Notice

IHA clarification questions and answers (Stream 2B grant)

Updated 28 June 2023

These are answers to questions asked about Stream 2B.

Questions 1-25 (published 16 December 2022) were asked during the IHA Stream 2B information event held on 10 November 2022, as well as some asked by email to the IHA inbox.

Questions 26 onwards were asked during the Stream 2B application window. Questions 45-56 relate to the grant funding agreement.

Further details are provided in the Industrial Hydrogen Accelerator Competition Guidance documents for Stream 2B.

Stream 2B Information Event Q&A (published 16 December 2022)

1. What evidence is required on match funding at application stage and prior to first payment milestone? Can match funding be approved later, subject to results of the feasibility study or FEED?

Confirmation that match funding will be available must be provided at application stage, for example a Letter of Intent from the funder/investor specifying their intent/agreement to provide an amount of funding and any conditions on that funding. This can be included in the Supporting Information document. Further evidence of match funding must be provided in advance of the first payment milestone e.g. evidence of match funding for the FEED phase and a letter of intent (with any conditions) for any further funding, such as for demonstrator build. Match funding for the whole project must be confirmed/approved and evidenced for the first stage gate (approx. 6 months into delivery); the evidence provided could, for example, be a bank statement, Memorandum of Understanding or agreement within the signed consortium agreement.

Debt and equity are acceptable sources of match funding, provided that this is accessible and projects are able to provide evidence of the availability of this funding by the first project milestone. In circumstances where equity or debt is not accessible for use against project costs by the first milestone, for example where equity has not been sold/released, this would not be an acceptable form of match funding. In kind contributions such as staff time can be included in the match funding total, as long as they relate to eligible project costs, are appropriately costed at a fair market value, and are robust, realistic and justified in terms of the proposed project plans.

2. Is contingency an eligible cost?

Applicants should ensure that their cost estimates are as realistic and as accurate as possible. All costs must be clearly justified in the finance forms and any excessive or unreasonable costs will lead to projects being marked down in the application stage. General project contingency funds should not be included in project costs. Contingency for a specific cost item can be included where there is reasonable justification, and assessors/ BEIS will consider whether this is reasonable and sufficiently justified at assessment and due diligence stage (contingency on labour costs is not eligible). Any such costs included in the total amount of funding being requested at bid stage will be included in assessments of whether the project represents VFM i.e. the assessment will be based on the full amount. However, BEIS will only pay projects for actual costs and in arrears of work done. Projects cannot use any contingency funds without BEIS approving a change request. Please also see the IHA Stream 2B Competition Guidance Notes Section 2.2 Project Scope and Eligible Costs for information on Inflation Allowances.

3. Are decommissioning costs eligible? Are remediation/decommissioning costs eligible, if not a successful demonstration?

Projects will have responsibility for decommissioning demonstration equipment/assets when the project has been completed if it is not feasible to continue to operate/develop the equipment. When applying, applicants need to include any decommissioning costs, at fair market value, in the total estimated costs for the demonstration project. Where the project doesn’t plan to decommission, but there is a risk this will be needed depending on the outcome of the demonstration, this cost can be included as a specific contingency cost, see question 2 above.

4. We are concerned about the short timeframe to apply to Stream 2B (due to resource clashes with Stream 2A) and to deliver Stream 2B (due to supply chain issues and FID requirements). Can BEIS extend the timeframes? Must we commit to a demonstrator as well as FEED at the point of submission for 2B, or could there be a gated approval process for progression to demonstration? See also question 20.

All projects must be complete and signed off by March 2025. The funding period ends on 31st March 2025 in accordance with wider Government Spending Review funding allocations. For this reason, there is no flexibility on this timescale. The longer BEIS allocates for preparing applications for Stream 2B, the shorter the timeframes for Stream 2B delivery; given 2A projects have flagged that the 2B delivery timescales are already challenging due to lead times, BEIS has chosen to keep the Stream 2B application deadline the same to maximise delivery time. BEIS has already extended the final deadline for Stream 2A final reports by 2.5 weeks to February 28th to support projects experiencing resource constraints and give time after Stream 2B application deadline for reports to be finalised.

5. Is there a preference for FEED vs. smaller scale demonstrators, given the time and budget constraints?

It is up to projects to decide what is achievable for them in the timescale given. Projects should note that if they apply for FEED, it will not be possible to later increase the funding amount to support a demonstration. Projects should refer to the IHA Stream 2B Competition Guidance Notes Section 6.1 Assessment Criteria, in particular weighing up deliverability vs potential for knowledge gain for their specific project. Note that the delivery plan (Criterion 4a) will be assessed on the basis of expected effectiveness and efficiency of delivery, including deliverability in the timeframe. Conversely, for Criterion 1, demonstration projects are likely to score better than FEED work as their outcome is likely to better meet the objectives of the programme and the evidence developed is likely to lead to more technological progress on industrial decarbonisation.

6. Is a bigger project (in terms of MW generation or end-use) going to get more marks?

The size of the project is not an assessed criterion, but projects should consider where there is the greatest potential for knowledge-gain at an industrial scale to score highly on the relevant assessment criteria. Projects should refer to the IHA Stream 2B Competition Guidance Notes Section 6.1 Assessment Criteria, which describes how higher marks will be given where projects are innovative and will lead to a large amount of technological progress (Criterion 1: Innovative solution), as well as having strong performance, good design, strong evidence on technical feasibility and the knowledge gained is widely applicable to UK industry (Criterion 2a: Performance and feasibility).

7. There are wider benefits of our technology outside the core application, such as potential for use of waste heat to improve process efficiency. There are also wider applications of the technology beyond the current industrial sector, and greater plans for us to test and deploy the technology - should we include these wider benefits, applications and plans in our application?

Projects should refer to the IHA Stream 2B Competition Guidance Notes Section 6.1 Assessment Criteria, which describes how projects should provide an assessment of the overall system performance, including efficiency; describe (and if possible quantify) the applicability, adaptability and scalability of the solution and wider knowledge across UK sector(s), particularly industry; outline their long-term development plan for the system/solution and/or the component technologies and any plans for promoting wider use (Criterion 2a: Performance and feasibility). These criteria should allow you to make a clear case for the benefits of your solution and its wider applicability.

8. What is the required accuracy for the CAPEX of the pilot plant for stream 2B application?

We would indicatively expect at least Class 4 AACE cost estimates for the demonstration/FEED by the end of the feasibility stage. Projects should refer to the IHA Stream 2B Competition Guidance Notes Section 6.1 Assessment Criteria which describes how projects will be assessed on their cost breakdown form, including whether costs are accurate, realistic, fair market value, evidenced and there is assurance of the costs (Criterion 3a: Project cost breakdown form).

9. Is Ofgem funding counted as public funding? For example Network Innovation Allowance?

The supplier should outline where the funding for the project is coming from and the contribution of public funds. There are a number of network innovation funds sourcing money from different sources. The supplier should, considering the source of the Ofgem funding, justify whether it is public or private funding. Funding which is from the exchequer / government is public funding. Funding which is directly from bill payers may be considered private funding and may be used as match funding. Compliance with IHA grant intensity and overall public funding limits is a requirement of this Competition and the risk of non-compliance rests with the grant recipient.

10. We need clarification on what input is required to the technical performance Excel sheet for a FEED study, if there is equipment that will not be chosen until after the FEED study.

All projects must enter information in the Technical Performance Excel for all relevant components. For components/equipment which are not yet fixed, projects may enter an estimate and add a comment in the appropriate column.

11. Will FEED studies be 100% funded or use the same grant intensities?

FEED studies will be subject to the same grant intensities as demonstration projects under IHA.

12. Would heat pumps be eligible for the electrification of process baking? In order to utilise the H2 in the industrial process.

Per IHA Stream 2B Competition Guidance Notes Section 2.2 Project Scope and Eligible Costs, hydrogen based power generation is not considered an industrial application unless the generator is integral to the industrial site / process. This must be justified in the application. A hydrogen-based power generation technology which is newly built on an industrial site to supply a site electricity demand which was previously supplied from the electricity grid is not eligible. Projects focussed on fuel switching to electricity, biomass, waste or other non-hydrogen based fuels are not eligible. Conversion of heating processes to electric heating is not within the scope of the IHA funding. End-use of hydrogen in a hybrid hydrogen-electric heat pump, where hydrogen is combusted for heat, is considered in scope.

13. If production of hydrogen cannot be made in the timeframe can alternative sources of hydrogen be bought?

Projects must include hydrogen generation, hydrogen delivery infrastructure and industrial end-use in a robust chain as a single project. Trailered delivery of grey hydrogen from a conventional source and supply chain is not considered an end-to-end project. Stream 2B applications may include contingency plans, but assessors will assess the project on whether the ‘Plan A’ is deliverable, eligible and meeting programme objectives. Projects should not assume they can switch to contingency plans later, as BEIS will review and decide whether to approve changes, and may choose to terminate the project if the contingency plans no longer sufficiently achieve the aims of the programme.

14. What % of the total budget can be used for dissemination activities?

The portion of budget used for dissemination activities is at the project’s discretion, but it is expected that it is commensurate with the activities planned and the value added to the project. Projects should refer to the IHA Stream 2B Competition Guidance Notes Section 6.1 Assessment Criteria which describes how projects will be assessed on whether they provide good value for money and fair market value for HMG (Criterion 3b: Additionality and value for money).

15. To what extent are dissemination activities expected through 2B execution?

Projects should refer to the IHA Stream 2B Competition Guidance Notes Section 11 Knowledge Dissemination Requirements. Effective dissemination and knowledge sharing are key requirements of the IHA competition.

