Notice

Clarification questions with responses (updated 10 October 2022)

Updated 31 August 2023

Clarification questions, 10 October 2022

062. a. In the event of the partnership between 2 companies to develop the project, can you confirm whether the Private Investment Capital Structure table in Annex D Cost Template should be completed with the ownership weightings, or should it be completed separately for each company?

Please complete the Private Investment Capital Structure table with ownership weightings.

b. Typically, the energy value of hydrogen produced is reported as a fraction/percentage of electricity required, however in the Plant Information table (below) it appears the ratio is the reversed i.e. the value would be greater than 1 which would indicate that more electricity is required than hydrogen produced in energy equivalency. Please confirm how you expect this to be entered in Annex D?

For the electrical conversion efficiency, please state the kWh of electricity you expect your production process will require per kWh of hydrogen produced. We expect that this value will be greater than 1.

063. a. Can you confirm when the Difference Amount will be paid ie the difference between the strike price and the reference price. Will it be paid monthly, quarterly or at some other timescale?

BEIS has published the HBM Indicative Heads of Terms (IHoT) alongside the government response to the HBM consultation. The IHoT are preliminary and indicative, and subject to further consideration and development. As set out in section 4.15 of the IHoT, once the Start Date has been achieved, payments will be made by the Hydrogen Counterparty to the Producer, subject to the application of the relevant formulae that will be set out in the Low Carbon Hydrogen Agreement. In accordance with the IHoT, the Hydrogen Counterparty will deliver a billing statement to the Producer for each ‘Billing Period’ (being a period of one calendar month) no later than seven Business Days after the end of each Billing Period. A billing statement will set out the payments for each half hourly settlement period. Payments will be due to the Producer no later than 28 calendar days after the end of each Billing Period.

b. Can I also ask where do I find the UK NBP Month ahead price to be used in the reference price calculation? Is there a monthly table published?

As set out in section 4.5 of the HBM Indicative Heads of Terms, the “Natural Gas Price” will be the arithmetic average of the daily value of the UK NBP Month Ahead Natural Gas Price published on every business day of the calendar month preceding the relevant Billing Period. The UK NBP Month Ahead Natural Gas Price will be the price for natural gas delivered to the National Balancing Point (NBP) Virtual Trading Point, in equal amounts every calendar day of the nearest calendar month. We are working through the actual month ahead price we will use and will confirm this as soon as we are able.

065. a. Annex B, Energy Source Tab: Is it correct to assume the Expected total annual power consumption is referring to the power consumption of the hydrogen production facility only. Secondly,  when there are more than one renewable generation sources, for example, one wind farm and one solar farm, is it correct to input the same value for the Expected total annual power consumption in each Energy source tab. Would it be double counted for the total annual power consumption?

The expected total annual power consumption refers to the power consumption expected to be provided by each energy source.

Projects should list the total consumption that is expected to be used from each energy source, which could be different. The total of energy sources will then be the total energy consumption required to make the planned hydrogen production.

b. Annex B, Production Facility Tab - Does the Total Electrical Capacity include the rest of the plant in addition to the electrolyser system? If we have other facilities in the hydrogen production facility, such as oxygen compression, low / high pressure compression, fueling stations and so on, do these electrical demand need to be included? This will have an impact on the calculation of plant efficiency, therefore important to understand

No, this is the electrolyser capacity only.

c. Please clarify the note for the Steady State Hydrogen Production Capacity : Efficiency = (the steady state hydrogen production converted to MWh/h) divided by (the electrical capacity of the hydrogen production plant in MWe). Why is it multiplied by 24?

Please provide the steady state hydrogen production capacity in MWh/h as requested.

d. Please clarify the note for the Expected Annual Production: Hydrogen production Load factor = (the steady state hydrogen production converted to MWh/yr) divided by (Rated hydrogen production converted to MWh/yr).

Please provide the expected annual production in MWh/yr as requested.

A price per MWh of electricity supplied needs to be provided regardless of whether this is purchased from the open market or generated by the applicant’s organisation. For Projects generating their own electricity, it is up to them how the cost of electricity supplied is built up.

e. Annex E, Demand tab - If operation is expected to take place after 2025, can we leave the cells under 2022- 2024 blank?

Operation needs to commence within 2025 to eligible.  If there is no production between 2022 and 2024 then these can be left blank.

f. The hydrogen production depends on the offtaker demand. In order to meet the offtaker’s daily & seasonal production variations, and their maintenance period, there may be times hydrogen production is less than 5 MW. However, if the overall average hydrogen production is kept above 5 MW, does the project still meet the minimum 5MW hydrogen production requirement?

The minimum production capacity of 5MW output is not a requirement for all times - the condition is that the electrolyser installed should have the capacity to output at 5MW.

g. Our projects are typically a fully integrated system with the financing and construction of renewable assets included within the wider hydrogen production and distribution project. This applies to assets connected via direct wire and via the grid. We’ve noticed Annex B requires a price of all energy (on a MWh basis) and the comment in the latest engagement session that CAPEX for new renewable assets will not be included in the strike price. Our view is we don’t have a purchase price of our own RES assets since their associated costs are wrapped into those of the wider project, and therefore reflected in our cost of hydrogen. Please can you confirm our assumed approach will be acceptable?

The HPBM supports costs associated with the production of low carbon hydrogen and the cost of the production asset should be reflected in the strike price. Where a project is linked to a renewable asset, whether through the electricity grid or via a private wire arrangement, producers should include an expected price of electricity on a MWh basis. For the avoidance of doubt, we expect the electricity price included in the application to be on quoted on market terms (i.e. including the cost of building the renewable asset required).

067. We have a question regarding the treatment EfW + CCS as a power source in the “Initial_questions” tab of the Hydrogen Emissions Calculator. A potential supplier has provided us its carbon intensity figure with CCS of -800gCO2e/kWh. This is well below the LCHS threshold of 40gCO2e/kWh (20gCO2/MJ). Are we able to include negative emissions when calculating our carbon intensity for the bid? Or should EfW + CCS be classified as 0gCO2e/kWh?

As stated in the Low Carbon Hydrogen Standard guidance, emission savings through CO2 sequestration must meet the following conditions to be incorporated into total emissions associated with hydrogen production:

• CO2 emissions must be captured and stored permanently in geological storage. Avoided emissions (through a displacement or change in fossil fuel use) and carbon capture and utilisation of CO2 does not meet this condition.
• Permanent storage assumes zero leakage once CO2 emissions are sequestered.
• Any emissions accounted for under this category cannot be credited or claimed elsewhere (e.g. as a carbon credit). If credited elsewhere, the emissions sequestration benefit can no longer be included in the overall emissions calculation for the purposes of the standard.
• Any emissions accounted for under this category must be directly related to processes within the evaluation scope of the standard. Carbon offsets (or similar) from other processes cannot be claimed under the standard.

Providing that these conditions are met, and that the CO2 being captured and permanently stored is biogenic, negative emissions can be claimed in the power source’s carbon intensity.

Please note that if the waste feedstock to power generation has both fossil and biogenic components, you should calculate emissions for the fossil consignment separately to the biogenic consignment. As per the guidance text within the Hydrogen Emissions Calculator file on the “Title” worksheet, this would likely require multiple workbooks to be completed per year of operation (one for a fossil consignment, another for a biogenic consignment), before averaging the GHG emission results for that year on the “Dashboard” worksheet.

Finally, as stated in information workshops and an email of 21st September, any applicant proposing to source biogenic electricity for electrolysis (which in most cases includes EfW) should complete the full version of calculator, not the condensed version for electrolysis, as there are further questions relating to biomass sources, biomass sustainability and upstream biomass supply chains that must be answered.

068. I am supporting a client to prepare an application for the NZHF Electrolytic Allocation Round. A lot of documentary evidence is requested and some documents my client could upload as evidence are confidential. Can you confirm if the information uploaded as part of the application will be treated confidentially by BEIS, or if it will become publicly available later?

It is expected that details of support offered for Projects, with the exception of commercially sensitive information, may be published following the completion of the Agreeing an Offer Stage and awards.

BEIS may also share information provided by Projects (including information within the Submissions or EOIs) with other parts of government for the purposes of policy development and facilitating coordination in certain areas if relevant. In addition, this information may be aggregated and anonymised for the purposes of engagement with external audiences.

070. Under the LCHS physical power must be time matched, and REGOs must be retired to avoid double counting of carbon savings. Do the REGOs retired need to be:

a) Just equal in number (and could be from any generator)
b) From the specific generator but not necessarily time matched to any particular period of issue.
c) From the specific generator and time matched
d) Time matched, but not necessarily from the specific generator

Our view is a) would be administratively easiest, whilst still removing the issue of double counting. Also what (if any) requirements would be needed if Nuclear power is used?

Please see the Electricity Inputs section on page 25 of the Low Carbon Hydrogen Standard: guidance on greenhouse gas emissions and sustainability criteria – this specifically indicates that:

• All electricity inputs shall have a discrete consignment size of 30 minutes.
• Real time tracking of generation and consumption (temporal correlation) is required across all 30-minute consignments.

Further detail on the technical requirements for low carbon electricity input is available in section 4 of Annex A of the Low Carbon Hydrogen Standard: annexes to guidance document. There are three criteria set out here to provide evidence that the electricity used is low carbon; all three of which must be satisfied for the actual emissions intensity of the low carbon generation source being used in hydrogen production to be used in emissions calculations under the LCHS:

• Energy attribute information – hydrogen producers must demonstrate exclusive ownership over the energy attributes of the low carbon electricity generated, to avoid the risk of double counting.
• Low carbon electricity generation attributes – hydrogen producers require evidence to prove that low carbon power has been sourced and consumed in the hydrogen production – proof of links to the claimed generation.
• Temporal correlation – evidence low carbon electricity was consumed by the electrolyser matched to the 30-minute electricity settlement period of the electricity generation source.

Consequently – c) above corresponds with the technical requirements of the LCHS.

Regarding use of nuclear power generation – please see page 17 of the Low Carbon Hydrogen Standard: guidance on greenhouse gas emissions and sustainability criteria and section 4 of Annex A, as above. This effectively sets out that nuclear power can be accounted for in a similar manner to other low carbon renewable generation above. The difference is, in the absence of REGO certificates, adequate provisions of ownership of the attributes of the electricity used will be required in counterparty contractual information (e.g. PPA or wholesale contract), demonstrating there has been no onward selling of energy attribute information used in hydrogen production (i.e. avoiding double counting).

071. For project costs, we understand that all costs must be included in Annex D. However, is there a section in the bid application where the applicant must note which costs are eligible or ineligible for either NZHF and/or HBM funding?

Table 3 in section 4.2 of the Project Application form asks applicants to detail the indicative CAPEX applied for through the NZHF expressed as an amount (£m) and as a percentage of total CAPEX in scope for NZHF funding, where applicable. This table also asks applicants to detail CAPEX costs for transport and storage, which are not included within the scope of this NZHF Strand 3 funding. 

072. Could BEIS inform bidders what discount rate it intends to use for project to calculate the LCOH to enable undertaking of its evaluation of the Price score? We also intend to submit a financial model (or outputs from that model) and would like to use the correct discount rate which is consistent with BEIS own approach.

The LCOH calculation will use the project’s weighted average cost of capital (WACC) as the discount rate. This is asked for in Annex D (Project Costs). Supporting evidence should be provided and referenced to affirm the WACC input in Annex D.

073. Representative year for supply, production and demand profiles, and ANNEX B - What year should the yearly supply, production and demand profiles required, as well as ANNEX B, refer to if supply, production and demand are expected to change over time?

As stated in section 5.4.4 of the project application form, please provide the hydrogen production profile for a 10-year period to demonstrate how daily hydrogen production matches the daily hydrogen demand. This should be combined with the electricity supply profile from section 5.4.1 and the offtaker demand profile(s) from section 5.4.2. For the annual values for demand, production and supply required within the Annex B, please provide the average over this period.

Clarification questions, 7 October 2022

039. We are working with a non-risking taking intermediary who has clients in the industrial space, that is the end use cases are eligible. What information is required in the application process for non-risking intermediaries? As we can appreciate, they are not willing to give the client information at this as this is highly confidential and at present there is no guarantee that the project will receive support and therefore the intermediary is not willing to give the information. Is providing expected volumes and end use case but not specific users sufficient?

Government is not excluding non-risk-taking intermediaries from playing a role in the market. Non-risk-taking intermediaries are defined as intermediaries that may charge a fee to a hydrogen producer or end user for a service (for example brokerage or hydrogen storage), but would not take ownership of the hydrogen.

As set out in section 3.6 of the Application Guidance, to be eligible to apply to the joint allocation round Projects must have an agreement or evidence of progress towards an agreement with at least one qualifying offtaker. This could be shown, for example, by a memorandum of understanding or letter of intent between the hydrogen producer and proposed offtaker if available. At the evaluation stage, further checks will be undertaken regarding the robustness and appropriateness of the offtaker(s) and any offtaker agreements.

Projects will also be required to provide the details of any agreed offtakers in the Project Application Form. Projects are assessed under deliverability on BEIS’s confidence in the Project’s capability and capacity to deliver successfully and be operational by end of 2025. This includes an assessment of the commercial and technical arrangements Projects have in place with viable off-takers of their hydrogen volumes.

Projects must provide BEIS with confidence that the Project has these commercial and technical arrangements in place. Not providing information on specific users may result in a Project scoring lower than it otherwise would have under deliverability, had it provided this information.

048. Could you please clarify whether there is a consistent inflation index and assumptions to be used to calculate the nominal value for the application and EOI? We are trying to ascertain whether there is a standardised approach that you would expect applicants to take with regard to inflation assumptions for the purpose of setting the nominal value of the application? Otherwise there could be significant differences in approach to inflation between applicants that will make material differences to the capex figures quoted.

BEIS will use the most recent quarterly GDP deflators released by HMT to convert nominal figures to real for past expenditure and out to 2026 (this is how far the deflators project). From 2026 onwards, BEIS will assume inflation of 2% in line with the Bank of England’s mandate.

052. The Application Guidance mentions that “Projects will be able to apply for a CAPEX % below 20% of the CAPEX that falls within the NZHF Scope (excluding CAPEX costs for storage and transport). Is there a definition for “NZHF Scope”? For example, would CAPEX items such as “contingency” be applicable?

“NZHF Scope” in this instance refers to the upfront CAPEX costs for building low carbon hydrogen production plants. Projects will be able to bid for up to 20% CAPEX support. This will account for some contingency costs associated with the plant build. CAPEX costs for storage and transport are not included within this scope.

053. a. Feasibility design for site layout will be completed for the planning and permitting stage, but not the full FEED. What level of advancement do we need to show on planning and permitting?

Projects will be shortlisted based on how they score across the evaluation criteria, including deliverability. This will consider the Project’s capability and capacity to deliver successfully and be operational by end of 2025.

Information on the evidence requirements Projects are expected to show on planning and permitting can be found in section 4.2.1 of the Application Guidance

As per section 5.1 of the Application Guidance, during the Agreeing an Offer stage, shortlisted Projects in the 2022 Electrolytic Allocation Round will engage with BEIS on a variety of financial, legal, technical and commercial issues such as progress according to the project timeline submitted at application stage, and will discuss any issues or concerns highlighted during the assessments.

Shortlisted Projects would be expected to demonstrate that FEED is at an advanced stage.

b. What level of commitment is BEIS expecting in relation to an offtaker’s ability to take hydrogen? – A fully signed hydrogen sale and purchase agreement or just a Head of Terms/MoU? Will this be marked on a relative basis in comparison to other applications?

As part of the technical deliverability assessment, Projects are expected to provide an agreement or evidence of progress towards an agreement with hydrogen offtakers. For example, this could be:

• a letter of intent or provisional agreement with offtakers
• Memoranda of Understanding, collaboration agreements or draft Heads of Terms being in place between the hydrogen producer and its proposed offtakers

BEIS recognises that the level of commitment in place between an early-stage Project and its partners may naturally vary depending on the Project’s stage of development so any evidence of formal and informal agreements and discussions would be welcome.

Assessment under deliverability will not take place on a relative basis. The deliverability assessment is undertaken on each Project’s merits and not as a relative assessment to other projects.

Additional information on the application of the deliverability assessment can be found in CQ 024a.

c. Do we need to be able to show supplier boilers can/cannot take hydrogen? What level of detail of engineering needs to be evidenced?

Information on the level of evidence that Projects are expected to provide on their offtakers and engineering plans can be found under the ‘Technical Deliverability’ subheading of section 4.2.1 of the Application Guidance.

There is not a specific piece of evidence required for each question. Projects will have different types of evidence to demonstrate how they will deliver the production facility by their planned COD that will achieve the stated outcomes.

d. What level of engineering capability needs proven for an offtaker at application stage?

We do not specify the level of engineering capability, however Projects are expected to provide BEIS with confidence in the commercial and technical arrangements that they have in place with their viable offtakers.

The specific evidence we expect to see with respect to offtakers is described on pages 49 and 50 of the Application Guidance.

e. Are we going to be penalised if land is not under offer? Any mitigating factors if land is owned by the offtaker?

