Supply chain disruptions, energy scarcity, inflation, and shortage of skilled workers – these selected challenges for the economy are just some of the aspects that business leaders have to deal with in the current ‘multi-crisis situation’. The almost continuous price increases experienced in recent months add to the challenge. They are not only a significant short-term risk to competitiveness but also tie up financial resources to the detriment of innovation, modernisation, and further investments. They lead to the transformation of business models (such as demand slump for core products) or the upheaval of entire industries (for example, production relocation to countries with lower energy costs).
In this situation, many companies are wondering how strategic planning is possible. Time and again, funding programmes come into focus as an option. But are they a reliable option? Can funding programmes actually be used for reliable and strategic planning?
State funding can certainly be seen as a kind of compass that effectively supports long-term investment planning, because state funding programmes are not singular initiatives but represent consistent political strategies. An entrepreneurial orientation towards these framework conditions provides security for long-term planning, including financial support. In addition, there are other good reasons to rely on funding programmes as a building block for business success:
Grants are awarded by the EU, the federal government, states and municipalities, as well as foundations, to achieve a wide range of socially relevant goals (such as climate protection, health and social issues, and housing) and economic policy goals (such as start-ups, corporate finance, and digitisation). To meet the increased challenges in Germany, the government has significantly increased the volume of funding in recent years.
In general, there are different types of funding to distinguish between. They are granted as non-repayable grants, loans, guarantees, or participation to different target groups such as companies, universities and research institutions, municipalities, public institutions, and individuals. Funding can be used to finance investments, operating resources, personnel, research and development, or other specific purposes.
The amount of funding for companies can vary between 10% and 90% of eligible costs, depending on the programme.
Regarding the current focus on challenges related to energy and supporting the competitiveness of companies, there are various funding opportunities that address topics such as energy and resource efficiency, climate protection and sustainability, infrastructure, as well as research and development.
Energy and resource efficiency
The foreseeable permanent energy shortage requires increasingly efficient use of resources. To this end, many companies will need to invest more in increasing their energy and resource efficiency. There are several approaches to achieving these corporate goals, such as energy-efficient equipment and processes, heat-efficient buildings, energy management concepts and software, alternative forms of propulsion, and renewable energies.
Depending on the initial situation and optimisation requirements, these efforts can result in significant funding needs, for which companies can use a variety of government funding opportunities to support. These funding opportunities focus particularly on investment measures that increase electricity or heat efficiency and thus, contribute to a reduction in energy consumption. However, advisory and conceptual services for energy efficiency are also supported.
The German government has decided on an ‘economic defence shield against the consequences of the Russian aggression’1 in the short term, which is intended to counter the persistently high electricity and gas prices. In the energy cost reduction programme, companies are entitled to apply for a subsidy of up to 50 Mn Euro for natural gas and electricity costs until the end of the year.
In the medium term, the federal government aims for a 30% reduction in primary energy consumption (relative to 2008) as a national energy efficiency goal for 2030. In the long term, primary energy consumption is to be halved by 2050.
To achieve these goals, the Federal Ministry for Economic Affairs and Climate Protection is providing extensive grants and low-interest loans to companies through the Energy and Resource Efficiency in Business funding programme. This is aimed at promoting transformation concepts and investments, particularly in plant and process modernisation, that reduce energy and resource consumption, with up to 15 Mn Euro per project.
In addition, there are other funding programmes from which companies can receive government grants to increase their energy and resource efficiency, as funding for the transformation of the energy system is a key instrument of German energy policy.
Climate Protection and Sustainability
Recent developments in Europe have increasingly focused attention on important topics such as climate protection and sustainability. The interaction of energy efficiency and greenhouse gas-neutral energy production is an important step towards climate neutrality. Climate change is leading to increasingly frequent and severe impacts in Germany as well (as seen in the flooding in the Ahr Valley in July 2021 or the regional drought in the summer of 2022). The goal must therefore be to limit such damage through targeted climate protection measures and ecological action. However, the financial resources in companies are currently needed to cope with the current crisis situation and are not used to focus on sustainable business practices. To finance their investments, companies can rely on funding programmes that pursue European or national climate protection goals.
In this context, the Federal Ministry for the Environment, Nature Conservation, Nuclear Safety and Consumer Protection has developed the National Climate Initiative (NKI). The NKI was launched in 2008 and contributes to Germany’s goal of becoming climate-neutral by 2045. So far, almost 40,000 projects by companies, as well as public and non-profit institutions, have been supported with funding of around 1.35 Bn Euro, saving 31.6 Mn tonnes of CO2 equivalent greenhouse gas emissions. In addition to municipal climate protection projects, the promotion of energy-efficient cooling and air conditioning systems in companies with up to 150,000 Euro per project is currently the focus.
