Notice

Industrial Fuel Switching Phase 2: Clarification questions with responses (updated 8 November 2022)

Updated 1 December 2022

This page provides answers to any questions we judged to be of material significance.

8 November 2022

We have published responses to questions submitted between 31 October and 4 November 2022 (2pm): questions 44-54 added to this page.

Further details are provided in the Industrial Fuel Switching Competition Guidance document.

Clarification questions

Section 1: Application

1. How do BEIS recommend applicants find potential collaborators, including potential hydrogen suppliers?

BEIS have launched a networking platform on KTN’s meeting mojo tool to allow prospective IFS applicants to find potential collaborators. A partial list of hydrogen suppliers is also included in the competition guidance for phase 2.

2. Could a word version of the annex 2 declarations be made available?

This is available within the smart survey application form for applicants to complete and upload. The application form is only available to those who have registered for this competition.

3. Are declarations signed before or after the bid is submitted?

Declarations should be signed by all project partners before bids are submitted.

32. Can a word version of the declaration forms be made available?

Yes, this has now been uploaded to the IFS Phase 2 competition homepage.

33. Do BEIS have a collaboration agreement template and do signed collaboration agreements need included in the application?

BEIS do not have a collaboration agreement template to share with IFS Phase 2 applicants. Signed agreements do not have to be in place for applications, but they must be in place within one calendar month of the contract being signed.

44. In order to accurately estimate emissions and carbon savings for the project, we will need access to current emissions of similar technologies. What evidence or data can BEIS provide to assist with this?

Projects are expected to estimate emissions savings of their technology using the Green Book as guidance. In addition, the UK government publishes a range of statistics that may be useful in this regard. The Digest of UK Energy Statistics might be useful for estimating fuel use across a sector, and the Office for National Statistics publishes sectoral emissions estimates. Where the Green Book and other sources disagree, please use the Green Book figures as a default.

Section 2: Commercial

4. Could BEIS provide clarity on the role of partners and subcontractors in the IFS programme?

A project partner will sign a collaboration agreement with the lead contractor that will detail their support for the contract and what IP will be shared. Any IP generated will not belong to BEIS, but instead to the lead and project partners, so they are not eligible to receive profits from the funding provided by the competition. A subcontractor is hired as a third party by the lead contractor and they are not eligible to receive IP, but may charge a cost that includes profit.

5. What considerations have BEIS made for the challenges surrounding the current economic climate such as inflation and the high cost of materials?

BEIS understands that it is difficult to provide robust cost estimates in the current economic climate. We encourage applicants to the competition to make estimates on the current actual costs at a ‘fair market value’ for both operational and capital expenditures over the life of the project, based on the best projections available at the time the estimate is made. Given the risk-sharing nature of this SBRI competition, BEIS will fund 100% of eligible project costs, but the price agreed at the start of projects for goods and services must be the maximum price paid by BEIS.

6. What counts as UK spend? For example, if a UK company buys a part from the another country, is that spend counted as being in the UK? How much of the supply chain must be examined to confirm spend is not UK-based?

The competition guidance states that “In all cases, by financial value, over 50% of the project funded should be conducted in the UK.” This means that projects primarily based outside the UK are not eligible and for most UK-based projects this will not be a concern. For example , a part bought from another country is spend outside the UK as the money for that part is going to the company who supplied it. It is expected that what the UK-led company does with that part, as well as other parts and particularly the labour costs in assembling them, will be spent on UK labour and will outstrip the cost of parts bought in from outside the UK.

7. Is there still a NI protocol declaration step for partners to sign?

Any funding awarded will be within the terms of the Northern Ireland Protocol (where appropriate) and EU-UK Trade and Cooperation Agreement (TCA) (dated 31 December 2020) and World Trade Organization (WTO) Subsidies and Countervailing Measures.

8. What percentage of project costs are eligible for funding?

IFS projects will be funded through an SBRI pre-commercial procurement process, providing 100% funding to applicants. Therefore, 100% of any project costs eligible for Phase 2 must be funded by BEIS. Consequently, match-funding and in-kind contributions should not form part of an application or project.

34. Please confirm that arising intellectual property starts from the point when the project starts?

Arising intellectual property (IP) is IP which is generated during the funding period. Any prior or background IP will not be subject to the terms and conditions of the SBRI contract.

35. What entails non-commercial purposes with respect to clause 27 of the SBRI terms and conditions?

Non-commercial activities refers to those activities BEIS will take to inform and develop policy, and its other day-to-day activities. Such information could be shared internally within BEIS or with other government departments.

36. Regarding clause 27(6), when does the 5 year period start after which arising IP must be commercially exploited?

Clause 27(6) is clear that the 5 year period starts from the point at which intellectual property is created.

37. Are costs to upgrade existing equipment eligible for funding and are these costs subject to residual value calculations, or could they be treated as a different cost type?

Capital expenditure, including spend for necessary upgrades which are essential to the delivery of the project, is eligible for funding. Please ensure that all capital expenditures are subjected to a residual value analysis and only that portion of costs directly associated with the IFS project are applied for. Any equipment or materials which the project team do not believe has any residual value at the end of the project may be accounted for as material costs.

38. As I understand the guidance on capital expenditure, the funding will cover the cost of purchasing and installing equipment to be used in the demonstration, and the cost of removing and disposing of that equipment upon completion of the project and re-instating back to the original condition. Is this understanding correct? If there was an additional cost in reinstating the facility back to its original condition, i.e. the removal and reinstatement costs were greater that the realizable value of any equipment and materials removed, would it be allowable to continue to utilise the equipment installed under the demonstrator project and declare it’s residual value as nil? This assumes that some of the equipment required to support the demonstration has an ongoing use.

When estimating the funding of capital items, include depreciation only (based on utilisation of the item and residual value at the end of the project). Full guidance on calculating the residual value can be found in appendix 6 of the competition guidance. Please note that BEIS will not fund 100% of capital equipment costs where there is residual value at the end of the project.

45. If equipment is ordered ahead of the funding award, at projects’ own risk is the total cost of the equipment, including any deposit paid, an eligible cost that can be claimed even though the deposit was paid before the official commencement date?

BEIS will only accept costs which have been incurred during the project funding period and will not accept any costs which have been incurred prior to this. BEIS recognise the potential challenge and risk that long lead time items can pose to project delivery and so we will engage with projects who are provisionally successful to explore options prior to contract award.

46. Can revenues from project activities (for example, accepting a fee for wastes provided as feedstock), be used to fund project costs?

When estimating costs, please take into account all potential costs in the cost breakdown form. BEIS expect to see residual value reflected and full costs associated with the proposal accounted for and justified. Gate fees and other incomes associated with the project may not be used to fund project activities; under an SBRI all project costs must be funded by BEIS as outlined in Section 1.2 of the Competition Guidance. Income streams as a result of the project do not preclude you from applying and will not make you ineligible on their own; please be sure to justify that your project is not beyond TRL 7 (that is, that the project is not commercially viable or would go ahead without IFS funding) as a result of these income streams. As outlined in Section 3 and 4.3 of the Competition Guidance, eligible costs will be funded for successful applicants up to the maximum of £6,000,000 per project for Phase 2.

47. One challenge of fuel switching to biofuels involves increased operational expenditure (OPEX) due to a significant increase of the fuel costs. Does the Industrial Fuel Switching Competition support OPEX costs increase resulting from fuel switching to biofuels? If there is support for OPEX, for how long could the project receive such support?

BEIS will only fund projects for the duration of the funding period. Operational expenditures required for the fulfilment of the funded activities during the project funding period are eligible.

48. Can the budget include costs for travelling out of the UK to visit partner sites (as long as 50% of the project funded is conducted in the UK)?

Yes, travel and subsistence costs are eligible for funding. For costs associated with foreign travel BEIS strongly encourages applicants to refer to the most up-to-date guidance from HMRC on expenses rates and to ensure that costs which deviate from this are justified. In addition, please make sure to justify the necessity of all anticipated foreign travel, and use digital collaboration tools where possible.

Section 3: Competition Scope and Eligibility

9. Can demonstrations be undertaken at a third party site (not an industrial site) or does it have to take place at an operational industrial site?

