SET Plan conference 2013 Session 4: Support the market roll-out of innovative solutions Access to risk finance under Horizon May 2013 Martin KOCH Policy Officer European Commission - DG Research and Innovation RTD C-03 – Financial Engineering Unit Not legally binding

2 What does "Risk finance" in the Horizon 2020 context mean? Provision of finance for research and innovation investments through non-grant instruments: Loan finance, i.e. risk-sharing loans to companies and for innovative projects introducing new technologies Guarantees, to financial intermediaries (commercial and development banks) that provide lending to research- and innovation-driven SMEs and small mid-caps Equity/ quasi-equity, i.e. venture capital to new companies in their early stage exploiting R&D results Horizon 2020 risk capital will address financing gaps in the research and innovation delivery chain and will be provided through partners of the European Commission (EIB Group and other financial intermediaries) 2 Not legally binding

3 Risk-Sharing Finance Facility (RSFF): Loans and guarantees EU and EIB/ EIF share risks (FP7 budget may cover losses); EIB provides direct loans for RDI investments Demand-driven approach; market-based pricing of loans Eligible investments: From research to demonstration, development and innovation, notably by larger companies Loan finance also provided to stand-alone projects (SPV), research infrastructures and others (any legal entity that is able to borrow and repay a loan) Loan volumes for direct lending of EIB: From EUR 7.5 to 300 million So far: Signed loans of EUR 8.8 billion for more than 90 projects in 23 countries (EU/ AC) Risk capital for R&D and Innovation investments with FP 7 support: RSFF Not legally binding

4 RSFF loans provided to SET Plan related projects with a demonstration character and a certain degree of risk Mainly wind & solar power projects; notably in countries with favourable framework conditions making such investments bankable Projects with innovative technology: Andasol Thermal Power I and II/ Spain, RSFF loans: EUR 120 m Solucar Solar Thermal Power/ Spain, RSFF loan: EUR 50 m Borkum West II Offshore Windpark/ DE, RSFF loan: EUR 100 m Companies investing in R&D: Abengoa/ Spain, RSFF loan: EUR 49 m Gamesa Wind Power/ Italy, RSFF loan: EUR 200 m RSFF loans for projects related to the SET Plan implementation - examples Not legally binding

5 Risk-Sharing Instrument (RSI): Guarantee facility under the RSFF for SMEs and small midcaps (up to 499 employees) Target group: Research-driven and innovative SMEs/ small midcaps (companies with up to 499 employees) Pilot scheme (2012/2013) to test guarantees and counter- guarantees for loans/ leases for RDI investments; EIF extends guarantees to financial intermediaries (commercial and promotional banks; guarantee institutions) to share risk of default (50% per individual loan/ lease) Loan size between EUR 25,000 and 7.5 m Current FI for R&D and Innovation investments with FP 7 support: RSI Not legally binding

6 HORIZON 2020 budget proposed: EUR 80 billion for the period (actual budget: approx. EUR 70 bn) Approximately 4.5% provided not via grants but through Financial Instruments (various facilities) H2020 (SP "Industrial Leadership") – Access to risk finance 3,768 million in current prices (net of administrative costs) for financial facilities supporting all sizes of companies and types of entity (demand driven) + additional budget possible for policy targets (topping-up possibility) HORIZON 2020: Budget proposal for Financial Instruments Not legally binding

7 Two Financial Instruments: One for debt, one for equity Debt Financial Instrument: Loans and guarantees for investments in Research & Innovation; demand-driven; target groups midcaps and larger companies, research bodies and stand-alone projects; ("RSFF II") Guarantee facility for research-intensive and innovative SMEs & small midcaps ("RSI II") Equity Financial Instrument: Facility for early-stage finance Early stage finance for innovative enterprises (seed and start-up companies) Growth-stage finance also possible Implementation of the guarantee facility (debt) and the equity facility will be made in co-operation with COSME financial facilities for SMEs HORIZON 2020: Proposed Financial Instruments (FI) Not legally binding

Horizon 2020 risk capital for SET Plan projects: opportunities and challenges Opportunities Particularly loan finance could be used to support larger-scale projects with a certain degree of technological risk (EU would cover part of such risks vis-à-vis the EIB and/ or other partners) Long-term finance both to companies and stand-alone projects (project finance); relatively large amounts (i.e. up to EUR 200 million per project) Challenges Project promoters need to demonstrate that, in principle, a loan (with interest) could be repaid (bankability) Project promoters need to find other sources of finance (own resources, equity, grants etc.) to complement Horizon 2020 risk finance Not legally binding

First-of-its-kind demonstration projects are important to demonstrate the technical and commercial viability of new energy technologies Due to their pre-commercial development stage and unproven technologies, such demonstration projects are usually too risky for commercial finance (equity and/ or debt) and therefore considered as "not bankable" In a number of cases, also EU Financial Instruments (RSFF) involving significant risk-taking buy the EU budget have not been able to provide finance (too risky and/ or too large amounts needed) Not legally binding SET Plan implementation: First-of-its kind demonstration (Fok) projects

Expert group launched in January 2013 (EC and experts from different fields of finance (Equity/ lending/ insurance) Bottom-up analysis involving the EIIs of the SET Plan to look at: The current financial instruments for first-of-a-kind commercial demonstration projects at EU and MS level The future investments needs and obstacles for finance encountered by the different industrial sectors in the field of energy The gaps in terms of Financial Instruments for breakthrough technologies in the context of the SET Plan Recommendations on the need and the possibilities for (new) innovative Financial Instruments for FoK Report in preparation; submission by end of May 2013 Not legally binding Expert Group on (new) innovative Financial Instruments for Fok projects

Thank you very much for your attention!