Guidance

Alternative Energy Markets Innovation Programme: questions with responses

Updated 23 February 2024

This guidance was withdrawn on 26 November 2024

This competition is closed: see the resulting projects.

This page covers responses to competition clarification questions received for Alternative Energy Markets Innovation Programme.

1. Timelines

Will an extension to the application submission deadline or a change in delivery timescales be considered?

The department is not considering extending the competition deadline at this time, and the Alternative Energy Markets Innovation Programme Phase 1 competition closes to applications at 2pm, 16 January 2023.

The department is not considering amendments to the delivery start dates for this programme. Phase 1 contracts are expected to start in late February/early March 2023.

2. Who Can Participate

2.1. How will you deal with community heat schemes, such as large-scale heat pumps supplying heat to homes? These may come with various ownership models (e.g. limited companies, CICs, publicly owned arms-length companies, local authorities); from the point of view of energy markets, they are seen as non-domestic consumers; and many serve both domestic and non-domestic customers. Are these in or out of scope? Is it necessary to consider only schemes that serve domestic customers exclusively?

All community energy schemes which involve the supply of electricity (or electrically generated heat) to domestic consumers are in scope, regardless of their ownership model, structure, or classification as non-domestic energy customers themselves. It is understood that community energy schemes may supply both domestic and non-domestic customers; such schemes are not out of scope as participants in the AEM Innovation Programme, but it is expected that Propositions developed under the AEM Innovation programme focus on domestic customers only. It may be that changes to Scenario descriptions, assumptions and accompanying price profiles may be required to reflect the context and energy supply arrangements of community energy schemes. As part of Phase 1, all Projects will be expected to provide feedback on provided scenario assumptions and price profiles and engage with the Authority and other project teams on discussion of proposed changes or refinements.

2.2. Do you need to be or have included in your application an existing energy market player or an existing energy supplier in order to participate? For example, a demand side response service provider (DSRSP) or Virtual Lead Party can access balancing and (in the future) wholesale market value, but cannot unlock TNUoS or DUoS or policy cost benefits.

Participation in the AEM Innovation Programme is not limited to existing energy suppliers only and includes any organisation or consortium with the capability to offer a domestic demand side Proposition to a customer. This capability would be needed to deliver on the scope for Phase 1 and 2. This capability could be provided by, for example, an energy supplier, virtual lead party, DSR service provider (also known as aggregators or flexibility service providers), energy as a service provider, or any organisation that supplies an energy supply product to a consumer. Applications to this innovation competition should provide evidence and/or assurance of the involvement of an organisation with such capabilities in the proposed Project as per the Assessment Criteria in competition guidance Section 5.3.1.

2.3. Can consortium make up vary between Phase 1 and Phase 2?

It is acknowledged that the lead partners in projects may differ between Phase 1 and Phase 2. As part of the Phase 2 down-selection, Projects are expected to put forward updated organograms which best reflect how they intend to deliver Phase 2.

2.4. Will the testing of new tariffs be done with a DNO?

It is not a requirement for a project to include a Distribution Network Operator (DNO) as part of the project team. However, projects can include such organisation as part of their project should they wish to do so.

2.5. As the regulatory, markets and networks aspects of energy supply and tariffing are quite different in Northern Ireland will a proposal focused on NI domestic demand side flexibility be possible under the scenarios envisaged? Would such a project require oversight by the relevant Govt department and the Utility Regulator of NI? And if we worked with the relevant TSO and DSO would that be sufficient?

Participants from Northern Ireland can apply to receive funding under this innovation competition if eligible (see Section 7. Eligibility for Funding of the competition guidance). Regarding focus of proposals, proposals in scope are those that are aligned with the policy context as set out in Section 1.1 of the competition guidance, and are utilising the alternative energy market Scenarios as set out in Section 2.2 of the competition guidance.

Regarding a Project requiring involvement or oversight by other bodies and organisations other than those noted in the Competition Guidance, this would be for the Project to deem whether necessary to deliver on the key competition aims, objectives and requirements. Competition Guidance Section 5.3.1. Assessment Criteria sets out that applicants should use their responses to describe their approach to developing Propositions and alignment with key competition aims and objectives; and that applicants should use their responses to detail how their organisation(s) and proposed project team can offer the relevant skills, capabilities and expertise required to meet the Competition Requirements.