Demonstration projects should either demonstrate an entire fuel switching solution, key components of a system, a prototype in a relevant environment, or further develop and demonstrate the physical design of new solutions to enable an industrial process to be switched from using high to low carbon fuels. There is an expectation that demonstrations should occur on an industrial site in the UK, unless it can be proven that this is not possible. If this is the case, applicants must also show that the environment within which their demonstration will take place is comparable and applicable to an industrial site.

10. Are software projects eligible for funding?

This depends on the specific project. Software solutions are not excluded from the competition if they can clearly enable an industrial fuel switch. Phase 2 of the competition seeks demonstration projects, so a software solution trialled on a real industrial site may be eligible. Digital solutions where the primary purpose is the reduction of energy/resource efficiency for industry are not eligible as they are covered by other BEIS programmes.

11. Does fuel switching enabling technology include storage?

The competition guidance provides a non-exhaustive list of examples of projects that would be in scope. Fuel storage solutions and fuel delivery/distribution and/or control systems are all included in that list. However, it must be clearly shown how fuel storage will enable a fuel switch on the respective site.

12. Are FEED studies eligible for funding?

Phase 1 of the programme looked to develop the industrial fuel switching concept, as part of Phase 2 some projects may require some FEED work in order to develop the concept through to its demonstration. So long as a physical demonstration of the fuel switching solution is in place at the end of phase 2, then some FEED work that forms part of the demonstration project may be appropriate and in scope for funding. Phase 2 applications must also include fully costed proposals to be eligible and so any FEED work must also be costed into this.

13. Are the costs of adding new connections to the national grid eligible?

These costs can be eligible if applicants can demonstrate that any such connections are required to enable demonstration of the fuel switching concept and show that they have considered how this is the best value for money option available. Applicants must also show that the new connection to the grid has the approval/support of the national grid, and that all other requirements are in place to feasibly add the connection within the project timelines.

14. Are energy or fuel generation costs eligible?

You may include the cost of fuel production, including capital expenditure appropriately apportioned for the project lifetime, if this enables the fuel switch and fits within the project budget. Operational costs, such as electricity, required to carry out the project, are eligible for funding.

15. Is hydrogen derived from fossil fuel sources eligible for use in this programme?

As hydrogen production is expected to develop and decarbonise, to support industrial fuel switching, any supply of hydrogen, including electrolytic hydrogen or that produced via methane reformation with or without CCUS, will be considered for this competition. However, applicants are expected to set out a path to low carbon hydrogen beyond this competition in their application. Additionally, where it enables the industrial fuel switch and does not become the main focus of the project or use of funding, hydrogen storage will be considered as part of a project proposal for this competition.

16. Can PhD students take part in this programme?

IFS Phase 2 is all about the demonstration of fuel switching concepts in an industrial environment and will not fund purely research projects. That being said, PhD students and researchers can take part in the programme so long as they are involved in an eligible project. We also expect some research/academia involvement to be required as part of some applications to move technologies closer to demonstration and deployment.

17. How will the outputs of Phase 1 be considered when assessing bids to Phase 2?

The outputs of Phase 1 may be submitted in the supporting evidence section of the application form, however, such supporting evidence shall not be scored. Similarly, for any applicants who did not participate in Phase 1, alternative supporting evidence can be submitted. But again, this shall not be scored. Only the content of the assessed sections of the application form will be scored.

18. Can projects in Phase 1 change their project partners when applying for Phase 2?

Yes. Phase 2 is open to all potential applicants regardless of their involvement in Phase 1. In practice this means that the outputs of Phase 1 will not be considered when assessing bids to Phase 2. The fact that any changes could be made to a project team between Phases 1 and 2 will in of itself have no impact on the scoring of a Phase 2 bid.

