EU Awards €400 Million to Industrial Heat Projects Across 10 Countries

The European Commission has awarded around €400 million, equivalent to about $465 million, to 65 industrial heat decarbonization projects across 10 European Economic Area countries, marking the first results of the EU’s dedicated Innovation Fund Heat Auction.

The funding is intended to accelerate the deployment of clean heat technologies in factories and industrial facilities where fossil fuels, especially natural gas, still play a central role in production. The selected projects are located in Austria, Belgium, Czechia, Denmark, France, Germany, Hungary, Portugal, Slovenia, and Spain.

According to the Commission, the projects are expected to avoid more than 6.6 million tonnes of CO2 emissions over 10 years by replacing natural gas-fuelled industrial heat systems. Over their first five years of operation, they are also expected to generate around 16.3 terawatt-hours of decarbonized heat. This is equivalent to replacing more than 1.5 billion cubic metres of natural gas.

Why Industrial Heat Matters for Decarbonization

Industrial heat is one of the more difficult parts of the energy transition. Many manufacturing processes require reliable, continuous, or high-temperature heat, and companies have often had fewer commercially mature alternatives than those available for electricity generation, buildings, or road transport.

This is especially relevant for energy-intensive sectors such as steel, glass, ceramics, pulp and paper, construction materials, chemicals, food processing, and pharmaceuticals. In many of these industries, heat is not a secondary energy use but a core part of production.

The EU’s auction is designed to help address this challenge by reducing the cost of switching from fossil fuel-based heat systems to cleaner alternatives. For companies facing carbon costs, gas price volatility, and pressure to reduce supply chain emissions, public funding can help make clean heat projects more commercially viable.

Technologies Selected Under the Programme

The funded projects cover several clean heat technologies, including direct and indirect resistance heating, heat pumps, solar thermal systems, electromagnetic and dielectric heating, and hybrid systems.

These technologies will be deployed across a wide range of industrial sectors, including pulp and paper, glass, ceramics, construction materials, iron and steel, food and beverages, textiles, and pharmaceuticals. The range of applications suggests that clean industrial heat is moving beyond isolated pilot projects and into broader industrial deployment.

The selected projects have a combined thermal capacity of 766 MW. While they differ in size, sector, and technology, their shared objective is to replace natural gas-based process heat with electrified or renewable heat solutions.

Funding Split by Temperature and Project Size

The auction was divided into three categories based on temperature level and installation capacity. This structure reflects the fact that industrial heat demand varies significantly between sectors and production processes.

Five projects were selected under the high-temperature heat category, receiving €62.1 million in support. A further 44 projects were selected under the medium-temperature heat category above 5 MW capacity, with €286.5 million allocated. Another 16 projects, also in medium-temperature heat but with capacity between 3 MW and 5 MW, received €47.9 million.

This category-based approach allows projects with similar technical requirements to compete more directly. A paper mill, food processing plant, or steel-related facility may all need heat, but the required temperatures, operating hours, and equipment can differ substantially.

Link to the EU Innovation Fund

The grants are funded through the EU Innovation Fund, one of the bloc’s main financing tools for low-carbon technology demonstration and deployment. The fund is financed by revenues from the EU Emissions Trading System, meaning that carbon market income is being redirected into industrial decarbonization.

The Innovation Fund supports projects in areas such as energy-intensive industries, renewable energy, energy storage, net-zero mobility, buildings, hydrogen, and carbon capture. In this case, the focus is specifically on industrial heat, an emissions source that is central to many manufacturing supply chains.

By using emissions trading revenues to support clean technology investment, the EU is linking carbon pricing with practical decarbonization measures. This is particularly important for manufacturers operating in Europe, where climate regulation, energy security, and industrial competitiveness are increasingly connected.

Part of the EU’s Wider Industrial Strategy

The auction also fits within the broader Clean Industrial Deal, launched by the European Commission in 2025 to support both decarbonization and industrial competitiveness.

The strategy focuses on energy-intensive sectors such as steel, metals, and chemicals, as well as clean technology manufacturing, affordable energy, circularity, and investment support. It aims to help European industry reduce emissions while remaining competitive in global markets.

For industrial companies, the Heat Auction provides a practical example of how this policy agenda is being translated into funding. Rather than setting only long-term climate targets, the EU is supporting specific infrastructure changes inside factories and production sites.

Next Steps for Selected Projects

The selected projects will now enter grant agreement preparation with the European Climate, Infrastructure and Environment Executive Agency, known as CINEA. Grant agreements are expected to be signed in the second half of 2026.

Once agreements are signed, projects must reach financial close within two years and begin operations within four years. Completion guarantees will also be required. The final list of signed projects is expected in the fourth quarter of 2026.

These deadlines are significant because they create a defined pathway from award selection to implementation. For industrial operators, this means funding is tied not only to project ambition, but also to delivery, financing, and operational readiness.

What this Means for Companies and Investors

For manufacturers, the first Heat Auction sends a clear signal that clean industrial heat is becoming a priority area in EU climate and industrial policy. Companies planning new facilities, retrofits, or major equipment upgrades may increasingly need to assess whether continued reliance on natural gas-based heat systems is compatible with future carbon costs and regulatory expectations.

For investors and technology suppliers, the auction may help create a stronger market for industrial electrification, heat pumps, solar thermal systems, and hybrid heat solutions. Public funding can reduce early deployment risks, especially in sectors where capital expenditure is high and payback periods can be uncertain.

The funding may also have implications for corporate climate reporting and supply chain decarbonization. As more industrial suppliers adopt cleaner heat systems, downstream companies may be able to reduce the embedded emissions associated with materials, components, and products.

More Funding Expected in 2026

The European Commission is preparing a second Heat Auction for 2026, with a planned budget of €1 billion. Draft terms and conditions for the next auction are expected by the end of May 2026, with a broader Innovation Fund stakeholder consultation scheduled for June.

For companies not selected in the first round, or for industrial operators still developing investment cases, the next auction could provide another route to funding. The larger planned budget also suggests that the EU sees industrial heat as a continuing priority rather than a one-off funding category.

The first Heat Auction will not solve the full challenge of industrial decarbonization. However, it shows how EU policy is moving toward targeted support for specific emissions sources. For industries that rely heavily on process heat, the direction is increasingly clear: reducing exposure to natural gas, electrifying heat where possible, and integrating renewable heat technologies are becoming central to both climate strategy and industrial competitiveness.

Source: esgnews.com