European Structural and Investment Funds 2014 – 2020: The negotiation process and the emphasis on financial instruments

EU Cohesion policy aims to support economic, social and territorial cohesion across the EU. It strongly contributes to the objectives of Europe 2020—playing a significant role in supporting sustainable, social and economic restructuring across Europe. These policies add to socio-economic development and employment growth—helping the economy while protecting natural resources. European Structural and Investment Funds (ESI) formerly called Structural and Cohesion Funds support this agenda over the period 2014-2020. They comprise the European Regional Development Fund (ERDF), theEuropean Social Fund (ESF), the Cohesion Fund (CF), the European Agricultural Fund for Rural Development (EAFRD), and the European Maritime and Fisheries Fund (EMFF).

A new programming period begins in 2014 and according to the latest discussions; some € 322 billion will be allocated to the ERDF, ESF and CF during 2014-2020. The level of support available for member states has yet to be finalised (funding simulation available here) but less developed regions will receive greater levels of support. The maximum co-financing rates will be 75-85 % in less developed regions, 60 % in transition regions and 50 % in more developed regions.

It is hoped that cohesion policy funding will act as a trigger to leverage private funding, in particular by encouraging the use of financial instruments, to bridge the investment gap between energy efficiency potential and energy efficiency investments which is key to achieving 2020 targets.

Common Strategic Framework and Thematic Objectives

At the EU level, a revised regulatory framework for the ESI funds has been proposed by the Commission with the aim of encouraging an integrated approach, increasing coherence between policy commitments and investments on the ground.

The proposal presents a set of common Thematic Objectives and key actions derived from Europe’s 2020 strategy. The framework has 11 Thematic Objectives which aim to concentrate expenditure on a limited number of objectives and investment priorities. The thematic objectives that focus on climate change and energy are:

  • Shift towards a low-carbon economy
  • Climate change adaptation & risk prevention and management
  • Environmental protection & resource efficiency
  • Sustainable transport & removing bottlenecks in key network infrastructures

The objective is to have a targeted results-oriented approach, focusing on fewer priorities, translating 2020 tragets into concrete investments in member states and regions. Cohesion policy will place even further emphasis on supporting investments linked to EU energy targets. The Commission has proposed a shift towards a low-carbon economy in all sectors, with an increased focus on renewable energy, energy efficiency and smart grids at the distribution level. This will lead to bigger investments in sustainable energy over 2014-2020—a doubling of current investment amounts.

Minimum allocations are set for a number of priority areas. For example, in more developed and transition regions, at least 20 % of total ERDF resources at national level should be allocated to the low-carbon economy, energy efficiency and renewable energy. Less developed regions will have a broader range of investment priorities but they will have to reserve at least 6 % of ERDF resources to energy efficiency and renewable energy. 

Based on the Thematic Objectives and the proposed regulatory framework, the European Commission issued position papers to each member state outlining the main challenges and funding priorities in member states for the period 2014-2020. They aim to establish a framework for dialogue between the Commission and each member state in preparation for the partnership agreement.

Partnership agreements

While no final decisions have been made on ESI funds budget allocations, member states are hard at work outlining their partnership agreements and scoping out operational programmes. National and regional authorities draft their Partnership Contracts—also known as Partnership Agreement—with the Commission under the regulatory framework which form the basis for delivering ESI funds.

The new framework has a stronger focus on performance. A key element is the ex-ante conditionalities attached to EU funding—specifying procedures for monitoring and evaluation. This means, for example, that a member state wanting to use these funds to invest in energy efficiency improvements in buildings or nearly zero energy buildings will be required to transpose in full the relevant parts of related EU legislation—the recast Energy Performance of Buildings Directive (EPBD).

In parallel to preparing partnership agreements, member states conduct national consultation processes seeking submissions from interested parties. Regional authorities, local authorities, energy agencies and interested stakeholders can influence funding priorities and operational programmes by making submissions through this public consultation process. Based on these submissions and recommendations, member states draft overall funding structures as well as individual programmes— Operational Programmes (OPs)—at national and regional level for the coming period within the framework of the regulations, setting out the priorities for delivering the ESI funds. To find out more about the public consultation process contact your local Managing Authority.

It must be noted that many member states intend to continue implementing ESI funds through a mix of national and regional OPs—with many continuing the current system of one OP per ESI fund (ESI, ERDF, Cohesion Fund, and ESF). However, the proposed regulatory framework encourages a more integrated approach to improve coordination between different funds by using coordinating committees or joint managing authorities for OPs— achieving a more integrated approach to planning and implementation.

Financial instruments and ESI funds 2014-2020

The financial resources needed to fulfil the objectives of European 2020 policy are beyond the capacity of the ESI funds budget. The recent financial crisis has increased the need for innovative financial instruments to fund energy efficiency works—financial instruments are suited to projects with profitable financial return such as energy efficiency in buildings. A recent study by the EIB, Mazars, Ecofys and the European Policy Research Centre (EPRC) showed that financial instruments are particularly valuable during the financial crisis as mainstream banks have ceased lending. Financial instruments represent a resource-efficient way of deploying cohesion policy resources in pursuit of 2020 objectives. Financial instruments provide support for investments by way of loans, guarantees, equity and other risk-bearing instruments, and can be combined with interest rate subsidies or guarantee fee subsidies  to leverage private funding. Therefore, using EU funds to provide loans and leverage funding is seen as an effective way to maximise the impact of public money and encourage financially sustainable investments as against using grants to fund energy efficiency. The funds are revolving—the repayments of the loans are used for further investments. Some examples: KredEx — Estonia's funding revolution and More ambitious energy savings in new member states possible which combine European structural funds with loans from the European Investment Bank (EIB) and other financial institutions.

Many member states already have experience of using financial instruments throughJESSICA,JEREMIE and JASMINE (see articles: Using financial instruments to leverage support for regional policy, Energy efficiency & public-private partnerships: What you need to know and Structural Cohesion Funds for energy efficiency in buildings 2007-2013: An overview).

The successful design and implementation of financial instruments relies on correct assessment of market gaps and market needs—they should be designed on the basis of ex-ante assessments that identify market failures and private sector participation.

Discussions between EU Member States, the European Commission and the European Parliament on these proposals are continuing and key decisions still have to be made in many member states on the future programme structure and the allocation of resources. Legislative proposals for cohesion policy during the period 2014-2020 were adopted by the European Commission in October 2011—the new Regulations should enter into force in 2014.

The design and drafting of Partnership Agreements and Operational Programmes underway for the next period and includes the design of sustainable energy measures tailored to the specific needs of member states. In this work, it is important to have regional development experts, energy experts involved and energy agencies involved.

To develop a successful project using ESI funds:

More information on regional policy and funding: