Energy poverty is a major concern across Europe, especially for cities trying to manage rising energy prices and decarbonisation targets. The energy transition presents a way forward to climate neutrality, while avoiding the negative societal and economic impacts when moving away from fossil fuels to renewable energy sources.
What does the energy transition look like in practice at city level? Financing is an important tool. This was the focus of the latest EU City Lab, held in Bucharest (RO) on 20-21 November 2024. The two-day event welcomed participants from 11 EU Member States, with good representation from practitioners wishing to understand and push forward projects in their cities.
Read on to get the key takeaways from the event and more information on useful tools for your city’s transition, including a new tool designed by URBACT.
4 key takeaways
1 – The state of energy funding in Europe
The EU City Lab in Bucharest was an opportune moment to contextualise energy funding in Europe, starting with the EU policy landscape. Two key Energy Directives are slowly opening the energy market to Europe’s citizens: the Renewable Energy Directive (EU) 2018/2001 (RED-II - European Parliament and Council of the European Union, 2018) and the Internal Electricity Markets Directive (EU) 2019/944 (European Parliament and the Council of the European Union 2019). Moreover, there are growing opportunities for city administrations to take the lead on helping communities generate their own electricity and organise local energy saving initiatives through Energy Communities. These activities can also help reduce energy poverty which tends to be more prevalent in cities.
During the EU City Lab, keynote presentations recapitulated the main EU funds available and provided examples of successful projects. These funds are significant and include the Just Transition Mechanism, which alone is valued at around EUR 55 billion for the period 2021–27. Not to forget, the EUI’s calls for Innovative Actions that can provide funding for the implementation of innovative projects, with a recent call on financing energy transition closed in October¹. Other funding frameworks include the European Investment Bank’s ELENA and the Renewable Energy Financing Mechanism. They tend to target, but are not limited to, coal-producing areas. Also of note, these funding schemes aim to address the potential societal and economic impact of the transition (e.g. unemployment).
Eddy Adams presenting at the EU City Lab on Energy Transition in Bucharest. Credits: URBACT.
2 – So many funding options, but where to start?
At a glance, cities are candidates for the above schemes. Yet, despite these very significant sums being made available, the enormous scale of the required transition activity means it is essential that other funding sources are leveraged. A range of these alternative and complementary sources were identified during the EU City Lab.
In her presentation, Sylwia Słomiak, from Eurocities & Project Coordinator for Prospect+, shared statistics, revealing that many cities do not feel they can consider new finance sources without further support. She explained how cities can successfully use alternative ways to fund their projects that include:
• Green Finance
• Energy Performance Contracting
• Green Bonds
• Guarantee Funds
• Revolving Funds
• Internal Contracting
• Third Party Finance
• Soft Loans
• Blended or hybrid finance
Sylwia also shared examples of these novel mechanisms and how the Eurocities Prospect+ project and its resources can help cities.
Sylwia Słomiak, from Eurocities & Project Coordinator for Prospect+. Credits: URBACT.
With so many potential funding sources available to cities, the real question is “Where to start?” Alokanda Nath of Frankfurt School of Finance & Management provided an answer and presented an online knowledge tool available to cities on the NetZeroCities portal. This finance guidance tool, which is linked to activities falling under the EU Cities Mission, is structured around five broad themes:
• Built Environment
• Green infrastructure and nature-based solutions
• Waste and circular economy
• Transportation
• Energy systems
The tool recommends types of funding sources best suited to the city’s project (e.g.: venture capital, insurance fund, Green equity, etc.).
Alokanda Nath, from Frankfurt School of Finance & Management. Credits: URBACT.
3 – Lessons learnt from Bucharest
The EU City Lab included a tour of exemplary projects funded within Bucharest District 6:
• A novel heating system for Bucharest Polytechnic University, initially funded through the EU Horizon programme, that uses two ground-source heat pumps (geothermal) complementing a solar photovoltaic (PV) array. The system uses about half of the energy to heat its facility and injects the remainder into the University’s district heating system.
