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EU financial programmes in support of eco-innovation

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1 EU financial programmes in support of eco-innovation
Hervé Martin – Aurelio Politano LIFE Environment & Eco-innovation unit DG Environment European Commission European Commission

2 What will we focus on? Main financial programmes and instruments supporting eco-innovation and managed at European level Not dealing exclusively with research, but with post-research financing close to commercialisation Traditional forms of financial support (i.e.: grants) as well as more innovative ways (i.e.: so called financial instruments) In line with the scope of the forum we will look at those that are somewhere related to commercialisation European Commission

3 So which ones? The first two are European framework financial programmes We will start with the most traditional programme Life and finish with one of the most innovative ones RSFF The RSFF is a specific instrument funded under FP7 European Commission

4 LIFE European Commission

5 Life + - Background - LIFE is a funding instrument that provides specific support for the development and implementation of Community environmental policy Individuals, public and private bodies, NGOs can participate and be beneficiaries Preceding programmes: LIFE I, II, III ( ) Total EC contribution €1.6 Billion. LIFE+ budget of €2.143 billion ( ) It comprises three components: - LIFE+ Nature & Biodiversity - LIFE+ Environment Policy & Governance - LIFE+ Information & Communication Life Environment is the part more relevant to eco-innovation while the other two refer to: LIFE+ Nature co-finances best practice or demonstration projects that contribute to the implementation of the Birds and Habitats Directives. The maximum co-financing rate is 50% but may be 75% for projects focusing on priority species or habitats. LIFE+ Biodiversity co-finances innovative or demonstration projects that contribute to the implementation of the objectives of Commission Communication (COM (2006) 216 final) "Halting the loss of biodiversity by 2010 – and beyond". The maximum co-financing rate is 50%. LIFE+ Information & Communication co-finances projects that implement: communication and awareness raising campaigns on environmental, nature protection or biodiversity conservation issues projects related to forest fire prevention (awareness raising, special training). European Commission

6 Life + - Background - LIFE+ is centrally managed by the EC
Annual call for projects (next deadline June 2011) Projects proposals normally include a total budget between 1 and 3 million Euro but there is neither a minimum nor a maximum Independent selection procedure (about 8 months) Best projects are co-financed A fixed share of the total budget for each Member State (if projects from a MS pass the selection) 50% of the budget is reserved for LIFE+ Nature & Biodiversity projects Co-financing rate: 50% of eligible costs (75% in some cases, i.e. conservation of priority species and habitats) The EC follows up the project implementation European Commission

7 LIFE+ Env - How? - LIFE+ Environment Policy & Governance continues and extends the former LIFE-Environment strand. 13 priority objectives : Climate change, water, air, soil, urban environment, noise, chemicals, environment & health, waste, natural resources, forest, innovation, strategical approaches, governance European Commission

8 LIFE+ Env - How? - LIFE+ Environmental Policy and Governance co-finances projects that contribute to: innovation and demonstration the implementation of Community environmental policy the development of innovative policy approaches, technologies, methods and instruments, the knowledge base as regards environment policy and legislation the monitoring of environment (including forest monitoring) LIFE+ aims to support innovative and demonstrative solutions both in the public and private sectors The proposal should not be driven by the desire to seek a competitive advantages, but environmental solutions which should be actively disseminated to and taken up by other public actors (extract from LIFE application guide)

9 Results so far? LIFE I, II, III (1992-2006) Nearly 2800 projects
About 550 projects co-financed A total of about 3350 projects ( ) LIFE Environmental Policy & Governance More than 1800 projects (55% of the whole LIFE) SMEs and large enterprises are/were co-ordinating beneficiaries of about 13% of projects under this strand Target on municipalities, public actors, enterprises, NGOs aiming to develop and demonstrate innovative policy approaches, technologies, methods and instruments European Commission

10 Examples Zaragoza: water saving city. Small steps, big solutions Coordinating beneficiary: City of Zaragoza The aim of the project was to reduce household water consumption in Zaragoza by 1,000,000 m3 in one year This target has been achieved by changing consumption patterns and through the effective use of water saving technology. The project involved government, social bodies, business and consumers. European Commission