Projects will not be penalised in situations where land is not owned directly by the Project. However, Projects may score lower than they otherwise would have, had they demonstrated more secure land use arrangements if this impacts on their capability and capacity to deliver successfully and be operational by end of 2025.

Government would expect to see evidence of the Project’s overall delivery execution plan for completing the project, this includes how the project is setup, governed and the remaining development and construction phases will be managed and completed as planned.

f. If a project is initially reliant on a grid connection, how much progress towards signing a green PPA needs to be demonstrated and the level of the green PPA?

In assessing against the additionality criterion, Projects will be credited for providing clear and credible evidence, details of which can be found in section 4.2.6 of the Application Guidance.

Projects are assessed against the scoring framework, found on page 69.

g. Do we need to demonstrate a roadmap for subsequent phase in which we plan to utilise our own dedicated additional renewables (solar farm and co-located wind turbines)?

As set out in section 4.2.6 of the Application Guidance, to achieve the highest scores for the Additionality criterion projects must have plans to meet additionality principles by COD or by 2025. Projects which are unable to demonstrate additionality at the COD date or by 2025 can still provide evidence to demonstrate credible future plans but will only be able to score a maximum of half of all marks for this criterion (that is, score up to 5 marks). Projects that cannot demonstrate additionality, or do not submit a response, will score zero.

h. What evidence of funding is BEIS looking for? Redacted is intending to finance its projects using its own equity and also equity investment from third party institutions, as well as debt from project finance banks?

The eligibility criteria require projects to demonstrate access to finance. As detailed in section 3 of the Project Application Form, Projects can submit Funder / Financier / Board commitment details, for example, a letter from the board of equity partners which commits to financing the Project, letters of support from financiers and/or confirmation of the ability to fund from existing liquidity.

There is not a specific piece of evidence required for each question. Projects will have different types of evidence to demonstrate how they will deliver the production facility by their planned COD that will achieve the stated outcomes.

During the evaluation process government will perform additional checks regarding the robustness and credibility of the financial evidence provided, as well assessing evidence inputted into the Financial Statement Template.

i. What type of independent studies are BEIS envisaging?

As part of a Project’s final submission, independent studies can be submitted to evidence answers. These could be, but are not limited to, published academic studies, or studies by third parties.

j. Gantt charts show evidence of path to be operational by end of 2025. Is this acceptable?

BEIS are looking for as much certainty as possible to demonstrate that the Project will be achieve a COD by the end of 2025. BEIS would expect to see evidence of a Project schedule, including the steps to be taken and the time in which these would take.

There is not a specific piece of evidence required for each question. Projects will have different types of evidence to demonstrate how they will deliver the production facility by their planned COD that will achieve the stated outcomes.

k. What level of engagement with the grid do we need to demonstrate, e.g., do we need a grid connection offer received or accepted or a budget quote?

BEIS are looking for as much certainty as possible to demonstrate that the required electricity supply capacity will be secured before the planned COD, with more secure agreements (grid connection offer) likely to score higher on deliverability than those with less secure agreements (budget quote).

There is not a specific piece of evidence required for each question. Projects will have different types of evidence to demonstrate how they will deliver the production facility by their planned COD that will achieve the stated outcomes.

l. Do we need to have an agreed strike price with the offtakers as proof of commitment and do we need to tell them what it is?

As part of the technical deliverability assessment, Projects are expected to provide an agreement or evidence of progress towards an agreement with hydrogen offtakers. For example, this could be:

• a letter of intent or provisional agreement with offtakers
• Memoranda of Understanding, collaboration agreements or draft Heads of Terms being in place between the hydrogen producer and its proposed offtakers

Government recognises that the level of commitment in place between an early-stage Project and its partners may naturally vary depending on the Project’s stage of development so any evidence of formal and informal agreements and discussions would be welcome

m. What does BEIS mean by a ‘safety case’? Will a safety philosophy be sufficient?

A safety case is a method that can be used to demonstrate that the Project’s planned systems have been sufficiently assessed to ensure that it is safe to operate for that specific application in the environment intended. This could be in the form of a qualitative risk assessment, with supporting evidence/data and justification on why the proposed approach ensures that the system is safe, as often used in regulated environments (oil, gas and transport industries).

Without knowing the contents of a safety philosophy, BEIS are unable to comment on whether this would meet the requirements explained above.

There is not a specific piece of evidence required for each question. Projects will have different types of evidence to demonstrate how they will deliver the production facility by their planned COD that will achieve the stated outcomes.

n. What sort of evidence does BEIS expect from ‘Identification of hydrogen production technology and consideration of storage and transport’?

Projects will be credited for providing clear and credible evidence. BEIS would expect to see evidence of engagement with the providers of key technology suppliers and partners.

There is not a specific piece of evidence required for each question. Projects will have different types of evidence to demonstrate how they will deliver the production facility by their planned COD that will achieve the stated outcomes.

o. What is the expectation as evidence from BEIS for ‘Management of variable/seasonal demand profiles’?

BEIS are looking for as much certainty as possible to demonstrate that the Project is able to manage fluctuations in demand.

There is not a specific piece of evidence required for each question. Projects will have different types of evidence to demonstrate how they will deliver the production facility by their planned COD that will achieve the stated outcomes.

p. What does BEIS define as ‘fugitive’ emissions?

Fugitive emissions are considered to be intentional or unintentional releases of greenhouse gases to the atmosphere. For example, fugitive emissions occur via leakages of natural gas from the gas transmission and distribution network (note that the Low Carbon Hydrogen Standard data annexes provide default data on these emissions). Where these emissions occur within the ‘point of production’ system boundary defined in the standard, they must be accounted for when calculating the greenhouse gas emissions associated with hydrogen production.

BEIS considers fugitive hydrogen emissions to be releases of hydrogen into the atmosphere incurred as the hydrogen passes through the supply chain. Within the system boundary used in the standard, significant sources may include, but are not limited to: process venting, hydrogen compressors, on-site storage, flares, and leakage through pipework and joints. More detail on this, alongside specific requirements for hydrogen production plants, and guidance on minimising fugitive hydrogen emissions, can be found in Chapter 8 of the UK Low Carbon Hydrogen Standard guidance document.

q. Do we need to be able to show additionality from the outset of the project or is a pathway to additionality sufficient?

Information on the evidence requirements for additionality can be found in section 4.2.6 of the Application Guidance.

It is not a mandatory requirement for projects to demonstrate additionality of electricity sources to apply to this allocation round. However, to achieve the highest scores under the Additionality of Electricity Source criteria, projects must have plans to meet additionality principles by COD or by 2025. Projects which are unable to demonstrate additionality at the COD date or by 2025 can still provide evidence to demonstrate credible future plans but will only be able to score a maximum of half of all marks for this criterion (that is, score up to 5 marks). Projects that cannot demonstrate additionality, or do not submit a response, will score zero.

r. We understand from the Q&A that a project can mix RTFO and LCHBM, can the agreed split be changed year by year? When does the declaration have to be made, upfront or calculated at the end of the period?

Subject to compliance with subsidy control principles and the final design of the Hydrogen Production Business Model, producers in receipt of Hydrogen Production Business Model support will be allowed to participate in the RTFO. Volumes produced will be allowed to be claimed under the RTFO, subject to meeting the RTFO’s eligibility criteria, but claiming under both the HBM and RTFO for the same volumes of hydrogen will not be permitted.

The Hydrogen Production Business Model team are currently developing the detailed operational arrangements needed to enable dual participation and will provide an update in due course.

s. Is there any specific technical content that is mandatory as part of the electrolyser quote?

Sections 3.3 and 3.4 of the Project Application Form require evidence on the Project’s preferred electrolyser supplier, engagement to date, and the type of hydrogen the Project will be producing (confirming this is electrolytic hydrogen as specified in section 3.5 of the Application Guidance). Considering there is no specific piece of evidence required for each question, if the Project is intending to submit an electrolyser quote to substantiate their answers to these questions, BEIS would expect to see content that matches the requirements set out in these two sections.

054. I wanted to confirm whether the CAPEX element of strand 3 could cover new build renewable assets that have a direct connection to the hydrogen production facility, such as wind turbines or solar panels?

HBM or NZHF subsidies will not provide support towards the CAPEX of renewable generation assets as they are focused on hydrogen production assets.

However, the HBM revenue support, which takes into account the costs of producing low carbon hydrogen, can include the costs of renewable power supply.

055. Can you please clarify if the question on Previous Public Funding relates to the company or ultimate parent?

Government needs to know if you have received any other public sector funding.  This is to comply with subsidy control obligations. This includes ensuring that government does not provide funding for the same costs that have already received public funding by other means.

056. We would also be grateful if you could clarify what your expectations are for things such as natural gas price in the cost calculator. Given the significant volatility, different projects may enter different forecasts which will impact their revenue when substituting for natural gas. Will BEIS, in assessing Annex D, undertake an apples-to-apples comparison between submissions since all projects substituting for natural gas will be exposed to the same market forces?

Electricity costs will be assessed on the basis of the agreements in place (for example PPA agreed or under negotiation). We will not use the information on hydrogen sales price agreed or in negotiation with the offtaker, to feed into the cost assessment.  However, projects will be assessed on the strength and deliverability of their commercial arrangements. Projects should not provide an absolute fixed price if their offtake agreement will not be linked to future natural gas prices.

057. I am getting confused by your definition of 5MW hydrogen product in the call. Is that peak, as in Solar power (peak), because renewable green power is often not continuous, Or is it average output over a full year 24 hours/day? I am struggling to get to grips with this. I thought it meant the label on the electrolyser which is much easier to define.

BEIS has set a minimum production capacity of 5 MW (MW output) for this allocation round, on a High Heating Value (HHV) basis. This is a ‘peak’ requirement: i.e. the hydrogen production plant must be capable of outputting 5 MW (HHV) of hydrogen (equal to 0.035 kg/s) but is not required to achieve this on an average basis. For the avoidance of doubt, this should not be read as the megawatts input electricity capacity of the electrolyser.

058. Please clarify if the grant funding that will be paid by BEIS through this mechanism to a ‘large organisation / plc’ as a bidder or member of the bid team – is that at a full rate (100%) or reduced (for example, 80:20 / 70:30) as is seen with some grant funding calls?

The maximum grant funding intensity level (CAPEX %) for this allocation round is set at 20%. Projects will be able to apply for a CAPEX % below 20% of the CAPEX that falls within the NZHF Scope (excluding CAPEX costs for storage and transport).

059. Would it be considered eligible to submit an application from an organisation domiciled in a country outside of the UK? If not, would it be considered eligible to incorporate a UK company instead to be an applicant?

As set out in section 3.1 of the Application Guidance, the application must be led by a UK registered business. To lead a project or work alone, your organisation must be a UK registered business of any size. A business is defined as an enterprise undertaking economic activities. Academic institutions, research and technology organisations (RTOs), public sector organisations or charities cannot lead or work alone. A project would be ineligible if it was led by an organisation domiciled in a country outside of the UK.

In order for the project to be eligible in this case, a UK business would need to be incorporated to be eligible to apply.

060. a. Classifications of eligible offtakes is something that has been discussed in detail.  If the business involved is vertically integrated, owning the offtake in the transport sector (selling to end use). Firstly, we would like to confirm that volumes of hydrogen sold in a project of this nature that is not eligible for RTFO support would be eligible for HBM revenue support.

Yes, a vertically integrated Project that is deemed to be ineligible for the RTFO is not automatically excluded from applying for the 2022 Electrolytic Allocation Round for the reason of owning the offtake. Sales for own consumption are considered an eligible offtake in this allocation round, provided the Project still meets the eligibility criteria for the Electrolytic Allocation Round, details of which can be found in section 3 of the Application Guidance document.

b. Secondly, we would like to know the minimum evidentiary requirements for an offtake such as this to be deemed ‘credible’ given design work and advanced project development for secondary facilities (such as public fuelling infrastructure) cannot progress beyond a certain point until an FID has been made/funding has been agreed.

The evidence required from own consumption must still provide assessors with the same level of information as that detailed on pages 49 and 50 of the Application Guidance document. Applicants must use discretion and other supporting information that will help the assessors understand the credibility of the proposed offtake (even if it is self-owned). For example, Projects may provide a letter of support from their board for switching to hydrogen produced by this hydrogen plant.

061.a. We request for clarification that can developer use Green Ammonia manufactured in other country and cracked in United Kingdom to produce Green Hydrogen in order to qualify for CfD?

This would not be eligible for the 2022 Electrolytic Allocation Round. As per section 3.5 of the Application Guidance document, the 2022 Electrolytic Allocation Round will provide funding to low carbon electrolytic hydrogen production facilities only. For the purpose of this round, ‘electrolytic hydrogen production’ refers to water electrolysis, where water is split into hydrogen and oxygen using low carbon electricity. Projects will be required to describe the type of production the project will focus on, confirming that it is electrolytic hydrogen as defined by BEIS.

b. We request for clarification regarding the use Green Hydrogen to Produce Green Ammonia and Export the green ammonia to foreign country. Will the same be allowed under this RFP? Also, kindly confirm if we are not allowed to export, is developer required to find the off taker for Green Hydrogen in UK or Developer can use the Green Hydrogen to produce Green Ammonia and later can sell it to offtaker? (Export of Green Hydrogen is Not allowed as per the project document)

BEIS is considering its position on the export of ammonia and other products derived from subsidised hydrogen and will provide an update in due course.

Sales for own consumption are an eligible offtake in this allocation round, provided the Project still meets the eligibility criteria for the Electrolytic Allocation Round, details of which can be found in section 3 of the Application Guidance document.

We expect to provide further detail on electricity sourced from outside the UK in relevant documentation, for example final Business Model Contracts.

c. Kindly confirm if developer need to setup the Renewable Power plant (i.e. Solar or wind) in UK only and if the land for the project to be arranged by Developer only or the same can be allocated by BEIS.

We expect to provide further detail on electricity sourced from outside the UK in relevant documentation, for example final Business Model Contracts.

Land arrangements or purchases are not the responsibility of BEIS for the 2022 Electrolytic Allocation Round.

d. Kindly confirm in case of tie up with any renewable power source, is bidder allowed to change the supplier/source of power during the Green Hydrogen project life cycle?

We are considering how to treat changes to electricity supply arrangements post contract signature and will provide an update in due course.

e. We request you to kindly confirm if in case of any shortfall in documents in bid submission, the bid of developer will be directly rejected or BEIS will ask for shortfall from the developer.

At any stage in the process government may, at its sole discretion, contact Projects to clarify any applications (or parts thereof) which are unclear, contain genuine mistakes, gaps, minor omissions or in relation to ambiguous responses to questions. However, government is not under any obligation to do this. Where any application is not complete or is inconsistent, vague, or ambiguous, government may consider the application on the basis of the interpretation or meaning that is the most adverse, and / or consider the application as not compliant with the rules of the fund and reject / disqualify it.

Government may also issue supplementary questions in relation to the information submitted. Government reserves the right to consider a response to any supplementary question at its absolute discretion. Unless specified otherwise, Projects will have three working days to respond to these requests. For any reason, including, but not limited to, if an answer is not received within the time limit, government reserves the right not to consider the answer to a supplementary question in its evaluation.

f. If Developers setups the Renewable energy plant to power and run the plant, will developer able to bank the power in the grid.

A hydrogen producer must be able to provide sufficient evidence that the electricity used meets the requirements set out under the LCHS, as one of the eligibility criteria of this Electrolytic Allocation Round.

Projects who also own their source of electricity are free to use or sell their surplus electricity as they wish.

074. Are Unincorporated Joint Ventures (UJVs) eligible to apply for HBM support?

We do not intend to allow UJVs to apply for HBM support under initial LCHA allocation rounds, including the CCUS Phase 2 process and the HBM / NZHF Electrolytic Allocation Round 2022.

Clarification questions, 6 October 2022

038. We are actively preparing for the HBM allocation round 2022 submission. Given the requirement of information on parent company (financial statement, forecast) as well as the SPV that’s bidding into the allocation, we would like to understand if there is any change of control requirement on the SPV from submission into the 2022 allocation round, HBM contract reward and COD.

This arrangement would be permitted as long as BEIS is able to conduct its assessment on the correct ultimate parent company. The structure to this proposed arrangement must be made clear in the final submission, especially concerning the relationship between the ultimate parent company and the proposed entities that will control or relinquish control, of the project.

041. In the submitted EOI, we planned to build a 125 MW Green electrolytic H2 facility in a single phase by end of 2025. Based on our ongoing engagement / negotiations with off-takers, we may need to split this capacity in 2 phases one year apart, and may add additional capacity as third phase by 2029/2030 to a total installed capacity of 500 MW. I would like to check and clarify with you whether I can proceed with the existing EOI and reflect the abovementioned changes in the main application? Or I need to submit a new EOI with abovementioned capacities/phases?

EoI answers are considered as indicative only and not as firm responses. Projects will not be prevented from making a full application based on the information provided in the EoI. You can proceed with the existing EoI and reflect any changes in relation to the eligible capacities in the main application. A new EoI will not be required.

Further information on the EoI process can be found on page 16 of the Application Guidance.

