Modernisation Fund would no longer support investment in any fossil fuel projects

Once again, Poland raised the loudest voice against the EU Commission’s intention

22 July 2021

As part of its Fit for 55 climate package, the European Commission presented its proposal for the review of the Modernisation Fund, a funding program that supports less wealthy member states in their energy transition. Currently,  2% of revenues from the auctioning under the EU ETS between 2021-2030 are financing the fund. The beneficiaries are ten member states, mostly from Eastern Europe, including Romania, with a GDP per capita below 60% of the EU’s average in 2013.

The EU executive has put forward its proposal to make an additional contribution of 2,5% of the total allowances between “the year following the entry into force of the Directive and 2030”. Furthermore, the threshold for inclusion for this extra amount would increase to 65% of the EU’s average GDP per capita during the period 2016 to 2018. As a result, Greece and Portugal could be eligible for funding but only for the additional 2,5%. Based on Sandbag’s estimates, the new financing will amount to an extra 344 million allowances, around €19 billion assuming a carbon price of €55.

However, this week, a top executive from the PGE, the biggest energy utility in Poland, publicly spoke about the lack of significant and proportional increase considering the new climate commitments. “In countries that are still dependent on coal, undergoing a green transition requires a bigger Modernisation Fund that enables moving away from coal in a reliable and predictable way”.

Another major change proposed by the Commission would be to prohibit investments in fossil fuel-related projects. Currently, only solid fossil fuels, namely coal, are excluded, with the exception of “efficient and sustainable district heating” in Bulgaria and Romania. In light of the new proposal, it would no longer be possible to use resources from the Modernisation Fund for coal to gas fuel switching projects.

Once again, Poland raised the loudest voice against the EU Commission’s intention to reduce the scope of the Modernisation Fund. The Polish Electricity Association (PKEE) argued that  “investments in natural gas-fired high-efficiency cogeneration plants in district heating systems remain the only solution to progressively withdraw coal-fuelled units and switch to less emitting gas as an intermediate fuel on the way to carbon neutrality in coal-dependent countries, such as Poland.