11 Examples EFFENERGY (LIFE06 ENV/L/000121): Energy efficiency insulating against climate change The project developed a thermal-mass panel made of wax. The wax melts, absorbing heat,as temperatures rise and re-solidifies,releasing heat back into the internal environment, as temperatures cool. Results: Summer - the panelled attic enjoyed a temperature decrease of up to 7°C Winter - the energy required to keep it at a constant temperature of 20°C was 8% less. Panels may be retrofitted into existing buildings Return on investment remains under 10 years European Commission

12 Life+ - Some lessons and food for thought
More integration with other EU funds CAP, Cohesion Funds, Structural Funds, Competitiveness and Innovation Programme A clearer differentiation between LIFE+ and CIP Eco-Innovation market replication projects A programming approach for facing environmental issues at a larger territorial scale A better networking and communication for the dissemination of results European Commission

13 Where to find more information on LIFE?
Programme publications Projects (lists of projects with links to more information) Best projects LIFE project database LIFEnews features LIFE project publications Contacts European Commission

14 Competitiveness and Innovation Programme
European Commission

15 CIP - Background - ~2,17 B€ ~0,73 B€ CIP 2007-2013 € 3.6 billion
Entrepreneurship and Innovation Programme (EIP) Information Communication Technologies Policy support Programme (ICT PSP) Intelligent Energy Europe (IEE) Better access to finance for SMEs through venture capital investment & loan guarantee instruments Business & innovation support services delivered through a network of regional centres Promotion of entrepreneurship & innovation Support for eco-innovation Support for policy-making that encourages entrepreneurship & innovation Developing a single European information space Strengthening the European internal market for ICT & ICT- based products & services Encouraging innovation through the wider adoption of & investment in ICT Developing an inclusive information society & more efficient and effective services in areas of public interest Improving of quality of life Fostering energy efficiency & the rational use of energy sources Promoting new & renewable energy sources & energy diversification Promoting energy efficiency & new energy sources in transport ~2,17 B€ ~0,73 B€ CIP € 3.6 billion Programme general objectives: Foster competitiveness, particularly of SMEs Promote innovation including Eco-innovation Accelerate the development of an information society Promote energy efficiency and renewable energy It includes very different initiatives with different aims Main direct beneficiaries under the EIP pillar are SMEs as well as indirect beneficiaries which are mainly financial intermediaries such as Banks and Investment funds European Commission

16 Pilot and market replication projects Financial instruments
CIP - Background II - Eco-innovation in EIP Pilot and market replication projects € 195 million Financial instruments € 228 million Network of actors € 10 million A total of €433 million to support full implementation of Environmental Technologies Action Plan particularly mobilising financial resources for eco-innovation ETAP established in 2004 with different actions categorised according to 3 main areas of intervention Getting from Research to Markets, Improving Market Conditions and Acting Globally. Currently being reinforced with the launch of the Eco-AP Mobilising financial resources for eco-innovation is a key action under ETAP and mainly implemented through EIP Financial instruments and Pilot projects will be discussed in detail While the budget under Network of actions mostly aims at developing policy measures to increase the knowledge base for eco-innovation (Eco-innovation Observatory) or replicate policy best practices (Championing eco-innovation) European Commission

17 Eco-innovation market replication projects -How?-
Support innovative ideas which can be turned into ‘marketable’ green products and services Bridging the gap between RTD and commercialisation Potential for replication and wider application must be demonstrated Direct funding (no intermediaries) Risk sharing for green ideas (50% per project) Budget ~ €200 million ( ) Managed by the Executive Agency for Competitiveness and Innovation (EACI) 17

18 Eco-innovation market replication projects -How?-
Priorities Non exclusive, annually fine-tuned, supporting policy objectives in the areas of: Materials recycling Sustainable building products Food and drink Greening business/ smart purchasing In addition to ETAP implementation, projects should contribute to the implementation of the Community actions supporting innovation policies, as presented in Europe 2020 strategy, especially in the areas of resource efficiency, Climate Change Package, Action Plan on Sustainable Consumption and Production and Sustainable Industrial Policy and Lead Market Initiative. 18