042. a. We are looking to power our electrolysis system through Hydropower. In the Hydrogen Emissions Calculator the renewables section states ‘Solar and Wind’ only. Could you confirm that we could declare our Hydropower as a renewable in this space on the sheet, as when putting in 100% electricity from Hydropower in the ‘Other Electricity Source’ the algorithm in the Dashboard tab deems the project to be ineligible, even when 0 rating the carbon intensity of the electricity?

Please declare your hydropower input as an ‘Other electricity source’ in the Hydrogen Emissions Calculator Initial Questions tab (cell E30), as there are still some GHG emissions associated with its power generation. You can refer to evidence from the specific electricity generator, or to general data sources such as the IPCC, to determine an appropriate GHG emissions factor for cell E31. Check this power usage and emissions factor flow through into the Electrolysis tab. Note that all mandatory fields need to be completed before the Hydrogen Emissions Calculator Dashboard tab deems a project likely to be eligible or ineligible, based on the data inputs provided.

b. Assuming that Hydropower is allowed in this round, is there a consideration on load factors and the threshold electrolytic 5 MW Hydrogen output? For example, we believe we would be able to have a 2-3x higher load factor than a directly connected wind-farm system, as our renewable power source is non-intermittent. Can the 5 MW requirement be scaled relative to forecast load factors, or is this programme focused on nameplate capacity more than actually produced Hydrogen?

Hydropower is allowed as long as the hydrogen production facility meets the definition of electrolytic hydrogen production set out in the Application Guidance document, meets the LCHS requirements and other eligibility criteria.

The requirement is for 5 MW “peak” H2 output.

c. We are looking to commence our FEED study in the near term, which will complete by Spring 2023. Is my understanding that we need to be approaching the end of our FEED study by the ‘Agreeing an Offer Stage’ in 2023 correct, or do we need to have our FEED study near completion before we apply in October this year?

As per section 5.1 of the Application Guidance, shortlisted Projects are expected, amongst other things, to be able to demonstrate that FEED is at an advanced stage and that they are committed to optimising the design of their Projects at the Agreeing an Offer Stage.

d. As an aside, at 5 MW output at 70% efficiency, this requires electrolysis systems of over 7.1 MW (an unusual size relative to industry) input power before any further compression etc., I assume that is an intended requirement?

BEIS is aware that this will require an electrolysis system with a nominal (electrical) capacity greater than 5 MW. BEIS has set a minimum production capacity of 5 MW (MW output) for this allocation round, on a High Heating Value (HHV) basis. This is a ‘peak’ requirement: that is the hydrogen production plant must be capable of outputting 5 MW (HHV) of hydrogen (equal to 0.035 kg/s) but is not required to achieve this on an average basis.

043. We are considering producing green hydrogen for internal use using electrolysis and renewable power. I have just taken part in the webinar for funding regarding round 1 (strand 3). I understand from government strategy 2035 that there is likely to be a second allocation funding round in 2023. Do you have any further info on timeline as we won’t be ready to submit any info at in 2022?

We have set out in the British Energy Security Strategy our aim to run annual allocation rounds so that up to 1GW of electrolytic hydrogen projects are in operation or construction by 2025, moving to price competitive allocation by 2025 as soon as legislation and market conditions allow. We have not yet published timings for the intended 2023 round.

044. Our project is a partnership between a hydrogen producer and a hydrogen distribution company with ownership of the hydrogen transferring between the Partners before being sold to Qualifying Offtakers. We are concerned that due to these commercial arrangements, the distribution company may fall into the category of a ‘risk taking intermediary’ affecting eligibility, despite them being a Project Partner and the Project having commitments from multiple Qualifying Offtakers. Please can you confirm that this arrangement would be eligible?

This arrangement will not be eligible as this involves selling to a risk-taking intermediary. A risk-taking intermediary is defined as a person that purchases hydrogen for the purpose of resale. The definition of risk-taking intermediaries applies to all sectors, including transport. Volumes sold to risk-taking intermediaries operating in the transport sector may however be eligible for RTFO support.

045. We have 4 UK plant locations where hydrogen generation is key to our decarbonisation strategy. Our strategy is to accelerate hydrogen across ALL of our sites / plants, and therefore are interested in grant funding for ALL 4 UK plants. I can see the following statement on page 21 of the application guidance document; “The 5MW threshold applies to individual projects. Projects will not be able to aggregate capacity across different locations or have a phasing approach to build capacity gradually to 5MW.” Does this statement mean the 5MW cannot be across more than one site, but we can have multiple sites, as long as there is a minimum of 5MW per site? Or does it mean multiple sites are not allowed altogether? And if this is the case, is submitting multiple applications (that is one per site) a way around this? And how would this be received by BEIS.

The 5MW threshold applies to individual projects and should comprise one single facility in a single location.

For this allocation round, we would expect one submission per project. A business can lead on up to 4 applications, which must be materially different, and can be included as a collaborator, or project partner, in a further 4 applications.

046. Why is an NDA not being put in place for the bid? Are we able to request one and supply a template if we wish to have an NDA in place?

BEIS does not think NDAs are necessary as BEIS considers its privacy notice and the information about the use of Projects’ data in our Application Guidance sufficient to protect Projects and their data.

It is expected that details of support offered for Projects, with the exception of commercially sensitive information, may be published following the completion of the Agreeing an Offer Stage and awards.

Government may also share information provided by projects (including information within the Submissions or EOIs) with other parts of government for the purposes of policy development and facilitating coordination in certain areas if relevant. In addition, this information may be aggregated and anonymised for the purposes of engagement with external audiences.

Government will also follow all applicable data protection laws in how it treats your personal information.

047. Does carbon emission (gCO2e/MJ) get assessed at COD (alludes to this in the Application Guidance Document) or averaged across first 3 years (alludes to this in the Application Form)?

CO2e intensity should be calculated for each of the first 3 years of the project’s operation. Projects need to be compliant on each of these 3 years to be eligible for funding. The averaged emissions intensity across the first 3 years will be used to inform scoring.

We appreciate that the first 3 years of operation will rarely perfectly coincide with 3 full calendar years. Therefore, for the question of “What full calendar year of plant operations do the calculations in this workbook cover?” in the Initial questions tab of the HEC, applicants should fill in the nearest new year to their COD.

In practice, this means that applicants should record year 1 in the HEC as the calendar year of the project’s COD when that falls in the months of January to June inclusive. Applicants should record year 1 as the calendar year following the project’s COD when that falls in the months of July to December inclusive. Applicants should still submit all data representative of year 1 under the calendar year label selected, and the same applies for years 2 and 3 – in other words, the calendar year selected in the HEC should be the one that the majority of the annual data sits in. Data covering operation in only part of an annual period should not be submitted in any HEC.

Worked example 1:

COD is expected 24 May 2024. Year 1 data runs from 24.05.24-23.05.25; year 2 data 24.05.25-23.05.26; year 3 data 24.05.26-23.05.27. In the HEC, all year 1 data should be reported under 2024, all year 2 data should be reported under 2025, and all year 3 data should be reported under 2026.

Worked example 2:

COD is expected 1 October 2025. Year 1 data runs from 01.10.25-30.09.26; year 2 data 01.10.26-30.09.27; year 3 data 01.10.27-30.09.28. In the HEC, all year 1 data should be reported under 2026, all year 2 data should be reported under 2027, and all year 3 data should be reported under 2028.

051. a. At the BEIS NZHF event on August 31, it was suggested that only the lead partner should be detailed and provide supporting information in responses to questions 5.1.1, 5.1.2 and 5.2.1. This seems to be at odds with these questions which specifically ask for supporting information from all those involved, including if from a consortium. Can BEIS clarify, if the electrolytic will ultimately owned by a joint venture, that sponsors should provide this supporting information?

These documents requested as part of the application relate only to the applicant company (and, in the case of a consortium led project, any other company or companies directly involved in the operation of the Project), the company / companies responsible for key investment decisions in relation to the Project, and their ultimate parent company.

b. During the Cluster Sequencing process, the lead partner signed an NDA with BEIS and was able to fill out the text copied below. There does not seem to be any equivalent information or options to provide this information for the NZHF. Is this deliberate? How will sensitive and confidential information be handled by BEIS?

BEIS does not think NDAs are necessary as BEIS considers its privacy notice and the information about the use of Projects’ data in our Application Guidance sufficient to protect Projects and their data.

It is expected that details of support offered for Projects, with the exception of commercially sensitive information, may be published following the completion of the Agreeing an Offer Stage and awards.

Government may also share information provided by Projects (including information within the Submissions or EOIs) with other parts of government for the purposes of policy development and facilitating coordination in certain areas if relevant. In addition, this information may be aggregated and anonymised for the purposes of engagement with external audiences.

Government will also follow all applicable data protection laws in how it treats your personal information.

c. Will parts of the application be published. Do you mean just the public description, ultimate details of project support at a future date or will this also include other sections? Publishing the entire application would obviously be highly irregular and not what we expect but a clarification for peace of mind would be greatly appreciated.

BEIS will not publish the submitted application or any commercially sensitive information. It is expected that details of support offered for Projects, such as public descriptions and grant amounts, may be published following the completion of the Agreeing an Offer stage and awards.

064. a. Does BEIS intend on providing an NDA for us to sign with our submission?

BEIS will not publish the submitted application or any commercially sensitive information. It is expected that details of support offered for Projects, such as public descriptions and grant amounts, may be published following the completion of the Agreeing an Offer stage and awards.

BEIS does not think NDAs are necessary as BEIS considers its privacy notice and the information about the use of Projects’ data in our Application Guidance sufficient to protect Projects and their data.

It is expected that details of support offered for Projects, with the exception of commercially sensitive information, may be published following the completion of the Agreeing an Offer Stage and awards.

Government may also share information provided by Projects (including information within the Submissions or EOIs) with other parts of government for the purposes of policy development and facilitating coordination in certain areas if relevant. In addition, this information may be aggregated and anonymised for the purposes of engagement with external audiences.

Government will also follow all applicable data protection laws in how it treats your personal information.

b. If not, how does BEIS intend on securing the confidentiality of the information provided as part of the submission?

In terms of the treatment of confidential information, BEIS will use appropriate labelling, storing, restriction and access processes.

066. a. Section 3.9 of the Application Form requests applicants to provide the HEC results for the first 3 years of production. If our project is not targeting production on 1-Jan, do we take Year 1 to be a partial year? Or do we assume, as per guidance on Section 5.4.2, a “representative annual cycle” and show, for example, 1-Jul-25 to 30-Jun-26? Or would it be acceptable to provide results for the following year (for example 2026) as Year 1?

We appreciate that the first 3 years of operation will rarely perfectly coincide with 3 full calendar years. Therefore, for the question of “What full calendar year of plant operations do the calculations in this workbook cover?” in the Initial questions tab of the HEC, applicants should fill in the nearest new year to their COD.

In practice, this means that applicants should record year 1 in the HEC as the calendar year of the project’s COD when that falls in the months of January to June inclusive. Applicants should record year 1 as the calendar year following the project’s COD when that falls in the months of July to December inclusive. Applicants should still submit all data representative of year 1 under the calendar year label selected, and the same applies for years 2 and 3 – in other words, the calendar year selected in the HEC should be the one that the majority of the annual data sits in. Data covering operation in only part of an annual period should not be submitted in any HEC.

Worked example 1:

COD is expected 24 May 2024. Year 1 data runs from 24.05.24-23.05.25; year 2 data 24.05.25-23.05.26; year 3 data 24.05.26-23.05.27. In the HEC, all year 1 data should be reported under 2024, all year 2 data should be reported under 2025, and all year 3 data should be reported under 2026.

Worked example 2:

COD is expected 1 October 2025. Year 1 data runs from 01.10.25-30.09.26; year 2 data 01.10.26-30.09.27; year 3 data 01.10.27-30.09.28. In the HEC, all year 1 data should be reported under 2026, all year 2 data should be reported under 2027, and all year 3 data should be reported under 2028.

b. Section 3.9 of the Application Form requests applicants to provide a Document Reference to the Average HEC results. As the Average HEC figure will simply be the average of Year 1, 2 and 3, we are unsure what supporting documentation is being requested here. We will have already provided the HEC for Year 1, 2 and 3 above.

Projects are not required to submit a document associated with an average HEC figure. Please do however submit the average figure itself of years 1, 2, and 3 next to the three yearly figures under section 3.9.

Clarification questions, engagement sessions, 25 and 31 August and 5 September 2022

ES1. What level of commitment is BEIS expecting in relation to an offtaker’s ability to take hydrogen? For example MOU versus formal agreement

Within a Project’s final submission government expects to see an agreement or evidence of progress towards an agreement with hydrogen offtakers. For example, this could be:

• a letter of intent or provisional agreement with offtakers
• Memoranda of Understanding, collaboration agreements or draft Heads of Terms being in place between the hydrogen producer and its proposed offtakers
• government recognises that the level of commitment in place between an early-stage Project and its partners may naturally vary depending on the Project’s stage of development so any evidence of formal and informal agreements and discussions would be welcome

ES2. Identification of hydrogen production technology and consideration of storage and transport. What sort of evidence does BEIS expect from this?

As part of the assessment on Project Deliverability there will be an evaluation of the capability and capacity of supply chains to deliver required materials, goods, and skills for the construction and operation of the hydrogen production plant. Government would expect to see:

• evidence that key contracts are in place with core suppliers of equipment and services – or, at a minimum, substantial engagement with prospective suppliers
• evidence of engagement with technology licensors

As part of the assessment on Technical Deliverability government would expect to see a clear outline of off-takers location, and compression, storage, and transportation requirements to deliver the hydrogen to them.

Further information on the evidence required for a Project’s deliverability assessment can be found in section 4.2.1 of the Application Guidance document.

ES3. What type of independent studies are BEIS envisaging?

As part of a Project’s final submission, independent studies can be submitted to evidence answers for the Cost criterion. These could be, but are not limited to, published academic studies, or studies by third parties.

ES4. What does BEIS define as ‘fugitive’ emissions?

Fugitive emissions are considered to be intentional or unintentional releases of greenhouse gases to the atmosphere. For example, fugitive emissions occur via leakages of natural gas from the gas transmission and distribution network (note that the Low Carbon Hydrogen Standard data annexes provide default data on these emissions ). Where these emissions occur within the “point of production” system boundary defined in the standard, they must be accounted for when calculating the greenhouse gas emissions associated with hydrogen production.

BEIS considers fugitive hydrogen emissions to be releases of hydrogen into the atmosphere incurred as the hydrogen passes through the supply chain. Within the system boundary used in the standard, significant sources may include, but are not limited to: process venting, hydrogen compressors, on-site storage, flares, and leakage through pipework and joints. More detail on this, alongside specific requirements for hydrogen production plants, and guidance on minimising fugitive hydrogen emissions, can be found in Chapter 8 of the UK Low Carbon Hydrogen Standard guidance document.

ES5. For technology procurement do we have to have contracts in place?

As part of the assessment on Project Deliverability there will be an evaluation of the capability and capacity of supply chains to deliver required materials, goods, and skills for the construction and operation of the hydrogen production plant. Government would expect to see:

• evidence that key contracts are in place with core suppliers of equipment and services – or, at a minimum, substantial engagement with prospective suppliers
• evidence of engagement with technology licensors

Further information on the evidence required for a Project’s deliverability assessment can be found in section 4.2.1 of the Application Guidance document.

ES6. From what date are costs eligible? Is it the point of signing the grant agreement or can an earlier date be used?

Government will not be responsible for, nor make any commitment in respect of, costs incurred before the signature of any Low Carbon Hydrogen Agreement or Grant Offer Letter.

ES7. What is the process for actually submitting the application - do we complete it all on the word documents/spreadsheets then upload the files to a portal?

Projects wishing to apply must select a Project Representative who will be provided access to the Online Application Form. Following completion of the EoI this Project Representative will be responsible for submitting all the relevant Project information.

Project Representatives must provide completed copies of the EoI and, subsequently, each of the relevant submission forms found on the Electrolytic Allocation landing page, along with supporting and mandatory evidence and information where required, to be considered under this Electrolytic Allocation Round.

The relevant documents and attachments must be uploaded by the Project Representative in Section B of the online application form.

Further information on the final submission structure can be found in section 2.1 of the Application Guidance document.

ES8. Are there any criterion for how CAPEX can be used/not used?

Projects applying for CAPEX funding from the NZHF under this allocation round can receive support on the production facility.

The maximum grant funding intensity level (CAPEX %) for this allocation round is set at 20%. Projects will be able to apply for a CAPEX % up to 20% of the CAPEX that falls within the NZHF Scope. CAPEX costs for storage and transport are not included within scope of this NZHF funding.

HBM support could include:

• the CAPEX, but not OPEX, costs associated with small-scale hydrogen transport infrastructure, and
• the CAPEX and/or OPEX costs associated with small-scale storage infrastructure

ES9. Can an offtaker be an intermediary or does it need to be the direct consumer?

In the context of the Electrolytic Allocation process, an offtaker is both the end user of low carbon hydrogen and, where relevant, any intermediary party who may purchase and resell hydrogen to end users.

