CISAF: X-Raying the New Framework for State Aid under the Clean Industrial Deal

Once adopted, the CISAF will replace the TCTF.  It is intended that the CISAF will remain in force until 31 December 2030. The draft CISAF contains provisions for the following types of aid measures:

• Measures accelerating the roll-out of renewable energy;
• Measures facilitating industrial decarbonisation;
• Measures ensuring sufficient manufacturing capacity in clean technologies; and
• Measures to de-risk private investments in renewable energy, industrial decarbonisation, clean tech manufacturing, and energy infrastructure.

The CISAF aims to provide Member States and businesses with a more stable and predictable environment for investments. It foresees the swift approval of State aid measures for decarbonisation and clean tech projects by streamlining the demonstration of compatibility, and by allowing a wider use of simplified methods to set aid amounts. The new state aid framework of CISAF includes a list of project categories for which the European Commission expands state aid possibilities:

• Measures accelerating the rollout of renewable energy: Member States can set up schemes for investments in renewable energy and energy storage. Moreover, Member States could set up schemes for specific technologies given their particular national energy mix and grant aid for less mature technologies, such as renewable hydrogen, through a simplified process without a tender. However, eligible projects must adhere to strict implementation timelines to ensure accelerated deployment.
• Capacity mechanisms. Support is envisaged for capacity mechanisms that contribute to better security of the energy supply. Member States can support producers who maintain and offer a certain capacity during supply shortages. Based on the draft CISAF, mechanisms aligning with the "Target Models" (one for market-wide central buyer capacity mechanisms and one for strategic reserves)- detailed in the CISAF Annex would benefit from an expedited approval.
• Support for non-fossil flexibility. Governments can support flexibility in the electricity markets, namely energy storage and demand response schemes, on the condition of the employment of tendering approach.
• Decarbonisation of the industry. Governments can support projects that lead to a reduction of greenhouse gas (GHG) emissions or a significant reduction of energy consumption in the industry. For industrial heat decarbonisation, direct electrification and renewable heat sources should be prioritised. Under certain conditions, support for hydrogen and biomass use is also permitted.
• Production capacity for clean technology. Measures ensuring sufficient manufacturing capacity in clean technologies: the proposal would allow support from Member States for the +production of designated clean technology equipment (currently defined as: batteries, solar panels, wind turbines, heat-pumps, electrolysers and carbon capture usage and storage), as well as the key components and Critical Raw Materials (CRMs) necessary for the production of such equipment. Member States would be able to support the necessary investments up to certain limits, with increased amounts for investments in assisted areas.

Key Challenges and Considerations for Effective Implementation

Overall, CISAF is a step forward towards the joint development and enhancement of decarbonization and competitiveness. In the context of the recently concluded public consultation, stakeholders provided a number of comments and remarks. Based on our experience, we identify several key aspects of the proposed framework that may deem further analysis:

