Two technical inputs move the funding gap more than almost anything else: the rate at which cash flows are discounted, and the value assigned to everything beyond the forecast. Both come with firm rules.
The funding gap is a net present value, so the discount rate sits under every number in the file. The template requires the company's WACC, built with the capital asset pricing model, and it closes the two doors applicants most often try: the WACC is set at company level, never at project level, and no project-specific risk premium may be added. Project risk belongs in the cash-flow scenarios, ramp-up curves and sales assumptions, not in the discount rate. All parameters must reflect values as of the pre-notification date, from objective and verifiable sources: a top-rated government bond matching the project horizon for the risk-free rate, sector benchmarks for beta and the equity risk premium, and the company's own financial reports for the funding structure and cost of debt.
Five sourced parameters, two closed doors, one default for the terminal value.
Consistency is the real test
The Commission's checks are mostly consistency checks. The tax rate in the WACC must match the tax rate applied to cash flows. The debt premium must be consistent with the leverage in the assumed funding structure. Taxes are computed as EBIT times the tax rate even in loss-making years, on the assumption that losses reduce the group's taxable base elsewhere; a company that cannot use that assumption must say so and model its loss carry-forwards explicitly. And working-capital changes are expected to sum to zero over the project's life, because they are a temporary need, not a cost.
The terminal value: everything after the forecast
Projections should ideally run until the project generates little further revenue. Where they stop earlier, the terminal value captures what remains, and the default method is the Gordon growth formula, with the growth rate, normalised CAPEX and final-year figures each justified. Two rules stand out: the terminal value must be positive, and it must include the project's contribution to activities beyond its own scope, next-generation products included. A terminal value of zero claims the project stops creating value the day the spreadsheet ends, and the Commission will ask whether you believe that.
The takeaway. Treat every WACC parameter as a citation: value, source, date. Small movements in the rate or the terminal value shift the funding gap materially in either direction, which is exactly why the Commission checks these two inputs before anything else.
Sources
– IPCEI Communication, OJ C 528, 30.12.2021 (EUR-Lex)
– European Commission – IPCEI overview (DG Competition)
– European Commission, Funding gap template for IPCEI projects (RDI & FID), version 3.2 adjusted for IPCEI AI, April 2026 (distributed to applicants via national authorities)
– DG COMP Unit H23, IPCEI AI workshop for direct participants and Member States: project portfolio, funding gap and spillovers, 12 June 2026 (workshop materials)