Ofgem sets out new challenges for Strategic Innovation Fund

Ofgem has set out the new challenges for the second round of its Strategic Innovation Fund (SIF), which opens to applications in September 2022.

The funding mechanism was introduced to replace the Network Innovation Competition as part of the RIIO2 price controls and provides support to network operators and their partners to undertake projects that have the potential to accelerate the transition to net zero.

The second round, which will be the first open to electricity distribution networks whose RIIO ED2 price controls begin in April 2023, will seek to address four innovation challenges selected in consultation with industry and stakeholders:

• Supporting a just energy transition – including new ways to identify and support vulnerable customers, and help those who are disadvantaged, fuel poor or off the gas grid to reduce heat and mobility carbon emissions
• Preparing for a net zero power system – including new ways to support low-stability systems and use new sources of energy supply and demand to help manage grids
• Improving energy system resilience and robustness – including ways to develop multi-energy systems and make them more resilient, and strengthen energy system robustness so that new infrastructure can be rolled out efficiently
• Accelerating decarbonisation of major energy demands – such as ways to manage and integrate large-scale demands from heat and transport, integrate heat networks for wider energy network management, and improve energy efficiency at all levels in the system

In the initial “discovery” phase of round two, companies will be able to apply to up to £150,000 to develop their ideas. Projects that are judged to have the greatest potential will then awarded up to £500,000 to further develop their ideas. Following another selection process, they will then receive funding to carry out large-scale demonstrations.

Neil Kenward, director for strategy and decarbonisation at Ofgem, said: “Ofgem set up the Strategic Innovation Fund to harness the power of innovation to help accelerate a fair, affordable and inclusive transition to low carbon energy.

“The challenge areas announced today address some of the most pressing issues on this journey, and we encourage energy networks and innovators to consider how they can develop the best ideas with the greatest potential for this year’s competition.”

Ofgem runs the competition with the help of Innovate UK. Matt Hastings, deputy director of the SIF programme at Innovation UK, said: “We believe we can make the UK the best place in the world to be an energy entrepreneur. The first round of the SIF produced 40 innovation projects across a wide range of themes, showing that the sector is ready to join in this ‘giant leap together’ to decarbonise the energy networks.

“With the next challenge areas now clear we expect that many dynamic new collaborations will form this year, as energy networks get together with other innovators – inside or outside the energy sector – to take part in the SIF.”

The five-year SIF programme has a total budget of £450 million.

In related news, Ofgem has confirmed its minded-to decision to approve requests by Cadent and North Gas Networks for £9.1 million of funding to undertake detailed designs for “hydrogen villages” at Ellesmere Port in Cheshire (£4.9 million) and Redcar in Teesside (£6.4 million) respectively.

The projects will be funded under a reopener mechanism within the RIIO GD2 price controls.

Explaining its decision, Ofgem said: “Both proposals had clear plans and demonstrated a diversity of information that will be captured as they progress, contributing to the evidence base on hydrogen for heating.” It said the projects also represented value for money and that it was satisfied with the private sector contributions.

At the same time, the regulator also confirmed its decision to a decline as similar request by SGN, stating that its application “lacked detail in key areas of their plan, such as the scope of activities for each stage of the trial and the strategy for stakeholder and consumer engagement.”