Please note that volumes sold to a risk-taking intermediary will not be eligible for subsidy under the HBM through this Electrolytic Allocation Round. For the purpose of determining eligibility, a risk-taking intermediary is defined as a person that purchases hydrogen for the purpose of resale.

Where end users do not purchase hydrogen directly from producers and there is an intermediary party, information and evidence of both end users and the intermediary need to be included in the Project Application Form and templates.

These details must still be provided, in order to provide BEIS with the level of confidence needed when assessing the delivery plan put forward by the project and the date at which the Project can, credibly, be operational by.

ES10. Should text in diagrams be included in word count(s)?

Reasonable and proportionate inclusion of diagrams and simple tables will be excluded from the word counts, as well as any headings and subheadings.

ES11. Section 3 states “Please reference a single piece of evidence from your application submission to support your responses.” Is this the case, given both your example and that some questions have multiple asks?

Yes, the Project Application Form asks Projects to provide a short response to each of the questions to confirm that their project meets the Eligibility Criteria. Projects must reference a single piece of evidence from their application submission to support their response to each question, for example in 3.1 a Project can submit 2 pieces of evidence. Where a single question has “multiple asks”, Projects should still submit a single piece of evidence.

Eligibility will be checked and verified against the information and single piece of evidence referenced and, if needed, further checks will be undertaken within the application response and additional support evidence provided. Projects that fail to pass the eligibility criteria will not progress further in the evaluation process.

ES12. Will the same assessors review all sections of the application or will different people be responsible for reviewing the different criteria? That is, can we minimise replication/duplication of answers because there will be an understanding of the project carried across different criteria? Or does each answer need to be viewed as standalone?

Each answer must be written as if it is to be viewed as a standalone response. Where related questions sit within the same sub section, for example 5.4 Technical Deliverability, then reasonable references can be made within that sub section.

ES13. In some places a word count is listed in the section header (e.g 500 words as shown in section 4 example) but there are multiple questions within the section. Is the limit 500 words per the section or per question?

Word counts are applied across the whole section for which they relate to. For example Section 5.1.1 ‘Organisational structure company level questions (750 words)’ is comprised of 6 different questions. The 750-word limit is to be spread across all 6 questions. BEIS encourages Projects to be aware of the word limits attached to each question in the Project Application Form. Any text that exceeds the word count will not be assessed. Where multiple questions contribute to the total word limit being exceeded, then an equal reduction in word count will be made to each question.

ES14. The Title for 4.1 states that “list of offtakers and other project partners contact information excluded from the word count” but there is no indication in the question guidance that this information is required. Could BEIS please clarify if a full list of offtakers/partners and their contact information is expected in the answer?

When answering this question respondents should provide an overview of the offtakers, including end use, the Project’s stage of securing an arrangement to supply and their development stage for preparing for conversion.

Projects may provide contact information for their offtakers and partners if they choose to do so, however this does not count towards a Project’s assessment. Any offtaker or partner contact information does not count towards the word limit.

ES15. If a project has a mix of electricity sources, some from on-site wind farm and some from the power from the grid. Does it have any impact on the allocation round application? Can the hydrogen generated from the power from the grid be eligible for the CfD support? Thanks.

A hydrogen producer must be able to provide sufficient evidence that the electricity used meets the requirements set out under the LCHS, as one of the eligibility criteria of this Electrolytic Allocation Round. These requirements do not preclude the eligibility of power from the grid under the LCHS – although, as noted on page 61 in the UK Low Carbon Hydrogen Standard: government response, the emissions threshold of the LCHS is likely to be too low for electrolysers using grid electricity all or most of the time.

For grid connected electrolysers seeking to use grid imported electricity not linked to a specific generation source (alongside renewable, low carbon electricity), actual national grid average emissions data per 30-minute electricity settlement period will be required in order to calculate the emissions intensity of the grid imported electricity used in hydrogen production. Individual discrete consignments based on grid imported electricity may be averaged once a month with discrete consignments based on low carbon inputs; provided this total averaged consignment meets the LCHS emissions threshold, some use of grid electricity is likely to be eligible under the LCHS.

For all electricity input being claimed as low carbon under the LCHS, the technical requirements are set out in more detail in Annex A of the guidance document. Namely, these are temporal correlation (matching generation of the specific asset(s) and electrolyser consumption per 30 minutes), contractual links to a generation asset (a PPA linking to that generation asset – note this only applies if claiming the emissions intensity of a specific generation asset), and energy attribute information to cover the amount of electricity used (such as a REGO).

The electricity source is a vital factor in achieving the LCHS requirements as well as the strategic objectives of the NZHF and the HBM. Therefore, government requires sufficient evidence to demonstrate that the design and operation of the overall plant, incorporating the electricity supply with hydrogen delivery is technically robust and will achieve the required outputs. Essential to this is understanding how the generation of intermittent renewable energy source(s), if applicable, will be balanced with the forecasted demand of the offtakers, including any storage requirements.

Assessment of the additionality of electricity is weighted at 5% of a Project’s overall score. Projects will be credited for providing clear and credible evidence, details of which can be found in section 4.2.6 of the Application Guidance. Projects are scored against the additionality scoring framework, found on page 69.

ES16. In the application guidance it states that you will take into account whether applicants submit for both CAPEX support (under NZHF) and support under the HBM or the HBM only. How is this accounted for within the bid evaluation and could a project effectively be scored down for applying for both rather than just support under the HBM?

CAPEX support lowers lifetime project costs through lower financing costs. Providing CAPEX support through the NZHF to projects also receiving support through the HBM may therefore lower the amount of ongoing revenue support required, achieving better VfM for the taxpayer and/or consumers. We encourage projects to consider applying for NZHF CAPEX support alongside HBM revenue support in this window where appropriate, as it may lead to a better overall VfM. Projects will not be scored down for applying for both revenue and capital support.

ES17. Is it correct that if a portion of generated hydrogen will apply for RTFCs, this volume of hydrogen cannot get the CfD support?

Government recognises that some Projects may be considering revenue support through both the Hydrogen Business Model and the RTFO. Subject to compliance with subsidy control principles and the final design of the HBM, producers in receipt of Hydrogen Business Model support will be allowed to participate in the RTFO. Volumes produced will be allowed to be claimed under the RTFO, subject to meeting the RTFO’s eligibility criteria, but claiming under both the HBM and RTFO for the same volumes of hydrogen will not be permitted. Work is ongoing to develop administrative arrangements and an enforcement regime enabling dual participation and guarding against producers claiming under both schemes for the same costs.

ES18. Can you please explain the timeline from EoI to application?

Section 1.4 of the Application Guidance document provides a process overview of the application and allocation process.

ES19. For job estimates - can this include impact/benefits for H2 offtakers around securing existing jobs?

Annex C to the project application form aims to capture the benefits from both direct and indirect job creation. For the purpose of the assessment under sub-criterion 8.1 (Number and Quality of Jobs) indirect jobs are defined as: “those employed or hired by 2nd and lower tier-sub-contractors providing labour, goods or service: those wholly for the purpose of project development and/or operations.” As such, only indirect jobs created upstream the supply chain should be included in Annex C and no multiplier effects should be included. We would still allow projects to provide any information on potential downstream employment impacts under sub-criterion 8.4 (Wider Economic Benefits).The methodology to calculate the extra jobs should be clearly explained, ideally linking to the latest HM Treasury Green Book multiplier guidance. New offtaker jobs can only be attributed as being created by the Project if (i) it can be proved that offtakers’ only source of H2 would be the Project’s and buying hydrogen from the open market would not be cost effective, and (ii) there is evidence for a net increase in jobs.

In terms of securing existing jobs, jobs can only be considered safeguarded where there is real threat that they will be lost in the near future if the project does not proceed (e.g. without this project the factory will close down). For jobs to be considered as such the applicant will need to provide credible evidence to support their claim that these jobs are at genuine risk if the project were not to proceed.

ES20. If a project has a portion of electricity source is the power from the grid, can a renewable PPA for that volume help to meet the carbon emissions requirements? (ES20)

Under the LCHS, for all electricity input being claimed as low carbon, the technical requirements set out in Annex A of the guidance document would need to be met; namely, temporal correlation (matching generation of the specific asset(s) and electrolyser consumption per 30 minutes), contractual links to a generation asset (a PPA linking to that generation asset – note this only applies if claiming the emissions intensity of a specific generation asset), and energy attribute information to cover the amount of electricity used (such as a REGO).

ES21. Section 5.2 requests a number of different financial reporting documents (three years of company accounts etc) from the “applicant companies”. The introductory text mentions “primary or significant off-takers” and suggests that these should be “listed”. It goes onto state that each company participating in the development of the Project must provide a response to the questions. However, we assume that for projects whereby the off-takers are not partners (or participants) in the development of the electrolytic hydrogen project, but will simply buy hydrogen, the financial reporting documents are not required for such off-takers? (ES21)

The financial reporting documents requested as part of the application relate only to the applicant company (and, in the case of a consortium led project, any other company or companies directly involved in the operation of the Project), the company/companies responsible for key investment decisions in relation to the Project, the group parent company/companies and their ultimate parent company. Financial documents relating to off-takers are not required. Instead, only the name of the off-taker (the legal entity from which it trades) is required.

Clarification questions, 22 September 2022

033. Are there any special requirements to meet the LCHS and be eligible for the HBM in relation to using batteries to buffer electricity sourced through a PPA?

The Low Carbon Hydrogen Standard specifies that electricity input for electrolysis must come from low carbon sources (linked via contractual mechanism and temporally correlated), and therefore storage solutions used as an electricity input may be compliant provided the electricity used is low carbon.

To ensure compliance with the standard, the electricity that feeds the battery will need to meet the principles for low carbon electricity input which include: 1) energy attribute information to demonstrate ownership of the low carbon electricity input; 2) proven links to low carbon electricity input; and 3) temporal correlation to prove time-based links between generation and consumption in the hydrogen production process.

034.a. Eligible costs date - From what date (date of submission, date of entering negotiations or date of signing?) is Devex and Capex expenditure eligible for support from the HBM or NZHF, subject to successful negotiations and signing of the grant offer letter? It may be necessary to make down payments for long-lead items prior to LCHA/grant offer letter signature.

Support will only be provided in accordance with the provisions of the contracts after negotiations have been completed and contracts are signed. Government will not be responsible for, nor make any commitment in respect of, costs incurred before the signature of any LCHA or Grant Offer Letter.

b. LCOH calculation - Annex D provides the inputs to the LCOH model but does not compute LCOH, a key metric. As applicants we want to confirm the LCOH result is consistent with our internal models. Please can BEIS provide a revised template that calculates LCOH?

A Levelised Cost Of Hydrogen calculator will not be issued to applicants. As per section 4.2.3 of the Application Guidance, government will use the information and evidence submitted by applicants within and alongside the template to assess the robustness of the cost estimates and will make an adjustment to account for remaining uncertainty or a lack of evidence provided to support cost estimates. Projects are therefore encouraged to provide as accurate and robust information as possible, as the credibility of the figures provided and quality of supporting evidence will affect the score received by a project.

036. Regarding the portal question of “Have you received other public sector funding in the last 3 years?”, does this refer to the project, submitting entity, submitting entity’s immediate Parent company, or perhaps even submitting entity’s ultimate Parent company?

Government needs to know at this stage if the applicant company or its ultimate parent has received any other public sector funding for the proposed project. This is to assist with ensuring that government does not provide funding for something that has already received public funding by other means.

Additional requirements in relation to subsidy control (including provisions prohibiting cumulation in respect of the same eligible costs) are expected to be included in the Low Carbon Hydrogen Agreement.

037. Could you please confirm what is meant by the 75% hydrogen offtake requirement? Is this percentage based on nominal electrolyser production capacity, or on the amount of hydrogen that we plan to produce (based on load factors and day rates)?

The 75% refers to the amount of hydrogen that is expected to be produced.

A Projects’ Deliverability score will be based on their performance against 3 key factors, including BEIS’ confidence that the project has commercial and technical arrangements in place with viable off-takers for most (defined as 75% or above) of their hydrogen volumes.

For example, for a 10MW project that intends to produce 40GWh of hydrogen per year, 75% of the hydrogen volumes would represent 30GWh of hydrogen per year.

040. Are plasma electrolysers within scope for the call?

No, plasma electrolysers are not within the scope of eligible technologies for this allocation round. The 2022 HBM/ NZHF Electrolytic Allocation Round will provide funding to low carbon electrolytic hydrogen production facilities only. Electrolytic hydrogen production refers to water electrolysis, where water is split into hydrogen and oxygen using low carbon electricity. Projects will be required to describe the type of production the project will focus on, confirming that it is electrolytic hydrogen as defined by BEIS.

This does not preclude the inclusion of other technologies in future allocation rounds, in line with government’s ambition to support a range of technologies where they can make a significant contribution to our hydrogen production ambitions whilst also supporting broader energy policy.

Clarification questions, 20 September 2022

026. a. Can we apply for HBM/NZHF funding as one entity whilst establishing a new sister entity that will ultimately own the project (any potential contract would therefore awarded to the sister entity)? We intend to set out further details in our application but would like to confirm whether in principle these arrangements would be permitted

Yes, this arrangement would be permitted as long as BEIS is able to conduct its assessment on the correct ultimate parent company. The structure to this proposed arrangement must be made clear in the final submission, especially concerning the relationship between the ultimate parent company and the proposed entities that will control or relinquish control, of the project.

b. The guidance for ‘3.10 Demonstrate access to finance’ suggests multiple pieces of evidence will be required despite the general rule for Section 3 being to reference a single piece of evidence. Could you please confirm that multiple sources of evidence are permitted for 3.10.

Multiple evidence examples have been given in question 3.10 to provide a range of example evidence that could be provided. As set out across section 3 of the Project Application Form, Projects must reference the single most appropriate piece of evidence from your application submission to support your response to each eligibility criterion. Projects are able under the Deliverability evaluation criterion to submit additional mandatory and supporting financial related information.

During the evaluation process BEIS will perform additional checks on the credibility of the evidence provided and the robustness of any calculations involved. If Projects fail to provide sufficient evidence in respect of their satisfaction of the eligibility criteria, BEIS will consider these to have failed the eligibility check and they will not progress further in the evaluation process.

c. The Title for 4.1 states that “list of offtakers and other project partners contact information excluded from the word count” but there is no indication in the question guidance that this information is required. Could BEIS please clarify if a full list of offtakers/partners and their contact information is expected in the answer?

As part of their answer to question 4.1 in the Project Application Form, Projects are asked to provide an overview of their offtakers, including end use, the Project’s stage of securing an arrangement to supply and their development stage for preparing for conversion. Any contact information and the listing of offtakers or other project partners does not count towards the maximum 500-word limit for this answer as Projects are not assessed on this information.

d. Could you please clarify the extent to which the above requirements are different or overlapping if the electricity used to produce hydrogen is generated from biomass off-site, including mixed feedstocks (i.e. x% biogenic, y% non-biogenic) , and sourced via a PPA?

The same evidence requirements apply in this case, where the electricity is generated from a mixed biomass feedstock off-site and sourced via a PPA:

• provided that the technical requirements around energy attribute information, low carbon electricity generation attributes and temporal correlation can be satisfied (as per Figure 3 in Annex A of the standard guidance document), the emissions intensity of the off-site generation asset can be reflected in real time
• the emissions intensity of electricity source should include the upstream emissions associated with electricity generation. Where mixed feedstocks are used, electricity generation emissions would have to be calculated separately for each feedstock, split at least according to the biogenic and non-biogenic fractions (and further as necessary e.g. if multiple types of biogenic feedstock are used), to feed into separate calculations for discrete consignments of hydrogen. Overall, the emissions relating to each consignment (noting that discrete consignments may then be averaged), alongside all other in-scope emission sources, would need to fall below the standard threshold. To calculate emissions for a project of this nature, using the full version of the Hydrogen Emissions Calculator is recommended
• the biogenic portion would also need to comply with the non-GHG criteria in the standard, as laid out in Annexes C & D of the guidance document. If the mixed feedstock is a non-agricultural waste or residue, it is unlikely that these additional criteria would apply

029. Page 47 of the guidance suggests that projects need to have a minimum of 75% offtake agreed to be eligible but to score a minimum of 4 in the deliverability criteria an offtake of 50% or more will qualify for a medium score (5-6). Please can you confirm the minimum offtake % for eligibility.

Under the Deliverability evaluation criterion, Projects are scored against government’s confidence that the project has commercial and technical arrangements in place with viable off-takers for most (75% or above) of their hydrogen volumes. This is not a pass/fail eligibility criterion like those set out in section 3 of the Application Guidance document, although Projects must meet the minimum score threshold of 4 out of 10 to be considered for the Agreeing an Offer stage.

A project that demonstrates evidence of commercial and technical arrangements with offtakers for at least 50% of their hydrogen volumes, and confidence that those offtakers are commercially and technically viable and align with the electricity supply and storage arrangements can, at a maximum, score a 6 out of 10 for Deliverability if other score descriptors have been met. Projects must meet the minimum score threshold of 4 out of 10 and will be removed from further evaluation against other criteria if this threshold is not met. For a Project to score at least a 4 out of 10 there must be some confidence that proposed offtakers for 50% or above of hydrogen volumes are commercially or technically viable and other score descriptors are met, this would be the minimum offtake percentage a project must demonstrate.