19 Results so far? Important attention from the market, mainly SMEs More than 1000 web enquiries answered every year 2008 2009 2010 Proposal Received 134 202 287 Yearly increase + 50% + 42% Projects funded 43 46/47 40-50 19 19

20 Universities/Public/Others
Results so far? Beneficiaries SME 81% private sector LARGE Enterprises Around 70% of the participants in the selected projects are SMEs, which is about the same percentage compared to the situation in submitted proposals. This figure confirms that SME proposals have a similar quality as larger companies' proposals. Universities/Public/Others Our beneficiaries (Source: call 2010)

21 Resource Efficiency Examples
CFT: Ceramic tiles dry cutting system assisted by ultrasound sq.m/year production line 100% in water consumption and sludge generation 98% Energy Consumption 90% Processing scrap,  sound pollution (from -3 to -5 dB) EuroC2C Carpetchains: Close loop manufacturing system to collect and recycle 4% (16k t/y) of European contract market carpet waste (offices/public buildings…) reduce the use of virgin materials by 8,000 tons per year; reduce energy consumption by 72,000,000 kWh per year, corresponding to the average energy consumption of 3,200 households. 8% (32k t/y) of European carpet waste 2 years after the project 21 21

22 Eco-innovation market replication projects -Some lessons and food for thought-
Market failure justifies public support for placing eco-innovation on the market Stress on innovation AND commercialisation → making use of research results Flexibility in the covered areas without losing focus (non-exclusive priorities and not only focussed on technologies makes it open for market-driven innovative ideas) Direct funding, no intermediaries and short time to contract → high SMEs participation A proof of concept that economic and environmental problems may be tackled together Can a programme like this reach a critical mass, given the limited budget? European Commission

23 Financial Instruments (FI) -How?-
High Growth and Innovative SME Facility (GIF): it allows Community participation in Eco-innovative risk capital funds which provide equity to SMEs (GIF1 seed or early development, GIF 2 expansion) No direct funding to SMEs, but investment through European Investment Fund in funds active in the field of eco-innovation The “instrument” is for innovation in general BUT there is a specific envelope of €228 Mln earmarked for eco-innovation The rationale is contribute to the establishment and development of funds active in innovation The contribution is financial but also related to the reputation of EIF, which investing in such funds “ensures” the quality and can attract additonal investors to participate leveraging additional private funds Also specific favourable conditions exist for example EIF can take up to 50% share of the VC fund (as opposed to maximum 25%) if early stage (GIF1) investing in eco-innovation In case of GIF2 is maximum 25% as opposed to maximum 15% Policy “requirements”: investment in SMEs and in the case of eco-innovation selected eco-innovative technologies Type of instrument is market driven rather than policy driven and targets high growth potential SMEs European Commission

24 Results so far? Four deals with eco-innovative Venture Capital (VC) Funds: Capricorn Cleantech Fund (Belgium) Wheb Ventures Private Equity Fund 2 (UK) Pinova Fund 1 (Germany) Demeter 2 (France) Geographical focus of the funds is mainly western Europe (particularly Germany, UK, France, Belgium and Austria) Development stage focus ranges from start up (first 2 funds) to expansion (remaining ones) EIF is in negotiation for further deals with VC funds targeting eco-innovative SMEs, outlook is positive Long term “return” EU commitments of around € 60 million The estimated leverage of these deals is around 10 (i.e.: €1 committed generates €10 in total financing) Eco-innovative businesses financed so far around 25 European Commission