16. Are there any specific asset retention periods post demonstrator complete?

For assets that are owned by the supplier by the end of the grant term (i.e. the residual value is already accounted for), there are no asset retention requirements beyond the end of the grant term, provided all obligations of the grant are complete. The asset must be retained if there are grant conditions that are still to be fulfilled (e.g. further demonstration, conversion to commercial operation or further monitoring and dissemination) and projects should agree with BEIS when it is acceptable to dispose of assets. Projects should also refer to the GFA Section 18.5-18.8 Disposal of Asset for further information.

17. Is the grant amount fixed? For example if the grant is £1m for a £2m project (50% grant eligibility), if the project came under budget at £1.6m would the grant be reduced to £800k?

The GFA outlines how the amount of public funding (including the grant) that projects may receive must not exceed both the grant total and the grant intensity level. Payments will be made in arrears on a milestone basis upon receipt of a detailed statement of expenditure (based on actual costs). Any changes to the project must be agreed with BEIS through the change control process. If total project costs decrease, it is expected that the total grant amount would decrease accordingly. Compliance with grant intensity levels is a requirement of the grant and the risk of non-compliance rests with the recipient.

18. Why do you require such IPR (Intellectual Property rights)?

The IPR conditions are standard in all government agreements and are designed to protect taxpayer funds. BEIS requires access to the information generated through public funding, for example to inform policy.

19. Could you provide an example of an Industrial Research project for clarity?

Applicants should refer to the Definitions in the IHA 2B Competition Guidance Notes Section 4 Grant Funding Intensities (copied below), and should justify the category of their project activities based on these. One of the key differences is that Experimental Development (ED) may include the development of a commercially usable prototype or pilot, whereas Industrial research (IR) may include prototypes in a laboratory or environment with simulated interfaces to existing systems, particularly for generic technology validation. Please note that each Stream 2B project will include multiple work packages, and some of these may be ED whilst others may be IR.

Industrial research means planned research or critical investigation to gain new knowledge and skills. This should be for the purpose of product development, processes or services that lead to an improvement in existing products, processes or services. It can include the creation of component parts to complex systems and may include prototypes in a laboratory or environment with simulated interfaces to existing systems, particularly for generic technology validation.

Experimental development means acquiring, combining, shaping and using existing scientific, technological, business and other relevant knowledge and skills with the aim of developing new or improved products, processes or services.

This may also include, for example, activities aimed at the conceptual definition, planning and documentation of new products, processes or services.

Experimental development may comprise prototyping, demonstrating, piloting, testing and validation of new or improved products, processes or services in environments representative of real life operating conditions. The primary objective is to make further technical improvements on products, processes or services that are not substantially set. This may include the development of a commercially usable prototype or pilot which is not necessarily the final commercial product and which is too expensive to produce for it to be used only for demonstration and validation purposes.

Experimental development does not include routine or periodic changes made to existing products, production lines, manufacturing processes, services and other operations in progress, even if those changes may represent improvements.

20. We are not sure whether to go ahead with FEED or demo, given constraints on timeframes and funding, as well as other challenges and risks. Can there be a gated process to determine whether to proceed to demonstration during 2B? Or another application window?

BEIS will not be able to approve funding for a demonstration if one was not originally included in the application to Stream 2B. There is not sufficient time remaining to do another application window in autumn 2023. There will be a stage gate approximately 6 months into project delivery. At this point BEIS expects to take a “pass”, “rectify” “fail” outcome. BEIS also expects that projects will provide additional evidence and documentation showing the demonstration is feasible, including evidence of FID and match funding. Any significant changes that emerge through FEED work before FID (and the stage gate) will need to be reviewed and BEIS will consider material changes to ensure the project can complete by March 2025 within the scope of the original project and programme objectives.

21. We are planning to use an asset in our demo phase that was originally developed using other public funding. Do we need to declare this and what amount would we need to ‘declare’ as ‘other public funding’ contribution to IHA project? E.g. the estimated value of the asset that is being transferred to IHA project (say £100 worth of materials) or the total public funding used to develop it (say £1000 of time and materials)?

Public funding which is being used or has previously been used for the same project must be declared. There is a box on the application form to give details of other public funds received or applied for, which should be completed comprehensively, including the full value of the relevant funding. Where the work publicly funded is already complete and only an asset is being transferred, the asset value should be estimated and the value justified in the context of the IHA project. This estimated asset value should be used to ensure that the public funding limits (grant intensity) of the project are not breached under IHA rules or those of the other public funding. However, the value of the item does not need to be included in the project cost breakdown form where there is no cost to the IHA project. BEIS will not fund any work or assets twice.

22. If the supplier is paying for the majority of an asset due to its residual value afterwards, can this be included in the match funding total?

Applicants must first calculate the eligible cost of the project (including for each individual component/work package/contract), before applying the relevant grant intensities. The eligible project costs must account for the residual value of the assets at the end of the demonstration – guidance on calculating residual values can be found in Appendix 4 of the competition guidance. Only the eligible costs can be included in the project cost breakdown form as part of the total project cost. The relevant grant intensity must then be applied to the eligible costs. For example, if a mature technology (e.g. solar farm) capital cost is £10m, and you estimate the residual value at the end of the funded project to be £9m, the eligible cost is £1m and the relevant grant intensity should be applied to the £1m. The £9m is not an eligible cost and cannot form part of the match funded contribution (the ‘unfunded’ portion) to the project.

