IF26 Heat Auction: The decarbonisation auction that will only fund the best projects

The new IF26 Heat Auction is not simply a funding call. It is a competitive auction in which meeting the eligibility requirements is not enough: companies must demonstrate that their projects can reduce emissions efficiently, feasibly, and at the lowest possible cost per tonne of CO₂ avoided.

This shift is significant. It represents a move away from a funding model focused primarily on compliance towards a system where the key criterion is the ability to deliver and demonstrate results under real market conditions.

The experience from the first edition has already made this clear: there is interest, there are projects, and there is funding available, but competition is increasing. Spain was among the most successful countries, accounting for approximately 37% of the awarded projects across multiple industrial sectors. This result confirms the strength of the Spanish industrial ecosystem in competing for this type of funding instrument. At the same time, the call received more applications than the available budget could support, highlighting that having a good idea is no longer enough. The opportunity exists, but success will depend on who can structure the strongest proposal.

What is the Innovation Fund Heat Auction?

The Heat Auction is a European Commission funding mechanism designed to accelerate the decarbonisation of industrial heat through a competitive auction scheme.

According to the draft documents currently available, the IF26 Heat Auction maintains a minimum thermal capacity requirement of 3 MW and is divided into two separate funding windows based on process temperature: €700 million for projects operating between 100°C and 400°C, and €300 million for processes above 400°C. In addition, the first funding window may include processes operating between 80°C and 100°C when combined with heat pumps with a coefficient of performance (COP) above 1.5, renewable or nuclear energy generation, and a minimum total capacity of 10 MW. Final eligibility conditions will be confirmed once the official call documentation is published.

Unlike traditional grant programmes, project selection is not based solely on technical quality. Instead, proposals are ranked according to their economic efficiency in delivering emissions reductions. Companies submit the level of support they require per tonne of CO₂ avoided, and projects are prioritised based on that value.

In practice, this turns the programme into a mechanism for identifying the real cost of decarbonising different industrial processes while encouraging competition between technologies and project approaches.

Inspired by renewable energy auctions, this model has direct implications for how companies should prepare.

Not a Traditional Grant: A Competitive Framework

The defining feature of the decarbonisation auction is the direct comparison between projects. Each proposal must accurately quantify three fundamental variables: expected heat production, avoided emissions, and the financial support requested. These inputs are used to calculate the cost per tonne of CO₂ avoided, which becomes the ranking criterion.

This approach introduces market logic into the allocation of public funding. It is no longer sufficient to present a technically sound project; companies must demonstrate that their solution is economically and environmentally efficient.

In this context, even small deviations in project design can significantly affect competitiveness. Inaccurate assumptions, poorly sized technologies, or suboptimal integration can increase the cost per tonne of CO₂ avoided and ultimately prevent a project from being selected.

Identifying an electrification opportunity is therefore only the starting point. The Heat Auction requires that opportunity to be translated into a well-defined project supported by robust data and justified technical and economic decisions.

What the First Edition Tells Us

The results of the IF25 auction provide valuable insights for companies considering participation in the next call.

A total of 65 projects across Europe were selected, receiving close to €400 million in funding. Spain led the ranking, with 24 awarded projects and €135.6 million in granted funding. However, this success story should not obscure another important fact: the number of submitted proposals significantly exceeded the available budget.

As a result, many projects were not selected, not necessarily because they lacked alignment with the programme’s objectives, but because they failed to reach the required levels of competitiveness.

Experience from the first edition suggests that the strongest proposals are those developed with a high level of maturity from the outset, supported by rigorous technical analysis and a clear understanding of the variables affecting the cost per tonne of CO₂ avoided.

Ultimately, successful projects are characterised by coherence between technology choice, system sizing, and plant integration, all contributing to minimising the cost of avoided emissions.

Where the Opportunity Lies Today

The focus of the call is clearly directed towards replacing fossil-fuel-based heat with electrified solutions or direct renewable heat.

Within this framework, thermal processes operating below 400°C represent a particularly attractive opportunity. This segment benefits from greater technological maturity and typically offers more straightforward integration pathways.

Technologies such as industrial heat pumps, electric boilers, and resistance heating systems can already address a significant share of industrial heat demand across a wide range of sectors.

Not all thermal decarbonisation technologies are expected to qualify under this scheme. Based on the information currently available, solutions involving hydrogen, biomass, CO₂ capture, or electric arc furnaces in the steel industry are likely to fall outside the scope of the auction. Reviewing eligibility from the outset is therefore essential to avoid investing effort in projects that do not qualify.

At the same time, the actual potential of any solution depends heavily on its suitability for the specific industrial process. Factors such as demand stability, electrical infrastructure availability, and process sensitivity to thermal variations can strongly influence feasibility.

For this reason, identifying opportunities cannot be approached generically. Each case requires a detailed, site-specific assessment.

Starting Late Is the Biggest Risk

The first auction has already demonstrated a clear lesson: projects that enter the process without sufficient maturity struggle to compete.

Preparing for this type of auction involves much more than compiling documentation. It requires substantial preliminary work in analysis, project definition, and validation.

Waiting until the final call is officially published to begin this process significantly reduces the chances of success. By the time the application window opens, many of the key decisions should already have been made.

Companies that start early therefore gain a clear advantage—not only in terms of proposal quality, but also in their ability to respond quickly and effectively to the final requirements.

CIRCE’s Role: Turning Potential into a Project

In the context of the IF26 Heat Auction, the real differentiator is not simply preparing a competitive application—it is building a strong project behind it. The programme requires companies to demonstrate that industrial heat decarbonisation is not merely an ambition, but a technically feasible, economically viable, and operationally relevant investment.

This is where CIRCE can add value.

Our role lies at the intersection of industrial processes, energy solutions, and project development. It is not only about identifying thermal loads with decarbonisation potential; it is about understanding how heat is generated, distributed, and consumed within a facility, identifying process constraints, evaluating which technologies are genuinely applicable, and building a robust, measurable, and defensible project.

CIRCE supports industry in identifying and maturing thermal decarbonisation projects by combining expertise in process analysis, energy efficiency, electrification, heat recovery, renewable integration, thermal storage, heat pumps, solar thermal technologies, and hybrid solutions.

This approach enables companies to evaluate different technological pathways and select those that best fit their operating conditions, demand profiles, temperature requirements, available space, existing electrical infrastructure, and emissions reduction targets.

Our work may include technical diagnosis of existing thermal systems, identification of fossil fuel replacement opportunities, assessment of electrification and renewable heat alternatives, integration studies, quantification of avoided emissions, estimation of investment and operating costs, techno-economic comparisons of alternative solutions, and conceptual project design.

In addition, CIRCE brings extensive experience from European projects focused on industrial decarbonisation, renewable energy integration, and the development of innovative solutions for complex industrial processes. This allows us to approach the IF26 Heat Auction not as an isolated funding opportunity, but as a catalyst for real industrial energy transformation projects.

The objective is not simply to participate in the auction, but to do so with a technically robust, quantified, and credible proposal. In a competitive environment, success will not depend on who arrives first, but on who arrives best prepared.

The IF26 Heat Auction represents a significant opportunity for Spanish industry, but it requires a different approach to project development: start with the process, validate the solution, and build a proposal with genuine implementation potential. CIRCE can act as a technical partner to transform thermal decarbonisation potential into a concrete, competitive, and financeable project.