of debt is very
challenging to obtain for cleantech companies until they
generate positive cash-flows, unless companies can secure loan
guarantees from public institutions.

→ Project finance: debt for a specific project, without recourse on

the company’s assets. While this type of debt is widely available
for the deployment of mature technologies such as solar and
wind power, it is not available to innovative clean technologies in
their first deployments.

A Cleantech Investment Plan for European Competitiveness 24

 Reality check:

While the EIB’s successful venture debt program has allowed

many cleantech companies to scale faster, the absence of private
venture debt in Europe is glaring. Despite a few notable and
promising exceptions, EU cleantech companies currently cannot
raise large amounts of commercial debt for first deployments.
Some public funders, such as the European Investment Fund
and BPI France are providing loan guarantees to ease access to
commercial debt, but these are not widely available at the scale
needed across Europe.

Case study:
In January 2024, H2 Green Steel announced that it has raised €4.2
billion in project financing, while its total equity funding thus far
amounts to €2.1 billion.18

18 https://www.h2greensteel.com/latestnews/h2-green-steel-raises-more-than-4-billion-in-debt-financing-for-the-worlds-first-
large-scale-green-steel-plant

A Cleantech Investment Plan for European Competitiveness 25

 SUBSIDIES
Another stream of funding that cleantech companies can tap
is subsidies. There are currently two frameworks under which
Member States can provide subsidies to cleantech.
These are:

1. The Temporary Crisis and Transition Framework (TCTF):

The TCTF is applicable until December 31, 2025. Under
the TCTF, Member States can now adopt investment
and operating aid schemes directly supporting private
investments in specified strategic technologies necessary for
the cleantech transition. The aid amount is either determined
through a competitive bidding process or with a strike
price set by the relevant energy regulator to cover expected
net costs. In light of the global cleantech race, the TCTF
introduces a clause allowing for higher individual support
where a third country has made a subsidy offer to a company
and there is a real risk of cleantech investment leakage.

2. The revision of General Block Exemption Regulation (GBER):

The GBER allows Member States to declare certain categories
of aid compatible with the internal market without prior
notification to the European Commission. The European
Commission amended the GBER to grant more flexibility to
Member States to design and implement support measures
to boost investments in clean technologies. The revision of
the GBER concerns aid for: deployment of renewable energy,

A Cleantech Investment Plan for European Competitiveness 26

 decarbonisation projects, green mobility, and biodiversity,
etc.; projects involving beneficiaries from several Member
States (Projects of Common European Interest); training and
reskilling; regulating energy prices; research, development,
and innovation; risk financing.

Reality check:

According to the European Commission, since March 2023,

subsidies totaling around EUR 17 billion have been approved
under the TCTF in Czechia, France, Lithuania, Hungary, Ireland,
Italy, Slovenia; the assessment of more requests for subsidies
is ongoing.19 Apart from subsidies under TCTF, the Commission
has launched: (1) two Important Projects of Common European
Interest (IPCEIs) on batteries with a total of EUR 20 billion of
public and private investment in 68 projects throughout the EU; (2)
two IPCEIs on hydrogen, with public and private investments for a
total of EUR 26.4 billion for 76 projects across the EU.21

Case study:

In September 2023, battery manufacturer Verkor received

French subsidies for its gigafactory worth around €650 million,
subject to final approval by the European Commission.23
Verkor’s latest funding shows that when public subsidies are
deployed strategically, a risky cleantech project can attract and
mobilize capital from private investors. In January 2024, battery
manufacturer Northvolt received a German state subsidy of €902
million for the construction of its new factory in Germany.24

19 https://commission.europa.eu/system/files/2023-10/COM_2023_684_1_EN_ACT_part1_v11.pdf
21 Idem
23 https://verkor.com/en/verkor-secures-more-than-e2-billion-to-launch-high-performance-battery-gigafactory-in-france-and-
accelerate-future-sustainable-mobility/
24 https://ec.europa.eu/commission/presscorner/detail/en/mex_24_82

A Cleantech Investment Plan for European Competitiveness 27

 STACKING IT ALL TOGETHER
FOR FIRST OF A KIND PROJECTS
Once a cleantech company has demonstrated its technology at
a pilot stage, it will seek to build a first-of-a-kind (FOAK) plant or
project. This is typically a large, capital-intensive project which
requires the company to scale its technology and deployment
by one or multiple orders of magnitude. FOAKs are the hardest
projects to finance, because of the intersection of technical,
counterparty and commercial risks. Ideally, a well-functioning
cleantech capital stack would enable a company to mobilise
various types of funding to make FOAKs possible, in a timeframe
that allows them to compete with large industrials and peers from
other regions.

