Why Local Authorities Struggle with Innovative Financing—and What Needs to Change

While European cities and municipalities are eager to adopt innovative financing tools—from energy performance contracting to citizen finance—most still rely heavily on traditional subsidies. A new consultation across 20 European countries, conducted under the PROSPECT+ project, reveals the key barriers slowing progress and what must change to unlock new funding models for local climate action.

🔍 What’s holding cities back?
According to the report, many public authorities feel unsupported and unequipped to move beyond grants. Major challenges include:

• Restrictive national laws and procurement rules
• Limited local staff capacity and expertise
• Legal uncertainty and fear of political backlash
• Low trust in private investors and complex instruments

Even though local energy and climate departments are often willing to pilot new approaches, they are blocked by siloed administrations, outdated regulations, and a lack of technical guidance. Small and medium-sized municipalities are especially disadvantaged.

💡 Promising signs, but uneven readiness
Some cities are moving ahead with pilot projects in energy cooperatives and EPCs, but only with expert support and enabling frameworks. Many innovative instruments like green bonds or blended finance remain poorly understood or legally unclear.

The consultation also shows a strong appetite for peer learning, practical templates, and replicable tools. Municipalities don't need more theory—they need real-life examples, editable model contracts, and coaching to build trust in new financial models.