23. Can you explain if mobile applications are eligible?

Please see section 2.2 of the competition guidance.

24. Given the tight timeframes and long lead times of certain capital items (e.g. electrolysers, compressors), some projects may not be possible if we wait until a 2B contract is signed to order equipment. Is there anything BEIS can do to support?

BEIS expects to share the provisional outcome (award letter) for Stream 2B in early April 2023.

BEIS expects to sign Grant Funding Agreement contracts in May 2023.

Prior to Stream 2B award, any payments made by the project cannot be claimed from BEIS, as we are not able to pay retrospective costs (and these retrospective costs cannot be included in the total IHA project costing). However, if you choose to make a payment for Stream 2B (e.g. deposit to equipment supplier) prior to award at your own risk and cost, this will not preclude you from receiving IHA funding for the remaining 2B project costs, providing your application is successful (and has evidenced additionality of public funding as per criterion 3b).

Please speak to BEIS in advance if there are capital items that you would need to order before the contracting for Stream 2B (likely May 2023). If you receive a positive award letter (likely early April 2023) and there are items that you need to order urgently prior to contract completion, please discuss with BEIS; we cannot guarantee we would allow (and reimburse) purchases prior to contracting as this would be reviewed on a case by case basis and a Letter of Intent supplied by BEIS where agreed. Any purchases made/committed to before contract signature are at the risk of the lead supplier and even with a Letter of Intent, if the project team does not pass due diligence then the costs could not be reimbursed by BEIS.

25. Do partners have to supply their own match funding or can this come from elsewhere?

No, the match funding for a partner can be provided by another organisation, provided it is not public money. So if Partner B is completing £100 of work on the IHA project and requires £50 in match funding towards this part of the project (50% grant intensity), this £50 match funding could come from their own organisation (e.g. cash in bank, accessible debt or equity) or from another project partner (e.g. the project lead). The project lead must ensure that the overall public funding (and relevant grant intensity) of the project does not breach the subsidy thresholds.

Questions published 13 January 2023 (after Q&A window)

26. If certain aspects of the project will be firmed up during the Stream 2B early stages (FEED), can we submit the ‘options’ as part of our application? E.g. 2 high-level quotes for the build work from two potential contractors, one of which will be selected based on quality and value for money?

Projects can only apply with one total project cost, and this will be the basis of the application assessment. We understand that for innovation projects some subcontractor costs will be estimates at the point of application. Including estimated costs or 2 supplier quotes will not affect projects eligibility, but one quote must be selected as favoured for the purposes of the application. Projects should keep in mind that the level of confidence and evidence of project costing and project delivery is scored in the assessment criteria 3 and 4. Therefore, projects are encouraged to provide an estimate with as much confidence and supporting evidence as possible. Where there is uncertainty over a supplier for a piece of work/equipment, the application should make clear the rationale for this and all suppliers involved will have to undergo due diligence before contributing to the project. BEIS will only pay invoices based on costs incurred.

27. Is it acceptable to conduct a FEED of one scope / scale, and in parallel a demonstrator of another (less onerous) scope / scale for Stream 2B, within one Stream 2B project?

Yes, it is acceptable to do a FEED and demonstration in parallel as long as:

• the core technology / solution / project in the FEED and demonstrator are the same to ensure project continuity.
• the project team is intending to do both aspects (demo and FEED) and includes both in their application.
• FEED and demo are included in a single application / IHA project and subject to the same funding limit (£7m) i.e. the project cannot apply for £7m for the demo + £3.5m for the FEED.
• The FEED and demo elements are subject to the same eligibility requirements as per section 5.1 of the competition guidance.
• The IHA application and project costing can only include the costs which will be incurred until March 2025 for the demonstration and FEED study, not the continuation of future phases.

28. Do projects have to comply with the LCHS to be eligible for IHA? Does IHA have a definition of what constitutes ‘low carbon’ for eligibility?

Projects do not need to fully comply with the Low Carbon Hydrogen Standard to be eligible for IHA funding and they do not need to meet the LCHS threshold of 20 gCO2e/MJH2,LHV, but they will score more highly if they do. Where projects do not comply, they must decrease the carbon intensity of the industrial process to be eligible and should justify they provide significant value to the establishment of low carbon infrastructure, the IHA objectives and reaching net-zero. As per Section 2.2 and Criterion 2c, projects will score higher if they can evidence compliance with the LCHS. Projects will score more highly on criterion 2c if they have a very low emissions intensity, high abatement, strong evidence provided and reasonable assumptions.

29. Our process for hydrogen generation also produces another useful product (metals/materials). To calculate LCOH and carbon intensity of hydrogen, could we apply a weighting factor by mass to allocate the cost and emissions between the useful outputs?