030. It would also be helpful to know what offtake structures are eligible. Specifically, if a project sells hydrogen to a mobility refuelling network provider and that provider resells the hydrogen to the mobility end user, would that fail the risk taking intermediary criteria? The guidance appears to indicate that would be case on the basis of a risk taking intermediary being “defined as a person that purchases hydrogen for the purpose of resale”. However, it’s not clear whether you had mobility in mind when you drafted this criteria or whether it’s specific to other offtakers.

Volumes sold to risk-taking intermediaries are not eligible for HBM support. The definition of risk-taking intermediaries applies to all sectors, including transport. Volumes sold to risk-taking intermediaries operating in the transport sector may however be eligible for RTFO support.

031. DfT confirmed there is no restriction within the ZEBRA grant terms and conditions on using other public funding as part of the scheme, such as a local authority investing its own funds in the project outputs. However DfT suggested we should clarify the position with yourselves regarding the Net Zero Hydrogen Fund to ensure there is no restriction within this on an ‘offtaker’ (in this case the bus operator) already being in receipt of grant funding.

The Net Zero Hydrogen Fund (NZHF) will provide capital expenditure for new hydrogen production, alongside operational support from the Hydrogen Business Model.  Projects cannot receive government support from multiple sources (i.e. from both NZHF and IETF) for the same eligible costs and will need to comply with any relevant subsidy control requirements. Any subsidy received previously or together with the support provided through the NZHF and/or HBM will need to be declared and the applicant would need to ensure that the funding schemes do not provide support for the same costs.

032. a. Just to confirm the Strike Price will be designed to include:

- CAPEX + returns on capital
- OPEX
- Margin etc

The strike price will include CAPEX and OPEX for the facility, as well as an appropriate level of  return on the capital invested in the project. Hydrogen business model support may also include capex (not OPEX) for small scale transport infrastructure and CAPEX and/or OPEX for small-scale storage. Support will be assessed on a project-by-project basis taking into account several factors, including necessity, affordability and value for money. More detail can be found in the hydrogen business model indicative heads of terms (noting that they are preliminary and indicative only and the provisions set out therein are subject to further consideration and development by BEIS).

b. Alongside that a project can also apply for CAPEX (via NZHF) support as well. The value of this grant would then need to be adequately reflected in the submitted Strike Price?

The offer to Projects will include both Strike Price and, where agreed, a CAPEX grant amount. As the HBM will only incorporate the  CAPEX invested by the project and which has not been funded by the CAPEX grant. The value for money assessment of submissions will take into consideration the subsidy amounts from both the NZHF and the HBM support schemes where relevant. More detail can be found in the Electrolytic Allocation Application Guidance document.

Clarification questions, 6 September 2022

012. What is Annex G and how can we access it? It is mentioned on page 7 of the project application form in Table 1 but there is no annex G on the BEIS website. Should Annex G actually refer to the EA guidelines in Appendix A of the Application Guidance?

A correction has been made to the Project Application Form, where the previously labelled Annex G now refers to Appendix A in the Application Guidance document.

013. We note in Section 1.5 of the Application Guidance Document that the FID date is given as ‘3 months from award of contracts’.  We also note that the timetable in Section 1.5 is indicative.  Please could you clarify if a project achieves FID later than the 3 months from award of contract, for instance, in January 2024 and can attain the COD by December 2025 - is this project eligible?  Would there be any detriment to a project that achieves FID six months from award of contract yet can still attain COD by December 2025?

A credible plan will need to be provided to demonstrate a COD by end of 2025. There is an expectation that projects should take FID 3 months from award of contract. Shortlisted Projects will engage with BEIS on a variety of financial, legal, technical and commercial issues such as progress according to the project timeline submitted at application stage, and discussing any issues or concerns highlighted during the assessments.

The scope of this engagement will be confirmed as part of the invitation letter to the Agreeing an Offer Stage. It should also be noted that BEIS is committed to future allocation rounds, the details of which will be announced in due course.

As per section 3.2 of the Application Guidance document, at the eligibility stage, Projects will be asked to provide a target COD. The Project Schedule, including FID, and the robustness of the information provided to support it will be assessed further during the evaluation stage.

As per section 3.2 of the Application Guidance document, it is also important to note that the December 2025 COD date is intended as a backstop date; having an earlier COD could count favourably towards the project at the evaluation stage.

014. a. The term ‘minimum production capacity’, discussed in section 3.8 of the document, refers to the internal energy of hydrogen, on HHV basis, and the capability of the plant to produce hydrogen at this rate.

The electrolytic allocation round specifies a minimum production capacity of 5MW, which refers to the internal energy of the hydrogen produced.

b. The actual production rate will depend on offtake quantities and may be below the minimum production capacity at certain times.

Yes, the minimum production capacity of 5MW output is not a requirement for all times - the condition is that the electrolyser should have the capacity to output at 5MW.

015. a. Are all the metrics used for the electrolytic allocation round presented on a MWe (input of electricity) or MW(LHV) meaning hydrogen output? For example, when you say a target of 250 MW in the 2023 allocation, is it referring to MWe or MW(LHV), same for the minimum capacity to apply to the HBM/NZHF electrolytic allocation.

The metrics refer to hydrogen output. BEIS has set a minimum production capacity of 5MW (MW output) for this allocation round, on a High Heating Value (HHV) basis. For the avoidance of doubt, this should not be read as the megawatts input electricity capacity of the electrolyser.

b. All the available applications are targeting projects with COD 2025. I was wondering if NZHF calls in 2023 will target projects with later online dates. Or what are the options for CAPEX funding for projects pretending to come online later than 2025.

As per section 1.5 of the Application Guidance document, BEIS is aiming to open a similar process to this Electrolytic Allocation Round in 2023, for contract award in 2024, and aim to have up to 1GW of electrolytic hydrogen in construction or operational by end of 2025 via these two allocation rounds. Policy is currently being developed for next year’s round and the COD for next year’s round is yet to be decided and we will update the sector on this in due course.

016. a. Can you provide more clarity on the definition of the 75% offtake requirement? Is the 75% in reference to the nominal hydrogen production capacity of the electrolyser (i.e. assuming 100% load factor), or the amount of hydrogen that is expected to be produced? We consider that requiring 75% of nominal production will limit the ability of electrolysers to operate in a flexible manner to use intermittent renewable power and support grid balancing.

The 75% refers to the amount of hydrogen that is expected to be produced.

A Projects’ Deliverability score will be based on their performance against three key factors, including BEIS’ confidence that the project has commercial and technical arrangements in place with viable off-takers for most (75% or above) of their hydrogen volumes.

For example, for a 10MW project that intends to produce 40GWh of hydrogen per year, 75% of the hydrogen volumes would represent 30GWh of hydrogen per year.

b. Will BEIS allow applicants to adjust CAPEX support figures (both intensity level up to 20% and total capex figure) during bilateral negotiations, or will the CAPEX support requested in the application be fixed and non-negotiable?

BEIS will allow applicants to adjust CAPEX support figures through the Agreeing an Offer Stage. After the evaluation of submissions and shortlisting, selected projects will enter a process to agree an offer, which will involve engagement with BEIS to agree a CAPEX grant through the NZHF. The process of agreeing a CAPEX grant will be iterative. Projects should note that any decision to award support will only be made subject to BEIS being comfortable with the application of subsidy control requirements, any balance sheet implications, and that the project represents value for money and is deliverable. BEIS will need to ensure that any CAPEX award is necessary and proportionate in accordance with subsidy control principles.

As per section 1.6 of the Application Guidance document, BEIS may discontinue the application process with a particular Project where the Project seeks to renegotiate elements of its Submission which would mean that it no longer satisfies BEIS’ eligibility criteria, or the Project seeks to renegotiate elements of its Submission which would have an adverse effect on the score awarded to the submission at any stage of this Electrolytic Allocation Round.

c. Can project size and off-taker detail be adjusted following submission (i.e. during contract negotiation)?

BEIS may allow certain elements of a Project’s submission to be changed during the Agreeing an Offer stage, subject to this not having adverse effect on the score awarded to the submission, or on project eligibility, at any stage of this Electrolytic Allocation Round.

017. a. As currently drafted, the HBM heads of terms state that the Strike Price for hydrogen production will be indexed in accordance with CPI. In order to access lowest cost finance to deliver the project and hence deliver best possible VfM to the tax/bill payer, this indexation model requires a fixed power price for the duration of the contract. However, in today’s environment of historically high gas and wholesale electricity prices, power prices available on long term fixed contracts are also very high with an approximate three-fold increase since the start of 2022 even though forecasts going forward anticipate a reduction back to ‘normal’ pricing in the future.  Is there scope for BEIS to consider indexing the Strike Price with the wholesale electricity price rather than CPI to ensure that advantage can be taken of cheaper off-peak power as additional renewable assets are developed and the geopolitical situation stabilises?  Are applicants allowed to update electricity pricing used in LCOH calculation following application submission?

Hydrogen produced by an electrolyser is only as low carbon as the electricity used and therefore BEIS is seeking to incentivise electrolysers to run at times when they can access low carbon electricity. The Low Carbon Hydrogen Standard (LCHS) incentivises electrolysers to target running at times of high supply of renewable electricity. The minded-to position set out in the indicative Heads of Terms for the Low Carbon Hydrogen Agreement, in respect of the HBM strike price indexation approach to the electricity cost, complements this approach by encouraging producers to use price management mechanisms (e.g. Power Purchase Agreements) to purchase this low carbon electricity, by exposing producers to electricity market price signals, and, in doing so, reduce the impact on the decarbonisation of the electricity grid. We aim to finalise the business model in 2022.

As per section 4.2.3 of the Application guidance, scores for the cost criterion will be assigned on the basis of a competitive ranking, with projects with a lower LCOH scoring more highly. Scores will be allocated on a relative basis so that the score reflects the cost-effectiveness of a project relative to other applicants.

As per section 5.1 of the Application guidance, after the evaluation of submissions and shortlisting, selected projects will enter a process to agree an offer, which will include due diligence, a value for money assessment, and engagement with BEIS with the aim to agree an offer of support.

Shortlisted Projects will engage with BEIS on a variety of financial, legal, technical and commercial issues. In particular, shortlisted Projects will be expected to be able to share new information across a wide range of issues, including the management of risk; and to respond to requests for information from advisers as due diligence and value for money assessment commences.

Projects will be expected to provide BEIS with updated information on the project, including costs.

BEIS may discontinue the application process with a particular Project where:

• the Project seeks to renegotiate elements of its Submission which would mean that it no longer satisfies BEIS’ eligibility criteria; or
• the Project seeks to renegotiate elements of its Submission which would have an adverse effect on the score awarded to the submission at any stage of this Electrolytic Allocation Round; or
• the Project does not comply or is not able to demonstrate during the Agreeing an Offer stage, that it will be able to comply with the plans set out in its Submission and/or under any of the evaluation criteria.

b. When calculating the levelized cost of hydrogen at the application stage, will BEIS consider using fixed reference pricing for electricity across all projects to allow an accurate comparison of the merits of each project?  This would also reduce the risk of ‘cross-subsidy’ from owners of large-scale renewable assets that are already supported by levy-based government funding.

BEIS will use the information and evidence submitted by applicants within and alongside the cost template when calculating the LCOH, including the expected electricity costs. Electricity costs are a significant determinant of the LCOH, and therefore the ability to access affordable electricity is an important determinant of both the viability and the cost-effectiveness of a project. Using the same electricity price for all projects is therefore not considered a viable way of assessing this criterion.

As set out in section 4.2.3 of the Application Guidance document BEIS will also assess the robustness of the cost estimates provided by applicants in the cost template, including their estimated electricity costs. Where projects submit cost data (including on electricity costs) that is not considered credible, their score for the cost criterion will be adjusted to account for this. Projects are therefore encouraged to provide as accurate and robust information as possible, as the credibility of the figures provided and the quality of supporting evidence will affect the score.

018. a. How drastically can a project change from EoI to final submission, and would material changes to the project cause a project to become ineligible?

Further information on the EoI process can be found on page 16 of the Application Guidance.

Applicants are asked to confirm in the EoI that to the best of their knowledge they meet the mandatory eligibility criteria. BEIS may provide feedback if it appears your Project is unlikely to meet the criteria.

EoI answers are considered as indicative only and not as firm responses. Projects will not be prevented from making a full application based on the information provided in the EoI.

The final submission which will be due by 12 October will require you to provide supporting evidence to prove you meet the eligibility criteria. Applications which meet the eligibility criteria and the minimum deliverability score will continue to the evaluation stage where they will be assessed against a set of defined evaluation criteria.

BEIS may allow certain elements of a Project’s submission to be changed during the Agreeing an Offer stage, subject to this not having adverse effect on the score awarded to the submission, or on project eligibility, at any stage of this Electrolytic Allocation Round.

b. If a project is successful in securing funding/HBM contract through this round of funding, would the contract accommodate the scale up of an electrolyser (e.g., from 30MW to 80MW)? If not, would it be possible to secure further funding for the scale up?

As detailed in the government response to the consultation on a low carbon hydrogen business model, any increase in volume produced above any defined level through a new plant or a new module will not be subsidised under the existing contract, including new modules/units being added to an ATR or SMR plant and new electrolyser modules being added to electrolytic facilities. We believe that allowing contract capacity to be increased through a new plant may not represent value for money to BEIS and should be subject to open and fair competition with new production projects in future rounds of contract allocation.

We are considering the case for producers to increase the volume produced within an existing plant above any level defined in their contract. We are carrying out further work to understand how the different hydrogen production technologies are able to increase production capacity, including whether capital is required or not. This information will be considered alongside the design principles outlined in the consultation and related aspects of the payment mechanism, including the sliding scale of volume support. This will enable us to progress to a minded to position on whether the contract should support producers to scale up production volumes at the plant above any level defined in the contract and, if so, by how much and what level of subsidy should be payable.

c. If a project is unsuccessful in securing a contract through this round of funding, can a resubmission be made in the upcoming round?

Yes, a resubmission can be made for future rounds. BEIS’ assumption is that because criteria might change, a new application will be required for Projects that are unsuccessful in the 2022 Electrolytic Allocation Round. This will be kept under review.

d. How will the reference price be calculated in the HBM contract? Will this be a fixed price based on NG or will it vary by contract and project?

As per page 7 of the Indicative Heads of Terms, the ‘reference price’ (expressed in £ per MWh (HHV)) is intended to represent the market price received by the producer for low carbon hydrogen. For initial projects, this will be the higher of the producer’s achieved sales price and the price floor (which will be the lower of the natural gas price and the strike price).

The reference price will act as the appropriate proxy in the absence of an observable hydrogen market price (low carbon or otherwise) and to encourage the development of a market benchmark as the hydrogen market develops. Please note that the indicative Heads of Terms do not constitute definitive drafting of the Low Carbon Hydrogen Agreement’s terms and we expect to finalise the Hydrogen Business Model later this year.

For further information on how the HBM will work in practice, please refer to the government response to the consultation on a low carbon hydrogen business model and the Indicative Heads of Terms document.

e. The eligibility criteria states COD by 31.12.25 whereas Ministers and BEIS communications regularly say “in construction or operation by 2025”. There was considerable industry feedback that this COD target is unrealistic. Could BEIS reconsider the eligibility criteria on deliverability to ‘reserve the right’ to consider projects that have secured FID and are physically in construction in 2025?

As per page 11 of the Market Engagement Response, we recognise the concerns expressed by respondents on meeting the ‘COD of end of 2025’ criterion due to risk of delay. We have kept this as an eligibility criterion for the first allocation round to align with BEIS’ aims around hydrogen deployment by 2025 and to kickstart the market (noting as well that contracts awarded in the planned second round will mean a number of additional projects will be under construction in 2025). Under this criterion, we will require projects to demonstrate they are able to be operational no later than the end of December 2025. However, we have added in the Application Guidance Document that meeting the ‘COD by end of 2025’ criterion is dependent on the signing of contracts from July 2023. The actual operational date of each project will be dependent on many factors, some of which may be outside of the party’s control. For example, if signing of contracts is delayed beyond July 2023 due to reasons outside of the applicant’s control, due to delays to the agreeing an offer process, BEIS reserves the right to allow the COD to be extended upon receiving the Applicant’s request. We will further test the projects’ deliverability at evaluation stage.

f. Can BEIS confirm the proposed COD eligibility date for the proposed 2023 Strand 3 allocation round will be 31 December 2026?

The COD and general timelines for the 2023 Joint Allocation Round are yet to be confirmed. Further details will be shared in due course.

g. Based on the industry’s response to the COD 2025 being infeasible, will BEIS consider revising the eligibility criteria and extending the application cut-off date?

BEIS will not be revising the eligibility criteria and does not expect to extend the application cut-off date. However, as per section 1.5 of the Application guidance, BEIS reserves the right to alter the indicative timelines for the 2022 Electrolytic Allocation Round at any stage in the process. Projects that are unable to meet the eligibility criterion of COD by end of 2025 can apply for future rounds, the details of which will be announced in due course.

