European Government Update - Is this the beginning of an end of the Regional Aid in the EU as we know it?

As a response to the US’s $369 billion Inflation Reduction Act (IRA) On Feb. 1st The European Commission presented A Green Deal Industrial Plan for the Net-Zero Age. A plan to counter the green-tax credits initiative, which might drive business across the Atlantic, and support the EU to become climate neutral by 2050.

According to the EC, The Green Deal Industrial Plan is based on four pillars:

1. A predictable, coherent, and simplified regulatory environment, which supports the quick deployment of net-zero manufacturing capacities;

2. Faster access to sufficient funding, by boosting investments while avoiding the fragmentation of the Single Market;

3. Skills, by ensuring that the European workforce is skilled in the technologies required by the green transition; and

4. Open trade for resilient supply chains, based on cooperation with the EU's partners to ensure diversified and reliable supplies and fair international competition.

What does it mean for you?

In short, the EC hopes to:

• Simplify regulatory framework (such as the permitting process, introducing a ‘one-stop shop’ for the whole administrative investment process). In particular for the production capacity of products that are key to meeting EU’s climate neutrality goals, such as batteries, windmills, heat pumps, solar, electrolyzers, carbon capture, and storage technologies.

• Subsidise those investments through relaxed competition policy on national and EU funding such as:

  • Redirecting funds so far reserved for research and innovation to increase the manufacturing capabilities,

  • Relaxing rules for national funding with significantly increased notification thresholds and the ability to support projects in strategic net-zero value chains despite regional aid limits,

  • Utilise increased REPowerEU funding (EUR 225 bn of unused loans and additional RRF EUR 20 bn grants) to promote the greening of industry, support EU net-zero industry projects, and assist energy-intensive industries.

• Redirect existing training funding for upskilling of workers to answer increased productivity needs of the clean energy sector.

• Reduce the negative impact of foreign subsidies and other unfair trade practices.

Who might benefit?

The biggest beneficiaries of the proposed changes will be large industrial projects related to the manufacturing of clean technologies and products helping to meet the EU’s climate neutrality goals. Such projects might be factories of Li-Ion batteries, battery storage systems, heat pumps, solar, hydrogen, etc. So far those gigafactory projects were facing long permitting times due to environmental regulations and being limited by regional aid rules and its limits in terms of incentives, effectively reducing funding to 10-20% of qualified expenses available only on the outskirts of the EU. The planned relaxing of the rules and opportunity to match aid offered by a third country opens door to securing higher funding even in the most developed parts of the EU.

How might this affect site selection and incentives?

Manufacturing investments related to green transformation are currently the most dynamic across the EU. Multiple EV battery producers have already located their factories in Europe and predominantly in the CEE with new projects constantly joining the pipeline powered by ambitious EU policies for EVs. Answering the increased demand for offshore wind turbines, major producers are on a hunt for the best locations for their new factories. Broken supply chains and recently announced restricted China policies on Solar Wafer exports might finally boost PV manufacturing in the EU.

All of the above projects are or will soon be selecting sites for their new European factories. The Green Deal Industrial Plan for the Net-Zero Age broadens the possibilities of assisted areas to the whole EU. Companies in the green industries will no longer need to decide if they want to locate their facilities in Western Europe or secure incentives. Levelling the field to competition on availability and cost of talent, transportation, real estate, quality of living, etc. 

The majority of incentives granted with the use of the relaxed rules will need to be EU notified. Despite shortened procedures, the documentation required will still need to prove the funding gap and counterfactual scenarios biding the incentives with site selection stronger than ever before.

For more information on these critical updates on European government incentives and state aid and/or to determine if your project is eligible, please connect with a Hickey EMEA Location Strategy & Incentives expert today:

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