Directive 2003/87/EC establishes the Modernisation Fund for the period from 2021 to 2030, to support investments in modernising energy systems and improving energy efficiency in certain Member States. As stated in the Communications from the Commission entitled ‘The European Green Deal’2 and ‘The European Green Deal Investment Plan’3, the implementation of the Modernisation Fund should contribute to the attainment of the objectives of the European Green Deal, by supporting green and socially just transition.

Detailed rules on the operation of the Modernisation Fund should be laid down to allow for smooth distribution of its financial resources to the beneficiary Member States, in particular by laying down procedures for submission and assessment of investment proposals and for disbursement of the Fund revenues.

In order to ensure the compatibility of the financing under the Modernisation Fund with the internal market, beneficiary Member States should notify the Commission, in accordance with Article 108(3) of the Treaty, of any planned investment constituting State aid within the meaning of Article 107(1) of the Treaty and that would not be covered by an existing approved or exempted aid scheme or an individual decision. The assessment of investments covered by the Fund should be coordinated with the State aid assessment, and the modalities of submission of investment proposals should take into account the modalities of submission of State aid notifications. The disbursement of the revenues from the Fund should depend on State aid clearance.

‘The European Green Deal’ envisages territorial just transition plans as a cornerstone of the Just Transition Mechanism. When an investment under the Modernisation Fund aims at implementation of a territorial just transition plan of the beneficiary Member State, that Member State should provide information about the expected contribution of the investment to that plan, with a view of supporting coherence and complementarity with the objectives of the plan.

Beneficiary Member States should regularly inform the European Investment Bank (EIB) and the Investment Committee for the Modernisation Fund (‘Investment Committee’) of the planned investments to facilitate the planning of disbursement and management of the resources from the Modernisation Fund. However, that information should not bind the beneficiary Member States when submitting future investments proposals.

A simplified procedure for disbursement of the Fund revenues should apply to investments in the priority areas listed in Article 10d(2) of Directive 2003/87/EC (‘priority investments’). Non-priority investments should undergo a comprehensive assessment of their technical and financial viability and their added value to the Fund objectives.

Pursuant to Article 10d(2) of Directive 2003/87/EC, at least 70 % of the financial resources from the Modernisation Fund are to be allocated to priority investments. To ensure fair distribution of the financial resources across all beneficiary Member States, that requirement should apply to the individual share in the Fund of each beneficiary Member State.

The financing of investments from the Modernisation Fund should depend on the availability of the funds at disposal of the beneficiary Member State and the proportion of funds allocated to priority investments. In order to enable close monitoring of allocation of the funds, while ensuring efficiency of the disbursement process, the assessment of the investment proposals by the EIB or, as appropriate, by the Investment Committee, and disbursement of the funds by the Commission should be organised in biannual cycles.

The procedures for the operation of the Modernisation Fund should take into account the specificities of schemes submitted by the beneficiary Member States. Once the EIB confirms the scheme as a priority investment or, as appropriate, the Investment Committee recommends the financing of the scheme in the non-priority area, and once the Commission decides on the first disbursement of the funds for the scheme, the beneficiary Member State should submit a new proposal for any subsequent disbursement. For the purpose of any such subsequent disbursement, the confirmation by the EIB or, as appropriate, the recommendation by the Investment Committee should be limited to verification of the availability of the funds at disposal of the beneficiary Member State, and in respect of schemes that qualify as non-priority investments, verification of compliance with the thresholds for the permissible support specified in Article 10d(2) and the fourth sentence of the second subparagraph of Article 10d(6) of Directive 2003/87/EC. Furthermore, simplified rules should apply to the annual reporting on schemes by the beneficiary Member States.

Discontinued investments should not receive further financing from the Modernisation Fund. Any amounts already paid to discontinued investments but not yet consumed by such investments should be made available for the financing of other investments.

Detailed rules should be laid down regarding the composition and operation of the Investment Committee.

Pursuant to Article 10d(3) of Directive 2003/87/EC, the EIB is to manage the revenues from the Modernisation Fund. For this purpose, the EIB should develop asset management guidelines which support the objectives of the Directive and which take account of the internal rules of the EIB. In addition, the EIB is to carry out other tasks related to the implementation of the Modernisation Fund, as laid down in Directive 2003/87/EC. The specific terms and conditions for carrying out those tasks should be laid down in an agreement between the Commission and the EIB. The mechanism for the recovery of costs of the EIB should correspond with those tasks, and it should also take into account the number and complexity of investment proposals submitted by respective beneficiary Member States, and whether the proposals concern priority or non-priority investments.

Where Member States decide to use the revenues generated from the auctioning of allowances to finance their expenses related to implementation of the Modernisation Fund, such expenses could qualify as administrative expenses referred to in Article 10(3)(i) of Directive 2003/87/EC, and therefore they might count towards the 50 % objective of climate-related use of the auctioning revenues.

Clear monitoring and reporting arrangements should be laid down to provide the Commission with complete and timely information on the progress of particular investments and overall implementation of the Modernisation Fund.

The measures provided for in this Regulation are in accordance with the opinion of the Climate Change Committee,