Notice

Hydrogen BECCS Innovation Programme Phase 2 (closed to applications): clarification questions with responses

Updated 28 June 2023

Clarification questions with responses (added 9 February 2023)

29. We are looking at costs for the equipment in the demo plant.  A non-lead organisation is proposing to host the plant at their site. They are intending to both procure and rent items of the equipment to keep lead-times to a minimum. Is the rental treatment of certain items of equipment acceptable to BEIS? (added 9 February 2023)

Yes, renting equipment is acceptable.

30. Within the guidance notes there is mention on page 40 (project costs) that we should provide certainty of availability and assurance of costs for high value items - is high value anything above £10, 000 as referenced in an earlier bullet point relating to major cost items greater than £10,000? (added 9 February 2023)

Applicants can interpret ‘high value’ as they see fit for their own project costs.

31. In the Levelised Cost of Hydrogen (LCOH) Workbook “LCOH Phase 2+5 years” tab, the cost element assumptions were listed as being taken from the Hydrogen Production Costs 2021 report Annex. The report additionally lists (pg 25) that T&S costs were based on a simplified assumption of £28/tCO2. While the table gives the costs in £/MWh, we are confused at the ratio discrepancy. For instance, the report gives a recommended carbon cost from the Annex M price growth assumption. If the 2030 price is taken (£43.5/tCO2), then the ratio of carbon cost/T&S cost (43.5/28) is 1.55. However, if the assumptions are taken from the 2021 Production Cost Appendix (orange table above), that ratio becomes 56/13, or 4.3.

Would you kindly be able to provide additional information as to the discrepancy between the T&S costs vs carbon costs in the two tables? In particular, we are having trouble identifying what assumptions went into the carbon cost emitted (fuel) £/MWh, as the Variable OPEX does not appear to include biomass cost. (added 9 February 2023)

The assumed carbon price evolves over the lifetime of the plant. The 2030 price is assumed to be £43.5/tCO2 but increases to £378/tCO2 by 2050 according to the projections of the Green Book supplementary guidance referenced in the report. This increase in carbon price leads to a higher carbon revenue over the lifetime of the plant resulting in a higher ratio of carbon costs to T&S costs.  

32. In Declaration 2, the date for the statement at point 4. is “11 March of 2022”. Is this correct or should it be changed? (added 9 February 2023)

Thank you for bringing this to our attention. This date is incorrect and needs to be changed. We will rectify this after the competition deadline by issuing new declarations to be signed when needed.

Update to competition documents: Levelised Cost of Hydrogen Workbook

In response to Questions 18 and 19, BEIS is issuing an updated version of the Levelised Cost of Hydrogen Workbook alongside the clarification questions. The updated version is named ‘Levelised Cost of Hydrogen Workbook v2’. The updated version has wider cells to display larger numbers, and has increased the number of input rows available on the following tabs: Current Costs, Phase 2 end costs, Phase 2 + 5 years.

Applicants are encouraged to use the new version to complete their application; however, it is not essential if applicants were able to use the original without any difficulty.

Competition process

1. Is there any disadvantage to the applications of projects that are participating in, or may participate in, other Net Zero Innovation Portfolio (NZIP) programmes?

There is no penalty for participating in other NZIP programmes. Each application to the Competition is independently assessed against the Eligibility and Assessment Criteria outlined in the Competition Guidance Notes.

Where project teams and/or related work are involved in other government-funded contracts (current and future), applicants must disclose this in Section 6 of the Application Form. It is the applicant’s responsibility to ensure that no costs are double funded. Please therefore include adequate descriptions of the project boundaries in your application to offer this transparency and assurance.

Applicants should also detail how they will ensure they have the necessary capability and capacity to deliver their Hydrogen BECCS Phase 2 project in addition to any other NZIP projects they are undertaking (current and future).

BEIS will also take steps to ensure that costs are not double funded (i.e. that the same work is not funded twice) and to understand whether project teams will have sufficient resource to carry out their Hydrogen BECCS Phase 2 project.

Eligibility criteria

2. In Section 2, Question 4c of the Application Form, BEIS states: “The project must have submitted a Final Phase 1 report to BEIS (and this must be approved by BEIS prior to any contract being issued for Phase 2 funding).” Applicant has not received confirmation that its Final Phase 1 report to BEIS is approved. Please can BEIS confirm that the application remains compliant in this regard.

Eligibility Criterion 4c states that a project’s Final Phase 1 report must be approved by BEIS prior to any contract being issued for Phase 2 funding. BEIS aims to inform projects regarding the approval status of Final Phase 1 reports within 1 month of the report being submitted. It is anticipated that Phase 2 contracts will be issued in April 2023, considerably after all Final Phase 1 reports have been received, reviewed and processed by BEIS.

3. In Section 2, Question 10 of the Application Form, BEIS states: “Phase 2 demonstration projects and final deliverables must be completed and approved by 31 March 2025. Projects should allow at least two months for BEIS approval of the final deliverables.” Given this requirement, the working period of the Phase 2 programme is reduced to 21 months. Please can BEIS advise its flexibility to review deliverables and data as these are produced near/at the end of the programme to shorten the necessary approval period.

Eligibility Criterion 10 states that projects should allow at least two months for BEIS approval of final deliverables. As NZIP funding is currently only available until the end of March 2025, projects should be able to demonstrate that they can build and test their demonstration plant by end of January 2025, including submission of final deliverables. The additional two months is to allow for reviews and liaison between BEIS and projects to ensure comprehensive completion of works. BEIS will work with projects to facilitate their success throughout the programme with data and deliverables being reviewed and providing assurance, during the delivery period. However, there is no flexibility in the requirement for final deliverables to be completed and approved by 31 March 2025 as this is the end of the current government spending review period.

Assessment criteria

4. Is there an expectation for applicants to include a greenhouse gas emissions calculation using the UK Low Carbon Hydrogen Standard (BEIS 2022)?

Assessment Criterion 2b requires applicants to provide a quantitative Life Cycle Analysis (LCA) that shows the expected Greenhouse Gas lifecycle emissions of the solution (See Competition Guidance Notes, Section 8.1.) There is no requirement for applicants to use the UK Low Carbon Hydrogen Standard methodology for the application LCA, but applicants can do so if they wish.

Please note that as part of the Phase 2 project activities, applicants are required to carry out an assessment of the technology against the UK Low Carbon Hydrogen Standard. (See Competition Guidance Notes Section 5.2.3.(d).)

5. The UK Low Carbon Hydrogen Standard only considers Carbon Sequestration in the format of CO2 geological sequestration. Does BEIS intend to recognise technology that relies on sequestration of gasification char for a high proportion of carbon emission reduction? Furthermore, can any credit be claimed for CO2 that is utilised, rather than stored?

This question is not directly related to the scope of this competition. Please direct questions about the UK Low Carbon Hydrogen Standard to hydrogenproduction@beis.gov.uk.

6. Is there an expectation for applicants to prove the solution proposed for Phase 2 will be less than the stated requirement of 20g CO2e/MJLHV (carbon dioxide equivalents per mega joule of hydrogen at lower heating value)?

This is not explicitly required. However, please note the following in Assessment Criterion 1: “Describe how the project will support the Hydrogen BECCS Innovation Programme objectives, as outlined in the Competition Guidance Notes Section 2”.

Contract and funding

7. Proposed fabrication costs for the Phase 2 demonstrator unit consist of a mixture of equipment and material costs. How should applicants calculate what proportion of these can be classified as eligible costs? Presumably, expenditure on materials is an eligible cost and any capital equipment costs should be calculated according to BEIS residual value guidance.

Expenditure on materials is an eligible cost and, in the example of materials being used in the fabrication of a demonstrator unit, BEIS expects costs entered on the ‘Material Costs’ tab of the Finance Form to represent costs for materials and consumables which are entirely consumed within the Phase 2 project, and therefore have no residual or scrap value at the end of the project. Examples of such costs include: biomass feedstocks; oils and greases; filter membranes; and water.

Items such as steel used in the fabrication of a demonstration unit should be entered on the ‘Capital Equipment’ tab of the Finance Form as a capital equipment cost with a residual or scrap value indicated. Any capital equipment costs should be calculated according to BEIS residual value guidance. Please refer to the Competition Guidance Notes Appendix 3: Residual Value Guidance.

8. We have estimated the total cost of fabricating our Phase 2 demonstrator unit. Is this considered as capital equipment, which should be treated as either a developing asset or a fully bespoke R&D asset? Eligible costs could then be calculated based on difference between total fabrication cost and residual value of the asset.

