Person in a bright red dress holding out their hands in front of them and holding a small pile of golden coins.

 Photo: Sharon McCutcheon via Unsplash


Focus of the text

This text gives an overview of ways to fund the scaling of successful demonstrator projects in order to create large-scale impact. It provides recommendations of steps to take, requirements from financiers and different sources of advice. It also presents inspiration regarding funding of heating and cooling initiatives from Gothenburg and London Borough of Islington. Civil servants, project managers and other stakeholders can benefit from this text, which is largely based on a report from the IRIS Lighthouse project.

What makes an innovation bankable? Learn more about how to fund the scaling of a successful demonstrator project into a fully operational solution.


There are many sources of funding to use when wanting to scale a demonstrator project into a fully operational solution. What they all have in common is that it is not enough to demonstrate technical functionality. Additional information is also needed, for example about the business model. Additionally, there are requirements such as a risk analysis and an estimation of return on investments, that is, what makes the solution bankable. In several cases, there is also a need for alignment with specific sustainability goals.

The Lighthouse project IRIS has produced a report on Financing Solutions for Cities and City Suppliers. The report gives an overview of the European Structural and Investment Funds and describes a number of European financial platforms for large scale investment. It overviews entities such as the European Investment Bank and the European Investment Fund and explains instruments such as Public Private Partnership and Private Finance for Energy Efficiency.

According to the report, three crucial conditions for financing are:
1. The financial instruments’ eligibility criteria
2. The participants, applicants or projects freedom of decision-making
3. The financial attractiveness of the innovations.

Whether an innovation is bankable or not could be answered by the simple question “Are lenders willing to finance it?”. In this context “bankable” can be defined as a solution that is:

  • Scalable – the innovation is easy to replicate and scale-up)
  • Economically appealing in terms of IRR, Internal Rate of Return (payback period)
  • Involving a relatively low risk regarding technical, operational and financial matters.

In order to be considered bankable from a European Investment Bank point-of-view there are a number of public policy goals to consider – and at least one of them needs to be addressed in order to be eligible for EIB-Funding. If a project or an innovation does not address any of the public policy goals, an application for financing will be rejected, no matter the technical excellence behind the innovation.

The public policy goals are:

  • Potential for increase in growth and employment – including SME and mid-cap support
  • Supporting economic and social cohesion by addressing economic and social imbalances, promoting the knowledge economy/skills and innovation, and finally, linking regional and national transport infrastructure
  • Building environmental sustainability – including supporting competitive and secure energy supply
  • Supporting action for climate-resilient growth

The European Fund for Strategic Investment (EFSI) offers its support in order to “ensure that money reaches the real economy”. EFSI provides funding for economically viable projects with a higher risk profile than usually taken on by the EIB. From an EFSI perspective, there are also a number of focus sectors of key importance that need to be addressed in order to reach funding:

  • Strategic infrastructure; including digital, transport and energy
  • Education, research, development and innovation
  • Renewable energy and resource efficiency
  • Support for small and mid-sized businesses

The report also points out that as all the entities providing financial instruments set various requirements for eligibility, ensuring eligibility should be considered as a crucial process in order to prepare for replication and scale-up. Developing an innovation without taking steps to ensure its financial eligibility can lead to a suboptimal outcome regarding replication and scale-up. The report therefore recommends the following series of steps:

1. Make a direction decision based on which eligibility criteria the innovation, product or project are meeting. This in turn depends on its technical specifications, its business models and its business and customer approach.

2. Make a decision based on possible financial pathways from a legal or regulatory point of view. Some financial options will be closed due to limitations in the applicant’s freedom to enter into agreements. Some pathways will be open after preparation or after being handled on a higher decision level according to the conditions and circumstances prevailing in the specific case.

3. Once the decision on what kind of financing to apply for is taken and when the communication with the EIB, the EIB Intermediary or the PPP platform is up and running, it is necessary to be able to answer a number of questions asked by the funding organisations. This “creation of economical attractiveness” is the third step to take in order to reach financing. A large company or a public organisation is likely to have resources and ability to provide necessary and requested information to the financing entity while an SME or a Start-up may have severe problems to present documents and plans to match such requests on short notice.


Funding advice and guidelines

Advice regarding funding can be found in several places, for example in The Circular City Funding Guide, which offers extensive information and support on the funding of circular activities and projects in an urban context. The guide provides support for different kinds of project and phases (R&D, start-up, scale-up, growth, mature) regarding specific funding options such as grants, debt, equity, and alternative funding. It was developed as one of the actions under the Urban Agenda Partnership for Circular Economy and funded by the European Investment Advisory Hub ( (a partnership between the European Investment Bank (EIB) and the European Commission).