2.6. It is mentioned that any projects with Northern Ireland content would be subject to scrutiny by the EU under post Brexit arrangements – would you be able to provide any further detail on what a potential applicant would need to consider in relation to this?

Section 7. Eligibility for Funding indicates that Applicants (sole Applicants and lead project members of consortium applications) must be able to demonstrate that they are financially viable. Applicants based in Northern Ireland, or with significant interests or subsidiaries in Northern Ireland, will also be subject to scrutiny from the European Commission in accordance with Article 10 of the Northern Ireland Protocol to the UK/EU Withdrawal Agreement. An example of which is a Unique Identification (UID) verification test.

3. Scenarios and Outputs

3.1. Could you clarify again how you expect applicants to use the “Scenarios” in their application?

It is not expected that applicants would be using these Scenarios to design Propositions in order to submit an application itself.

During Phase 1, Projects should utilise the suggested alternative energy market Scenarios and price profiles as a starting point around which to design and simulate demand side flexibility Propositions. Projects will be able to iterate on the initial Scenarios proposed, detailing any further adjustments (e.g., to assumptions or price profiles) needed to enable their Propositions to unlock optimum domestic flexibility.

For detail on what will be assessed as part of the application process, please refer to the assessment criteria outlined in Section 5 of the Competition Guidance notes.

3.2. Do we have to stay within the Scenario’s proposed? Is any successful submission expected to address all of the scenarios provided?

Phase 1 projects will be expected to design and simulate potential innovative domestic demand side flexibility Propositions under each and all of the alternative energy market Scenarios provided except from the ‘wildcard’ scenario. The Propositions designed and simulated under each and all Scenarios may be the same or similar, or it may be that multiple Propositions and/or multiple Propositions per Scenario arise.

A ‘wildcard scenario’ has also been included should Phase 1 Projects wish to utilise it. This offers the opportunity to design a further alternative energy market Scenario(s) around which to develop Propositions. The scope of the Wildcard scenario is detailed in Section 2.2 of the Competition Guidance notes.

Phase 2 proposals are expected to set out which Proposition(s) are to be tested in Phase 2, and the associated Scenario(s) i.e., projects are able to propose which Scenario (one or more) they will be demonstrating their proposed Proposition under in Phase 2.

3.3. Would the successful applicant be expected to refine the annual hourly price profile and underlying assumptions for each cost element for each scenario through market modelling? Our understanding is that this is not the case and that the successful applicant is only expected to provide feedback on these assumptions and price profiles and engage with the Authority and other project teams on proposed changes/refinements as part of Workshop 1, but we would like to confirm.

This understanding is correct. No further market modelling is expected for Scenarios 1 to 4. Applicants proposing a wildcard scenario must also describe the price assumptions they intend to use for this scenario. This can include using cost elements from Scenarios 1 to 4 combined in different ways. Feedback on assumptions and price profiles is required as part of Workshop 1.

3.4. Will DUoS forward looking charges under each scenario be provided? I.e., could you confirm that no modelling of DUoS charges is required from the successful applicant?

Forward looking DUoS charges will be provided under scenarios 1 to 4. If the bidder is applying to use the wildcard scenario, DUoS charges for this scenario must be proposed by the bidder during Workshop 1 (held shortly, ~ 2 weeks, after project kick off) and approved by the Authority. As per the Competition Guidance assumptions behind price profiles can be queried and refined during Workshop 1, beyond this, it is expected that Projects would undertake any further work on price profiles and set out any further assumptions necessary for the Project’s development of demand side flexibility Propositions.

3.5. With regards to explicit flexibility - is balancing and congestion management in scope or out of scope?

Balancing and congestion management is not expected to be the focus of propositions developed under this programme. This type of flexibility has been the focus of previous innovation trials and is possible within a business-as-usual context. However, we do anticipate these value streams being part of a propositions potential value stack and should be considered alongside flexibility driven by the cost elements of a customer’s bill.

As part of the assessment criteria, applicants will be required to demonstrate project additionality, clearly setting out why SBRI funding is necessary for the Project to be taken forward, and why, without funding, the Project would either: not go ahead as planned, go ahead but on a reduced scale, or go ahead but over a longer timescale.