Hydrogen production processes that are already included in the Low Carbon Hydrogen Standard (LCHS) should calculate the anticipated carbon intensity of the hydrogen in gCO2e/MJH2,LHV using the LCHS methodology. For more novel hydrogen production processes where there is not an emissions accounting process laid out in the LCHS, the applicant should use the LCHS methodology documents to propose a suitable method. In the case of having multiple valuable products of the process, the emissions and costs can be apportioned between the products in a fair way (e.g. mass, £ value) and this method justified; the assessors will consider the method in the context of the process when scoring. However, BEIS would like to see the total emissions, costs and the breakdown of these in addition to the apportioned unit values. In this case, given that hydrogen has low mass compared to the other products, it is strongly recommended to also show the emissions intensity and cost when ‘£ value of product’ is used as the weighting factor. For the abatement, the applicant could consider the emissions savings of both the hydrogen (relative to alternative fuel/feedstock) and the other products (relative to their counterfactual production processes) to show the benefits of the solution.

30. Are BEIS able to provide examples of eligible costs for FEED studies (page 18 of competition guidance)? We are particularly interested in an expansion of what the term “planning” refers to. Do eligible costs include financial modelling, procurement strategy, contract development, regulatory etc?

Page 18 states:

For FEED studies, the eligible costs are the engineering design and planning work covering the above scope of project and incurred by March 2025 in producing the final FEED report. This will typically include resource costs such as consultancy or staff time. In some instances, applicants may also need equipment to test or derive results necessary to the study and these costs are also eligible provided the findings are disseminated and included in the report. Standard equipment cost claims should reflect only the usage period relevant to the study, for example, based on depreciation or rental costs. Costs for the subsequent construction/implementation of the project beyond the FEED study and period of funded activities are not eligible.

Eligible costs include the engineering design work and additional project development resource to robustly plan the project and reach FID (with a view to demonstrating / implementing by end-2026).

FEED work can include equipment definition and pricing, plant design, EPC execution planning, cost estimation and refinement.

For FEED studies, wider work to support project planning can include:

• Project management
• Cost and financial modelling and development of the commercial proposal
• Environmental impact and mitigation assessment
• Consultancy for specific expertise required to meet FID. For example resource and consultancy to research, design and plan infrastructure (e.g. grid connection, water supply and sewerage). Note fees (e.g. grid connection fees) and implementation costs are ineligible.
• Costs to derive technical data / evidence required for the FEED
• Resource to develop planning and permitting applications (e.g. surveys and assessments).
• Licenses and permits only for the duration they are necessary during the IHA FEED project to achieve the objectives of the IHA work, not beyond (i.e. permits for project implementation beyond March 2025 are not in scope).
• Public relations and communications - where necessary to support the IHA project and to disseminate the findings
• Resource for procurement strategy and process where necessary pre-FID and during the FEED study
• Regulatory / funding – technical exploration of regulatory and funding considerations is in scope. Resource and costs to write funding applications is out of scope, as are any legal fees.

Costs which are out of scope for FEED studies:

• The fees associated with a planning application itself
• Purchasing of land or equipment that is not used during the IHA FEED project and not necessary for the FEED study.
• Physical work to prepare the site (e.g. build of infrastructure)
• Contract development (e.g. PPA, shareholders, EPC) and legal fees
• Costs to write funding applications

It is the applicants responsibility to demonstrate that the costs are necessary in order to achieve the objectives of the IHA stream 2B project and contribute to IHA programme objectives. If your project passes assessment, but we determine that you have requested more funding than needed, or for items which are not essential for the FEED phase of work, you may be offered a lower grant amount.

31. Will BEIS issue any guidance on what inflation metrics or source to use? The Guidance just states “Any assumptions re inflation should be realistic and clearly stated”.

Projects can use inflation metrics of their choosing as long as each is clearly evidenced and justified.

32. Do BEIS have any guidance on what defines ‘significant continuity’ of the project team (page 23)?

Please see section 5.1 of the Competition Guidance, in particular “Stream 2A and Stream 2B applications do not need to be led by the same organisation, but there must be justification for the change and significant continuity in the project team. The Stream 2A project lead must remain as a partner organisation in Stream 2B and have a significant role in Stream 2B delivery.” In addition “Each Stream 2A project can only apply once to Stream 2B and the project scope should not be materially different than that proposed at Stream 2A application stage.”

33. The guidance states a different consortium member from 2A could lead 2B. Are there any scenarios where consortium members from a 2A bid could apply separately for 2B?

Please see section 5.1 of the Competition Guidance. In particular “Each Stream 2A project can only apply once to Stream 2B and the project scope should not be materially different than that proposed at Stream 2A application stage.” See the answer to question 32 above.

34. Section 4.2 states businesses will be defined by staff headcount and turnover or balance sheet total for grant intensity purposes. As at what date should this detail be taken?

Applicants should use the most recent data available at the point of application to determine business size; this should be no more than one year old and BEIS reserves the right to request further information in due diligence. If an application or partner business has a parent company, the data concerning the parent company and the applicant company (cumulatively) must be used when calculating the organisation size. It is the responsibility of the applicant to ensure the grant intensity requested is consistent with the headcount and turnover of the organisation at the point of application.

35. Can applicants potentially use a mix of debt and equity funding to match fund their applications?

As per Question 1, debt and equity are acceptable sources of match funding, provided that this is accessible and projects are able to provide evidence of the availability of this funding. Provided they are accessible, a mix of debt and equity can be used.

36. If equipment is not available either in the UK, in time to meet the January 2025 operational date or at a commercially competitive rate, can the equipment be purchased from outside the UK even if it takes project costs over 50% non-UK content?

As per section 5.1 “Projects can work with international partners, but over 50% of the funded project work (by value) must be conducted in the UK. The physical demonstrators, or projects which are the subject of the FEED study, must be located in the UK.” This will be evidenced primarily through the project location tab of the Project Cost Breakdown Form and broken down by project leads and partners. During the project, project teams will meet regularly with the IHA team and should keep them informed of any challenges associated with UK suppliers so we can discuss potential solutions.

37. Can Stream 2B projects be divided into two using the stage-gate, with the first phase being an extended study into feasibility and, if successful, a subsequent deployment phase on-site? If there is an initial feasibility stage, would these costs be subject to a higher funding intensity?

As per question 20, BEIS will not be able to approve funding for a demonstration if one was not originally included in the application to Stream 2B. There will be a stage gate approximately 6 months into project delivery. At this point BEIS expects to take a “pass”, “rectify” “fail” outcome. BEIS also expects that projects will provide additional evidence and documentation showing the demonstration is feasible, including evidence of FID and match funding. Any significant changes that emerge through FEED work before FID (and the stage gate) will need to be reviewed and BEIS will consider material changes to ensure the project can complete by March 2025 within the scope of the original project and programme objectives.

At Stream 2B application stage, projects will be assessed on their costing and delivery plan for the whole project (including the demonstration phase if that is planned), particularly in criteria 3a and 4a. Projects with a more effective and complete delivery plan for the full 2B project will score higher. Project costing responses will score higher if costs are well evidenced and there is assurance of the costs for the full project duration. Projects can only apply with one total project cost, and this will be the basis of the application assessment. Also see question 38.

As per question 11, all IHA applications and work will be subject to the same grant intensities; please see competition guidance section 4.2.

38. Can we use a 3 stage process during Stream 2B to move from design and testing through to demo, with gated decision points along the way? Phases would be:

1a - H2 production pilot at existing facility
1b - FEED for demo
2a - burner tests in existing facility
2b - EPC for demo if 1a, 1b and 2a successful
3 - if 1 & 2 successful, end-to-end demo

Please see the answers to question 37 and question 20. BEIS will not be able to approve funding for a demonstration if one was not originally included in the application to Stream 2B. Projects where later phases have significant uncertainty as to whether they will progress, as they are reliant on earlier research phases, are likely to score lower on feasibility and project delivery criteria (particularly criteria 2a and 4a).

39. It is uncertain whether some of the ‘developing assets’ could/would be usable after the demonstration due to the uncertainty in demonstration success, uncertainty in future hydrogen supply and the uncertainty in the business case for continued operation (future funding / HBM / economics / energy costs). How can we therefore estimate the residual value of these capital items and confirm the intended use of items post-demonstration? If the system is proven to be uneconomic to operate vs. the current alternative, could it be argued that the value in use is effectively nil?

Please refer to Competition Guidance Appendix 4 for further guidance on residual values.

Where you hope to use the asset for the duration of its lifetime (>3 years) in the proposed industrial application or for the proposed end-to-end research, providing further evidence on hydrogen fuel switching, the scrap value can be used as the residual value. If, during the course of the IHA project, it is decided that you can no longer continue to use the asset(s) (for technical or economic reasons), BEIS may request a new estimate for the residual value based on the resale / repurposing / scrap value of the asset. At the end of the demonstrator, prior to project sign off, BEIS will review the residual value of the largest assets and if there is a material change in the residual value (e.g. due to market conditions or the outcome of the demonstrator), the final invoice may be amended (up to the maximum project grant limit agreed).

Where the continued use of assets would increase the operational costs of the industrial process without increasing revenue (i.e. is uneconomic as per the question), the above paragraph on continued asset use and scrap value still applies. As above, BEIS may review or request an update on residual values at the end of the 2B project.

Please see questions 2 and 3 for guidance on decommissioning costs in the event that the demonstration is unsuccessful / the assets can no longer be used.

40. “Applicant must confirm H2 generation for demo can be operational by January 2025 and low carbon by 2030”: While the Stream 2A feasibility study is expected to indicate it is possible to meet this date it will not be until the Nov 23 gate (essentially FID) when all the detailed engineering work and contract negotiations are complete that there will be confidence that the operational date is achievable. What happens if we get to the Nov gate and the operational date can’t be met or is challenging?