19. Are ammonia-based projects eligible?

Yes, ammonia and other alternative (i.e. non-fossil) fuels are eligible. Ammonia can be used as both a carrier of hydrogen in hydrogen transport and storage projects and can also be burned directly, therefore the lot to which ammonia-based projects apply should be considered. In general, if the ammonia is being used as a hydrogen carrier and it is intended to be cracked later to release hydrogen for use in fuel cells or burners then Lot 1 (hydrogen) is the most appropriate. If the ammonia is being burned directly then Lot 3 (biomass, waste and other) is appropriate. In cases where the ammonia could be used as a hydrogen carrier or a fuel, we encourage the bidder to consider the most likely use-case for their technology.

20. Does switching from natural gas to biogas count as switching from a high carbon fuel to a low carbon fuel?

Yes.

21. Are projects that reduce the overall emissions of a fuel eligible? For example, reducing emissions from natural gas, or reducing the overall emissions associated with biomass?

Projects focused on burning fossil fuels are ineligible, and a project focused on reducing emissions from natural gas usage, for example, will be rejected. Fuel switches to unsustainable biomass or to biomass that are incompatible with future CCUS, unless it can be proved that no other low carbon alternatives are available are both excluded from this competition. Switching of feedstocks, except where feedstock provides chemical energy to drive the process (e.g., reduction of iron) are also ineligible. Applicants must provide emissions factors for the proposed technology by using the Green Book as guidance. Applicants must also estimate the potential emissions savings from the solution by using the Green Book as guidance. Provide all supporting data and calculations to support your answer.

22. Can project leads partner with local councils and academia?

Yes, IFS is open to both individual companies and consortia. Consortia applications could include local councils and academia.

23. Are projects involving work on hydrogen vehicles eligible for funding?

Fuel switches that do not power an industrial process, such as for transportation, domestic heating, or lighting are not eligible for funding under this programme.

24. Are fuel switching projects which include energy/heat recovery systems to improve system efficiency eligible?

So long as the key purpose of the project is to enable and demonstrate fuel switching to a lower carbon fuel, then yes, we would actively encourage applications which seek to improve system efficiency through energy/heat recovery.

25. Can large businesses apply for SBRI funding?

Yes, all businesses can apply for SBRI funding.

26. Is the programme open to both consortia and individual companies?

IFS is open to both consortia and individual companies. BEIS will only contract with a single lead partner of any consortia applications, unless the consortia are planning to create a separate legal entity.

27. IFS Phase 1 guidance stated that applications for Phase 1 feasibility studies on trialling fuel switches to 100% hydrogen which also incorporated a study on a 20% hydrogen blend would be favourable. Would the inclusion of blending trials on hydrogen applications for Phase 2 be seen as more favourable?

Under IFS Phase 2 applicants are more than welcome to include blending as part of their trials and demonstration. If they can show how blending will help meet the competition objectives (enabling of fuel switching) and assessment criteria (value for money) then this may score higher in their assessment.

39. In the BEIS Terms and Conditions, the Confidentiality Obligations in Clause 8 are all upon the Contractor, with no obligation on BEIS to keep information confidential. Clause 43 of the SBRI Terms and Conditions does provide the opportunity for a separate Confidentiality Agreement to be put in place between BEIS and the Contractor, albeit subject to the conditions of 43.2.

If a Contractor wishes to have a Confidentiality Agreement put in place for their project, this will only be done after they have been notified that their application has been provisionally successful.

40. Is there a limit to the amount of Capital Expenditure (CAPEX) or Research and Development (R&D) funding eligible within a Phase 2 project?

No, there are no specific limits on the amount of CAPEX or R&D funding (within the maximum £6m per project) under this programme.

41. We are unclear as to which funding lot is most appropriate for our particular project, could BEIS provide some guidance on this?

Apply to which ever you feel is most appropriate from reading the competition guidance. BEIS can always reallocate your project to a different lot if that is more suitable.

42. An important part of fuel switching may include the capture of carbon and forward uses. Can we include innovative approaches to carbon capture as part of our project to ensure the project meets the CCUS requirements?

Carbon capture, utilisation, storage (CCUS) projects are ineligible for funding, unless this enables the fuel switch and fits within the competition budget. Projects must be focused on switching an industrial process from a high carbon to a low carbon fuel, and any CCUS is ancillary.