Challenges that are specific to FOAK financing:

1. Large capital requirements:

FOAKs require significant capital, as large installations need to
be built, without the cost efficiencies of mature technologies.
Investors may be hesitant to commit significant capital
without a proven track record or guaranteed returns.

2. Uncertain returns on investment:

the lack of historical data or precedents for similar projects
makes it challenging to predict the potential returns on
investment accurately.

A Cleantech Investment Plan for European Competitiveness 28

 3. Technical uncertainty:
FOAK projects involve cutting-edge technologies with
untested or unknown outcomes. This is why FOAK projects
need technology performance guarantees to cover specific
aspects of the projects such as functionality, efficiency, or
reliability requirements .

4. Longer time horizons:

FOAK projects often require longer development and
commercialization timelines.

5. Limited access to debt:

banks and financial institutions struggle to provide loans for
innovative technologies or new business models. The lack of
collateral and the higher perceived risks associated with first-
of-a-kind projects can limit access to conventional financing.
In some cases, bank regulation also prevents lending to
companies that don’t yet have positive cash flows.

6. Permitting:
the approval process for new projects is lengthy and
complex, increasing the time and costs associated with
implementation.

Avenues to facilitate FOAK financing:

1. Technology de-risking with pilots.

The most important thing before launching a FOAK is
demonstrating and validating at industrial scale the
performance and reliability of the technology. As an example,
Swiss-based carbon capture company Climeworks started
with two demonstration projects before building their first
large plant, Orca.

A Cleantech Investment Plan for European Competitiveness 29

 2. 2. A diverse capital stack which incorporates various layers
and types of funders to complete a first project. As an
example, AFYREN, a France-based biochemistry specialist,
stacked different funding sources including public grants from
BPI France, State aid, funding from Bio-based Industries Joint
Undertaking and private capital from financial and corporate
investors to finance its first industrial facility.25

3. Flexible catalytic capital which is strategically deployed

to take on the share of the risk that traditional financial
actors are unable or unwilling to tackle. Catalytic capital may
involve a combination of grants, concessional loans, equity
investments, or other financial instruments, tailored to the
specific needs and constraints of the project. EU -Catalyst
Partnership is an example of how private capital can unlock
FOAKs with the recent financing of Energy Dome and Ørsted’s
FlagshipONE project.26

4. Strategic offtake agreements, in which scale-ups pre-sell

part of their future production and use those contracts to
contract debt. Engaging strategic partners is key in de-risking
FOAKs as shown by the recent multi-billion funding round of
H2 Green Steel, which was in part facilitated by creditworthy
offtake agreements in place.

5. Offering public guarantees for FOAKs can help them attract

more private funding. By taking a share of the risk and
acting as “insurance” on part of the project debt or advance
payments, public banks can help mobilise private funding
for FOAK projects.

25 https://assets-global.website-files.com/62c1fe8049a83b12fefd1878/6537b2f6fde3f7eb46bae617_Re%CC%81ussir%20le%20
passage%20a%CC%80%20l%E2%80%99e%CC%81chelle%20des%20cleantech%20en%20France.pdf
26 https://ec.europa.eu/commission/presscorner/detail/en/ip_23_6169

A Cleantech Investment Plan for European Competitiveness 30

A €50+ BILLION
INVESTMENT
GAP FOR JUST 6
TECHNOLOGIES
A Cleantech Investment Plan for European Competitiveness 31
 In President Ursula von der Leyen’s words, the EU is vying to
become “the home of clean tech and industrial innovation” with
a focus on domestic manufacturing. The Net Zero Industry Act
(NZIA) sets the goal of manufacturing at least 40% of the EU’s
annual deployment needs of strategic clean technologies: solar,
wind, batteries and storage, heat pumps and geothermal energy,
electrolyzers and fuel cells, biogas/biomethane, carbon capture,
utilization and storage, and grid technologies by 2030. To meet
this 40% objective for a subset of technologies, the Commission
estimates that the EU will need at least €92 billion investments
over the period of 2023-2030.27

From this €92 billion, the European Commission estimates that

€16-18 billion should come from public investments.28 Even if
those €16-18 billion materialize, at the current rate of private
investments in these technologies, this leaves a €50 billion
gap, which could easily double once other NZIA strategic
technologies are accounted for: solar thermal, tidal and wave
technologies, storage other than batteries, geothermal, fuel cells,
biogas and biomethane technologies, grid technologies. The
investment gap we’ve identified grows even larger once other clean
technologies are considered: green steel and cement, electric
trucks and chemical recycling, for instance. Even worse, the
European Commission recognizes that very few EU public funding
instruments currently support strengthening manufacturing
capacities.