3.6. Will the grid carbon intensities be provided along with the hourly price profiles?

Yes. It is anticipated that carbon intensities will be provided alongside the hourly price profiles.

3.7. In regards to simulation, can you please provide further granularity on expected output from the simulation to enable the development of a more robust proposal to BEIS. For example, what are the expectation on qualitative and quantitative analysis? For consumer segmentation the minimum expectation is detailed, can you please expand on expectations?

Applicants are expected to propose how they would undertake simulation in their applications to this innovation competition. Simulations are expected to consist of qualitative and quantitative analysis to specify the costs and benefits to customers and characterise the flexibility actions incentivised by the proposition. Detail on what Simulations should consider is provided in Section 3 of the competition guidance. The Authority does not expect to provide further granularity on expected outputs of simulation and instead has set out the minimum.

3.8. For workshop 2 please can you provide further detail on your expectations on the outputs after 8 weeks. Is the expectation to have outputs from the project delivery within the first 8 weeks or summary of prior work to the project?

It is anticipated that during Workshop 2 (held around 8-weeks into project delivery), project teams would have initial high-level views of propositions and the associated barriers to their success. The timing of this workshop is set to allow for refinement of assumptions and further iterations of propositions to be run and will also allow for initial findings to be fed back to BEIS policy teams.

4. Funding

4.1. Can BEIS clarify if the secure real world testing environments it intends to fund as part of Phase 2 (page 13 of the competition guidance) will be procured outside of Phase 2 for use within phase 2 or does BEIS expect phase 2 consortium to bring these testing environments as part of their consortium and proposals?

Phase 2 will fund projects to develop and deliver real world demonstrators which trial innovative demand side flexibility Proposition(s). Projects in Phase 1 are expected to include within their Phase 2 Proposals the environment or setting within which they are testing/demonstrating Propositions.

4.2. Can you confirm that this competition would potentially cover capital costs? For instance, the installation of low carbon electric heating such as smart thermal storage? Will any tech development receive funding?

In Phase 1 BEIS expects to fund efforts to design and simulate innovative tariffs, products, or services (demand side flexibility Propositions). This is not expected to cover capital costs.

In Phase 2 BEIS expects to fund secure real world testing environments and the associated costs to delivery partners and consumers of testing Propositions under alternative energy market Scenarios. This includes covering capital costs of energy assets and infrastructure deemed necessary to demonstrate how innovative propositions could work in the real world to deliver a flexible system, but funding under Phase 2 is not focussed on the development of technologies and systems.

Technology and systems to enable flexibility are recognised as important elements that are likely to be incorporated into Projects but developing and improving these are not the main purpose of this programme. As such Projects which have a focus on improvement to technology and systems to enable flexibility are out of scope for Phase 1. Any suggested modification or development of technologies made during Phase 1 to enable Proposition development and trial in Phase 2 would need to be achievable within the timelines set out for the Programme. Any inclusion of modification or development of technologies and systems would need to be accompanied by a clear rationale as to why this is needed in order to demonstrate Propositions in Phase 2, and why the Programme’s aims and objective cannot be achieved utilising existing technologies.

4.3. How are market trials to be funded? As they must test market scenarios which don’t exist, there will be a cost for the energy itself as well as more conventional project costs such as software?

It is anticipated that grant funding provided to successful projects under Phase 2 will support and cover the costs of trialling of Propositions that may not be commercially viable under current market arrangements but may be so within the alternative energy market Scenario(s) under which the Project would be demonstrating their Proposition.

4.4. What are funding rules & match funding requirements in phase 2. What will be the match funding percentage requirement for Phase 2? Are any organisations fully funded 100% e.g. RTOs

The match funding thresholds that BEIS will provide as a grant are based both on the type of research being undertaken and the size and type of the organisation. The maximum amount of public subsidy as a percentage of the total eligible costs for Phase 2 can be found on page 14 of the Competition Guidance. The funding thresholds for Research and Technology Organisations (RTOs) is applied within ‘Research Organisation(s)’.

4.5. For the match funding the guidance specifies private funding. Can you please advise if there are guidelines on what the sources of funding can be.

Sources of match funding are expected to come from the applicant, or from other private investors. The applicant is required to make clear any sources of match funding prior to project commencement.