25 Examples European Commission Capricorn
Ensartech [the Netherlands] develops a technology that enables an unprecedented 100% waste to energy conversion. The company's technology is uniquely able to realize 100% conversion of all types of waste - including the most difficult to treat waste - to energy and clean base materials, thereby closing the environmental circle. Concentrator Optics Concentrator Optics [Germany] offers complete solutions encompassing optical design, prototyping and manufacturing for the solar industry. The company's goal is the technology leadership in the solar lens market. Innovative research is an integral part of its strategy to ensure sustainable growth on a technology basis. Wheb Bowman Power Group Ltd, based in Southampton, is the leading international developer of turbo-generation technology for large diesel engines. Their technology uses the 35% of energy lost through the exhaust to generate electrical power which can be fed back to the engine or used to drive auxiliary systems. This significantly increases efficiency and boosts power output. As a very large user of diesel engines this has strong benefits for the on and off road transport sector, given targets for fuel efficiency and emissions. The company are currently working with a number of large, international truck manufacturers (Energy efficiency) Petainer is the largest manufacturer of refillable PET bottles for the German market and also dominates the Scandinavian PET bottle market. The business has an established customer base of global beverage brands, many of which have been customers for over 15 years. Petainer is well regarded in the market for its new product development capabilities and is renowned for its innovative approach to reducing the environmental impact of beverage distribution. In particular it has pioneered the use of recycled PET and has developed market-leading large PET container solutions. The company has recently launched an innovative new PET alternative to the steel beer keg; the Petainer Keg significantly reduces the environmental impact of keg distribution and offers breweries significant cost savings Demeter Sulfurcell develops, manufactures and distributes thin-film photovoltaic solar modules using a proprietary technology based on CIS/CIGSe (copper indium gallium sulfide/selenide) Vergnet: wind turbines manufacturer specialized in mid-sized wind turbines specifically adapted to isolated and cyclonic zones. Designs and markets equipments for drinking water supply networks in developing countries. European Commission

26 GIF- Some lessons and food for thought
Instrument justified by strong market failure rationale of start-up and growing SMEs across the EU (EIP mid term evaluation) Very efficient form of intervention (EIP mid term evaluation) “Absorption capacity” driven, and “limited” by different conditions of VC market and “existence” of eco-innovation Focussing only on high growth “commercially viable” eco-innovative SMEs, what about the rest? Cleantech VC funds usually go for relatively “big” investments, what about the rest? BAs can apply under GIF, but there is not much uptake Monitoring the “environmental” performance of eco-innovative SMEs is a challenge Multi Annual Programme for Enterprise and Entrepreneurship (MAP), equivalent of GIF, is underpinned by a strong market failure rationale – addressing the financing constraints faced by start-up and growing SMEs across the EU (EIP mid term evaluation) Efficiency: implemented on a commercial basis and target financially viable high growth SMEs. It is expected that the entire budget invested under the similar VC facility of the CIP predecessor (Multi Annual Programme for Enterprise and Entrepreneurship) will be returned to the EU budget This raises the question whether existing or new EIP financial instruments (and in particular, the VC based instruments) could be designed in a way that supports the development of financial markets through greater incentivisation or more flexibility in risk sharing arrangements. (EIP mid term evaluation). Example of Eastern EU: competitive conditions for VC funds and for SMEs constraints exist Mkt vs policy: a lot of the cleantech VC funds invest in “hot” areas in which they would maybe have invested in any case (e.g.: renewable and energy efficiency). Can we adopt more flexible risk sharing arrangements to really direct more investment flows to other relevant area of eco-innovation as we discussed also yesterday? In terms of commercial viability eco-innovative businesses can be seen as disadvantaged when compared to others (negative externalities not always factored in) how to deal with that? Big investments > 500k€. Examine ways of stimulating the supply of angel finance. In doing so, consideration should be given to whether it is more appropriate to support business angel activity at a national or a regional level (via ERDF programmes) or whether it should be supported via EIP (EIP mid term evaluation). Exists under GIF but not very used Monitoring a challenge because of reporting requirements A suggestion coming from EIP evaluation is that added value of VC instruments could be enhanced by organising an investors club or other similar platforms for creating networking opportunities. European Commission

