How to fund the energy transition: NextGenerationEU funds

How to successfully tackle the fight against climate change and the evolution towards a just energy transition are two key questions that will mark the future of the EU and its member states. However, achieving the EU’s sustainability and renewable energy targets is no simple task, and requires the implementation of far-reaching structural reforms in each country to successfully address the main challenges in this area. 

Economic, social, commercial, or industrial reforms, based on the specific needs of each state, which can be effectively financed through the NextGenerationEU funds. An essential tool in the EU’s renewal process, which is helping to create a much more greener and more sustainable community environment. 

What are the NextGenerationEU funds?

The NextGenerationEU recovery plan is a temporary recovery instrument, created in the wake of the coronavirus crisis to alleviate its economic and social effects. It was approved in May 2020, with an investment of €806.9 B within the Multiannual Financial Framework for 2021–27.

The aim of the funds is to provide states with the necessary resources to create a much more sustainable, greener, and resilient post-Covid-19 Europe, capable of adapting to the new changes that lie ahead. 

In particular, those related to the energy transition towards an energy model based on renewables and the effective fight against climate change and its adverse effects. 

How are they used?

The first thing to know is that the NextGenerationEU funds are divided into two areas. On the one hand, a small sum is set aside for contributions to other European programs such as Horizon 2020, InvestEU, Rural Development, the Just Transition Fund (JTF), or Recovery Assistance for Cohesion and the Territories of Europe (REACT-EU). 

However, the bulk of the funding — €723.8 B — goes to the Recovery and Resilience Facility, aimed at supporting reforms and investments undertaken by surrounding countries in the area of the green and digital transition. It covers measures aimed at the implementation of renewable energies or the energy rehabilitation of buildings, but also the promotion of sustainable transport, connectivity, or the expansion of digitalization and modernization of public administration. This mechanism is also responsible for financing education and training programs in digital skills, as well as everything related to research and innovation, the protection of biodiversity, gender equality, and the protection of the health of citizens. 

Distribution of funds

To access the plan's funds, each EU member country must first have drawn up its own recovery and resilience plan, tailored to its needs and taking into account the established EU goals. 

In these plans, at least 37% of the expenditure has to be allocated to climate issues and another 20% to digital investments and reforms. The projects that are established must be implemented by 2026 and depending on their focus, size, and importance, the states can obtain a higher or lower amount of funding. 

Once the states have submitted their plans, had them approved by the EU, and start receiving the funds, these will reach citizens and companies through different channels. For example, some of the mechanisms that have access to the funds are direct subsidies, tax benefits, loan guarantees and subsidies, aid for R&D, aid for medical products, as well as recapitalization measures or tax and contribution deferrals, among others. 

These mechanisms are usually announced through calls for proposals issued by ministries, state-owned public companies, autonomous communities, city councils, and other local entities. But also through PERTEs (Strategic Projects for Economic Recovery and Transformation), large strategic projects that require collaboration between administrations, companies, and research centers.

How the funds are financed

In order to be able to offer these resources to the states, the EU has foreseen to obtain liquidity in its coffers by means of:

• Customs duties.
• State contributions based on Value Added Tax (VAT). 
• Contributions based on gross national income (GNI).
• Contribution based on the taxation of non-recycled plastic packaging waste.

In addition, the European Commission will borrow on the markets at more favorable costs than many Member States and redistribute the amounts. The aim is to raise some €800 B by 2026, or 5 % of the EU's GDP.
 

NextGenerationEU funds in Spain

Spain receives the most funding with approximately €140 B, which represents 11% of our country's GDP. The funds are provided through Spain's budget law, within the Recovery, Transformation, and Resilience Plan (RTRP). 

Thanks to the significant deployment of the Recovery Plan, calls for grants and tenders for NextGenerationEU funds have already been resolved for more than €23.5 B. By March 2023, almost 300,000 projects had been financed throughout the country, with 55% of the beneficiaries being companies and research centers. 

Twelve strategic projects (PERTEs) and nearly half of the calls, mostly related to green or digital projects, have also been launched. 
In particular, some programs have been very well received, such as the energy rehabilitation of buildings, the program to support sustainable transport MOVES III, or the Digital Kit, focused on the digitalization of SMEs.

In the deployment of EU funds, the Autonomous Communities have also played a very important role in our country, with more than €21.6 B allocated to the autonomous governments so that they can manage things within their competences. 

In this way, and according to the data collected by the Government, the Autonomous Communities that have received the most European funds so far are Andalusia with €3.42 B, Catalonia with €3.181 B, and the Community of Madrid with €2.374 B.
 

Now is the time to work to create a greener, more digital, and more resilient Europe with the help of the NextGenerationEU funds.