European Commission Finalises €1 Billion Second Auction to Decarbonise Industrial Process Heat — Scope Widened to Above 80°C, Nuclear Eligible for the First Time

On September 24, 2026 the European Commission published the final Terms and Conditions for the IF26 Heat Auction, its second EU-wide auction for projects that decarbonise industrial process heat. The planned budget is €1 billion, funded by revenues from the EU Emissions Trading System (EU ETS). The bidding window is expected to open in early December 2026.

"Process heat" is the heat used to turn raw materials into products, from melting plastics and metals to driving chemical reactions. According to the Commission, these processes still run mainly on fossil fuels and account for three-quarters of industrial emissions.

Three Changes from the First Round

Lower temperature threshold: The first round covered only projects producing heat above 100°C. This time the threshold is above 80°C. All industrial sectors can take part, including chemicals, pulp and paper, steel, food and beverages, and cement. Lowering the temperature requirement opens the auction to process heat in relatively lower temperature bands that were previously excluded.

Wider range of technologies: Eligible technologies fall into three categories: (1) electrification technologies such as heat pumps, thermal storage, plasma torches and electric boilers; (2) direct renewable heat from solar thermal and geothermal; and (3), added for the first time, nuclear technologies such as SMRs.

Unit of support: Winning bidders receive a fixed premium proportional to each tonne of direct CO2 emissions abated, for up to five years. In the first round, support was linked to verified decarbonised heat output. The basis of support has shifted from how much heat is produced to how much emissions are cut.

The design also includes measures to ensure flexibility to avoid peak electricity demand hours, and a mechanism that favours technologies not using electricity. Member States can top up the auction with national budgets through "Auction-as-a-Service".

First-Round Results: 65 Projects, €400 Million

The first IF25 Heat Auction was likewise a framework with a budget ceiling of €1 billion funded by EU ETS allowance auction revenues. It allocated €150 million to medium-temperature heat (3–5 MW), €350 million to medium-temperature heat (above 5 MW) and €500 million to high-temperature heat.

The 65 selected projects have a combined heat capacity of 766 MW and are expected to produce about 16.3 TWh of decarbonised heat over their first five years of operation. The Commission notes that the projects selected may differ from those that ultimately sign grant agreements.

A Test Case for the Industrial Decarbonisation Bank

The Commission positions both the first and second auctions as pilots for the Industrial Decarbonisation Bank (IDB), an initiative that aims to provide €100 billion in funding for industrial decarbonisation.

Alongside Member State schemes such as Germany's carbon contracts for difference (CCfD), the EU is testing competitively auctioned subsidies at EU level. It can be read as part of a combination: extending CBAM to downstream products raises the carbon cost of imports from outside the EU, while plants inside the EU are offered funding for decarbonisation investment.

What It Means for Manufacturers

Eligible projects must be located within the European Economic Area (EEA), regardless of company size or sector. A company headquartered outside the region may still qualify if it operates plants in the EEA.

• Plant operators: Sites that meet 80–100°C process heat with fossil-fuel boilers now fall within scope. Before bidding opens in early December, they will need a basis for calculating CO2 abatement and a five-year operating plan
• Equipment makers: Heat pumps, electric boilers, thermal storage and plasma torches are explicitly named as eligible technologies. Once winning projects are decided, their equipment procurement becomes concrete demand
• Link with electricity: Because flexibility to avoid peak hours is built into the evaluation, designs that include thermal storage or shifted operating hours gain an advantage

The Commission says it will hold country-specific information sessions in October through the Innovation Fund's national contact points.

Referenced Fact Cards