27 Informative sources European Commission

28 RSFF European Commission

29 RSFF - Background - The Risk Sharing Finance Facility is an innovative FP7 debt-financing instrument co-developed by the EC/ EIB to provide additional loan finance for Research, Development, Demonstration and Innovation in the European Research Area RSFF provides loans for riskier but creditworthy RDI projects by risk-sharing between the European Community and the EIB Demand-driven: projects are supported on a “first come, first served” basis (no grant procedures, no expert panels) RSFF projects are evaluated by the EIB (not by the EC) for their creditworthiness, technical and economic aspects European Commission (DG RTD, co-operation with other DGs) checks RSFF projects proposed by the EIB whether they concern R&D and contribute to FP 7 objectives; if so (Commission approval), the EIB can use FP 7 budget for risk coverage Mid-Caps and large corporates (typically unrated/ sub-investment grade,ranging from BBB- to B- Standard & Poor’s rating / turnaround situations) SMEs Research Institutes and Universities Special Purpose / Project Companies implementing one project Research Infrastructure promoters Entities of any size and ownership who are able to borrow and can, in principle, repay a loan RSFF loans can be one (important) source of finance to support Research, Development, Demonstration and Innovation projects. The thematic areas are those included in FP7 The ten high level themes proposed for EU action are the following: Health, Food, Agriculture and Fisheries, Biotechnology, Information & communication technologies (ICT), Nanosciences (nanotechnologies, materials & new production technologies), Energy, Environment (including climate change), Transport (including aeronautics), Socio-economic sciences and the humanities, Space, Security. It has been used for project related to renewable energies (wind parks, notably off-shore) as well as other projects European Commission

30 RSFF - Background - The RSFF is a facility to support investments in R&D and innovation from its very first start. It's therefore also an innovation finance facility. The EIB has also extended loans to companies and projects which concern innovation investments and not, or to a lesser extent, R&D. These loans have been made under RSFF and are also risky loans but to cover the risks (of default), the EIB cannot use FP7 funding (as FP7 funding for risk coverage is restricted to RSFF projects which concern R&D, and not innovation). Flexible instrument: 􀂄 Corporate Loans (senior / junior) 􀂄 Guarantees 􀂄 Project Finance (limited/non recourse) 􀂄 Mezzanine Loans 􀂄 Risk Sharing Facilities with banks 􀂄 Other structured products European Commission

31 RSFF - How? - European Commission

32 RSFF - How? - European Commission

33 Signed RSFF Projects by Sector
Results so far? Up to EUR 10 billion loan finance for RDI can be mobilised So far, more than EUR 8 billion already approved and more than EUR 5 billion signed Signed RSFF Projects by Sector Main sectors financed so far :life science engineering industry and renewable energy technologies. By end September 2010 operations signed in 20 countries (main receiver Germany, Spain Sweden France UK) European Commission

34 Examples European Commission

35 RSFF - Some lessons and food for thought
Customised offer: flexible debt financing adapted to project implementation and the borrower’s repayment capacity Implemented in an effective and efficient manner through a close partnership between the European Commission and the EIB Reasonable financing costs: non-subsidised loans but advantage of EIB’s AAA based funding and its non-profit lending policy > reduces overall project cost Potential for improvement: Some target groups (SMEs and research infrastructures but also universities) not reached sufficiently (due to more risky characteristics, nature of investments and legal barriers) the Commission and the EIB have already started working on improvements for SMEs and similarly for research infrastructures Undergoing evaluation not tailored to the needs of SMEs, this might be an area of improvement The RSFF is a very flexible instrument responding to the finance needs of notably midsized and larger companies investing in R&D and Innovation has served also a wide range of other target groups including SMEs and research infrastructures came "at the right" time and was particularly useful during the economic and financial crisis proving its added value as an anti-cyclical finance instrument has helped notably private companies to maintain or even expand their crucially important investments in R&D and Innovation in difficult economic times thus supporting them to stay competitive Potential for improvement: For SMEs, different risk-sharing approach would probably be necessary (based on a portfolio approach); Future perspective: RSFF continuation foreseen until 2013 (second tranche of FP7 funding to be released by the Council and the EP) Current FP7 budget for risk-sharing max. EUR 1 billion until 2013 (EUR 500 m already allocated) might not be sufficient in case of ongoing high demand for RSFF loans (including demand for larger demonstration projects related to the SET-Plan implementation) European Commission

36 Informative sources DG RTD EIB European Commission

37 Concluding points Many and different programmes and instruments already exist From more traditional to more sophisticated ones Market driven vs policy driven, can we better combine the two? Challenge is to adapt them to better suit the needs of early stage eco-innovative SMEs or To develop new ones if gaps exist Can more synergies be created among these different programmes? European Commission

38 Thank you Informative sources
DG Environment Life Environment and Eco-innovation unit - E4 - European Commission

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