• A EUR 90 million heating system using a network of geothermal ground sourced heat pumps for greenhouses in Drumul Taberei Park. This initiative, funded mostly through European Regional Development Fund coupled with local sources – this saw running costs reduced by 70% (the team plans to eliminate the remaining 30% of cost by installing a solar PV array in the new year).
• A EUR 40 million building retrofit and new heating system for St Andrews Middle School, funded under the ELENA fund (District 6 being the first Romanian public authority to use this funding facility). This was a significant project that created a net-zero building and substantially reduced energy and water usage in addition to providing energy to the local community on weekends and holidays.
Study visit at St Andrews Middle School. Credits: URBACT.
More on these and other aspects of the Bucharest context can be found here, in an article written in the lead-up to the EU City Lab.
Looking for other sources of inspiration? Check out the inception report by Urban Innovative Actions ‘Bridging the gap: Exploring Innovative Financing Schemes in European cities’ that investigates different European cities and how they designed innovative financing mechanisms that went beyond traditional funding sources and fostered innovation. Stay tuned for more on this report and detailed case studies!
Study visit at the EU City Lab on funding the Energy Transition. Source: URBACT.
4 – URBACT is adding a new tool to the mix
One of the highlights in Bucharest was the unveiling of a new energy funding tool designed by URBACT to help cities submit successful energy funding proposals at local, regional and EU levels. This comes in response to an observed gap amongst funders, who note that they receive ‘very good’ project proposals, but not always ones that fit well with their criteria. Unfortunately, these are then rejected at the appraisal stage.
A tool for success
URBACT’s tool is a funding template structured around 13 criteria (see figure below).
The first 6 criteria capture what the city proposes to do, for whom and by when. The remaining seven criteria capture the funding needed, the risks that might be encountered and the carbon savings that might be achieved.
The template’s 13 questions may seem simplistic, but feedback from EU City Lab participants showed that this does not mean they are easy to answer. When testing it out, participants noted its added value.
New steps
The tool is currently being finalised. In early 2025, a guidance note (comprising the 13-criteria form and supporting documents) will be available on the URBACT website.
This tool will be part of the URBACT Toolbox, which will serve as an additional aid that links the development of a project idea to the priorities of the funders who might support it. Moreover, it is intended to complement other tools. For example, once the first six questions around the city’s project design and targeting have been addressed, the city can make better use of the resources available through NetZeroCities and Prospect+, as described above. In this sense, URBACT wants to enhance the body of resources available to cities looking to fund energy projects, as opposed to duplicating or replacing existing tools.
EU City Lab on Energy Transition. Source: URBACT.
Where will the energy transition take us next, and what can cities do?
Participants left Bucharest with plenty of insights and tools to produce stronger funding proposals that stand out to funding bodies at local, regional and EU levels. That being said, this is just the start! Revisit the presentations from Bucharest. The EU City Lab in Bucharest was the last EU City Lab of 2024, but you can stay updated on the next EU City Labs. There will be more EU City Lab events coming, in different thematic areas.
How can you drive the transition in your city? URBACT has some resources to help:
Read up on URBACT and EUI energy transition funding projects, including the innovative methods, presented by Eurocities during the event, along with the EUI Innovative Actions, support and networking. You can also get more insights on Portico, where there are more than 140 resources on energy transition from different cities.
Make your voice heard, by completing the Prospect+ Community of Practice’s consultation on public authorities’ attitudes to using innovative financing instruments!
Bucharest will take the stage again…in April! The city’s Good Practice will be one of 116 URBACT Good Practices showcased at the next URBACT City Festival in Wroclaw (PL) from 8-10 April 2025. Looking for solutions to your city’s challenges? Register now!
¹ If you are interested to become a Transfer Partner to an Innovative Actions project, submit a request on the Urban Matchmaker.