Industrial Decarbonisation PERTE.
The Decarbonisation PERTE is the last of the PERTEs to join the Next Generation EU Funds distribution ecosystem. The manufacturing industry has the entirety of 2023 to get ready for the first big call, which will be issued at the end of the year. The PERTE features a public endowment worth 3.1 billion euros, which aims to mobilise 11.8 billion euros' worth of total investment. It sets out to help to maximise the returns on the major investments required by industry to become carbon neutral.
Emma Montserrat, European Union Fund Manager and Deputy Assistant Managing Director at Bankinter, talks in this interview with Carlos Fernández, Energy Sector Leader at FI Group, about the Industrial Decarbonisation PERTE. Bankinter offers advice and financing to its customers to access the Next Generation grants in collaboration with FI Group, a consultancy dedicated to the management of European funds, which employs 720 consultants specialising in this type of funding.
Emma Montserrat: Hi Carlos, let's start at the beginning. What is the decarbonisation PERTE?
Carlos Fernández: This PERTE, or Strategic Project for Economic Recovery and Transformation, is aimed at the Spanish manufacturing sector. It offers public financing to support projects that enable the decarbonisation of industry, facilitating returns on these investments and making them possible.
Emma Montserrat: who can participate in this PERTE?
Carlos Fernández: It is aimed at industries with national economic activity codes (CNAE) from 10 to 32, inclusive. This means the entire agri-food, automotive, pharmaceutical, cement and metallurgical industries, etc. Any industrial company whose activities emit substantial emissions can apply for this PERTE. The first major round is expected by the end of 2023.
Emma Montserrat: What is the main thing you would highlight about this PERTE?
Carlos Fernández: it is a great opportunity for driving the ecological transition, particularly for industrial plants with high emissions and consumption of fossil fuels, and any other activities that generate emissions. It is about reducing these emissions while becoming more competitive in the market and, of course, being more sustainable.
Emma Montserrat: if my company has a project, what do I need to consider to be able to apply for the decarbonisation PERTE?
Carlos Fernández: the first thing is to start early. We are talking about investments with a degree of maturity before the aid is granted. This PERTE is aimed at large investments. Start by asking yourself whether this volume of investment to reduce emissions will be interesting for your company at a strategic level. It must also be clear that a project that enables you to reduce emissions in some way fits with your business strategy. It must also meet the criteria for this PERTE.
Emma Montserrat: Where should we start?
Carlos Fernández: The starting point is to be clear about your long-term decarbonisation targets. It is about how strategic reducing your emissions can be, and about planning actions that enable you to achieve those targets. Such actions may be eligible for this funding. It is important to consider whether your basic engineering is developed enough to achieve sufficient maturity before the window for applications opens.
Emma Montserrat: What benefits can companies get by applying for these funds?
Carlos Fernández: the main measure in the invitation to bid is that it uses a first-come-first-served approach. It can give you up to 30% grant aid for energy efficiency projects, and up to 40% for reductions in emissions, for example.
But the benefits are not limited to just public financing, as applying for such aid can also be strategic for companies subject to the trading regime for emission rights. It will help them reduce their industrial emissions, enabling them to be more competitive in the market, either by selling the additional emissions generated as a financial product, or by improving the return on their projects.
Emma Montserrat: over the months we have gained a lot of experience with these funds and PERTEs. And we have recognised the need for appropriate, specialist advice when submitting bids. Why do you think this is so necessary?
Carlos Fernández: all the aid and instruments stemming from Next Generation funds come with obligations, such as complying with the Do No Significant Harm (DNSH) principle, not causing serious damage to the environment and having long-term decarbonisation plans in place. Specialist consultants can improve your chances of success. The process of submitting and assessing applications involves a raft of requirements and knowledge about the regulations. And there are many nuances.
This PERTE differs from those we have seen before. In the past, we always had a very short window for presentation, lasting about two months, seeking very competitive projects. The window for the decarbonisation PERTE will be open for about a year, on a first-come-first served basis. It will be very important to submit projects as early as possible to be among the first assessed.
Other instruments and aid have already used this approach and worked in the same way, such as energy-efficiency aid for industry and SMEs, which worked in a similar way to this PERTE.
Emma Montserrat: what opportunities are there for these sectors in addition to the decarbonisation PERTE?