The total cost of fabricating a Phase 2 demonstrator unit is likely to include Labour and Overhead costs, Sub-Contractor costs, Material costs and Capital Equipment. Applicants should include as much detail as possible regarding the breakdown of fabrication costs within these separate categories, rather than entering an overall figure in Capital Equipment. Any capital equipment costs should be calculated according to BEIS residual value guidance. Please refer to Question 7 and the Competition Guidance Notes Appendix 3: Residual Value Guidance.

9. Would the equipment/facilities built in Phase 2 have a residual value attached to it; on the basis that after the end of the Phase 2 project the equipment/facilities is located and used in a research centre for publicly funded research and innovation and the training of post graduate students and early career researchers on a not for profit basis.

The value of the equipment/facilities at the end of the Phase 2 project should be included on the form regardless of where the equipment is subsequently transferred to and for what use.

10. In the Competition Guidance Notes Section 9.4, regarding commercial use of the asset / products during Phase 2, BEIS states: “for the specific innovation that BEIS is funding, the supplier cannot enter into commercial relationships related to the innovation or generate income from any of the project deliverables during the funding period.” “… Alternatively, products that are generated as a result of the demonstration of the innovation can be either stored or donated free of charge.”

Please can BEIS confirm that an application with the following scenario is compliant in this regard.

• Applicant’s biohydrogen technology requires a suitable site to operate – ‘Test Site’.
  
• Applicant intends to deploy the biohydrogen demonstrator and supply the produced hydrogen to one of two innovative UK hydrogen infrastructure projects. This intent was recognised as a preferred environmental solution that avoided the emission or combustion of the hydrogen as a surplus by-product of the test. This intent also had a second advantage; the supply of the produced hydrogen provided incentive to Test Sites to accommodate the test.
  
• The applicant’s preferred Test Site currently consumes hydrogen and incurs commercial costs as a result. By offsetting the Test Site’s hydrogen demand with the hydrogen supplied by the biohydrogen demonstrator, the Test Site expects to reduce its costs.
  
• As a result of the expected cost reduction, the applicant has agreed the principle with its preferred Test Site that: the Test Site will not pay the applicant for the supply of hydrogen; and the Test Site will not charge the applicant for the utilisation of the site resources.
  
• The receipt of hydrogen as a donation to the Test Site will allow the Test Site to accommodate the applicant’s test as an in-kind benefit.
  
• These principles will be agreed by the applicant and Test Site in a binding Memorandum of Understanding.

Please can BEIS confirm that this application remains compliant in this regard.

Yes, this scenario is compliant with the Competition Guidance Notes.

Terms and Conditions

11. During the Phase 1 Competition, BEIS responded to a query regarding access to information for the Freedom of Information Act 2000 (FOIA) and the Environmental Information Regulations SI 2004 No. 3391 (EIR), recognising that both BEIS and the supplier are subject to such information requests.

In the Phase 1 Competition Q&A document (05/03/22, question 46) BEIS states: “If necessary, BEIS is willing to make the clause mutual so that both parties co-operate. The last paragraph of 9 (3) could be amended to say: ‘Both parties shall provide all necessary assistance as reasonably requested by either party to enable it to respond to a Request for Information within the time for compliance set out in section 10 of the FOIA or regulation 5 of the EIR.’”

Please can BEIS amend the Phase 2 Terms and Conditions Clause 9 (3) to cater for this mutual requirement.

If necessary, BEIS is willing to make the clause mutual so that both parties co-operate. The last paragraph of Clause 9 (3) could be amended to say: ‘Both parties shall provide all necessary assistance as reasonably requested by either party to enable it to respond to a Request for Information within the time for compliance set out in section 10 of the FOIA or regulation 5 of the EIR.’

12. The Phase 2 Contract Terms and Conditions Clause 18 (3) state “all risks insurance cover”. Please can BEIS confirm classes of insurances required and associated limits.

In the Phase 2 Contract Terms and Conditions Clause 18 (3), BEIS states: “The Contractor shall procure, with a reputable insurance company, a policy or policies of insurance providing an adequate level of cover in respect of all risks which may be incurred by the Contractor in respect of the indemnities provided under the Contract, which in any event shall not be less than £1,000,000, and shall at the request of the Authority produce the relevant policy or policies together with receipt or other evidence of payment of the latest premium due there under.”

It is the contractor’s responsibility to ascertain what risks apply to them. Examples could include Employer’s (Compulsory) Liability Insurance and Public Liability Insurance. The Phase 2 Contract Terms and Conditions Clause 18 (7) outlines the amount of liability to which contractors are subject.

