IF26 Heat Auction: the return of an attractive funding mechanism

The European Commission has published the draft Terms and Conditions for the Innovation Fund IF26 Heat Auction, a 1 billion-euro program designed to accelerate the decarbonization of industrial process heat.

The IF26 Heat Auction is a competitive bidding system that rewards the most cost-effective projects that replace fossil heat with electrified, direct renewable, or nuclear heat, such as heat pumps, electric boilers, plasma heating, solar thermal energy, geothermal systems, or small modular nuclear reactors for industrial heat generation. Projects bid on a fixed premium per ton of CO₂ saved, creating a market-driven mechanism that rewards measurable CO₂ reductions. Self-indicating this premium when applying presents both an opportunity and a challenge.

How the IF26 Heat Auction works

The mechanism was launched as a pilot for the future Industrial Decarbonisation Bank. The scheme is structured as follows:

• Industries in EEA countries submit a bid indicating how much subsidy they need per unit of heat produced (€/MWhth), together with the expected heat output. The expected CO₂ abatement is then automatically calculated using the Phase 4 ETS heat benchmark.
• The lowest-cost bids per ton of CO₂ abated are ranked first and awarded funding until the respective budget is exhausted.
• Support requested per unit of produced heat (€/MWhth) for the volume of expected average yearly electrified/direct-renewable/nuclear heat is granted for up to five years after entry into operation.

Bids are made in one of the following two categories, known as ‘auction baskets’:

*Projects with a temperature of 80-100°C are also eligible in the medium-temperature basket if they have a capacity above 10 MW and utilise heat pumps with COP >1.5, direct renewable heat, or nuclear heat.

Bids are pay-as-bid, meaning each successful bidder receives the premium they requested, rather than a uniform clearing price.

For industrial sectors with high-temperature or medium-temperature heat demands

The IF26 Heat Auction is designed for industrial sectors with high-temperature or medium-temperature heat demands. These include, among others, chemicals, metals and glass manufacturing, paper and pulp, ceramics, food and beverages, and construction materials. Some important conditions for eligibility are that the installation:

• Is located in the European Economic Area (EEA).
• Uses new electrified, direct-renewable, or nuclear heat technologies (not district or space heating).
• Produces heat above 100°C, or above 80°C for projects above 10 MW using heat pumps with COP >1.5, direct renewable heat, or nuclear heat.
• Is not under construction at the time of application.
• Will reach financial close within 2 years after grant signature and entry into operation within 4 years after grant signature (medium-temperature basket), or within 2.5 years and 5 years respectively for projects in the high-temperature basket.
• And has a minimum capacity of 3 MWth.

National funding windows for 2026 (Auction-as-a-Service)

The Auction-as-a-Service (AaaS) mechanism allows Member States to allocate national top-up funding, a tool already adopted in previous Innovation Fund auctions. Information on any national top-up funding for the IF26 Heat Auction will be confirmed once participating Member States announce their contributions.

Things to keep in mind when considering submitting an application

While the opportunity is significant, industries should prepare carefully to avoid pitfalls, the most important of which are:

• A 6% bank guarantee of the maximum grant is required to ensure project delivery within the required timelines.
• Projects must show technical and financial readiness, including a robust feasibility study, permitting strategy, and risk analysis at the time of application.
• Projects deploying energy storage, highly efficient heat pumps (COP > 1.5), direct renewable heat, or nuclear heat may benefit from a bid bonus and increased eligible heat volumes.

When to apply to IF26 Heat Auction?

The call opening and submission deadline are expected in December 2026 and February 2027, respectively. The final terms and conditions will be published in the autumn of 2026.

Benefit from our expertise, built on a strong IF track record

For industries ready to take the next step toward climate neutrality, the IF26 Heat Auction represents a rare opportunity to secure substantial EU funding while leading Europe’s industrial transformation. However, good preparation and a strong bid map are crucial to success.

In recent years, our experts have supported many energy-intensive companies and partnerships in successfully applying for the Innovation Fund. So contact our energy, chemical, and high-temperature industry experts today by submitting the contact form on the bottom of this page or by calling +31(0)88 838 13 81.