43. The guidance says that any project should be 100% funded by BEIS. If our whole project possibly costs more than the £6 million maximum, can we break our project down into smaller cost sub-projects and apply for the fuel switching fund for the most relevant sub-projects and use our own capital to fund non-eligible sub-projects.

If these sub-projects are eligible under this competition then this may be a suitable approach. Projects over £6m in total costs are not eligible under this competition.

49. How long must the demonstration systems run for in order to qualify as demonstrated?

Ultimately, the length of the demonstration necessary will vary depending on the complexity of the project, so there is no minimum or maximum time that demonstrators must run. One of the aims of the Industrial Fuel Switching programme is to demonstrate the potential commercial viability of industrial fuel switching solutions. The commercial viability of a project will ultimately be determined by the ability of the project to attract investment after the IFS programme has closed. Applicants should show that this demonstration will help them to succeed in achieving that aim, and that the length of system/technology demonstration planned will be sufficient to support the project and IFS programme objectives.

50. Does NZIP Industrial Fuel Switching Competition support fuel switch from diesel to biofuels in power stations, if the power produced by the power station goes to the electricity grid instead of a dedicated industrial customer?

As per the competition guidance notes, fuel switches that do not power an industrial process are ineligible for funding under this competition; projects must have an industrial focus. For projects focused on power generation for the national grid there are other competitions available, for example: Cluster sequencing for carbon capture, usage and storage (CCUS) deployment: power bioenergy with CCS (BECCS).

51. Can overseas based companies be partners in the project as long as 50% of the project funded is conducted in the UK?

The eligibility criteria states that projects can work with international partners, but they must be led by a UK-based company and over 50% by financial value of the project funded must be conducted in the UK.

52. Are projects switching from natural gas to a blend of natural gas and hydrogen eligible?

The guidance states that applications for industrial fuel switching to any blend of hydrogen and other fuels will be eligible for this competition.

53. The total costs for our project are below the minimum project budget of £1 million, will this be eligible for funding?

The guidance states that exceptional proposals below the minimum budget of £1 million may be considered so long as the proposal meets the goals of the competition and is of sufficient scale. Applicants must show this through their application to be considered eligible for funding.

Section 4: Competition Structure and Timetable

28. Why do projects need to be complete by March 2025? Is there flexibility on timescales?

All projects must be complete by March 2025. The funding period ends on 31st March 2025 in accordance with wider government funding allocation. For this reason, there is no flexibility on this timescale.

29. Is there any flexibility allowed for the Stage gate criteria?

A stage gate decision will be taken on a case-by-case basis. For each project it will be taken into consideration what is feasible and necessary, and the timeframe to achieve it.

Section 5: Miscellaneous

30. Must projects and demonstrators continue beyond phase 2 at the same site? Could any assets developed through the project then be used for commercial use?

Projects do not necessarily need to plan to continue to use their demonstrator after the IFS Phase 2 programme. However, projects must show a plan for continued growth and capitalisation of their technological solution after Phase 2, both as part of their application and their final project reports if they are successful in receiving funding. Value for money is a scoring criterion. Projects will score better if they propose to use assets to provide additional evidence on industrial use of hydrogen after the demonstration ends, either in long term industrial operation or in further RD&D.

54. How often should payment milestones be scheduled?

At the start of the project, a monitoring officer will be assigned by BEIS. The Monitoring Officer will agree on the milestone payment plan and schedule and deliverables with project teams. BEIS expects that payment milestones would occur at a frequency of at least every 3 months and no more regularly than once per month. Project payment milestones may need to occur at different times during different phases of the project.

Section 6: Other BEIS Funding Competitions

31. What is the difference between this programme and the Industrial Energy Transformation Fund (IETF)?

The Industrial Energy Transformation Fund (IETF) is focused on the deployment of mature technologies which can support industry and businesses transition to a low carbon future. The IFS programme focuses on the development and demonstration of fuel switching or fuel switch enabling technologies. The technologies funded through IFS are typically at a lower TRL then those funded by the IETF. Applicants who feel that their technology is too far developed for funding under IFS may wish to consider applying to the IETF, which closes for applications to the latest funding round on 13 January 2023.