(Bloomberg) — A solar panel manufacturer that’s laying off workers. A battery maker that spurned Europe for American subsidies. A green hydrogen project stalled for lack of electricity.

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These are a handful of the early results from the European Union’s Innovation Fund, a €40 billion ($43 billion) investment vehicle at the core of Europe’s plans to overhaul its economy to be zero-carbon by the middle of the century. It’s also part of the EU’s counter to the US Inflation Reduction Act: Officials hope the subsidies will keep key industries from decamping overseas.

While the fund is still fairly new and backs dozens of projects, including the world’s first major green steel plant, some of them — especially in the manufacturing and hydrogen sectors — have struggled to get off the ground.

The Innovation Fund is one of the “must-succeed” programs to ensure that new technologies can quickly play a major role in bringing down EU emissions, according to Marcus Ferdinand, chief analytics officer at Oslo-based research firm Veyt. If its early stumbles turn out to be widespread trends, that will be a worrying sign for the bloc’s ability to hit its 2040 climate targets.

Since it was launched four years ago, the fund has allocated over €6 billion to scaling up clean technologies, such as capturing CO2 from some of Europe’s biggest polluters, like French industrial gas giant Air Liquide SA and Swiss cement maker Holcim Ltd. It backs major energy producers such as Shell Plc and German utility RWE AG in their efforts to produce hydrogen. And it supports large-scale plants that make solar panel equipment, batteries and other renewable energy technologies.

Manufacturing projects are among those that have faced the most difficulty. The fund has given out at least three quarters of a billion euros to manufacturers, half of whom have announced plans to shut down operations, lay off staff or discontinue the projects completely, according to an analysis of project data by Bloomberg Green.

Kurt Vandenberghe, director general for climate at the European Commission, said the EU anticipated that some of its bets wouldn’t work out. The fund is for investing “in the novel, innovative activities of the future,” Vandenberghe said. “This means that not all projects will necessarily go to their end, because there’s a fair degree of risk. Otherwise we shouldn’t do it, if the market is taking this forward on its own.”

And bad bets don’t necessarily mean that a lot of money was wasted. Funding is paid out in phases, so projects that don’t go ahead don’t receive the bulk of it, and the EU can route that spending elsewhere. Those that don’t make a final investment decision don’t receive any funding at all.

But it still means valuable time lost for decarbonization — and an erosion of Europe’s competitive advantage if companies leave.

The Innovation Fund collects its billions from the polluting industries it hopes to clean up. Under Europe’s cap-and-trade emissions trading system, polluters are allocated a fixed number of permits each year. Industrial polluters, who have few options to decarbonize, currently get most of their permits for free while power producers have to buy them. Companies must surrender a permit for each metric ton of CO2 that they release into the atmosphere.

EU governments sell the permits at auction and then plough some of the proceeds into the Innovation Fund. The idea essentially is that polluters pay, but some of their money may return to them in the form of grants or subsidized new technologies that can help them cut emissions and lower their bills in the future.

That will be particularly important as the EU tightens its carbon market in coming years and cuts the number of permits handed out for free. Industries will be forced to reduce CO2 or pay up. Companies could opt to shut down entirely, as some did when faced with higher costs following Russia’s invasion of Ukraine.

“Right now Europe is essentially decarbonizing through deindustrialization,” said Ann Mettler, vice president for Europe at Breakthrough Energy, a consortium of nonprofits and venture capital funds backed by Bill Gates that invests in green technologies. Investment of €40 billion over 10 years “is sizable, but whether that’s a game changer is also questionable — whether that’s really enough,” she said. (Michael Bloomberg, the founder and majority owner of Bloomberg News parent Bloomberg LP, is an investor in Breakthrough Energy Ventures.)

Europe’s green manufacturers face the lure of attractive US subsidies on the one hand and competition from cheap Chinese products on the other.

Freyr Battery Inc. received a grant of €100 million for its Giga Arctic project in Norway, but announced last November that it was limiting spending on that project to focus investment on the US. (Although not an EU member state, Norway participates in its emissions trading system.)

Among the biggest grants to date was €200 million for Swiss solar-panel maker Meyer Burger Technology AG to build new manufacturing facilities in Germany and Spain. Since then, the company has announced plans to shut a manufacturing facility in Germany as it pivots operations to the US. The company is in talks with the commission about its options, according to a spokesperson.