13. The Phase 2 Contract Terms and Conditions state the following relating to uncapped indemnities:

• Clause 18 (1) provides for an indemnity for breach of contract. The personal injury/death element of this is uncapped.
  
• Clause 18 (5) provides for an uncapped indemnity for infringement of a third party’s intellectual property rights.
  
• Clause 30 (9) provides for an uncapped indemnity in respect of any loss or destruction of government property/data.
  
• Clause 31 (16) provides for an uncapped indemnity in respect of data protection laws.

Please can BEIS amend the Phase 2 Terms and Conditions Clause 18 (7) to cap these indemnities, so that there is an overarching liability cap.

No, it is BEIS commercial policy that liability for the above scenarios remains uncapped. The Phase 2 Terms and Conditions Clause 18 (7) remains unchanged.

Declarations

14. In the Competition Guidance Notes Section 6.2.1 and Section 9.7, BEIS states that if an applicant proposes using sub-contractors, each sub-contractor should complete: Declaration 3; Declaration 4 Part 1 and Part 2; and Declaration 6. Does this apply to all sub-contractors or only those accounting for say >10% of the overall contract value? It could create a lot of additional paperwork if a number of very small sub-contractors will be used to deliver certain components of the project.

If an applicant proposes using sub-contractors, each known sub-contractor supplying 10% of the contract value or more should complete: Declaration 3; Declaration 4 Part 1 and Part 2; and Declaration 6.

15. In the Competition Guidance Notes Section 6.2.1 and Section 9.7, BEIS states that if an applicant proposes using sub-contractors, each sub-contractor should complete: Declaration 3; Declaration 4 Part 1 and Part 2; and Declaration 6. Where a sub-contractor has not yet been identified and will not be appointed until the project has commenced (and will be procured in line with the applicant’s procurement policy), can the declarations be completed by just the applicant at this stage?

If an applicant has not yet identified a sub-contractor, this sub-contractor cannot complete the relevant declarations at this stage. Any known sub-contractors should complete: Declaration 3; Declaration 4 Part 1 and Part 2; and Declaration 6 as above. If no sub-contractors are known at this stage, then only the applicant need complete the declarations.

As noted in the Competition Guidance Notes Section 6.2.1 (6b), any future proposed changes in relation to consortia and sub-contractors must be submitted in writing to BEIS for consideration on a case-by-case basis. As noted in the Competition Guidance Notes Section 9.7, if a project brings on a new partner or sub-contractor at a later date, then this partner/sub-contractor must complete the declarations if requested by BEIS and will also be subject to Due Diligence checks.

Deliverables and Payment Milestones

16. Cashflow can be a significant issue for projects led by smaller businesses. Rapid payments from BEIS to the applicant are required to ensure schedules are not delayed and equipment can be purchased/delivered. These payments may need to occur before a deliverable is complete as invoices could be raised on the project before the equipment is delivered/installed.

Is BEIS willing to pay at interim stages (between normal quarterly payments) on receipt of purchase orders or invoices?

As with Phase 1 of the programme, BEIS will make payments against evidence of approved deliverables and achievements based on the agreed Payment Milestone plan.

In Phase 2 of the programme, the frequency of invoicing (i.e. Payment Milestones) can be flexible to suit the project and business cashflow needs. To balance this with the administrative burden for all parties, BEIS suggests invoicing up to a maximum frequency of monthly claims. BEIS may consider occasional twice-monthly invoicing if required in exceptional circumstances.

Learning lessons from other Net Zero Innovation Portfolio (NZIP) programmes, smaller businesses have found it useful to plan their project with monthly Payment Milestones, where each Payment Milestone includes a core project management deliverable (plus other deliverables).

The frequency of invoicing may include stage payments for high value capital expenditure. For example, deliverable 1.1 on order (30%), deliverable 1.2 on delivery (60%) and deliverable 1.3 on completion of installation (10%).

When a Payment Milestone is equal to, or greater than, £500,000, BEIS is required to notify HM Treasury of its cost and scheduled payment date one month in advance, plus any changes to this. As such, please note that there is a slightly increased administrative burden for large Payment Milestones.

17. In the Competition Guidance Notes Section 6.1 and Section 11.1.1, BEIS states that projects must be complete by 31 March 2025, but that applicants need to submit their final report by 31 January 2025 and a draft report by December 2024. Is the draft report required by 1 December 2024 or 31 December 2024? In effect, does this mean that project activities must be largely undertaken in a 19/20 month period from 1 May 2023 to either 1 December 2024 or 31 December 2024?