IHA Stream 2B projects must plan to complete by March 2025 and BEIS cannot currently commit to reimbursing any costs incurred beyond this point. Applications will be assessed on their project delivery plan, as per criterion 4, including their deliverability in the timeframes.

The first stage gate is expected to occur around October/November 2023 and will require evidence on the deliverability of the project in the timescales and budget and discussion with BEIS as to the performance and risks to determine whether to progress. BEIS appreciate that RD&D projects may encounter significant challenges, particularly in the current economic climate; BEIS will engage with you and seek solutions to any potential timeframe challenges as they emerge. Any significant changes that emerge through FEED work before FID (and the stage gate) will need to be reviewed and BEIS will consider material changes to ensure the project can complete within the scope of the original project and programme objectives.

For completing FEED and demo projects in parallel, please see question 27.

41. “For FEED applications, we would expect FID to be taken shortly after the FEED study is complete with a view to demonstrating or implementing by the end of 2026”: It is noted that for projects in Stream 2B with an ongoing FEED element, demonstration can be ~12 months later (end-2026); does this indicate potential flexibility in the event that the Jan 2025 operational date is delayed, what could the consequences of any delay be in terms of budget?

Please see the answer to question 40. All projects must plan to be complete and signed off by March 2025. The funding period ends on 31st March 2025 in accordance with wider Government Spending Review funding allocations, and the IHA programme budget therefore ends in March 2025.

42. For estimating costs and emissions, could BEIS confirm what the current H2 prices (Green, Blue and Grey) are, and their respective CO2 footprint, for benchmarking the process. Also, please provide the cost and CO2 intensity of natural gas /grid electricity that should be used for economic / environmental assessment.

For comparison purposes, applicants can use the gov.uk Hydrogen Production Costs 2021 (costs) and the ‘Options for a UK Low Carbon Hydrogen Standard” report summary (emissions intensity of a range of pathways) for the relevant year and technology. Applicants can also use the Low Carbon Hydrogen Standard emissions data in the data annex to support their calculations and comparisons.

For energy from the grid, applicants can use Green Book data tables for energy prices and emissions factors (for the relevant year), or justify alternative assumptions if applicants believe these are more applicable. For calculating LCOH projects could consider the method presented in the BEIS hydrogen production costs document, but this is not essential.

Applicants may choose a different year for their demonstration and commercial scale calculations, as per the IHA Technical Performance excel and the example included.

43. FEED application - please could BEIS confirm that, as part of a proposed Stream 2B FEED project, we do not need to provide BEIS with draft end-user commercial contracts, either as part of our funding application, or as a deliverable for the first stage gate (expected c. Nov 2023)?

Section 7.1 of the competition guidance gives a list of indicative stage gate requirements, including “Formalisation of all key supply chain relationships​. Heads of terms/final draft commercial contracts for key work packages and draft end-user commercial contracts if applicable”. Stage gate requirements will be agreed on a project specific basis at the contracting stage depending on the project plan. The formalisation of supply chain relationships refers to only those which are required for the IHA project, not beyond. FEED projects (as opposed to demo projects) do not need to include draft end-user commercial contracts for their future implementation (post March 2025) in their application or at the first stage gate.

44. Are there any sources of additional funding support for these types of projects to continue to operate after IHA demo? Is it likely that HBM support for projects <5MW will be available (pre Q1 2025)?

Please see section 2.3 of the competition guidance for information on other funding and support. Download a summary of the BEIS hydrogen funding landscape for 2022 and 2023. As outlined in section 2.3, projects can consider whether their project is eligible and suitable for the hydrogen business model, which will be opening for applications again in 2023 (Strands 3 and 4). A market engagement exercise will be published in 2023 setting out the proposed eligibility and assessment criteria for the NZHF/HBM allocation round launching in 2023 (strand 3) and seeking industry feedback on the proposals. Future HBM round design and criteria, including 2023, will not be confirmed and published prior to IHA applications in February 2023.

Projects could consider the premium emerging for low carbon products as a potential revenue mechanism for their decarbonisation projects. Projects could also consider the current/future carbon cost saving associated with emissions reductions.

Questions on the Grant Funding agreement

45. Condition 3.4 (changes to Funded Activities) - would BEIS consider making a small change to para 3.4 of the Grant Funding Agreement (GFA) please, to take into account the principles around flexibility, as set out in para 8.3 of the Competition Guidance notes? For example, could the wording in brackets in para 3.4 GFA be extended to reflect changes to Funded Activities agreed with BEIS following completion of the change control process referred to in para 8.3?

Condition 3.4 will not be updated. Please see section 8.3 of the Competition Guidance for change control during project delivery.

46. Condition 4.15 (bank account for receipt of the grant) - we may pay suppliers via electronic banking arrangements, so please could BEIS confirm that we do not need to arrange payment by cheques signed by at least two representatives?