A Cleantech Investment Plan for European Competitiveness 32

 Sources: European Commission29 , Cleantech Group30 , Cleantech for Europe analysis

How can we explain this large funding gap?

1. On the public side, funding is insufficient and hard to access

for hardware scale -ups:
Few public funding instruments target the three main funding
constraints hardware scale-ups face. These include: equity
funding for growth (research and development, expand
operations, hire talent); project finance for first-of-a-kind
deployments; and debt financing commercial rollouts without
diluting ownership. The EU Innovation Fund is one of the few
instruments targeted at this scale-up phase, but to date this
instrument has been very hard to access for cleantech start-
and scale-ups. The EIB’s venture debt offering fills some of
this gap, but is at risk if the budget it draws from InvestEU
dries up. Public funding for cleantech is extremely hard to
pass. In June 2023, the European Commission proposed the

27 https://single-market-economy.ec.europa.eu/system/files/2023-03/SWD_2023_68_F1_STAFF_WORKING_PAPER_EN_V4_
P1_2629849.PDF
28 Idem.
29 https://single-market-economy.ec.europa.eu/system/files/2023-03/SWD_2023_68_F1_STAFF_WORKING_PAPER_EN_V4_
P1_2629849.PDF
30 Venture capital, debt and project finance invested into EU developers of Solar PV, wind, batteries, heat pumps, electrolysers and
CCS (€3.2 billion in 2022, multiplied by 8 to cover the 2023-30 period), Cleantech Group
33
 Strategic Technologies for Europe Platform (STEP), its aspiring
funding pillar of critical technologies. Under STEP, €10 billion
is allocated to different funding instruments to support
cleantech, deeptech and biotech. STEP also includes a critical
top-up of InvestEU. As we go to press, STEP negotiations
are headed towards failure, with even this modest funding
increase for cleantech unlikely to be agreed by Member
States.

Few public funding instruments target the three main funding

constraints hardware scale-ups face. These include: equity
funding for growth (research and development, expand
operations, hire talent); project finance for first-of-a-kind
deployments; and debt financing commercial rollouts without
diluting ownership. The EU Innovation Fund is one of the few
instruments targeted at this scale-up phase, but to date this
instrument has been very hard to access for cleantech start-
and scale-ups. The EIB’s venture debt offering fills some of
this gap, but is at risk if the budget it draws from InvestEU
dries up . Public funding for cleantech is extremely hard to
pass. In June 2023, the European Commission proposed the
Strategic Technologies for Europe Platform (STEP), its aspiring
funding pillar of critical technologies. Under STEP, €10 billion is
allocated to different funding instruments to support cleantech,
deeptech and biotech. STEP also includes a critical top-up
of InvestEU. As we go to press, STEP negotiations are headed
towards failure, with even this modest funding increase for
cleantech unlikely to be agreed by Member States.

In the meantime, fossil fuel subsidies are skyrocketing. Fossil

fuel subsidies in Europe doubled in 2022 compared with
2021.31 In 2022, while most of the fossil fuel support went to
oil and refined oil products (€56 billion) in 2022, natural gas
subsidies reached €46 billion.32 While some clean energy
subsidies are ramping up, such as for solar and wind, the
balance still heavily favours fossil fuels.

A Cleantech Investment Plan for European Competitiveness 34

 2. On the private side, the EU’s largest pools of money are absent
from the cleantech race:
Institutional investors, such as pension funds, insurance
companies, mutual funds, endowments, and hedge funds, are
broadly absent from cleantech funding, particularly when it
comes to venture capital. The EU venture capital industry is 20
times smaller than that of the US33 and most venture capital
investments are concentrated in few EU Member States. The
average fund size in the EU is €120 million,34 while the average
fund size in the US is $1.5 billion.35 In Europe, cleantech funds
are typically in the €100-200 million range. One reason for
this stark difference between EU and US venture funds is
that institutional investors in Europe like insurers and private
pension funds shy away from investing in cleantech venture
funds.