019. a. In Annex A of the Low Carbon Hydrogen Standard, it is stated that demonstration of exclusive ownership of the attributes of the low carbon electricity is required. We are asking if there is any requirement on the geographic correlation of the electricity generator and the electrolyser, e.g., they must be in the same bidding zone?

For all electricity input being claimed as low carbon and receiving the GHG intensity of a specific generation asset, all 3 technical requirements set out in Annex A of the guidance document would need to be met; namely, temporal correlation (matching generation of the specific asset(s) and electrolyser consumption per 30 minutes), contractual links (a PPA linking to that generation asset), and energy attribute information to cover the amount of electricity used (e.g. a REGO). We have not specified requirements around electricity sourced from outside of the UK in the LCHS. We expect to provide further detail on this in relevant documentation, for example through the final Low Carbon Hydrogen Agreement contract.

b. The Annex lists REGOs as an example of evidence, but doesn’t clearly mention REGOs as the only possible evidence. REGOs are only available in the UK. Would it be considered compliant with the Standard to use low carbon electricity procured through a virtual PPA from another country if evidence can be provided through a Guarantee of Origin (GoO) used in EU member states in addition to evidence for temporal correlation?

As above, we expect to provide further detail on electricity sourced from outside the UK in relevant documentation, for example final Business Model Contracts.

020. Please could you clarify the referencing methodology? How do the evidence table headings in the Project Application Form correlate with the reference number and document title in annex F?

Please follow the filename format detail within Annex F. Where a document is supporting more than one answer, please use the primary question number that the document is supporting within the file name and use Annex F to clearly mark each question the single document is also supporting. The document must be referenced within all answers within the Project Application Form which it is supporting. It is not necessary to upload the same file twice with a different question number.

Please name all supporting files submitted using a unique project identifier (which applicants are free to select), followed by the primary question number this document supports, followed by the document title. For example, a document reference may be:

HYDROGEN1-5.3.2.1-SCHEDULE

Where:

HYDROGEN1 = Unique project
5.3.2.1 = Question on schedule narrative
SCHEDULE = the project schedule

Under Question 5.3.2.1 evidence table:

Document Reference	Document Name	Relevant page / section
HYDROGEN1-5.3.2.1-SCHEDULE	Project Schedule	State the specific section, or page number within the document where it is substantiating the answer to this specific question

021. We note that MW ratings for electrolytic hydrogen projects typically refer to the electrolyser rating or the input power to the project (Scenarios 3 & 4 below).

The BEIS requirement can be interpreted as the following:

1. 5MW average hydrogen production over the course of a year
- This is a very onerous requirement and is unlikely to be met by the majority of green hydrogen projects, and could require up to 25 MW of rated electrolyser capacity*

2. 5MW peak hydrogen production output
- This is an onerous requirement and would exclude a significant number of green hydrogen projects, and could require up to 9 MW of rated electrolyser capacity*

3. 5MW peak electrolyser stack/module rating (‘nameplate capacity’)
- This is a realistically achievable requirement, and would require 5 MW of rated electrolyser capacity

4. 5MW input power to site boundary
- This is a realistically achievable requirement, and would require ~4.5MW of rated electrolyser capacity

*dependent on electrolyser capacity factor and heating value basis (HHV/LHV)

Could you please clarify the following:

1. Which of the above (1 to 4) scenarios relates to the ‘Minimum hydrogen production capacity of 5 MW’?

2. If based on actual hydrogen production (average or peak), confirm whether LHV-basis or HHV-basis should be used?

BEIS has set a minimum production capacity of 5 MW (MW output) for this allocation round, on a High Heating Value (HHV) basis. This is a “peak” requirement: i.e. the hydrogen production plant must be capable of outputting 5 MW (HHV) of hydrogen (equal to 0.035 kg/s) but is not required to achieve this on an average basis. This corresponds to scenario (2) above. For the avoidance of doubt, this should not be read as the megawatts input electricity capacity of the electrolyser.

022. a. Will an entity that is rolling out vehicle refuelling stations to serve future retail customers for hydrogen as a fuel for road transport be treated as an eligible offtaker, or will they be seen by you as ‘Risk Taking Intermediary’?

Volumes sold to risk-taking intermediaries are not eligible for HBM support. A risk-taking intermediary is defined as a person that purchases hydrogen for the purpose of resale. The definition of risk-taking intermediaries applies to all sectors, including transport. Volumes sold to risk-taking intermediaries operating in the transport sector may however be eligible for RTFO support.

b. If the answer to 1 is ‘Risk Taking Intermediary’, what would said offtaker have to demonstrate to be treated as an eligible offtaker?

An offtaker that is purchasing hydrogen with the intention of resale will be assessed to be a risk-taking intermediary in this 2022 Electrolytic Allocation Round. Once deemed a risk-taking intermediary, the offtaker will be declared as an ineligible offtaker. For this offtaker to be declared as an eligible offtaker there would need to be evidence provided that the offtaker does not contravene BEIS’ definition of a risk-taking intermediary.

BEIS will consider the need to review the position on risk-taking intermediaries in future, both for existing contracts and future allocation rounds. For example, BEIS’ concern around monitoring sales via risk-taking intermediaries to end users could be addressed through a future low carbon hydrogen certification scheme (depending on final scheme design).

c. You helpfully clarified on the webinar that as a producer of low carbon hydrogen, I will not be able to benefit from both the hydrogen contract for difference AND value from RTFCs. If I sell my hydrogen to a third party offtaker at a price subsidised by the contract for difference, will that offtaker be able to benefit from the value of RTFCs?

No, a third-party offtaker who receives HBM-subsidised hydrogen would not be able to receive the benefit of Renewable Transport Fuel Certificates (RTFCs) for the same consignment of hydrogen. The third-party offtaker in this case cannot receive HBM support and RTFC support as in order to receive RTFC support it would have to be selling the HBM-subsidised hydrogen that it is purchasing, making it an ineligible offtaker. This is because volumes sold to risk-taking intermediaries are not eligible for HBM support. A risk-taking intermediary is defined as a person that purchases hydrogen for the purpose of resale.

BEIS recognises that some projects may be considering revenue support through both the Hydrogen Business Model and the Renewable Transport Fuel Obligation (RTFO). Subject to compliance with subsidy control principles and the final design of the HBM, producers in receipt of HBM support will be allowed to participate in the RTFO. Volumes produced will be allowed to be claimed under the RTFO, subject to meeting the RTFO’s eligibility criteria, but claiming under both the HBM and RTFO for the same volumes of hydrogen will not be permitted. Work is ongoing to develop administrative arrangements and an enforcement regime enabling dual participation and guarding against producers claiming under both schemes for the same costs.

d. Please clarify the ambiguity in Section 1.1 of the guidance on pages 12 and 13:

More specifically, and as set out in the HBM indicative Heads of Terms, this could include:

• the CAPEX, but not OPEX, costs associated with small-scale hydrogen transport infrastructure, and
• the CAPEX and/or OPEX costs associated with small-scale storage infrastructure.

Then in the paragraph that follows: “CAPEX costs for storage and transport are not included within scope of this NZHF funding”

The primary focus of the HBM and NZHF is to promote the production of cost-competitive low carbon hydrogen. Therefore, we intend to focus any support that is delivered through both schemes on hydrogen production.

We recognise however that an absence of transport and storage infrastructure could create a barrier to the growth of the nascent hydrogen economy. We will therefore adopt a pragmatic approach which will enable certain transport and storage infrastructure costs to be supported through the HBM, agreed on a case-by-case basis and subject to value for money. We believe that, while it may be necessary to allow CAPEX associated with transport infrastructure to be recovered through the HBM, OPEX relating to transport should be left to producers to manage with their end users. This will incentivise producers to design efficient transport approaches and see end users facing transport costs on top of fuel costs as they do currently. Both CAPEX and OPEX costs for storage will be eligible for recovery under the HBM.

CAPEX costs for storage and transport are not included within the scope of this NZHF Strand 3 funding. Under Strand 1 of the NZHF, where appropriate, support may be provided for FEED and post-FEED costs for associated on-site transport and storage (T&S) infrastructure.

e. Relevant to the text in question 4, what is the definition of ‘small-scale’?

We are proposing to adopt a pragmatic approach in the HBM to supporting hydrogen transport and storage costs. We will assess whether to support these costs by taking a number of factors into account, including necessity, affordability and value for money.

023. a. In Annex E, demand tab – How should a project account for demand if the low-carbon hydrogen is being used as feedstock to produce a new, low carbon fuel (e.g., methanol)?

The demand tab should be completed taking into consideration the end use of the methanol.

1. Where there is an existing methanol synthesis plant and the hydrogen used is displacing the feedstock to the plant, the displaced fuel should be whatever fuel is currently used to produce the methanol.

2. Where the hydrogen will be the feedstock to a new methanol synthesis plant, the project could compare to a reasonable counterfactual, which in this case would be the amount of natural gas that would produce the same amount of methanol.

b. Noting that there is no NDA to be signed for this competition, will BEIS seek to publish any of the information we provide as part of our submission?

It is expected that details of support offered for Projects, with the exception of commercially sensitive information, may be published following the completion of the Agreeing an Offer Stage and awards.

BEIS may also share information provided by Projects (including information within the Submissions or EOIs) with other parts of government for the purposes of policy development and facilitating coordination in certain areas if relevant. In addition, this information may be aggregated and anonymised for the purposes of engagement with external audiences.

c. Can we use the document reference number in place of question reference in the filename of supporting documents to avoid duplication of documents entered in annex F. With the current filename format of [Project acronym]-[Question reference]-[Doc title] supporting documents will be duplicated where used in several questions as each will need a new filename containing a new question reference.

Please follow the filename format detail within Annex F. Where a document is supporting more than one answer, please use the primary question number that the document is supporting within the file name and use Annex F to clearly mark each question the single document is also supporting. The document must be referenced within all answers within the Project Application Form which it is supporting. It is not necessary to upload the same file twice with a different question number.

Please name all supporting files submitted using a unique project identifier (which applicants are free to select), followed by the primary question number this document supports, followed by the document title. For example, a document reference may be:

HYDROGEN1-5.3.2.1-SCHEDULE

Where:

HYDROGEN1 = Unique project
5.3.2.1 = Question on schedule narrative
SCHEDULE = the project schedule

Under Question 5.3.2.1 evidence table:

Document Reference	Document Name	Relevant page/section
HYDROGEN1-5.3.2.1-SCHEDULE	Project Schedule	State the specific section, or page number within the document where it is  substantiating the answer to this specific question

024. a. Over what time period is having viable offtakes for 75% of hydrogen production calculated? Is this annually from year 1 of operation or can this be averaged over a longer time period if the off-taker is ramps up their demand? For example, if the off-taker ramps up to taking 100% of the hydrogen production by year 3 would this have an impact on the scoring if the off-taker requires only 40% of the hydrogen produced in year 1. Over a 10 year period, this off-taker will take approximately 90% of the hydrogen produced.

A Project’s Deliverability score will be based on their performance against three key factors. One of which being BEIS’ confidence that the project has commercial and technical arrangements in place with viable off-takers for most (75% or above) of their hydrogen volumes.

BEIS understands that offtaker plans and arrangements may not be fully in place at the point of application submission. BEIS will consider the strength of evidence provided to assess the credibility and likelihood of that offtaker agreement being secured in the future, including post the Commercial Operation Date (COD).  Projects with firm commitments from offtakers for 100% of the hydrogen production from the COD will score higher than projects with a lower percentage allocated to offtakers, and/or less firm offtaker commitments in place.

BEIS will consider the strength of the evidence for any offtaker plans for any surplus production over and above that of the firm offtakers identified at the COD. Where there is a credible plan to supply an offtaker within for example one year (counting towards the 75%), this will score higher than a plan to supply an offtaker in future years, but both will score lower than a project with firm commitments to supply from the operational date. As set out in the Application Guidance, projects should be able to demonstrate commitments for most of the hydrogen production, which as a minimum should be at least 50% of their hydrogen volumes.

Projects are assessed on this volume during the evaluation stage; however, it should be noted that this may be considered as a factor during the agreeing an offer stage when setting the terms of the contract.

b. Regarding the requirement to provide ultimate parent’s statutory accounts, management account to-date and financing forecast covering the current financial year and further 4 years, could we please clarify whether it is possible to submit the required documents for a company within the ownership structure, i.e. between the ultimate parent and project company? If so, is there any requirements for the minimum value of net asset or similar metrics?

We require the information to be submitted for the ultimate parent as opposed to an intermediate parent level. We will be looking to ensure that the ultimate parent is in a suitable financial position to be able to offer a guarantee against any grant funding that is made available.

025. If a developer is expecting to be both the producer and user/offtaker of the hydrogen what evidence would BEIS expect in relation to the mandatory information and supporting information for section 5.4.1 ‘Hydrogen Offtaker’?

The evidence required from own consumption must still provide assessors with the same level of information as that detailed on pages 49 and 50 of the Application Guidance document. Applicants must use discretion and other supporting information that will help the assessors understand the credibility of the proposed offtake (even if it is self-owned). For example, Projects may provide a letter of support from their board for switching to hydrogen produced by this hydrogen plant.

Clarification questions, 9 August 2022

001. Whether changes to your responses are possible after EOI submission or will your responses to the EOI be taken as firm responses?

Further information on the EoI process can be found on page 16 of the Application Guidance.

Applicants are asked to confirm in the EoI that to the best of their knowledge they meet the mandatory eligibility criteria. Government may provide feedback if it appears your Project is unlikely to meet the criteria.

EoI answers are considered as indicative only and not as firm responses. Projects will not be prevented from making a full application based on the information provided in the EoI.

The final submission which will be due by 12 October will require you to provide supporting evidence to prove you meet the eligibility criteria. Applications which meet the eligibility criteria and the minimum deliverability score will continue to the evaluation stage where they will be assessed against a set of defined evaluation criteria.

002. An interpretation of the guidance which meant that we would have to wait for a future Strand 3 competition rather than bid now would mean that either:

i. production is unnecessarily delayed by a year (which is contrary to the higher objective of bringing capacity online by end of 2025) whilst we wait for the next round.

Or

ii. if we withdraw our Strand 1 application in order to submit a Strand 3 application, we will have to seek additional investor funding to complete the FEED and the reserved matters (planning) application. This will take time and possibly delay or even stop the project.

As set out in the guidance, Projects will only be able to apply to one strand per project at any one time and cannot switch between strands once they’ve been awarded funding for a project.

Projects applying for strand 1 (April – June 2022) will not be eligible to apply for strand 3 in the first allocation round (open for applications 20 July– 12 October 2022) as their strand 1 application will still be live during the time of this strand 3 application window. These projects may be able to apply for a future Joint Allocation Round.

The rationale for this approach is that as set out in section 5.1 of the Application Guidance document, projects applying for strand 3 support through the joint allocation round (final submission due by 12 October 2022), if shortlisted, will need to demonstrate that FEED is at an advanced stage.

Therefore, projects will not be able to apply for strand 1 (April – June 2022), and then also apply to strand 3 in the first allocation round (open for applications 20 July – 12 October 2022) as they would not have received their strand 1 support by the time the strand 3 application window closes.

Strand 1 of the NZHF aims to grow the pipeline of projects in the UK by providing development support for FEED and post-FEED studies, and we expect that projects supported through strand 1 will go on to apply for NZHF CAPEX and/or HBM support in future allocation rounds.

As such applicants will need to consider whether their project is able to progress without strand 1 development funding if they wish to apply for strand 3. If your project requires strand 1 development support, you may be able to apply for a future Joint Allocation Round. Alternatively, you may withdraw your Strand 1 application in order to submit an application for the 2022 HBM/NZHF Electrolytic Allocation Round. This must be done before the deadline for the Expression of Interest submissions on 7th September 2022, as Projects must submit an EoI to be considered under this Electrolytic Allocation Round.

003. a. Please can you provide a contact point or e-mail address within the Department for Transport to which any requests for in principle letters of support can be directed?

Guidance from the Renewable Transport Fuel Obligation (RTFO) gov.uk page contains full information on the RTFO registration process, including the contact email: rtfo-compliance@dft.gov.uk.

b. Is there any existing DfT document or form which sets out the information needed to be provided to DfT-  before they can provide an in principle letter of support?

There is a separate gov.uk RTFO guidance page that provides information on complying, reporting and verifying with the RTFO process for fuel suppliers, independent verifiers and those supplying road transport biofuels. DfT do not require the full registration for the RTFO to get an in-principle assessment letter. Please contact the email address provided in answer 1 with a request for an in-principle fuel assessment – there is no existing document/form.

c. If a project does not rely on RTFO support, but wishes to retain the option of taking advantage of RTFO support for some hydrogen volumes produced by the project, is it necessary to upload an in principle letter of support at the application stage, or would it be sufficient to indicate within the bid documentation that this option may be pursued for some project hydrogen volumes?