Another source of advice is the interactive funding guide provided by the Covenant of Mayors. It gathers information on the funding initiatives managed by the European Union, the Member States and key financial institutions such as the European Investment Bank. The guide also includes information about support services and innovative financing schemes.

There are also more specific guidelines available, for example the report Fossil Free Energy Districts, FED – Financial instruments and viability supporting local energy systems. A strategic document on financial viability and risk assessment . The content of this report was presented at the Celsius Webinar Business models of district energy on November 27, 2019. Another example is the report from the H2020 ReUseHeat project on the bankability of investments in urban excess heat recovery, where barriers are also identified.


City Pioneers: Gothenburg and London Borough of Islington

Inspiration regarding funding heating and cooling initiatives can also be gathered from two original Celsius cities: Gothenburg and the Borough of Islington in London.

The city of Gothenburg has set the following climate objectives: By 2030 (a) all district heating is produced by renewable energy sources, waste incineration and industrial waste heat and (b) Gothenburg’s total yearly use of primary energy for electricity and heating is 31 MWh per citizen, which is a reduction by about 10 percent compared to 2011.

According to Fredrik Block, portfolio manager at the City of Gothenburg, introducing green bonds into your city’s financial planning is a great way to get funding for climate-positive projects and at the same time shift the city’s financial capital into a greener shade. He also sees several benefits for politicians, funding bodies and the community to create such a transparent process, where the results are clear, as well as what the funding is used for. See list of investments (in Swedish) here: Investeringsprojekt 

Today, all political decisions regarding investments in housing or infrastructure take sustainability into account. Setting up green bonds also requires a new kind of collaboration between the environmental administration and the financial office, creating a process where projects are evaluated both in terms of their economic feasibility and regarding the estimated reduction of greenhouse gas emissions or other beneficial environmental effects. In addition, the Green Bond Framework on which projects are selected is thoroughly reviewed by a second party (CICERO) to ensure that the quality remains high.

Obtaining funding for green projects is not very difficult, according to Fredrik Block. He points to various sources such as green bonds and the European Investment Bank, but also Kommuninvest (, which offers diversified exposure to the Swedish local government sector and has a strong focus on sustainability. Similar banks can be found in other countries; such as KfW in Germany, KBN in Norway and KommuneKredit KommuneKredit in Denmark. However, the green projects need to be bankable solutions with a solid business model. Fredrik Block also points out that from a city perspective, investments in new technologies such as electrical busses, an energy efficient pre-school, solar parks, et cetera, are important but currently rather small in comparison to the investments made in green housing.

For all kinds of green projects, the EU Taxonomy will be an important tool for forthcoming investments. It is a tool to help investors, companies, issuers and project promoters navigate the transition to a low-carbon, resilient and resource-efficient economy by setting performance thresholds for economic activities.


Unique heating project funded by Islington Council

With the new Bunhill 2 Energy Centre; Islington Council, Transport for London and the Mayor of London collaborated to create a unique extension to the district heating network by using heat recovery from the London Underground. The waste heat was captured and used to provide heating and hot water to more than 1,350 homes, a school and two leisure centres in Islington, reducing CO2 emissions by around 500 tonnes each year. It was funded by Islington Council, which owns and runs the network, a grant from the European Union’s CELSIUS project and other local grant sources (more info on the funding can be found here).

The main driver behind the project was not financial, but to deliver on reducing energy (fuel) poverty and carbon emissions. An important aspect of the project was to create community engagement, which is why much information about the project was provided through various media and an artist was engaged to make sure that the energy centre became an appreciated part of the neighbourhood. Now it stands as a stunning landmark in a deep red metal shroud. The response from the community has been very positive and the project has received far fewer complaints than other similar infrastructure developments.

According to Rodrigo Matabuena, Energy Capital Projects Manager at Islington Council, the learnings from the Bunhill 2 Energy Centre are used in many ways. Transport for London is conducting a study to find sites for replication of the project. In Islington, work continues on how to create a broader and integrated energy system with multiple energy uses and power generation, including aspects such as e-mobility. Regarding financial instruments, they are now looking at partnering with private companies and other local authorities and exploring new models for sharing risk, costs and revenues.

Islington Council also collaborates with other cities in the UK through the GreenSCIES project (Green Smart Community Integrated Energy Systems). A new component being explored is a kind of “value engineering”. This means investigating how value can be added to the system by engaging with the local area and increasing the value to the community by making it more community friendly.

Islington continues to be very open about its progress and is very interested in sharing experiences with other cities. It will be interesting to see which city will be the first to replicate the Bunhill 2 concept. It will not be Gothenburg however, since the city does not have an underground system. But perhaps one of the other 56 European cities with an underground?

Text by: Lena Holmberg (IMCG)


London (Islington Borough), United Kingdom
Gothenburg, Sweden





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Toolbox Business & Finance Get the funding right: Financial instruments for scaling up bankable solutions