4.6. Annex 3 (the Project Cost Breakdown Form) seems to require us to fill in actual annual salaries etc. for individual proposed project resources. We typically do not provide these. Instead, we bid on the basis of daily rates that are calculated uniformly for each grade, based on typical annual salaries, contribution etc. Would it be possible to provide these instead, or would that lead to disqualification? Also, our rates typically include overheads – if it is acceptable to use daily rates, would it be acceptable to provide rates including typical overheads, or do we have to explicitly split this out?

Outlined in Appendix 2 and Section 6 of the Competition Guidance, for Phase 1, the Applicant must include Labour costs for all those contributing to the project, broken down by individual role. Applicants are instructed that the Project costs quoted must reflect actual costs at a ‘fair market value’ and for this Competition, suppliers’ profit must not be included. The Authority will only pay based on actual cost incurred, so whilst it is acceptable to provide an average at this stage, project claims/invoicing must be based on actual cost incurred.

Overheads must be split out when completing the Project Cost Breakdown Form.

4.7. If we were to be a project partner, the competition guidance states that profit may not be included in the rates used. Does the exclusion of profit mean we would need to charge a rate linked directly to just the cost of the staff working on the project? As far as we can tell, if we want to be part of the competition at our standard market linked day rates, the only way to do this would be as a sub-contractor rather than a project partner. Is this correct?

Applicants are instructed that the Project costs quoted for the Lead Applicant or Consortium Partners must reflect actual costs at a ‘fair market value’ and profit must not be included. The conditions of an SBRI competition does allow for sub-contractors to charge for profit, however, as part of the value add of the project, it’s encouraged that sub-contractors would not charge profit. During the due diligence process, if sub-contractor proportion appears too high/disproportionate, there may be an issue raised in due diligence. The Authority may make a judgement that the sub-contractor should be a partner instead, in which case profit would not be applied.

Overheads must be split out when completing the Project Cost Breakdown Form.

5. General

5.1. Please can you clarify what you mean by proposition?

In the context of the Alternative Energy Markets Innovation Programme, a proposition (demand side flexibility proposition) is an innovative energy supply tariff, product and/or service offered to domestic consumers to incentivise the turn up, turn down, or shift of demand. This includes propositions involving singular or multiple domestic customers or community energy schemes. Further detail on the Scope of Propositions under this competition is provided in Section 2 of the Competition Guidance notes.

5.2. Section 5.3.3 of the competition guidance notes indicates that independent assessors (technical and commercial experts) will be appointed to review applications (with BEIS) - will this be tendered for and if so when?

Section 5.3.3 of the Competition Guidance notes outlines that applications will be assessed by a minimum of three assessors, which could include BEIS assessors and independent assessors (technical and commercial experts). BEIS will not be tendering for independent assessors to review applications on this programme.

5.3. Will phase 2 be publicly tendered, or a closed activity for those participating in the phase 1?

Phase 2 funding will be awarded to project(s) participating in Phase 1 who are successful in the down selection process. Further details on the process of selecting the Phase 1 project(s) to progress to Phase 2 is outlined in Section 16.2 of the Competition Guidance notes.

5.4. We are currently in the process of seeking collaboration partners. When we find these, it may be the case that we decide that one of these partners are better placed to lead the project, with us as subcontractors. If we filled in the competition registration form with the details of our organisation, does it preclude us from submitting our final competition application form with our partners as the lead and us as subcontractors?

The purpose of the registration form is to give applicants access to the application form and does not form part of the application submission. Information outlined in the application form will form the basis of what is considered during the assessment process.

5.5. The scenarios in the ITT align to the options being explored under REMA. It is difficult to anticipate REMA waiting 2+ years to make those critical decisions. Please can you confirm what BEIS is hoping to obtain by testing under AEM?

The outputs of this innovation programme will contribute to the evidence base for how the domestic flexibility market can be grown under a range of future energy system scenarios to inform future policy and regulatory decisions. Outputs and learning from the innovation programme are expected to feed into relevant policy work on an ongoing basis throughout the delivery period of the innovation programme including REMA, retail market reform and other areas.

AEM is separate to decision making under the REMA programme however, REMA will draw on a large range of evidence, including insights from relevant innovation competitions such as AEM in order to inform decisions taken under the programme.