Government recognises that some Projects may be considering revenue support through both the Hydrogen Business Model and the RTFO. Subject to compliance with subsidy control principles and the final design of the HBM, producers in receipt of Hydrogen Business Model support will be allowed to participate in the RTFO. Volumes produced will be allowed to be claimed under the RTFO, subject to meeting the RTFO’s eligibility criteria, but claiming under both the HBM and RTFO for the same volumes of hydrogen will not be permitted. Work is ongoing to develop administrative arrangements and an enforcement regime enabling dual participation and guarding against producers claiming under both schemes for the same costs.

If the Project does not rely on RTFO support, there is no need to upload an in-principle letter at the application stage, given that the Project will be assessed on its ability to meet the 2022 HBM/NZHF Electrolytic Allocation Round’s eligibility criteria, and then scored against the evaluation criteria, as set out in the Application Guidance document.

004. a. Noting that the HBM will be allowed for “own consumption” projects, could you confirm that RTFCs under the RTFO can be claimed for “own consumption”?  How does the evidence required for ‘own consumption’ offtake differ from that required for other hydrogen offtakers (i.e. as set out on pg 50 of the Application Guidance).

Yes, RTFCs under the RTFO can be claimed for “own consumption”, i.e. in-house vehicle fleets. The evidence required from own consumption must still provide assessors with the same level of information as that detailed on pages 49 and 50 of the Application Guidance document. Applicants must use discretion and other supporting information that will help the assessors understand the credibility of the proposed offtake (even if it is self-owned). For example, Projects may provide a letter of support from their board for switching to hydrogen produced by this hydrogen plant.

Government recognises that some projects may be considering revenue support through both the Hydrogen Business Model and the RTFO. Subject to compliance with subsidy control principles and the final design of the HBM, producers in receipt of Hydrogen Business Model support will be allowed to participate in the RTFO. Volumes produced will be allowed to be claimed under the RTFO, subject to meeting the RTFO’s eligibility criteria, but claiming under both the HBM and RTFO for the same volumes of hydrogen will not be permitted. Work is ongoing to develop administrative arrangements and enforcement regime enabling dual participation and guarding against producers claiming under both schemes for the same costs.

b. Under the electricity supply criteria (section 5.4.2 of application form), what evidence is required? Will an MoU suffice or is a Term Sheet required?

Section 5.4.2 has both a mandatory and supporting information section. Across each of the evaluation criteria, Projects should provide supporting information and evidence which demonstrates the credibility of Projections made in their submission. The onus will be on the Project Representative to demonstrate to government the credibility of information in a way that the Project considers to be most appropriate.

The quality of evidence is critical in reviewing the application. Lack of evidence or poor-quality evidence may negatively impact the assessment of the project. For example, Deliverability will be assessed against factors including the confidence in the commercial arrangements of the Project. Projects should consider the mandatory and supporting evidence which may be included in different sections of the Project Application.

• mandatory information: an Excel table showing the electricity generation profile over a representative annual cycle during its operation, if applicable. Please remember to include any planned maintenance schedules and the expected frequency of unplanned system downtime
• supporting Information: Evidence could include, but is not limited to, the following types of documentation for this assessment criteria:
  • details of the intended power purchase agreement that is being considered (including agreed duration, parties in agreement, quantity of power supply, location of power supply)
  • details of the power procurement strategy or methodology statement
  • DNO engagement on grid capacity and reinforcement requirements
  • direct wire connection to a renewable energy generation Project

c. Under the additionality criteria, what is defined as ‘new’ asset? In other words, how new is new?

Section 4.3.6 of the Application Guidance document sets out that an additional electricity source can be: New purpose-built assets - Electricity provided by new/recently built low carbon generation assets, built (or partially built) without securing a government support contract (e.g. RO/CfD). For example, electricity that would not have existed/been available for the grid if not for the hydrogen production, meaning that it can be deemed additional and will not be diverting low carbon electricity from other users.

d. When will you be able to confirm details for how hydrogen sold to offtakers using it as a feedstock will be treated under the HBM? Will this hydrogen still be eligible for support if derivative products (e.g. ammonia) are exported?

The Hydrogen Business Model team are currently working through the detailed policy positions on both of these questions and will provide an update in due course.

e. If hydrogen is injected as a blend into a private natural gas network to support the decarbonisation of multiple industrial offtakers that connect to that network, would this hydrogen be available for HBM support?

The Hydrogen Business Model team continue to work through the policy position on the injection of hydrogen into private natural gas networks.

f. When will the clarification question answers be published?

The Clarification Questions will be published on a rolling basis throughout the competition window. The deadline for the submission of clarification questions is 23:59 on 28 September 2022, ahead of the submission window closing on 12 October 2022.

005. ‘If 5MW is the minimum, what is the maximum hydrogen production project you are seeking’. For example, could it be 50MW.

There is no defined maximum limit to a Project. Government hopes to support at least 250MW via the first Electrolytic Allocation Round, although it retains the right to allocate less. For example, if insufficient Projects come forward that meet the eligibility criteria or that present good value for money to government.

Government is looking to fund a portfolio of projects and to do this government may adopt a portfolio approach if the allocation round is oversubscribed, and there is considered to be an imbalance in the overall portfolio. This is intended to make sure this round has a spread of projects that meet the allocation round’s objectives, balanced across the relevant variables, including size. As such, government reserves the right at its absolute discretion to limit the number of projects which will be shortlisted to participate in the next stage through the application of portfolio factors after assessment of individual Projects.

Please refer to section 4.3 of the Application Guidance document for more information on the application of portfolio factors, including their variables.

006. Can you please clarify if all sub-questions 1-8 in Question 5.2.1 are to be answered by each and every potential off-taker?

As set out in the Project Application Form, section 5.2.1 is primarily for the primary and parent/ultimate parent company to provide information on their financial and commercial health, as well as understand the companies’ strategic objectives. Questions 1 to 6 and question 8 relate entirely to the applicant company, its ultimate parent company and any joint or consortium partners.

Sub-question 7 requests information on offtakers associated with the project, this includes the current status of any agreements between the applicant and the offtaker, the terms of those agreements, including what proportion of the intended production the offtaker represents.

007. a. Does the minimum capacity of 5 MW refer to the capacity of the electrolyser, or the volume of hydrogen produced? The two are considerably different. If it refers to the volume of hydrogen produced, could you clarify whether this assumes the LHV or HHV of hydrogen? Better still, if you could provide the minimum production capacity in kg/day of hydrogen that would avoid any confusion.

Government has set a minimum production capacity of 5MW (MW output) for this allocation round, on a High Heating Value (HHV) basis. For the avoidance of doubt, this should not be read as the megawatts input electricity capacity of the electrolyser.

b. What is the certainty around a second window for Strand 2 of the NZHF? E.g if we choose not to apply for Strand 3, can you guarantee there will be future CAPEX funding available via a second window of Strand 2?

Whilst we anticipate that there will be another NZHF strand 2 funding window early next year, it is dependent on the outcome of the first strand 2 window, and we cannot provide any guarantees at this stage.

008. A question about planning permissions for the project. Is this a condition that needs to be met ahead of subsidy award in July 2023? And therefore do I need to evidence that we have started or even secured planning permission to place the application or just include it as part of the project timeline? Could I secure the permits post July 2023 and still meet the criteria required?

The securing of planning permissions is not a mandatory condition that must be met ahead of shortlisting and assessment. However, Projects will be scored on the information relevant to the securing of planning permission within the Project Application Form , further information on this can be found in section 4.2.1 of the Application Guidance document. This sets out that any decision to award support under this process will also be subject to conditions being satisfied, including:

• projects demonstrating sufficient progress towards satisfying pre-contract signature requirements (e.g., obtaining any necessary planning and environmental consents, grid connection); and
• projects agreeing final terms with government

Projects are asked within section 5.3.2 of the Project Application Form to provide an integrated Level 2 fully logic linked, cost and resource loaded schedule for the Project for the project development, construction and commissioning phases, including:

• the development of all critical components of the Project, Production Facility, offtaker development, electricity supply and storage and distribution where applicable
• clearly show the critical path, float and any key milestones such as: planning, consents, decisions gates, long lead equipment items, power grid and water connections, FID, COD etc

Section 5.3.3 further requests information on Planning & Consenting. Projects are expected to provide information on all planning and consenting requirements, including all outstanding work required and the critical dependencies being managed to ensure these are achieved.

009. If a project were to propose a HBM with a strike price linked to the price of dispensed hydrogen for use in mobility applications, and the project had secured an offtaker who was not also in receipt of RTFO support, how would the project be treated for assessment purposes?

My reading of the brief is that mobility offtakers are not explicitly classified as ineligible, as long as the mobility offtaker is not receiving RTFO support to avoid over-subsidy. My concern is rather that the existence of the RTFO as an alternative support mechanism for mobility projects may lead BEIS to take the view that the project should not therefore be prioritised for HBM support, reducing the likelihood of a successful application outcome.

Mobility applications are not included within the list of non-qualifying offtakers for this Electrolytic Allocation Round, as set out in section 3.6 of the Application Guidance document. The existence of alternative support is not a valid consideration in the process of project selection.

Section 4.3 of the Application Guidance document sets out how BEIS may apply a portfolio approach if the allocation round is oversubscribed, and there is considered to be an imbalance in the overall portfolio, with further information on how this may be applied to ensure diversity of end use and electricity source/operating model. The use of portfolio factors is aimed at addressing excessive risk concentration or homogeneity that may arise from a portfolio constructed only of the highest scoring standalone Projects.

010. May I understand whether hydrogen projects that aim to secure power through grid connected PPAs will be exempt from grid levies including but not limited to:

- Capacity Market levy
- Renewable Obligation
- CfD operational levy
- FiT levelisation

Through the Energy Intensive Industries (EII) Scheme, hydrogen producers may be eligible for an exemption from the indirect costs of funding the low carbon electricity CfD, RO and FiT (through ‘green levies’) which are currently passed through electricity bills. Hydrogen is covered under ‘industrial gases’ in the exemption scheme, and Projects using grid connected electricity will be those potentially eligible. To check eligibility or to discuss specific questions related to the scheme, hydrogen producers should contact the EII team directly at energyintensiveindustries@beis.gov.uk.

The EII exemption scheme will shortly go out for a review via consultation. This consultation will cover a range of issues, including whether the exemption scheme should extend sector eligibility and how the scheme should be implemented in future (for example whether the proportion of exemption should be increased). We will keep industry informed of when this consultation is published.

There is a separate Energy Intensive Industries Compensation Scheme, for indirect emission costs in electricity prices (arising from ETS and CPS) which are incurred by fossil-fuel power stations and passed through electricity bills. This scheme does not currently cover industrial gases, and therefore hydrogen production is not eligible.

011. a. When will BEIS confirm the project eligibility?  The guidance says there will be initial feedback if they don’t think it meets the eligibility on submission of EOI, but for cluster sequencing for carbon capture and storage phase 2 a list of confirmed eligible projects was published some months later.  Are BEIS planning to do the same for this and if yes when?

BEIS does not intend to announce a list of eligible Projects, those Projects that are found to be ineligible will be informed by BEIS that they will not be taken forward to the evaluation stage . However, BEIS does intend to announce a list of shortlisted Projects (those taken through to the Agreeing an Offer stage) in early 2023.

b. Can BEIS confirm/be more specific on timing for confirmation of the shortlist?

As stated above, shortlisted Projects will be announced in early 2023.

c. How long does BEIS anticipate the agreeing an offer stage will take?

BEIS expects the agreeing an offer stage to take place from early to mid-2023, with the aim to award contracts from July 2023.

d. When does BEIS anticipate confirming that the specified FID and COD dates are no longer a requirement and can be subject to discussion with BEIS and re-forecasting, if the contracts cannot be finalized by July 2023?

The requirement for the COD no later than the end of 2025 is dependent on the signing of contracts from July 2023 – if signing of contracts is delayed beyond July 2023 due to reasons outside the Applicant’s control, for example due to delays to the Agreeing an Offer process, government reserves the right to allow the COD to be extended upon receiving an applicant’s request. BEIS’ decision would be dependent on the timing of such request and will be considered on a case by case basis.

e. If projects are not taken forward in this first application phase, will the application be transferred into the 2023 ‘second’ application phase?  What will be done to streamline the application process for both industry and government such that effort is not duplicated in the second phase?

Government is aiming to open a similar process to this Electrolytic Allocation Round in 2023, for contract award in 2024. As set out in the Energy Security Strategy, government is aiming to move to price competitive allocation from 2025 onwards as soon as legislation and market conditions allow. BEIS’ assumption is that because criteria might change, a new application will be required for Projects that are unsuccessful in the 2022 HBM/NZHF Electrolytic Allocation Round, this will be kept under review.

f. Government defines COD in the eligibility criteria as being different from COD under the HBM.  Can this be explained further?

COD in the context of new build hydrogen production facilities for this joint allocation round means the date when the facility is commissioned and ready to commence operations. The LCHA will include a more detailed set of definitions related to the commissioning of the facility, for example “Operational Conditions Precedent”, “Start Date” and “Target Commissioning Window”. Please refer to the Indicative Heads of Terms for further details, noting that the Heads of Terms are preliminary and indicative only and the provisions set out therein are subject to further consideration and development by government.

g. Has the duration of the Target Commissioning Window been confirmed?

The Hydrogen Business Model team are currently developing the detailed policy position on the duration of the Target Commissioning Window and will provide an update in due course.

h. Will the TCW have a backstop of end of 2025, or if projects have a COD of December 2025 will the TCW be 12 months from then (if TCW duration is 12 months) i.e. Dec 2025 – Dec 2026?

The Hydrogen Business Model team are currently developing the detailed policy position on the duration of the Target Commissioning Window and will provide an update in due course.

i. Can BEIS provide more info or detail on timeline for the second application phase window in 2026?

The second joint allocation round is aimed to take place in 2023. For future allocation rounds, government may consider reviewing the eligibility and evaluation criteria and expects to set out a target COD for the 2023 allocation round by Q2 2023.

j. Is there any benefit or credit, either through the additionality scoring or the Low Carbon Hydrogen Standard, to having a physical connection to a renewable electricity source where additionality of the electricity source can’t otherwise be demonstrated?

Demonstrating additionality of electricity source is not a mandatory requirement under the Low Carbon Hydrogen Standard or as an eligibility requirement for applicants to this allocation round. However, we recognise that Projects that can meet our principles for additionality of electricity source will be lowest emission from a systems perspective and may also support deployment of new build generation. Therefore, Projects that can provide clear and credible evidence that they are using electricity sources deemed additional according to the hierarchy of principles set out in 4.2.6 of the Application Guidance document, will be able to receive credit. The specific evidence requirements that will be considered at assessment stage to prove these principles have been met are outlined in the guidance.

k. Can any Capex expenditure incurred before signing a contract be claimed through the HBM or NZHF funding, noting that if a contract is not achieved that there will be no obligation on government to pay any capex already incurred?

Government will not be responsible for, nor make any commitment in respect of, costs incurred before the signature of any LCHA or Grant Offer Letter.

l. Can any Devex expenditure incurred before signing a contract be claimed through the HBM or NZHF funding, noting that if a contract is not achieved that there will be no obligation on government to pay any capex already incurred?

As above, Government will not be responsible for, nor make any commitment in respect of, costs incurred before the signature of any LCHA or Grant Offer Letter.

Briefing event, 27 July 2022: clarification questions

BE1. What is the total amount of funding that has been earmarked for HBM? Annual breakdown and total funding through the length of the contract.

HBM funding for projects operational before 2025 will be provided by up to £100m of taxpayer funding that was committed through the Industrial Decarbonisation and Hydrogen Revenue Support (IDHRS) scheme in the Net Zero Strategy. It is intended that all HBM support will be levy funded from 2025 onwards, subject to consultation and Parliamentary approval of any legislation required.

For this allocation round, we intend to publish a Budget Notice alongside the shortlist announcement in early 2023.

BE2. Will BEIS be announcing a list of eligible projects and if so, when?

BEIS does not intend to announce a list of eligible projects, those projects that are found to be ineligible will be informed by BEIS that they will not be taken forward to the evaluation stage.. However, BEIS does intend to announce a list of shortlisted projects (those taken through to the Agreeing an Offer stage) in early 2023.

BE3. Is an indicative strike price needed before the shortlisting process?

No, an indicative strike price is not needed before the shortlisting process. Projects will be assessed against the six evaluation criteria set out in section 4 of the Application Guidance document.

BE4. Can you explain a bit more about how BEIS will assess whether projects are “materially different”?

For the 2022 HBM/ NZHF Electrolytic Allocation Round, a business can lead on up to four applications, which must be materially different, and can be included as a collaborator, or project partner, in a further four applications. This approach will be reviewed, and future allocation rounds may allow businesses to lead on and be included as a collaborator on more than four applications.

Material difference will be assessed based on a number of factors such as project size, technology, end use, and location.

BE5. Will the qualifying offtakers be updated as the hydrogen economy expands?

Government will consider the need to review its position on qualifying offtakers in future, both for existing contracts and future allocation rounds.

BE6. If a project is less than 5MW can we still apply for the fund?

No, for this Electrolytic Allocation Round, government has set a minimum production capacity of 5MW (MW output), on a High Heating Value (HHV) basis. This will ensure government is using its limited resources on assessing projects which can contribute to helping government meet its commitments on having 1GW of electrolytic hydrogen in operation or construction by 2025 and 10GW of low carbon hydrogen production capacity by 2030.

