European Commission Approves €3.1 Billion Spanish State Aid Scheme for High-Efficiency CHP Plants
The European Commission formally approved a Spanish state aid scheme worth €3.1 billion (approximately $3.4 billion) on 28 January. The programme is designed to support the construction of new or the substantial refurbishment of high-efficiency combined heat and power (CHP) plants, marking an important step in the EU’s dual pursuit of climate targets and improved energy efficiency.
Ten-Year Support Period Locks in Pathway for High-Efficiency CHP Development
According to the Commission’s decision, the scheme will run for ten years with a total budget of €3.1 billion. Beneficiaries are operators of new or substantially renovated CHP installations located in Spain that meet the high-efficiency cogeneration criteria defined in the EU Energy Efficiency Directive. Eligible technologies include plants using natural gas, bioliquids, biogas, and solid biomass as fuel.
Notably, projects relying solely on natural gas must be equipped in advance with the necessary technical components to enable blending of at least 10% renewable hydrogen by volume. This “hydrogen-ready” requirement aims to prevent carbon lock-in from new fossil-fuel-based installations while creating early demand signals and technical interfaces for the emerging European renewable hydrogen supply chain. The Commission highlighted that the measure will contribute to Spain’s National Energy and Climate Plan (NECP), the EU’s Clean Industrial Deal, and the achievement of the 2030 energy efficiency targets.
Aid Mechanism: Quarterly Adjusted Remuneration Premium
Unlike conventional competitive bidding processes, the scheme provides support through a remuneration premium that directly compensates for both investment costs and additional operating expenses. The premium is recalculated and updated every quarter, offering project developers and investors a relatively predictable cash-flow profile. The European Commission concluded that the mechanism complies with EU state aid rules — in particular Article 107(3)(c) of the Treaty on the Functioning of the European Union and the 2022 Climate, Environmental Protection and Energy Aid Guidelines — and satisfies the requirements of incentive effect, necessity, and proportionality.
Spain Leverages Scheme to Position Itself as Hydrogen and Industrial Decarbonisation Hub
The Spanish government has long sought to establish the country as a key player in southern Europe’s renewable energy landscape and hydrogen economy. The approved aid scheme aligns closely with Spain’s national hydrogen strategy by mandating hydrogen-compatible infrastructure in CHP projects. This sends a clear market signal to equipment manufacturers, engineering, procurement and construction (EPC) contractors, and the broader supply chain that gas-hydrogen hybrid technologies will be in strong demand in the coming years.
From an industrial perspective, CHP plants capture waste heat and provide simultaneous heat and power generation, enabling significant reductions in Scope 1 and Scope 2 emissions for energy-intensive sectors such as chemicals, pulp and paper, food processing, and district heating. The scheme offers these industries a realistic transition pathway that does not require immediate full electrification. The inclusion of biogas and solid biomass options further broadens the available decarbonisation toolbox, although discussions at EU level about sustainability criteria for biomass remain ongoing.
EU Energy Transition Adds Another Piece to the “Policy Portfolio”
The Commission’s approval sends a clear message: Europe’s decarbonisation strategy will not rely exclusively on wind, solar, and battery storage. Instead, it requires a multi-dimensional approach that includes waste heat recovery, low-carbon fuels, and flexible generation. High-efficiency cogeneration, long considered a niche technology, is returning to a central position in EU energy policy.
Similar concepts are gaining traction globally. Japanese gas utilities are conducting large-scale hydrogen blending trials, while industrial clusters in the United States are advancing integrated heat-power-hydrogen pilot projects. By using state aid approval as a steering instrument, the EU is actively directing Member State investments towards efficiency-first and hydrogen-compatible solutions, while seeking to balance climate ambition, industrial competitiveness, energy security, and fiscal discipline.
The €3.1 billion Spanish scheme is not an isolated subsidy but an integral part of the EU’s broader climate governance framework. It demonstrates that, under legally binding emissions reduction targets, energy efficiency has evolved from a mere technical improvement into a core strategic instrument of the energy transition.