Carlos Fernández: we have spent two or three years with a very strong commitment to industry. Energy efficiency grants will be available for the industrial sector until the middle of the year, June 2023. These will provide a window for projects that are ineligible for this PERTE due to the level of investment. The Ministry of Industry also offers other aid instruments, with a lower percentage for large companies. These can also be very useful for improving the return on particular investments.
Aid is also available for digitisation, and there is specific aid for manufacturing industry in relation to investment. In R&D, some CDTI (Centre for the Development of Industrial Technology) innovation instruments and other temporary aid can help improve returns on investment. At the moment, the spectrum available to industry is quite wide and promises to increase throughout this year.
Emma Montserrat: the PERTE for decarbonisation has been the latest addition to the family. Have there been any changes to the regulations for these processes during this period?
Carlos Fernández: Obviously, the organisations running these PERTEs have gained experience with the procedure through trial and error. In this case, the main development - mainly at the structural rather than legal level - is that they have chosen a first-come-first served basis. In the past we had a very small window for applications. However, now they are going to give us more time to prepare our projects.
In particular, we will have a much wider window for submissions. This means there will be more time for projects that are not sufficiently mature when the process opens to ensure the proposal submitted meets the requirements. The order of submission will be very important.
Emma Montserrat: is this the only window for submitting large projects?
Carlos Fernández: as we have said, the range for industry is very wide. There are other instruments that enable attractive financing and improve returns on investment. But, because of its objective, aid under the decarbonisation PERTE is very intensive: the minimum investment could be 1 million, 2 million or 3 million euros. We are not aware of any other opportunities in the pipeline for financing and improving the return on decarbonisation projects of this size, which sometimes don't go ahead because they are not sufficiently profitable.
Emma Montserrat: Carlos, we have seen how the consortium concept works, especially with the PERTE for electric vehicles. Will it always be necessary to partner with other companies or entities and cover the entire value chain to be eligible for the aid?
Carlos Fernández: this is one of the major new features of the decarbonisation PERTE. You may need a technology partner, or a partner that enables you to cover a value chain, depending on the type of industry. However, this will not always be necessary, as a mature technology may be available or because the company has identified how to reduce its emissions. This PERTE, therefore, allows you to apply individually, as a sole applicant, or as a consortium. There is no need to involve the entire value chain in the project, which is a major advantage for submitting a proposal.
Emma Montserrat: no doubt, and it also simplifies things.
Carlos Fernández: the PERTE has many requirements, but, as there is no need to apply as a consortium, it can help you simplify and set your targets, achieving the emissions reduction when only you are involved.
Emma Montserrat: Do you think PERTEs will continue or will they disappear after this extraordinary period?
Carlos Fernández: PERTEs have been a mechanism covering a range of regulatory instruments, with new regulatory frameworks and rounds of public financing. This type of model may fade away over the years, but this type of aid will continue in some individual or different form. It will be replicated. We will need to continue ensuring that the targets we have set for 2030 and 2050 are met. Even if PERTEs stop being used, similar instruments will emerge, even if they have different names and regulations.
Emma Montserrat: this PERTE it is one of the most universal, covering a wide range of companies and sectors. Which technologies is this PERTE going to support?
Carlos Fernández: Manufacturing industry covers a wide range of fields: steelworks, cement, chemicals and so on. But there is a common denominator: reducing emissions. The publication gives some very specific cases, but the projects that can benefit from this PERTE include any companies that plan to reduce their emissions, provided that the investment involved is considerable. Anything that replaces fossil fuels - such as natural gas and diesel - with renewable fuels is likely to be eligible for this PERTE. And more innovative technologies, such as carbon capture, hydrogen and replacement of raw materials for others with no associated emissions, are also eligible.
Emma Montserrat: finally, how mature do projects need to be in order to be submitted? Do they have to be very advanced or can they be at an embryonic stage?
Carlos Fernández: The way the PERTE has been defined, it could be said that it is oriented towards technologies that are sufficiently advanced, i.e. whose maturity means they are very close to the market. But, like other PERTEs, R&D is also covered. Some sectors may require significant research in advance to ensure their decarbonisation. Therefore, there is room to bring this technology to a degree of maturity that can be introduced to the market.
At Bankinter we are prepared to join companies on this journey, hand in hand with the FI Group.