“The European Union must guarantee a level playing field for its domestic solar industry by restricting dumping and product manufactured with forced labor,” the spokesperson said by email. “Without it — as of today — production of solar modules does not make economic sense” in Europe.

Read More: Europe’s Climate Push Fails to Stem Crisis in Solar Industry

Another solar equipment maker, Sweden’s Midsummer AB, was awarded over €30 million for an initiative, known as Project DAWN, to build a factory that will produce a thin, lightweight solar panel for rooftops. Last year, the company started plans to lay off employees as part of a cost-cutting effort for its Swedish operations as it announced a loss of over 200 million Swedish krona ($18.5 million).

A spokesperson for the company says those two efforts go hand in hand as the company reconfigures its business to be more competitive in the face of cheap imports. “If anything, the cost-cutting measures give us more muscles to speed up and execute ‘Project DAWN,’” said Peter Karaszi, Midsummer’s head of communications.

One of the fund’s biggest technological bets is on hydrogen. The gas doesn’t produce any CO2 when burned and, when it’s produced via renewable electricity (what’s known as green hydrogen), it can be a climate-friendly alternative to natural gas or coal. Hydrogen projects account for more than a quarter of the money awarded by the Innovation Fund so far.

But the technology isn’t panning out to be as economically feasible as once thought. Green hydrogen is much more expensive than the kind commonly used today that’s produced with natural gas. Projects meant to scale the industry up and bring down costs have faced trials.

One was a plan by a division of German utility Uniper SE to produce green hydrogen at a site on the outskirts of Rotterdam. In many ways it’s an ideal location, close to major industrial users and right on the coast, giving it easy access to the growing fleet of offshore wind farms in the Dutch North Sea.

But soaring costs in recent years for electricity, labor and financing have made green hydrogen even pricier, making it difficult to attract potential customers.

“It is too expensive at the moment,” said Dyonne Rietveld, managing director for Uniper in the Netherlands. “Interest rates and the costs of grid-connection fees and the risk profile of power purchase agreements are killing investment decisions.”

The company also found it nearly impossible to sign a contract with a new offshore wind farm that would guarantee electricity on a fast enough timeline to meet the requirements of the Innovation Fund. In the end, Uniper handed back its award. The project managers hope to find other means to build the site later this decade.

Another project that handed the money back to the EU was meant to link cheap hydrogen production in Portugal to major industrial demand in northern Europe.

“There was a lot of hype about hydrogen and now we’ve had to be more realistic,” said Catherine MacGregor, chief executive officer of Engie SA, one of the companies behind the project.

Other green hydrogen developers are still trying to make it work, despite difficulties. German energy company Iqony GmbH was awarded €49 million to build a facility near Dusseldorf that will produce hydrogen using electricity from a wind farm in the North Sea. While the company is moving forward with the project, it faces many of the same uncertainties that Uniper did. Namely, it’s nearly impossible to sign a contract with a wind farm to secure power because Germany has failed to add much new capacity in its sea in recent years. At the same time, power prices have risen, said Tanja Braun, general manager of the Iqony project, known as HydrOxy Hub.

While a lack of power is hampering projects in Europe’s industrial heartland, places that do have abundant green electricity show signs of promise.

One of the largest grants offered by the Innovation Fund to date was awarded to a division of Australian mining giant Fortescue Ltd. The proposed project in Norway would produce hydrogen using the abundant hydroelectric dams that provide the country with close to 90% of its power. Fortescue would use that hydrogen to make ammonia that could be used as a clean-burning fuel by the shipping industry. The company is currently in the process of completing key engineering and design work and is on track to make a final investment decision next year, according to Thor Magnus Rovik, country manager for Fortescue’s operations.

The disparity between the early success in Scandinavia compared to continental Europe could be a lesson for European green subsidies. Europe has now begun to field bids for a new funding mechanism designed to support green hydrogen — an offshoot of the main Innovation Fund. The first €800 million auction round for its Hydrogen Bank will award a maximum fixed subsidy of €4.50 for each kilogram of the gas produced. That will benefit places like Scandinavia and Iberia, where renewable power is cheaper and more abundant, according to BloombergNEF.

Compared to the main Innovation Fund, which chooses winners based on meeting certain criteria, the Hydrogen Bank allows more influence by the market to pick winners based on price. Ultimately, said the EU’s Vandenberghe, innovation is “about creative destruction.”

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