Public markets have largely failed to materialise for cleantech.

Although the European Commission has put forward two
comprehensive plans to develop the EU’s capital markets, we
are still nowhere near an EU-wide capital markets union fit for
the necessary massive investments into cleantech. European
companies, even listed ones, still rely heavily on bank loan
financing. Meanwhile, commercial banks are unable to lend to
cleantech companies without positive cash flows.

We need to instill a sense of urgency to institutional investors

if we want to up our cleantech game.
FRIDTJOF DETZNER
Co-Founder and General Partner
Planet A Ventures

31 https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A52023DC0651
32 https://energy.ec.europa.eu/system/files/2023-10/COM_2023_651_1_EN_ACT_part1_v4.pdf
33 https://commission.europa.eu/system/files/2023-03/Communication_Long-term-competitiveness.pdf
34 https://my.visme.co/view/016mp816-inside-the-minds-of-european-vcs-speedinvest
35 https://fundcomb.com/overview/venture-capital/united-states-region#:~:text=There%20are%20approximately%2092%20
relevant,fund%20size%20is%20%24550m.
35
BUILDING AN
EU CLEANTECH
INVESTMENT
PLAN
A Cleantech Investment Plan for European Competitiveness 36
 Europe’s cleantech ambitions are meeting the hard reality of a
challenging economic environment. Europe’s fiscal and financial
context has changed for the worse since Russia’s invasion of
Ukraine: the energy crisis is far from over, high energy prices are
hurting EU manufacturing, interest rates are high and political
resistance to the Green Deal is on the rise. Over the coming months
and years, the EU will not be able to match the United States in
terms of the billions of dollars provided by tax credits and public
subsidies. While Europe does not have a centralized tax system as
the United States, it does have a centralized investment system
which can be leveraged for funding cleantech. In other words,
fiscally efficient solutions exist, and mobilizing existing pools of
public money, and new sources of private capital is possible. These
solutions will require deep changes to the EU’s prudential, financial
and industrial policy, and demand that the EU embrace a public
sector-enabled, private-sector led cleantech revolution.

Europe won’t be able to finance the cleantech transition

without a three-pronged approach that prioritizes innovation,
demonstration, and deployment to scale, and that integrates
dynamically public and private funding.

SERGIO CARVALHO
Partner, Head of Sustainability
Planet First Partners

Below, we outline a three-pronged cleantech investment plan

which will require political will, buy- in from the private sector,
policy changes, and targeted public de-risking.

Incentivizing institutional investors to invest in cleantech

The European Commission underlines the importance of capital
markets for unlocking the investments needed to build Europe’s
cleantech manufacturing capacity.36

36 https://ec.europa.eu/commission/presscorner/detail/en/ip_23_510 37
 Despite the great ambitions of a single market for capital, Europe
is still making little progress in growing the scale of its financial
markets, widening the investor base, and increasing capital supply.
Some improvements are in the pipeline37, for example, building
a resilient clearing system, harmonizing aspects of insolvency
proceedings and making listings more attractive. However, the EU’s
capital markets still remain largely undeveloped. Member States
with deeper stock markets (i.e., Western and Northern Europe)
tend to be frontrunners in cleantech innovations. Addressing this
discrepancy can be achieved through building a Cleantech Capital
Markets Union, focusing on the two C’s: Cleantech and Capital. As
the EU faces a critical juncture, European Central Bank President
Christine Lagarde recently called for the development of an EU
Securities and Exchange Commission (SEC)38 to coalesce around a
single unifying project and rulebook.

The call for a Capital Markets Union focusing on spurring green

innovation is not new. Christine Lagarde had already called for
green capital markets union in May 2021.39 One way to unlock
the potential of markets to finance clean technologies is through
incentivizing institutional investors to orient some of their capital
into cleantech investments. In the European Economic Area, in Q1
2023 , (re)insurers held €8.57 trillion in assets40 while pension funds
held approximately €2.4 trillion41 in Q3 2023. Due to the size of their
balance sheets, insurers and pension funds are prime candidates
to unleash the capital we need for the cleantech transition for two
reasons. First, the financial losses from unmitigated exposure to
climate change are already impacting their businesses. Second,
the investment case for European cleantech companies is already
strong and underpinned by strong policy signals.