The draft report detailing the findings from the Phase 2 project is required to be submitted to BEIS by 31 December 2024. The draft report may omit details of final project deliverables yet to be completed, as long as this is in line with the project delivery plan as agreed with BEIS. Projects can use placeholders in the draft report for such information to be populated during January 2025.

Levelised Cost of Hydrogen (LCOH) Workbook

18. When inserting numbers into the LCOH Workbook, the number of rows cannot be increased under a particular heading. Therefore, under the heading ‘Labour’ (Section 4.3), we can only insert a limited number of individuals; to progress, additional Labour has been put in a row in a different Section (4.4) but explained as Labour. The same applies to listed items under ‘CAPEX’ (Section 3); to progress, additional CAPEX items have been put in a single row under the CAPEX heading. Please can BEIS advise.

Thank you for highlighting this limitation of the LCOH Workbook. We have increased the number of rows under each of the headings. An updated version of the Workbook is issued alongside this clarification questions document, titled ‘Levelised Cost of Hydrogen Workbook v2’.

19. In the LCOH Workbook, under ‘Additional variable operating costs’ (Section 4.5), the cell size is not big enough to deal with large numbers, especially in tab ‘LCOH 2+5 Years’ when a big Commercial Scale of plant is considered. Please can BEIS advise.

Thank you for highlighting this limitation of the LCOH Workbook. We have widened the cells to display larger numbers. An updated version of the Workbook is issued alongside this clarification questions document, titled ‘Levelised Cost of Hydrogen Workbook v2’.

20. In tab ‘LCOH 2+5 Years’ of the LCOH Workbook, for a small hydrogen production site (e.g. 5-10 MW H2-thermal), in the Levelised Cost of Hydrogen model, are there any carbon emission charges to assign (cell C19), which could then be offset as a carbon capture credit (cell C21)? Please can BEIS advise what could be used.

BEIS cannot offer this type of advice on an individual project basis, as responses to the Assessment Criteria are for applicants to determine and justify themselves. As indicated in the LCOH Workbook, please refer to pages 24 & 25 of ‘Hydrogen Production Cost 2021’ for carbon price assumptions for sequestered and emitted carbon: https://www.gov.uk/government/publications/hydrogen-production-costs-2021.

21. In the LCOH Workbook, the Base Case is for a very large and hypothetical Gasification process at 48 MW H2-thermal.

a. Please can applicants see the detailed spreadsheet, showing entry into the columns over 20 years’ life, to see how values were used and calculated.

The baseline values on the ‘LCOH Phase 2 + 5 years’ tab come from the ‘Hydrogen Production Costs 2021 - August 2021’ report: https://www.gov.uk/government/publications/hydrogen-production-costs-2021. Please refer to the spreadsheet annex for further details of how these were calculated: Hydrogen Production Costs 2021 annex: Key assumptions and outputs for production technologies.

b. Please can applicants have a brief technical description of the Base Case: throughput of waste; assumed composition; is pure oxygen being used; is steam being co-fed into the gasifier; is this a fluidised bed; what is the composition of the Syngas; what is the flow and composition of any char/ash; what technology is used to remove the hydrogen; at what point is the carbon dioxide removed; what technology is being used; and what is the cost for the waste feed. Applicants need more information on that Base Case to see how the model needs to be structured, and to enable us to compare with that technology in a meaningful manner.

The baseline values in the LCOH Workbook are provided as a point of comparison to enable applicants to put forward their own projections for how their innovation and project will influence the costs associated with Hydrogen BECCS. BEIS does not require applicants to follow the same methodology that has been used to generate the baseline values in the Workbook; for example, by reviewing the assumptions and calculations in the report referenced on tab 5. Instead, please only make comparisons to the values given in the Workbook.

Applicants are expected to fully justify their own methodology for calculating the values they input into the LCOH Workbook, including their assumptions. If an applicant’s fully justified methodology results in a comparative increase in costs from the BEIS baseline, for example, applicants should explain why this is the case, in the context of demonstrating the potential for the innovation to reduce costs in the Hydrogen BECCS process chain.

