What if the constraints on public finances in 2026 are an opportunity to rethink the state support framework for a more efficient energy transition, less dependent on public money?
In the field of energy transition, French public authorities have chosen to implement multiple incentive mechanisms based on investment subsidies: the Heat Fund, IPCEI aid, and MaPrimeRénov’, among others.
Such policies are justified. The initial investment often acts as a barrier to decision-making, even when the expected return on that investment is positive. Lowering this barrier triggers decisions that are beneficial both for stakeholders and for achieving public objectives.
Today, the state of public finances is leading to a reconsideration of some of these commitments, seemingly to the detriment of decarbonization goals.
However, it is worth questioning the effectiveness of these mechanisms before lamenting their decline.
Indeed, there is significant appetite among investors willing to finance energy transition infrastructure in exchange for long-term lease payments.
Public subsidies reduce the share of capital they could have provided, thereby shrinking not only the size of the market they could serve but also the size of individual tickets—and thus the economic interest of offering financing. Each investment file involves a fixed processing cost that must be amortized over the entire transaction.
It would therefore seem more virtuous for public action to focus on reducing commercial risk: this risk translates directly into costs for both the beneficiary and society, through its integration into the expected return rate demanded by the investor.
Public action could therefore involve creating guarantee funds to secure the risk of beneficiary default (counterparty risk in the context of lease payments), following the principle of PPA guarantee funds.
It could also cover risks related to commodity price fluctuations that could alter the project’s value for the beneficiary compared to the initial business plan—similar to the “Carbon Contracts for Difference” currently being tested in Germany for energy-intensive industries. The current approach consists of incentivizing the installation of a decarbonized boiler (biomass, geothermal) by offering an investment grant that makes the boiler competitive compared to a gas boiler (under the assumption of a long-term gas price scenario). Alternatively, the mechanism would compensate for the difference between the decarbonized bill the beneficiary will pay and what they would have paid had they kept their gas boiler: if gas prices rise, the compensation decreases and eventually disappears (the decarbonized boiler becomes profitable); if gas prices fall, the compensation remains at the level determined by the initial scenario, allowing the lease to be paid and ensuring economic neutrality with gas under the scenario in effect at the time of the decision. The beneficiary does not benefit from a windfall effect from falling prices but is protected against price increases and has decarbonized their consumption.
Another example: pooling a decarbonized heat production facility among several clients (e.g., multiple industrial players in a business zone served by a small nuclear heat reactor). It is more efficient to build a large facility and a heat network to serve these clients than to build a small installation for each industrial site. However, the large installation carries the risk that one of the industrial off-takers defaults. Again, a guarantee fund covering this risk for the boiler investor enables faster and more economical decarbonization than a subsidy mechanism for each small installation.
E-CUBE has developed strong expertise on the energy transition financing mechanisms through its recent projects and the experience of its consultants. We would be delighted to discuss these market perspectives and opportunities with you. Please feel free to contact the experts below to schedule a conversation on the topic.
