The European Commission has finalised terms for a €1 billion auction supporting lower-carbon industrial process heat, widening eligibility to lower-temperature applications and adding nuclear technologies alongside electrification and direct renewable heat.
The European Commission expects bidding in the second Europe-wide Innovation Fund heat auction to open in December 2026. Funding will come from EU Emissions Trading System revenues, with successful projects receiving a fixed premium linked to each tonne of direct carbon dioxide emissions avoided.
Support can run for a maximum of five years. The competitive structure requires developers to bid for the level of premium their projects need, giving the Commission a mechanism for comparing the cost of carbon reduction rather than allocating grants solely against submitted capital expenditure.
The auction addresses process heat because industrial heating remains heavily dependent on fossil fuels. Furnaces, boilers, kilns, dryers and other thermal equipment consume energy across chemicals, steel, food and beverage, pulp and paper, cement and numerous other manufacturing sectors.
The Commission estimates that process heating accounts for around three-quarters of industrial emissions. The operating requirements vary widely, from medium-temperature heat for food, paper and chemical processes to the much higher temperatures required for metals and mineral processing.
The IF26 Heat Auction will support three principal technology categories. Electrified systems include heat pumps, thermal storage, plasma torches and electric boilers, while direct renewable heat can use solar thermal or geothermal resources.
Nuclear technologies, including small modular reactors, become eligible for the first time. Their inclusion broadens the auction beyond equipment that can be installed as a replacement for an individual industrial boiler, since nuclear heat projects carry substantially different capital, licensing and development requirements.
The temperature threshold has also been reduced. The new round accepts qualifying projects supplying heat above 80°C, compared with a 100°C threshold previously, opening the scheme to a wider group of industrial processes.
Projects of all sizes and from every industrial sector across the European Economic Area can participate. The design also gives additional value to flexible systems capable of avoiding electricity consumption during peak periods or supplying heat without drawing additional power from the grid.
Flexibility becomes increasingly important as factories replace fossil-fired heat with electrical equipment. A gas boiler can supply steam without adding to local electrical demand, whereas a large electric boiler, plasma system or heat pump places another substantial load onto a network that may already face connection constraints.
Thermal storage can separate the timing of electricity consumption from the timing of heat use. A plant can generate or store useful heat when power is more available and consume it later, allowing some processes to electrify without placing their complete peak thermal requirement onto the grid at the same moment.
Shell’s recent installation of an industrial-scale electric tubular process heater in Germany shows the equipment transition already moving into operating plants. That project combines an electric heater with new distribution, transformers and control infrastructure, illustrating how replacing combustion can shift investment into the electrical system around a process.
Other technologies will face different constraints. Industrial heat pumps can deliver high efficiency where temperature levels and source heat are suitable, while geothermal and solar thermal depend more heavily on location and process profile.
Kurt Vandenberghe, Director-General of the Commission’s Directorate-General for Climate Action, described the auction as a “crucial stepping stone” towards the Industrial Decarbonisation Bank. The auction is one of the mechanisms being used to establish how much support industrial decarbonisation projects require before larger funding programmes are deployed.
The first heat auction selected 65 proposals for grant preparation. IF26 retains the €1 billion planned budget while widening the technology scope, and both rounds are being used as pilots for the proposed Industrial Decarbonisation Bank, which has an ambition to mobilise €100 billion.
The auction can also receive additional national funding through the Commission’s Auction-as-a-Service mechanism. Member states can therefore use the common European bidding process while adding domestic money rather than establishing completely separate competitions.
For industrial operators, the auction does not remove the underlying engineering problem. Electrified heat projects still require sufficient grid capacity, plant modifications, controls and operating economics capable of remaining viable after the five-year support period ends.
The bidding process should expose some of those economics. Applicants will state the premium required for each tonne of direct carbon dioxide avoided, providing a comparison between projects that use different technologies, temperatures and industrial processes.
The Commission plans to open the call in December, with closure expected in February 2027. Manufacturers now have the final terms needed to decide whether their projects can bid competitively rather than relying on the preliminary conditions used during consultation.
The €1 billion budget will fund only part of Europe’s industrial heat transition. The more useful result may be the price information generated by the bids themselves, showing which technologies are approaching commercial viability and where replacing fossil process heat still carries a cost gap large enough to require public support.