While US insurers and pension funds are prolific investors in

venture and growth capital, this is not the case for their European
counterparts. EU pension funds in 2021 invested less than 0.018%

37 https://ec.europa.eu/commission/presscorner/detail/en/ip_22_7348
38 https://www.ecb.europa.eu/press/key/date/2023/html/ecb.sp231117~88389f194b.en.html
39 https://www.ecb.europa.eu/press/key/date/2021/html/ecb.sp210506~4ec98730ee.en.html
40 https://www.eiopa.europa.eu/system/files/2023-09/EIOPA%20-%20Insurance%20statistics%20factsheet%20Q1%202023.pdf
41 https://register.eiopa.europa.eu/_layouts/15/download.aspx?SourceUrl=https://register.eiopa.europa.eu/Publications/
Pensions%20Statistics/PF_Q_BalanceSheet.xlsx
38
 of their total assets in venture funds,42, while in the US public
pension funds invest 1.9% of their assets in venture funds.43 This
100x difference has massive implications for our ability to scale
the innovations we develop in Europe. One example of a North
American pension fund supporting a European cleantech company
is the recent participation of the fund Teachers’ Venture Growth
(TVG), part of the $250 billion Ontario Teachers’ Pension Plan, in
off-grid portable battery systems company Instagrid’s series C
funding round.44

European pension funds can be the next champions

of cleantech.
MATTI LEPPÄLÄ
Secretary General
Pensions Europe

So, what holds both pension funds and insurers back from
investing in cleantech? Four barriers: (i) prudential rules; (ii) the
perception of high-risk of cleantech investments associated
with the bankruptcies associated with Cleantech 1.0; (iii)
minimum ticket sizes of cleantech funds; (iv) prudential rules do
not encourage cleantech investments. Below, we present three
proposals for overcoming these barriers.

1. Accelerating regulatory changes to lift barriers to cleantech

investment.
The simplification of the long-term equity investment category
which incentivizes insurers to invest in venture funds and
private equity funds through a lower capital charge could
unlock significant investments in cleantech. As regards pension
funds, the regulatory framework is not enabling investments
in venture capital. One of the key reasons is that Member
States have different asset allocations and prudential limits.

42 https://2021.stateofeuropeantech.com/chapter/attracting-world-class-investors/article/fundraising
43 https://www.jstor.org/stable/43503370#:~:text=Similarly%2C%20venture%20capital%20investment%20accounts
44 https://tech.eu/2024/01/23/instagrid-raises-95m-in-series-c-funding-for-portable-battery-systems/
39
 For instance, in Finland, there is a limit of 10% for investments
in unlisted equities.45 In countries like Denmark which does
not impose quantitative investment limits, pension funds and
insurance companies allocated 27% to unlisted investments by
June 2020.46

2. Developing fund-of-fund initiatives and first-loss

mechanisms, for instance the European Investment Fund for
VC, and infrastructure fund for larger investments
Overcoming the perception of cleantech investments as
high-risk can be done by giving institutional investors access
to better information about cleantech investing, as well as
facilitating connections between cleantech fund managers
and institutional investors. This could be achieved with the
help of the European Investment Fund (EIF), which has
considerable experience introducing large investors to venture
capital funding. An additional proposal is to launch an EU-wide
awareness initiative regarding the performance of European
cleantech venture capital to present successful made-in-
Europe cleantech companies.

One initiative to replicate at the EU-level could be La French

Tech. La French Tech prioritises the scale-up of existing
companies and facilitates institutional investors investments
in venture capital. The success of the initiative is telling. In
2019, France aimed to reach 25 unicorns by 2025.47 Through
La French Tech, this goal was met promptly by early 2022.48
The Tibi initiative is another French success story in scaling
up tech companies.49 By making investing in tech high-growth
companies a political priority, France managed to secure
commitments of 28 institutional investors to invest €7 billion in
tech funds.50