Payment by cheques signed by at least two representatives does not apply for electronic payments.

47. Condition 16.1 – (use of name and logo) - please could BEIS consider making paragraph 16.1 (restrictions on use of name and logo) subject to paragraphs 24.4 and 24.5 (requirement to use BEIS’s name and logo)?

The GFA to be updated as follows:

16.1 Intellectual Property in all IPR Material will be the property of the Grant Recipient. Other than as expressly set out in these Conditions and subject to Conditions 24.4 and 24.5, neither Party will have any right to use any of the other Party’s names, logos or trade marks on any of its products or services without the other Party’s prior written consent.

48. Condition 16 (IPR) - please could BEIS consider including a clause to repeat Stream 2A principles in relation to Background Intellectual Property e.g. All Background Intellectual Property is, and shall remain, the exclusive property of the Party owning it or, where applicable, the third party from whom its right to use the Background Intellectual Property is derived. No rights or licenses, express or implied, are granted by this Agreement to any Party’s Background Intellectual Property. Please could BEIS also insert a definition of Background Intellectual Property?

We will not be transferring Stream 2A SBRI conditions to the Stream 2B Grant Funding Agreement (GFA) T&Cs.

49. Condition 16.1 (IPR Material) – as raised during discussions on Stream 2A, in a Consortium-led project, it is possible that one or more of the Consortium members may develop IPR, in addition to the Grant Recipient. Please could BEIS consider building some flexibility into the drafting at 16.1, to allow the Consortium Member that developed the IPR Material to own it?

All members of consortium are subject to the GFA T&Cs therefore all clauses apply to all members. It is the lead partner’s responsibility to flow them down.

50. Condition 23 (Borrowing) - please could we flag to BEIS that we consider there may be typos in relation to the cross-references in paragraph 23.1.

The GFA to be updated as follows:

23.1 The Grant Recipient must obtain prior written consent from the Authority before:

51. Condition 24.4 (use of BEIS name and logo) - we would not consider our Consortium partners to be “Third Parties” for the purposes of this paragraph. Please could BEIS consider extending rights granted to the Grant Recipient here to our Consortium partners and include a definition of Consortium Members?

All members of consortium are subject to GFA T&Cs therefore all clauses apply to all members. It is the lead partner’s responsibility to flow them down.

52. Condition 26.11 (default/termination) - there may be a typo in the cross-reference in 26.11 (should this be to 26.3.5?).

The cross-reference in 26.11 to 26.3.4 is correct. The GFA will be updated as follows:

26.3.4 give the Grant Recipient an opportunity to remedy the Event of Default (if remediable) in accordance with the procedure set out in paragraphs 26.4 to 26.10; and/or

53. Condition 26.18 (change of control) - please could BEIS check the cross-reference in condition 26.18? We consider that the cross-reference should be to 26.1.19, just so that we have clarity as to the circumstances in which BEIS may determine that a Change of Control event amounts to an Event of Default.

By referring to Condition 26.1, this includes Condition 26.1.19 and all other conditions under 26.1.

54. Condition 29.2 (liability) - please could BEIS clarify its proviso to the start of condition 29.2 – what is to be carved out here please?

Condition 29.2 means that BEIS liability reduces as the grant is dispersed. The reference should be to Condition 29.1, which will be changed in the final GFA.

55. Condition 29.3 (liability) - please could BEIS clarify its proviso to the start of condition 29.3 – what is to be carved out here please (as we note that condition 28.1 refers to dispute resolution)?

Condition 29.3 emphasises, through the cross-reference, that the Parties will use all reasonable endeavours to negotiate in good faith before going to liability/court.

56. Condition 29 Grant Funding Agreement (limitation on liability) – please could BEIS consider capping the Grant Recipient’s total liability (including the indemnity) under the contract (excluding liability for death and personal injury etc.) to the value of the grant fund, rather than twice the value of the grant fund? We feel that this would be a more commercially balanced approach to risk.

The Grant Recipient’s total aggregate liability to the Authority is limited to twice the value of the grant funding amount; this is standard BEIS policy for our grant agreements.

57. (added 10 February 2023) On the Labour & Costs Tab (Annex 3A), can we use ‘name-1’, ‘name-2’ etc rather than generalising pay grades?

Is this specific enough for the application, this would help avoid any DPA risk assessments. We would propose to anonymise the data due to DPA and the partners hold the real list as data controllers.

We encourage applicants to be as transparent as possible to ensure their application is clear. Applications should be filled in so that assessors can clearly understand roles (e.g. project manager, technical design lead) and skills of key personnel on the project and how much time they are contributing. Bear in mind that CVs are required as part of criterion 4b to understand the experience of team members relative to their role. If salaries are sensitive they could be grade generalised (average salary for that grade), but if the project is successful only the real labour costs can be claimed. If names are sensitive they could be anonymised so long as all the information about the roles, experience, skills and time contribution is clear.