A European Commission staff working document published on 17 July 2026 concludes that the Modernisation Fund effectively supports energy-system modernisation in 13 lower-income EU Member States but identifies significant data-quality gaps that undermine impact assessment. The evaluation, prepared by DG CLIMA, covers the Fund's operating rules from its inception through mid-2025 and feeds into the upcoming revision of the EU Emissions Trading System (EU ETS) Directive.
The Modernisation Fund, established under the EU ETS Directive, channels a portion of ETS allowance auction revenues to help lower-income Member States modernise their energy systems and improve energy efficiency. Originally covering 10 Member States, the Fund was expanded in 2023 to include Portugal, Greece, and Slovenia. By mid-2025, EUR 18.9 billion — 33% of the total budget — had been disbursed for 194 projects across 12 Member States. However, disbursement does not equal implementation: by end-2024, only 55% of the disbursed amount had been contracted to end-beneficiaries, and just 11% had been paid out. Only two investments were fully completed, while 44% were under construction.
1.15 billion MWh in energy savings, 25 GW of additional renewable capacity, and annual greenhouse gas reductions of 83.7 MtCO₂eq — equivalent to 32% of the 2020 emissions from the electricity, gas, steam, and air conditioning sectors. Priority investments, which receive a higher co-financing rate, accounted for 94% of disbursed funds, exceeding the regulatory minimum. Non-priority investments have declined and are concentrated in four Member States.
Despite these achievements, the evaluation identifies critical data weaknesses. There is no harmonised methodology for measuring environmental impacts, making cross-country comparisons unreliable. Reporting of private co-financing is not mandatory, leading to systematic underestimation of private sector leverage. Administrative costs at Member State level are low — 0.13% of total Fund — but the Fund does not cover these national-level costs, potentially deterring smaller or less experienced administrations.
The Commission staff working document recommends that the upcoming EU ETS Directive revision address these gaps by introducing harmonised impact reporting requirements and mandatory private co-financing disclosure. The revision is expected to be proposed by the Commission later in 2026, with the European Parliament and Council as co-legislators.
For beneficiary Member States, the Fund's effectiveness is confirmed, but the lack of harmonised data may complicate future access to funds if reporting requirements are tightened. For the European Commission, the evaluation provides evidence to push for stronger monitoring rules in the ETS revision. For private investors, mandatory co-financing reporting could increase transparency but also administrative burden. For EU taxpayers and environmental NGOs, improved data would allow better scrutiny of whether public money delivers promised climate benefits. The trade-off lies between maintaining low administrative costs for Member States and imposing new reporting obligations to ensure accountability and comparability.