The Federal Ministry for Economic Affairs and Climate Protection supports innovative projects in the energy-intensive industry that aim to reduce process-related greenhouse gas emissions as much as possible and on a lasting basis through the Decarbonisation in Industry funding programme. The industrial exploration, development, and testing of low greenhouse gas production processes and innovative methods for converting fossil fuels to electricity-based methods, as well as investments in industrial-scale facilities, can be supported. Depending on the project and company size, up to 70 per cent of eligible costs can be financed.
Companies can access various funding opportunities for climate protection and sustainability (see figure below). To achieve the national climate protection target by 2045, the German government is funding the efforts of businesses with billion-dollar programmes.
Infrastructure
A secure energy supply, and thus the energy transition, requires immense investments in infrastructure. Innovations in energy storage, energy transport, energy injection, and alternative energy sources such as e-fuels and hydrogen are essential to achieve decarbonisation of the economy. In particular, investments in one’s own infrastructure based on these innovations represent a lever with a significant impact, as energy and costs can be saved through the renovation and modernisation of buildings and facilities or the digitalisation of equipment and processes.
The Joint Task ‘Improvement of Regional Economic Structures’ (GRW) has been the central instrument of regional economic policy in Germany since 1969. Its aim is to support structurally weak regions, compensate for location disadvantages in investments, and create incentives for income and employment generation. For example, new business locations (establishment investments), capacity expansion of existing business locations (expansion investments), and production diversification are eligible for funding. Infrastructure measures can be funded up to 95 per cent under certain conditions.
To address structural imbalances between regions in Europe, among other things through investments, the European Commission has provided the European Regional Development Fund (ERDF) as a funding instrument. The ERDF is intended to support a greener, low-carbon transition to a carbon-neutral economy, for example through the promotion of energy efficiency measures, the development of intelligent energy systems at the local level, and measures to adapt to climate change. For the years 2021 to 2027, the EU has adopted a funding package of 226 Bn Euro for its member states.
In addition to the examples mentioned, there are numerous other grant programmes for infrastructure funding for businesses — see the overview of the most important programmes above.
Research and development (R&D)
Innovations and technological progress are prerequisites for the energy transition in Europe. The European Commission has launched a funding programme for research and innovation called ‘Horizon Europe,’ which aims to build a knowledge- and progress-oriented society, a competitive economy, and at the same time, support sustainable development. The green and digital transition is of central importance in this regard. In the ‘Energy’ theme area, a total of 7.5 Bn Euro are earmarked until 2027 for projects that aim to achieve an efficient, secure, sustainable, and competitive energy supply. These can be, for example, new solutions for smart grids and energy systems, more powerful technologies in the field of renewable energies, and innovative energy storage systems. Collaborative projects with partners from different countries receive a funding rate of 100 per cent as research and innovation measures for basic research and applied research, technology development, integration, and testing.
In Germany as well, energy research is a strategic element of energy policy. With the 7th Energy Research Programme ‘Innovations for the Energy Transition,’ the federal government sets its guidelines for energy research funding.
The German government provides an annual budget of 1.3 Bn Euro to develop innovative and comprehensive technologies and concepts and bring them quickly to market, for example for energy use (buildings, industry, transportation, fuel cells, etc.), energy supply (wind energy, photovoltaics, bioenergy, geothermal energy, hydropower, etc.), and system integration (power grids, energy storage, hydrogen technologies, etc.). About 50 per cent of the funding goes as grants to SMEs (with funding rates up to 80 per cent) and large companies (with funding rates up to 50 per cent) for research, development, innovation, and demonstration projects, as well as model projects and real-world labs. Currently, there are funding calls for ‘climate-neutral heating and cooling’ and ‘resource efficiency and circular economy,’ among others.
In 2019, the Research Allowance Act (Forschungszulagengesetz) was created as an instrument for tax-based research and development funding. Since then, companies in Germany have had the opportunity to receive an annual research allowance of up to 1 Mn Euro for eligible personnel expenses for in-house R&D projects (or material expenses for contract research by a third party).
In addition, federal ministries provide further funding opportunities to support the research and development activities of companies. In summary, companies have a variety of funding options available as a source of financing to implement their projects and achieve their goals, enabling long-term strategic planning and transformation processes.
Companies should first gain an overview of the various funding possibilities to find the funding that best fits their project. A targeted search can quickly shed light on the often-criticised ‘jungle of funding’ and identify a suitable funding programme. The company’s own project should be conceptually aligned with the goals and requirements of the desired funding programme and described concretely in a funding application to increase the chances of success. The submitted funding application must then compete in a one- or two-stage competitive process, being reviewed and evaluated by the responsible authority, to subsequently receive approval for the funding.
1 BAFA-Förderprogramm im Überblick
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