• Project completion deadlines. The requirement for renewable energy projects to be completed within 36 months rightly aims to accelerate energy transition. While this target is directionally sound, there could be cases that require some re-consideration due to objective reasons for non-completion within the said deadlines. For instance, certain types of projects – such as geothermal stations and pumped storage stations – may require different development times. Additionally, supply chain disruptions in unexpected events (e.g.  in the case of ultra-high voltage substations or high voltage transmission lines) or external factors beyond developers’ control – such as grid connection – should be duly considered.
• Mandatory bidding process. Unarguably, bidding processes as envisaged in Section 4.1 increase transparency, competition and efficiency of allocation of aid. However, such a provision may prove to be counterproductive, especially in sectors such as energy storage or renewable hydrogen, where technologies are not yet fully mature. Moreover, projects with unique characteristics – such as pumped hydro storage – may not be may not be easily accommodated within standardised competitive frameworks. Finally, the complexity and resource requirements of such processes risk excluding SMEs or smaller firms that lack the technical and financial capacity to participate in complex tenders.
• Cost Allocation for non-fossil flexibility. Non-fossil flexibility schemes are an important aspect for fostering decarbonisation in the electricity system. However, allocating the cost of flexibility support schemes to consumers who may have limited flexibility potential due to the nature of their industrial processes, which require a constant, uninterrupted energy supply, raises concerns. The imposition of such costs may be detrimental to the competitiveness of many industrial sectors and would raise electricity costs even further. More importantly, it must be stressed that flexibility needs are not necessarily incurred by inflexible industrial consumers who have in general a predictable consumption profile (and therefore beneficiary for the system economics), but by the need to integrate intermittent and stochastic RES, as well as satisfying peak loads with limited predictability, particularly in the absence of flexibility-providing resources such as CCGTs, BESS, or hydros. Thus, a more equitable allocation of costs could take into account the extent to which various energy actors (consumers and producers) contribute to the creation of flexibility needs.
• Procurement of capacity mechanisms and flexibility. CISAF’s provisions may lead Member States to procure flexibility and adequacy jointly by default. However, the need for joint procurement could instead be assessed on a case-by-case basis, taking into account the specific conditions and necessities of each national electricity system.
• Industrial decarbonisation: decreasing direct versus indirect emissions. As per section 72, investments aimed at reducing GHG emissions or improving the energy efficiency of industrial activities can be eligible, irrespective of the technological solution used, provided that they deliver either a reduction in direct greenhouse gas emissions resulting from the activity concerned compared to the baseline scenario without aid, or a reduction of at least 20% in the energy consumption of the beneficiary’s activity per unit of output compared, again, to the baseline scenario without aid. Reference exclusively to investments aiming to carb direct emissions to foster industrial decarbonisation via the exertion of constructive pressure – though understandable – may have the adverse effect in cases where specific industrial processes face structural decarbonisation limitations. Such investments may entail very high costs, adversely impacting the competitiveness of European Industry. It should also be recognized that industrial decarbonisation of industry can be achieved through other means – such as the procurement of green electricity via PPAs, the support of shaping costs, and other similar mechanisms.
• Requirements for industrial electrification. The requirements for granting state aid for industrial electrification may be considered as relatively strict, since they essentially require that industries are already located in regions with a practically fully decarbonised electricity mix (i.e. > 90%). For countries like Greece and several others, this would become a reality around 2035 or slightly earlier. Also, potential inconsistencies with regard to the RES certification process via GOs that do not have an hourly stamp/duration could be noted.
• Carbon Contracts for Difference (CCfDs). Although CISAF does not explicitly include support for Carbon Contracts for Difference (CCfDs), they can already be approved under the CEEAG , as demonstrated in the Netherlands and Germany. CCfDs play a critical role in bridging the cost gap between conventional and low-carbon technologies by markets volatility (ETS). This is particularly relevant for sectors like carbon capture and storage (CCS). However, the lack of a harmonised approach may create an uneven playing field, as some countries have already supported their industries via CCfDs, while others may only be able to deploy mechanisms defined under CISAF.
• Clean-tech manufacturing definitions. The CISAF reflects the strategic importance of clean technology manufacturing by including electrolysers, carbon capture, utilisation and storage (CCUS), and the production and recovery of critical raw materials (CRMs) , as stated in Section 122.Nevertheless, a potential alignment of the CISAF with Article 4 of the Net-Zero Industry Act (NZIA) and its implementing acts – particularly those concerning primarily-used components – could enhance the framework’s inclusiveness and ensure broader support for technologies essential to the energy transition.
• Critical Raw Materials for clean-tech applications. The support of CISAF to clean tech components and secondary raw materials that serve as key inputs forfor the production of relevant equipment is sine qua non of the green transition. However, the importance of CRMs in other essential sectors such as telecommunication and defense is noted, and support could be considered for these areas as well.
• DNSH compliance. While the “Do No Significant Harm” (DNSH) principle is not required across most CISAF sections, Member States must ensure compliance with the DNSH principle only for renewable energy projects. Although it is acknowledged that DNSH may act as a bottleneck to certain project categories, environmental concerns remain relevant and could be factored into future iterations of the framework.

At Grant Thornton, we will continue supporting our clients with top-tier advisory services in their journey towards decarbonisation and energy transition including - but not limited to - energy transition pathways design, market and technologies assessments, state aid support, and funding acquisition.

Related Services

We work at an impressive pace. Yours. Discover how:

Energy & resources