45 https://www.oecd.org/daf/fin/private-pensions/2021-Survey-Investment-Regulation-Pension-Funds-and-Other-Pension-
Providers.pdf
46 https://www.oecd-ilibrary.org/sites/288cb3cf-en/1/3/5/index.html?itemId=/content/publication/288cb3cf-en&_
csp_=08ca935b1fe8d568306cdfa712b24095&itemIGO=oecd&itemContentType=book
47 https://world.businessfrance.fr/nordic/2022/02/02/26-unicorns-and-e11-6-billion-the-french-tech-fairy-tale/
48 Idem
49 https://www.tresor.economie.gouv.fr/banque-assurance-finance/financing-the-fourth-industrial-revolution
50 https://sifted.eu/articles/how-french-vcs-beat-the-fundraising-odds-2023
40
 Concerning minimum ticket sizes of cleantech funds, two
potential solutions to this problem are to: a) multiply the
number of fund-of-fund initiatives in the EU; and b) encourage
institutional investors to instruct fund-of-fund managers
to deploy capital in cleantech ventures. The EIF is already
spearheading fund-of-fund initiatives to support the next
generation of tech leaders in the EU. Establishing more
initiatives like the European Tech Champions initiative, a
partnership between EIF and Member States, which aims to
enable the creation of 10 to 20 pan-European funds of over
€1 billion each to spur tech innovation, is a step in the right
direction. A further idea to make these fund-of-funds initiatives
more enticing to institutional investors is to set up a first loss
mechanism in the case of failure or investment write downs.

3. Creating a high-level dialogue between policymakers,

institutional investors and cleantech manufacturers to align
and get to the next level
Unlocking institutional capital requires bridging the gap
between policy imperatives and private sector financial
innovation to accelerate the cleantech transition. A dialogue
under the umbrella of the Commission’s clean transition
dialogues that invites institutional investor representatives
and cleantech innovators could serve as a platform to foster
collaboration and understanding between these stakeholders.

Case studies of pension funds investing

in cleantech:
In Europe, the Swedish pension fund, AP Fund, can invest directly
into unlisted companies, thus enabling direct venture capital
investments. One of its investments in cleantech is in battery
manufacturer Northvolt.51
In January 2024, the infrastructure arm of PGGM, the Dutch
pension fund service provider, led the series B funding round of
Electra, an Electric Vehicles (EV) company.52

51 https://ap2.se/en/joint-ap-funds-company-invests-usd-400-million-in-northvolt/
52 https://www.pggm.nl/en/press/pggm-infrastructure-fund-acquires-stake-in-charging-station-operator-electra/
41
For institutional investors, investing in cleantech should not
be a binary choice: accelerating climate action or generating
returns.
MARTIN KROENER
Partner
Green European Tech Fund

Mobilise public guarantees to catalyse private investment

To build up manufacturing capacity, cleantech companies need
access to affordable debt instruments. At this critical stage, cleantech
companies have typically raised tens of millions of euros of venture
capital, validated their technologies, built demonstration plants and
hired teams ready to industrialise them. They have a very different risk
profile than early-stage start-ups. But they remain relatively young
entities with smaller balance sheets, and bear higher technical and
counterparty risk than their larger competitors. As a result, they don’t
have the same bankability and low cost of capital as existing large
industrials.

Cleantech companies have a hard time financing their FOAK

projects via commercial loans. What’s more, when selling innovative
equipment, cleantech manufacturers are asked for a series of
bank guarantees, to mitigate the buyer’s risks in purchasing this
equipment. Because of their lower bankability compared to industrial
incumbents, innovators are not able to finance these guarantees at
a reasonable cost. This ties up precious working capital in collateral
that could be used to ramp up manufacturing capacity.

What needs to be understood is that the problem of

guarantees needing to be collateralized with equity is
compounded with every new sale, ultimately jeopardizing
order book delivery, which can lead to lost sales.

CLAUDIO SPADACINI
Founder & CEO
Energy Dome 42
 An EU public counter-guarantee instrument could step in to take
some of the counterparty risk from banks, allowing scale-ups to
respond to high traction and build more plants and equipment
faster, creating jobs and meeting the EU’s climate and industrial
ambitions. The latest announcements from the European
Commission to offer this type of counter-guarantee instrument to
the wind industry is promising – but now needs to be widened to
other strategic clean technologies, including hydrogen and long
duration energy storage (LDES).

The International Chamber of Commerce estimates the average

ultimate loss rate for performance and financial guarantees is
currently between 0.2% and 1.7%. While the loss rate would likely
increase in the case of earlier-stage companies, this would still
represent a significant leverage effect. This means for every euro of
public money spent, tens to hundreds of euros of working capital
could be invested in cleantech manufacturing.