BE7. Can a company applying for HBM be its own offtaker?

Yes, subject to compliance with subsidy control rules and potential adjustments to the hydrogen business model, own consumption is allowed under the HBM, as detailed on page 14 of the government response to consultation on a business model for low carbon hydrogen. This offtake must be eligible under the HBM as detailed in section 3.6 of the Application Guidance document.

BE8. We don’t seem to have visibility on how the HBM support will work in practice and over what period. Can this be explained please?

BEIS expects the Low Carbon Hydrogen Agreement to have a contract term between 10 and 15 years. This reflects: (i) the precedents set by the low carbon electricity CfD and CCUS Programme HoTs; (ii) the potential time for this nascent hydrogen market to develop; and (iii) a balance between providing price support certainty for Producers for a proportionate and reasonable period, whilst not locking in production pathways for the long term.

For further information on how the HBM will work in practice, including details of its operational period, please refer to the government response to the consultation on a low carbon hydrogen business model and the Indicative Heads of Terms document.

The Hydrogen Business Model team continues to work to finalise the contract that successful projects will receive and will set out further detail on the HBM design in due course. The HBM team are aiming to finalise the HBM in 2022 with a view to awarding the first HBM contracts from next year.

BE9. I have an application in for a 5MW electrolyser under NZHF strand 1. Should I also be applying for this funding stream?

As set out in the guidance, Projects will only be able to apply to one strand per project at any one time and cannot switch between strands once they’ve been awarded funding for a project.

Projects applying for strand 1 (April – June 2022) will not be eligible to apply for strand 3 in the first allocation round (open for applications 20 July– 12 October 2022) as their strand 1 application will still be live during the time of this strand 3 application window. These projects may be able to apply for a future Joint Allocation Round.

The rationale for this approach is that as set out in section 5.1 of the Application Guidance document, projects applying for strand 3 support through the joint allocation round (final submission due by 12 October 2022), if shortlisted, will need to demonstrate that FEED is at an advanced stage.

Therefore, projects will not be able to apply for strand 1 (April – June 2022), and then also apply to strand 3 in the first allocation round (open for applications 20 July – 12 October 2022) as they would not have received their strand 1 support by the time the strand 3 application window closes.

Strand 1 of the NZHF aims to grow the pipeline of projects in the UK by providing development support for FEED and post-FEED studies, and we expect that projects supported through strand 1 will go on to apply for NZHF CAPEX and/or HBM support in future allocation rounds.

As such applicants will need to consider whether their project is able to progress without strand 1 development funding if they wish to apply for strand 3. If your project requires strand 1 development support, you may be able to apply for a future Joint Allocation Round. Alternatively, you may withdraw your Strand 1 application in order to submit an application for the 2022 HBM/NZHF Electrolytic Allocation Round. This must be done before the deadline for the Expression of Interest submissions on 7 September 2022, as Projects must submit an EoI to be considered under this Electrolytic Allocation Round.

BE10. How do you expect high energy prices to influence the difference between the hydrogen strike and reference prices, and how do you expect that the influence what BEIS can now achieve with the £100m that’s available?

Price support will be provided through a variable premium price support model where the subsidy is the difference between a ‘strike price’ reflecting the cost of producing hydrogen and a ‘reference price’ reflecting the market value of hydrogen.

In the absence of a wholesale market price, the reference price is based on the producer’s achieved sales price, with a floor at the natural gas price, and a contractual mechanism to incentivise the producer to find the true value of hydrogen.

The amount of subsidy adjusts through the reference price. If natural gas prices rise, the level of government support reduces, and if they fall, the level of support rises.

The budget of up to £100m is to cover the period up to 2025. The business model, via the Industrial Decarbonisation and Hydrogen Revenue Support (IDHRS) scheme, will provide annual revenue support for the duration of the business model contract awarded to each project.

BE11. What COD date will a Strand 3 allocation round running summer 2023 require?

For future allocation rounds, government will consider reviewing the eligibility and evaluation criteria and expects to set out a target COD for the 2023 allocation round by Q2 2023.

BE12. Please can you provide a contact for progressing an RTFO qualification in-principle letter?

DfT do not require the full registration for the RTFO to get an in-principle assessment letter.

Email: rtfo-compliance@dft.gov.uk with a request for an in-principle assessment letter for more information please see https://www.gov.uk/guidance/renewable-transport-fuels-obligation .

BE13. In terms of the offtake agreement, we note that this has to be agreed before submission of the application but the LCHA will only be entered into a later stage. What factors should be taken into account when agreeing the Offtake Agreement to make its terms compliant?

Section 3.6 of the Application Guidance document provides applicants with the information needed to ensure the terms of their Offtake Agreement are compliant with the LCHA.

BE14. Can you please confirm whether the 5MW requirement refers to the capacity of the electrolyser or to volume of hydrogen produced?

Government has set a minimum production capacity of 5MW (MW output) for this allocation round, on a High Heating Value (HHV) basis. For the avoidance of doubt, this should not be read as the megawatts input electricity capacity of the electrolyser.

BE15. Will the assessment criteria be carried forward into competitive auction rounds in later years? If so, how will that work? Or will it just be based on cost at that point?

As set out in the Energy Security Strategy, government is aiming to move to price competitive allocation from 2025 onwards as soon as legislation and market conditions allow. These future rounds may include scope for non-CCUS, non-solely electrolytic technologies for hydrogen production such as biomass. BEIS has not yet laid out eligibility and evaluation criteria for these rounds but will do so in future.

BE16. Will the target commissioning window have an end date of Dec 2025?

The Hydrogen Business Model team are currently developing the detailed policy position on the duration of the Target Commissioning Window and will provide an update in due course.

BE17. Will projects targeting mobility offtake be eligible for HBM support with a strike price reflecting the price of dispensed hydrogen for use in mobility applications, as long as the mobility offtaker is not also in receipt of RTFO support? i.e does BEIS have a view on how projects will be scored if they are seeking to use the HBM as an alternative to the RTFO to support mobility projects?

Mobility applications are not included within the list of non-qualifying offtakers for this Electrolytic Allocation Round, as set out in section 3.6 of the Application Guidance document. The existence of alternative support is not a valid consideration in the process of project selection.

Section 4.3 of the Application Guidance document sets out how BEIS may apply a portfolio approach if the allocation round is oversubscribed, and there is considered to be an imbalance in the overall portfolio, with further information on how this may be applied to ensure diversity of end use and electricity source/operating model. The use of portfolio factors is aimed at addressing excessive risk concentration or homogeneity that may arise from a portfolio constructed only of the highest scoring standalone Projects.

BE18. Will there be a standard approach to calculating jobs released to ensure parity between project calculations?

Evaluation against the Economic Benefits criterion will be undertaken on the basis of information provided through the Economic Benefits Template (Annex C) and answers provided within the Project Application Form, alongside any associated supporting documentation.

The Economic Benefits Template is structured to allow Projects to provide data for both the direct and indirect jobs they expect to provide throughout Project development and operations. As with other criteria, the onus will be on the Project to provide sufficient supporting information and justification for any assumptions made, and assessors will be instructed to score accordingly.

BE19. CAPEX costs for transport and storage are stated as excluded within the scope of supply of NZHF. Would this also apply to transport via a private pipeline from generation to a third party, e.g if h2 is generated on-site and sold over the fence to an offtaker.

Yes, CAPEX costs for storage and transport are not included within scope of NZHF CAPEX funding under this Joint Allocation round. However, the HBM funding may include revenue support for small-scale hydrogen transport and storage. Any support will be negotiated on a project-by-project basis by taking several factors into account, including necessity, affordability and VfM for government. More specifically, and as set out in the HBM indicative Heads of Terms, this could include:

• the CAPEX, but not OPEX, costs associated with small-scale hydrogen transport infrastructure, and
• the CAPEX and/or OPEX costs associated with small-scale storage infrastructure

BE20. With additionality so low, do you actually expect anyone to take on the additional costs and logistical issue for only 5%? Have BEIS basically given up on additionality?

The weighting for the Additionality upholds the additionality principles set out in the consultation response to the LCHS, which sought to incentivise, but does not mandate, an additionality requirement around electricity source for electrolytic projects. The government recognises the benefits of additionality but understands that demonstrating additionality of electricity sources may not be achievable for some projects, and therefore have not made this a mandatory requirement to apply to this allocation round or applied a minimum score to this criterion.

BE21. While capacity cannot be phased, can the input of renewable power be phased and still be eligible?

Yes. More information on the additionality evaluation criterion can be found in section 4.2.6 of the Application Guidance document.

BE22. Will external funding be scored more highly than on-balance sheet?

No, Projects are not scored more highly for having one type of finance over another. In seeking to identify Projects which are most suited to deployment in the mid-2020s, government will place significant emphasis on the credibility and consistency of information provided. This will also be taken as evidence of the maturity of submissions. As set out in section 4.2.1 of the Application Guidance document, Projects are scored on government’s confidence in the financial viability of the organisation and/or their ability to finance project.

BE23. Can you clarify the significance of the different negotiation pathways you mentioned and what is the latest date you envisage more complex project pathways signing LCH agreements?

Information on the structure of the Agreeing an Offer stage can be found in section 5.4 of the Application Guidance document. Government expects the Agreeing an Offer stage to take place from early to mid-2023. More information on this stage, including details of the respective pathways, will be set out when the shortlist is announced in early 2023.

BE24. For the demonstration of qualified offtaker, non-binding agreements like MoU will suffice for making the application or are binding agreements required?

As set out in section 4.2.1 of the Application Guidance document, Projects are expected to provide an agreement or evidence of progress towards an agreement with hydrogen offtakers. For example, this could be:

• a letter of intent or provisional agreement with offtakers
• Memoranda of Understanding, collaboration agreements or draft Heads of Terms being in place between the hydrogen producer and its proposed offtakers
• Government recognises that the level of commitment in place between an early-stage Project and its partners may naturally vary depending on the Project’s stage of development so any evidence of formal and informal agreements and discussions would be welcome

BE25. Regarding the COD by 2025, apart from the delay in contract signature, can we get an extension on COD and still be eligible for funding.

Applicants will need to demonstrate within their submission that they meet the “Commercial Operation Date (COD) by end of 2025” eligibility criterion. As set out in section 3.2 of the Application Guidance document, the requirement for the COD no later than the end of 2025 is dependent on the signing of contracts from July 2023 – if signing of contracts is delayed beyond July 2023 due to reasons outside the Applicants control, for example due to delays to the Agreeing an Offer process, government reserves the right to allow the COD to be extended upon receiving an applicant’s request.

BE26. The funding applies to hydrogen production facilities in the UK, does the off-taker have to be located in UK or can they be for overseas?

As set out in section 3.6 of the Application Guidance document, and as set out in the response to the HBM consultation, given the primary objective of the HBM is to kickstart the UK’s low carbon hydrogen economy, volumes of hydrogen intended for export will not be eligible for revenue support.

BE27. You state an eligibility criterion that technology must be at TRL 7 but also have a bid evaluation criteria to progress technological development and innovation – these seem at odds with each other?

As set out in section 3.3 of the Application Guidance document, to be eligible to apply to this Electrolytic Allocation Round projects must be using core production technology that has been tested in a commercial environment, with a TRL of 7 or more. This criterion ensures our funding picks up where BEIS innovation funding ends. In this context, the core production technology refers to the electrolyser, and government believes that both PEM and Alkaline electrolysers meet this requirement.

The Market Development & Learning evaluation criterion asks Projects to demonstrate how their hydrogen production plans and associated infrastructure contribute to the development of a hydrogen market. Government wants Projects to demonstrate how they will create and share knowledge from early hydrogen deployment and promote innovations.

BE28. Can a non-UK electrolysis manufacturer be involved in projects as long as a Project Representative is a UK based company?

Yes, there is no eligibility requirement about the Project having a UK based electrolyser supplier. Projects must however meet the eligibility criterion of “Project plant located entirely in the United Kingdom and the Project Representative’s business being registered in the UK”.

BE29. What is the requirement for additionality for the HBM, is it true the same as outlined whereby meeting low-carbon hydrogen standard is the only requirement noting scoring favours additionality?

Demonstrating additionality of electricity source is not a mandatory requirement under the Low Carbon Hydrogen Standard or as an eligibility requirement for applicants to this allocation round.

However, projects that can provide clear and credible evidence that they are using electricity sources deemed additional according to the hierarchy of principles set out in 4.2.6 of the Application Guidance document, will be able to receive credit. The specific evidence requirements that will be considered at assessment stage to prove these principles have been met are outlined in section 4.2.6 of the Application Guidance document.

BE30. Can you please confirm when answers to any clarification questions will be published? (i.e will answers be provided on a rolling basis before the submission deadline?)

Answers to clarification questions will be posted on a rolling basis on gov.uk throughout the competition window. The deadline for the submission of clarification questions is 23:59 on 28 September 2022, ahead of the submission window closing on 12 October 2022.

BE31. Projects with a COD in 2025 are likely to still be in pre-FEED stages at the time of application. How will BEIS deal with uncertainty in the project costs at this stage?

As set out in section 5.1 of the Application Guidance document, projects applying for strand 3 support through the joint allocation round (final submission due by 12 October 2022), if shortlisted, will need to demonstrate that FEED is at an advanced stage. Therefore, projects will not be able to apply for strand 1 (April – June 2022), and then also apply to strand 3 in the first allocation round (open for applications 20 July– 12 October 2022) as they would not have received their strand 1 support by the time the 2022 HBM/NZHF Electrolytic Allocation Round closes.

In seeking to identify Projects which are most suited to deployment in the mid-2020s, government will place significant emphasis on the credibility and consistency of information provided. This will also be taken as evidence of the maturity of submissions.

With this in mind, government would advise Project Representatives to ensure that all Projections made in their Project Application Form and wider submission (including deployment dates, emissions volumes, and cost profiles) are robust and properly supported by the accompanying documentation that they submit.

BE32. Is it the case that projects financially supported by NZHF strand 3 cannot also receive the financial benefit of the RTFO directly? However, offtakers from the HBM supported project will be able to receive the value from RTFCs?

It is not the case that projects that receive strand 3 support from the Electrolytic Allocation Round cannot receive the benefit of the RTFO also.

As set out in Section 2.2 of the Application Guidance document, government recognises that some projects may be considering revenue support through both the Hydrogen Business Model and the RTFO. Subject to compliance with subsidy control principles and the final design of the HBM, producers in receipt of Hydrogen Business Model support will be allowed to participate in the RTFO. Volumes produced will be allowed to be claimed under the RTFO, subject to meeting the RTFO’s eligibility criteria, but claiming under both the HBM and RTFO for the same volumes of hydrogen will not be permitted. Work is ongoing to develop administrative arrangements and enforcement regime enabling dual participation and guarding against producers claiming under both schemes for the same costs.

BE33. When there are two companies working together, what company should respond to the company information sector?

In the context for the Electrolytic Allocation Round, the Project Representative is the lead applicant, responsible for submitting the Expression of Interest form and the final submission.

The Project Representative is expected to be from the primary or partner organisation responsible for Project development, which must be a legal entity.

BE34. Annex G (EA signposting for Hydrogen Projects) is not available on the gov website for download. Is there some other way to access this, or is this just referencing the Hydrogen Emissions Calculator?

A correction has been made to the Project Application Form, where the previously labelled Annex G now refers to Appendix A in the Application Guidance document.

BE35. Can BEIS comment further on the subsidy control measures envisaged, particularly around interaction with renewable generation subsidies?

We are considering the interactions with renewable electricity generation subsidies in developing the commercial aspects of the HBM, including with respect to subsidy control. Any decision to award support will be made subject to government being comfortable with the application of subsidy control requirements. See further information: Complying with the UK’s international obligations on subsidy control guidance for public authorities / technical guidance on the UK’s international subsidy control commitments.

BE36. Will the Clarification Questions be posted weekly, if so when each week do you expect to do this?

Answers to the clarification questions will be posted on a rolling basis throughout the competition window. The deadline for the submission of clarification questions is 23:59 on 28 September 2022, ahead of the submission window closing on 12 October 2022.

BE37. How would BEIS deal with an application that answers ‘no’ to one of the eligibility criteria? Does that immediately scrap the application or would BEIS consider the application if prior contact has been made?

An answer in the eligibility section of the Online Application Form that fails to meet the required eligibility criteria will result in the Project Representative being unable to proceed with all subsequent sections.

BE38. Can the CAPEX stated in the EOI be updated for the final submission?

Further information on the EoI process can be found on page 16 of the Application Guidance.

Applicants are asked to confirm in the EoI that to the best of their knowledge they meet the mandatory eligibility criteria. Government may provide feedback if it appears your Project is unlikely to meet the criteria.

EoI answers are considered as indicative only and not as firm responses. Projects will not be prevented from making a full application based on the information provided in the EoI.

The final submission which will be due by 12 October will require you to provide supporting evidence to prove you meet the eligibility criteria. Applications which meet the eligibility criteria and the minimum deliverability score will continue to the evaluation stage where they will be assessed against a set of defined evaluation criteria.