An overview of the new Net Zero Hydrogen Fund

Launched by the Department for Business, Energy and Industrial Strategy (BEIS), the Net Zero Hydrogen Fund (NZHF) opened its first application window in April 2022.

The £240 million of available funding will be distributed to eligible low carbon hydrogen projects across four strands and drive UK hydrogen production closer to goals set by the UK government in 2021. The fund will provide development expenditure (DEVEX) and capital expenditure (CAPEX) to successful applicants. Allocations will differ greatly between projects in accordance with project maturity, size and future support requirements to provide cost competitive hydrogen. 

What are the goals of the net zero hydrogen fund?

The British Energy Security Strategy, published in April 2022, outlined the government’s plan to double its hydrogen production target from 5GW to 10GW. The 10GW target is planned to be achieved by 2030, at least half of which is planned to be produced from electrolytic methods. In order to reach this target, the NZHF was created. The allocation of the NZHF aims to accelerate the development of low carbon hydrogen projects during the 2020’s to create a diverse and secure decarbonised energy system in the UK. The fund is designed to support projects of near market hydrogen production, meaning only those proposing use of proven technologies are to be considered, as commercial readiness and prompt roll out is essential for funding acceptance. 

How is the fund structured?

The fund is structured into four sections named strands. Which strand a project can apply for is dependent on its maturity and required support. Projects requiring operational support to provide cost competitive hydrogen must only apply for strands that include a hydrogen business model (HBM). The HBM is a financial support mechanism built into strands 3 and 4 and is designed to subsidise operational costs to stimulate the hydrogen market. The HBM is provided alongside set funds granted through the NZHF as a long-term revenue support contract.

The NZHF is separated into four strands:

• Strand 1: DEVEX support for early projects to cover front end engineering design (FEED) studies and post-FEED studies
• Strand 2: CAPEX for projects that do not need an HBM – a project applying for this strand must exist on its own merit and solely require CAPEX support
• Strand 3: CAPEX for projects requiring an HBM
• Strand 4: CAPEX for carbon capture usage and storage (CCUS) projects requiring an HBM

Competition windows vary dependent on which strand projects wish to apply for. The competition window for strands 1 and 2 opened in April 2022 and will close between June and July the same year, meaning that applicants without “oven ready” projects have a very limited timeframe. Available funding at this stage is set at £90 million, which will be split across both strands 1 and 2. The NZHF has confirmed there will be additional windows for both strands to give projects in their infancy extended opportunity to apply - dates for additional windows are yet to be confirmed.

Potential award amounts for each strand are:

• Strand 1: £80,000 up to £15 million
• Strand 2: £200,000 up to £30 million
• Strands 3 and 4: Potential award amounts and competition window dates are yet to be announced. 

What are the Eligibility criteria?

Read more about the Draft Low Carbon Hydrogen Standard here

In addition to these criteria, projects must also provide sufficient evidence of engagement with offtakers to be considered. This evidence must be provided during the initial application process. Whilst those applying for strand 1 need only supply engagement evidence, strand 2 applicants must supply a full summary of signed agreements with offtakers. Given the short timescales, identification of and rapid engagement with offtakers will be critical to success.

Projects applying for the NZHF must complete Hydrogen Emissions Calculator (HEC), and a copy must be attached to the initial application to demonstrate that the project meets the Draft Low Carbon Hydrogen Standard. 

The NZHF has clearly stated it will not fund projects that do not focus on low carbon hydrogen production at scale and the immediate supply chains. It is worth noting that the fund has not defined the minimum size a project must be to be considered, projects should therefore use their calculated grant amount to assess if their project fits in to the minimum grant criteria for each strand (see above). Projects focused on the use of hydrogen to decarbonise will not be considered, along with those dependent on export performance and domestic inputs usage. 

The fund has set participation rules for successful applicants. For research participation, projects can share up to 30% of the total eligible project costs with research organisations that collaborate. Of that 30%, research and technology organisations (RTO’s), charities and non-profit organisations can have 100% of their project costs covered. Academic organisations that are a Je-S registered institution can have 80% of their project costs covered. Projects are not limited to the number of research participants collaborating, however, the maximum level of 30% must be shared between all research organisations. At least 70% of total eligible project costs must be covered by the business. Academic institutions, RTOs, charities and public sector organisations are not permitted to lead a project and may only collaborate. 

How will the funds be delivered?

Successful projects will be assigned a Delivery Executive to provide guidance through the set-up process. Projects are given 7 days to finalise details, team, bank details and then a further 90 days to complete the entire set up process. Projects that run over this timeframe may be withdrawn. Grants are paid quarterly and will only be paid once quarterly audits have been completed, which will include a visit from the appointed Monitoring Officer.

Ricardo’s top tips for applying to the Net Zero Hydrogen Fund

It is crucial to ensure that you thoroughly consider which strand your project best fits and allow enough time to meticulously plan your application.

Once you have submitted an application, it cannot be transferred to another strand, you would have to completely withdraw that application and reapply for the appropriate strand, a timely process which could prove detrimental with such short application windows. Confidence in which strand to apply for will be essential to optimise potential funding for your project. Prematurely applying for strands 1 or 2 without full understanding could result in your project becoming ineligible for strands 3 or 4, meaning your project could receive less funding/support than was available.

Document readiness will be an essential element for your applications success. Timeframes between initial application, interview, and document submission are swift, and any delays could result in your application being withdrawn. Ill-prepared documentation is a common mistake we see during these funding windows, therefore every precaution should be taken to avoid this. Notably, previously submitted applications are not accepted for this competition. With no date set for further application windows for strands 1 and 2, it is imperative that your project is adequately prepared, to prevent missing out or having to delay deployment due to lack of funding.

We have an extensive range of skills and experience relating to the production of low carbon hydrogen and the immediate supply chains.

We provide comprehensive and independent guidance on all types of hydrogen projects, trusted by industry leaders and governments, and have helped clients with understanding current and future markets. We also have a deep understanding of the process of successfully applying for government funding of projects such as the NZHF.

If you need guidance at any stage of your hydrogen project, including expert advice on how to successfully secure a NZHF grant, contact our Hydrogen Incubator Leader using the link below.