As cities and regions across Europe intensify their efforts to achieve climate neutrality, they need to transition from traditional subsidies to more innovative forms of financing. But are local authorities equipped – legally, technically, and politically – to make this transition?

A new report published under the PROSPECT+ project, ‘Energy Transition Without Subsidies: Why Local Authorities Struggle with Innovative Financing‘, reveals the deep challenges municipalities face and provides concrete, realistic recommendations to national and EU-level decision-makers.

“The local level is ready to act, yet it continues to encounter significant legal, institutional, and capacity-related barriers. National and EU-level frameworks often lag behind local ambitions, resulting in disparities in cities’ ability to access financing instruments and effectively implement climate action,” reads the report.

What’s inside the report?

The findings are drawn from structured survey data, open-ended feedback, and policy dialogues with city officials and energy agencies. The report highlights that while many local governments express openness to innovative financing, such as energy performance contracting, citizen finance, and blended finance, actual implementation is still rare.

Key barriers include:

• Restrictive national legislation, including outdated procurement and fiscal rules
• Limited internal capacity to plan and manage complex financial instruments
• Lack of clear templates, tools, and national guidance
• Ongoing dependence on subsidies due to risk aversion and fragmented support

“Only a minority of respondents have experience using innovative financing instruments. Most are unfamiliar and unsure how to use them. Cities have also been used to having access to subsidies for most of their investments, and are reluctant to change this,” reads the report.

The report also highlights the role of municipal energy agencies and one-stop shops, which are essential yet often underfunded actors that help bridge the knowledge and implementation gap.

What needs to change?

The recommendations section outlines what cities need now from EU institutions, national governments, and local leadership. These include:

• Accelerating legal clarity at the EU and national level
• Funding and formal recognition of energy agencies and one-stop shops
• Simplified application processes for technical assistance
• Practical, localised tools — not just high-level strategy papers
• Mentoring and peer learning networks to build confidence and capacity

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This report was presented during the Prospect+ final event. Revisit the event by listening to the recording.