Applicants won’t automatically be marked down if their costs come out as higher than the baseline values, as long as: the methodology is justified; and the written response makes a strong case for the potential of the innovation to result in cost reductions.

c. What is the LCOH for the Base Case 48 MW Gasifier design if it had to operate at 5-10 MW? We suspect that: the LCOH would be extremely high at the 5-10 MW scale; and the technology used would not be viable at that scale. If this is the case, applicants and assessors need to know this. Please can BEIS advise.

Please refer to the response to question 21(b) above. Also note that all bid assessors will be familiar with the Competition Q&A at the time of assessing bids.

d. The Base Case 48 MW H2-thermal Gasifier is a large plant, which would require a huge amount of waste to be fed into it (we suspect about 1,000 tonne/day). Is this Base Case dealing with segregated waste, or is it dealing with black-bag waste? This plant would have a big visual impact and would require a site where many lorry-loads of waste per day would arrive, deliver waste and remove char/ash. This big movement of waste is not beneficial from an environmental perspective. This plant probably consists of a fluidised bed, operating at a high pressure and high temperature, which in itself creates a hazardous situation. Fluidised beds with a waste feed are not easy to operate.

That scenario is completely different to a smaller scale 5-10 MW H2-thermal multiple Gasifiers, which are more easily placed at multiple locations in the community and are not operated at elevated pressures. At this smaller scale of operation, the LCOH of the large Base Case plant will never be approached because of the economy of scale. However, there are many advantages of having multiple small hydrogen production sites. It is important that smaller scale producers continue to be encouraged to develop processes at a smaller scale, even if their LCOH values are much higher than the large, hypothetical 48 MW plant. Please can BEIS take this into consideration.

Please refer to the response to question 21(b) and 20(c) above.

22. Why does the LCOH Workbook not calculate the levelised cost values in cells C15:C19 and C21? The Workbook does not instruct applicants to perform separate LCOH calculations and manually insert these values into the Workbook; please can BEIS advise if this is expected.

Yes, applicants are expected to enter their own levelised cost values into cells C15:C19 and C21, enabling the Workbook to calculate the LCOH figures in cells C20 and C22. This gives applicants the flexibility to use their preferred methodology for calculating levelised cost values (for example, Levelised Capital Cost). Applicants should fully justify their chosen methodology in their written response to Assessment Criterion 2a.

23. BEIS has used the Wood Report (for BEIS, 31 July 2018) as a reference to help applicants with the LCOH Workbook. We have identified mistakes regarding the example for the ‘Reference Case SMR Hydrogen Plant’ that is shown:

• In the tab ‘LCOE Calculation’, we believe there is a mistake in the units for the LCOH, which creates confusion. It reads ‘Levelised Cost of Hydrogen’, ‘£/kWth’, whereas we think it should read ‘£/MWh’ to match the values quoted (i.e. it should be ‘£65/MWh’, and not ‘£65/kWth’). Applicants using that online calculator would end up with the wrong units, causing confusion when values are compared. Please can BEIS clarify.
  
• The Wood Report spreadsheet includes all the income streams. This is contrary to the BEIS Hydrogen Production Costs 2021 document, which specifies that income streams should not be included. Also, the BEIS document specifies an internal rate of 10%, whereas the Wood Report performs calculations at different percentage values (e.g. 7.8%, 8.9%).
  
• We would find a simplified example of a LCOH calculation spreadsheet helpful, which shows what has been inserted in each of the years over a 20-year period. We would find a simple, user-friendly Excel spreadsheet that we could insert our own values into, and which any interested party could understand, more helpful than a complex interactive online document with micro-files. A simple additional file as a Word document or PDF would also be helpful to explain content and how the Workbook should be used.

BEIS has not referred applicants to the ‘BEIS - Levelised Cost Evaluation Model’ referenced in this question. We encourage applicants to refer to the response to question 21(b) for guidance on how to approach the LCOH calculations.

24. The approach in the LCOH Workbook assumes that hydrogen production is the only purpose of the plant. That is probably correct for the Base Case 48 MW H2-thermal Gasifier. However, that is unlikely for a small scale of plant (e.g. 5-10 MW H2-thermal). At this smaller scale, other products can also be produced (e.g. electricity, low grade heat, CO2 for resale). If that happens, then income from such revenue streams can offset the cost of CAPEX and OPEX and thereby reduce the LCOH for hydrogen production. There is no consideration of this aspect in the Competition Guidance Notes or in the LCOH Workbook. Please can BEIS advise.

Please refer to the response to question 21(b) above.