Public guarantees can be deployed along the scale-up journey:

→ Loan guarantees can accelerate the funding of first-of-a-kind

cleantech projects with medium TRLs.

→ Counter-guarantees should be issued by public institutions

to enable banks to issue advance payment and performance
guarantees to cleantech manufacturers.

We propose to set up an EU-wide scheme managed by a leading

EU institution such as the EIB , which would provide counter-
guarantees for cleantech equipment, starting with advance
payments. The scheme should focus on the scale-up of cleantech
manufacturing and cover at least 80% of the risk. An initial
scheme should cover at least €2 billion of cleantech counter-
guarantees, and if successful expand significantly by 2027. The
next Multiannual Financial Framework (starting in 2028) would be
an opportunity to scale this by another order of magnitude.
For inspiration, EU policymakers could look to Export Development
Canada (EDC), Canada’s state-owned export credit agency.

A Cleantech Investment Plan for European Competitiveness 43

 EDC offers an instrument called Account Performance Security
Guarantee,53 which allows cleantech innovators to issue letters of
guarantee with their bank without putting any cash collateral in
escrow. The scheme has been offering guarantees for cleantech
companies for 12 years, underwriting 100% of the risk, with
minimal losses and hundreds of projects facilitated.
For more information on how public counter-guarantees can
facilitate the scale up industrialisation of clean technologies,
please see Cleantech for Europe’s recent report on the topic.

Banks are willing to support the Greentech transition, turning

investments into a sustainable future. Let’s redefine finance
for a resilient world and a competitive Europe.

ALICIA SANCHIS ARELLANO

Head of EU Government Relations
Santander

Mobilise revenues from the EU Emissions Trading System (EU ETS)

to scale up cleantech manufacturing
Bridging the EU’s cleantech investment gap requires a refocusing
of the EU’s funding architecture on the challenge of cleantech
industrialisation. In the wake of the Inflation Reduction Act passing
US Congress and the changes to State aid rules, some Member
States are forging ahead and providing large subsidies to cleantech
manufacturing projects. While positive, this risks fragmenting the
EU’s cleantech scale-up and leaving behind large swathes of the EU.
Contrary to the US federal subsidies, EU State subsidies will increase
regional disparities, since governments with more fiscal space will be
able to allocate more money to support their industries. Moreover,
the proposed reform of the EU’s fiscal rules does not enable Member
States to invest in cleantech projects on the scale required. Under the
proposed reform, high and medium-risk countries will have to reduce
their debt, while low-risk countries will have to maintain debt levels
below 60% and deficits below 3%.
A Cleantech Investment Plan for European Competitiveness 44
 One significant – and growing – pool of capital the EU could leverage
further is ETS revenues. In 2022, total auctioning revenues generated
under the EU ETS system were of a magnitude of €38.8 billion of
which €29.7 billion went directly to Member States.54 From the
remaining revenues, €3.2 billion went to the Innovation Fund.55 Given
that these revenue streams are large enough for Europe to compete
with global peers, we put forward three recommendations on how to
make them fit for purpose:

→ First, with Member States now legally mandated to use their

auctioning revenues for climate action, Member States should
invest 25% of their ETS revenues into cleantech manufacturing.

→ Second, the EU should consider front-loading cleantech

investment, for instance by borrowing against future ETS revenues
to invest in manufacturing capacity now. For this, EU policymakers
can look to Japan’s plan to release ¥20 trillion in transition bonds,
the so called GX bonds, to catalyze public and private spending
investments of ¥150 trillion to scale clean technologies.

→ Third, with a portion of these revenues falling under the Innovation

Fund, it is important that the Innovation Fund is made accessible
to cleantech innovators with more dialogue between companies
and evaluators, and an always open call for applications.

Over the last decade, European companies like Enapter

have become global clean technology leaders. But without
a massive increase in scale-up capital, Europe will lose its
competitive edge.

VAITEA COWAN
Co-founder
Enapter

53 https://www.edc.ca/en/solutions/working-capital/account-performance-security-guarantee.html
54 https://www.eea.europa.eu/en/analysis/indicators/use-of-auctioning-revenues-generated
55 Idem.
45
THANK YOU
Feel free to contact us with any
questions you have.

LEAD AUTHORS

JULES BESNAINOU SOFIA KARAGIANNI

Executive Director Senior Policy Officer
Cleantech for Europe Cleantech for Europe
[email protected] [email protected]

With the support of

46