25. Please can BEIS advise regarding the LCOH in the following scenario.

• The first module of our modular technology becomes operational within the first two years, i.e. the allotted period for Phase 2 of the programme.
  
• Our CAPEX projections are based upon a single module being ordered and manufactured in Year 1.
  
• The installation, commissioning and testing of this module will be completed by the end of Year 2.
  
• The single module will be ready to start operations during the second part of Year 2.
  
• The single module plant will therefore not be fully operational until Year 3.
  
• Our full plant requires a total of 6 modules. The additional modules will be ordered during the latter part of Year 2 and will subsequently be integrated into operations in Year 3.
  
• We therefore expect the operation of the full plant to place in Year 4.

As our LCOH is calculated against the operation of a full 6 module commercial scale installation, our understanding is that we should calculate LCOH based on 2 years (as allocated for Phase 2) followed by a 5 year period, which effectively starts in Year 3.

To calculate the LCOH, following completion of Phase 2, against a 5 year period of operation, in this scenario, we propose that the 5 year period would, on paper, start in Year 4. This would allow us to base the LCOH on a 5 year period of operation on a full-size plant.

BEIS cannot offer this type of advice on an individual project basis, as responses to the Assessment Criteria are for applicants to determine themselves and to justify in their written responses. Applicants should consider the most appropriate method for completing the LCOH Workbook based on their individual technology.

26. Please can BEIS advise which Carbon Values applicants should use:

• The published Green Book Carbon Values in BEIS (2021), Green Book supplementary guidance: valuation of energy use and greenhouse gas emissions for appraisal, Tables 4-8: Retail fuel prices (real 2020 prices) - Green Book supplementary guidance; or
  
• Carbon Values in BEIS (2020), Updated Energy & Emissions Projections, Annex M.

The LCOH Workbook recommends that applicants refer to pages 24 & 25 of ‘Hydrogen Production Cost 2021’ for carbon price assumptions for sequestered and emitted carbon, and CO2 transport and storage costs assumptions. Please see https://www.gov.uk/government/publications/hydrogen-production-costs-2021.

This report assumes that the carbon prices faced by hydrogen producers up until 2030 are the EU ETS carbon value projections as set out in Annex M to BEIS’s Energy and Emission Projections under baseline policies: ‘Updated energy and emission projections: 2019, Annex M’. Please therefore see https://www.gov.uk/government/publications/updated-energy-and-emissions-projections-2019.

Technology scope

27. In the Competition Guidance Notes Section 4.5, BEIS states: “The following technologies will be classified as out of scope and are not eligible to receive funding via this innovation programme: … c) CCUS technologies which aren’t intrinsically linked to the hydrogen production process.”

Applicant proposes to test its biohydrogen technology can be integrated with a commercially available carbon capture technology equipment – such carbon capture technology will be procured as a service. Please can BEIS confirm that the application and the intention to fund the carbon capture technology service remains compliant in this regard.

In this scenario, as long as the commercially available carbon capture technology being procured is not the main innovation focus of the applicant’s project, BEIS would permit this project scope to include the carbon capture technology service for demonstrating integration.

28. In the Competition Guidance Notes Section 4.5, BEIS states: “The following technologies will be classified as out of scope and are not eligible to receive funding via this innovation programme: …

• d) Innovations using waste feedstocks with less than 25% content, by energy, of biogenic waste.
  
• e) The use of biomass feedstocks which are not sustainably sourced as outlined in the 2021 BEIS Biomass policy statement. Feedstocks in scope include perennial energy crops (Miscanthus and short rotation coppice), short rotation forestry and wastes, products (incl. forest derived products), agricultural residues, forest residues, and residues from processing, as well as marine-based and novel feedstocks.
  
• f) Technologies generating hydrogen from non-biologically derived sources.”

Applicant proposes to test its technology with commercially available ethanol that may not be waste or biologically derived. The intention of the technology’s commercialisation shall be to utilise second generation biogenic liquids; however, for the testing application in Phase 2, hydrocarbon derived ethanol (chemically identical to biologically derived ethanol) may be selected for expediency, availability and/or cost. Please can BEIS confirm that the application remains compliant in this regard.

Applicants may consider using a stand-in feedstock for testing purposes; however, this choice should be fully justified in the application. Please take note of the Competition Guidance Notes Section 5.3, which advises that performance testing during Phase 2 projects should be carried out under realistic conditions to provide assurance for viability of commercial operation.