Scottish Industrial Energy Transformation Fund - 2nd call: guidance

Eligibility

Overview of technological scope

The following apply to deployment projects, and to studies leading towards deployment projects.

SIETF is technology neutral to allow applicants to propose the most suitable technology for their site and industrial process. Applications should demonstrate why the chosen technology solution is appropriate, the savings it will achieve, and check that it meets the standards and eligibility criteria specified in this guidance. Industrial businesses seeking grants, and in particular those applying for over £500k, should place their projects in context of a commitment to reduce greenhouse gas emissions at a level consistent with Scotland’s 2045 net zero target.

Applicants in all competition strands are required to define their proposal as either achieving an energy efficiency or decarbonisation outcome. 

• energy efficiency proposals reduce the energy consumed by industrial processes at site level, attributing benefits to both the bill savings (we anticipate most efficiency projects will have a positive payback) and associated emissions savings
• decarbonisation proposals reduce the emissions produced by industrial processes at site level. To be classified as a decarbonisation proposal, emissions reductions should be linked directly to a change in carbon intensity of the primary fuel source. While in some cases there may be an associated energy cost savings this is not the key driver for the proposal and in many cases energy bills may in fact increase.

Energy efficiency

These technologies will be supported where they have been proven to work through successful operations and/or have been qualified through test and demonstration. This corresponds to technology readiness levels (TRLs) of 8, 9 and above.

* SIETF Support

• to qualify as an energy efficiency deployment project, the application will need to show kWh energy savings determined by measuring or estimating energy consumption before and after the implementation of an energy efficiency improvement relating to an industrial process. The energy savings must take place at site level.
• eligible energy efficiency applications must involve the deployment of technology that has been proven to work through successful operations and/or is qualified through test and demonstration (Technology Readiness Level 8 and above).
• like the previous call we are keen to encourage applications involving the following means:
  • improved process control
  • more efficient heat exchange
  • more efficient drying
  • energy recovery from waste heat
  • energy recovery from waste pressure
  • resource process optimisation

Summary of eligible conditions (energy efficiency):

Where SIETF can support electricity generation as described above, the electricity must be used to power an existing industrial process within the applicant’s own site and cannot be used to export any power beyond the site boundary.

SIETF will not generally cover the costs of linking the site to local or national gas and electricity grids or other off-site fuel supplies, however the evaluation panel can be flexible on this depending on how much proposed efficiency or decarbonisation improvements for specific site, for a study or deployment project, is dependent on investment in off-site infrastructure that directly enables on-site decarbonisation. Work required within the site boundaries to enable the switch may be covered.

Fuel switching or deep decarbonisation

These technologies may be less developed in commercial settings, therefore SIETF will support technologies at TRLs 7, 8, 9 and above. This means that the technology must either:

• have been proven to work through successful operations and/or is qualified through test and demonstration or
• is currently at a prototype stage or requires demonstration of an actual system prototype in an operational environment
• where deployment within an EII context may require further technological development

The SIETF will support fuel switching studies as a decarbonisation measure where it can be demonstrated that the outcome of the switch delivers emissions reductions associated with an industrial process.

Summary of eligible conditions for decarbonisation fuel switches:

• eligible fuel switch conditions can apply to CHP projects, where the source fuel switches to a lower carbon fuel source, subject to further conditions on CHP installations in this guidance
• fuel switching is only permitted in instances where the switch is to a less carbon intensive fuel. The gas grid is used as a benchmark for acceptable fuel switches (unless the site does not have gas grid connection).

• fuel switching to hydrogen is eligible. It is recognised that during the lifetime of the fund, low and zero carbon hydrogen supply may not be available, as such switching to hydrogen that isn’t low carbon may increase emissions. However, this is acceptable to demonstrate the use of hydrogen as an alternative fuel for industry. Temporary interim fuels (grid gas, or compressed natural gas (CNG)/ liquefied natural gas (LNG) for sites without access to the gas grid) may be permitted to be utilised at the site until a low carbon hydrogen supply is available. Information must be provided about the carbon intensity of the interim fuel and intended period(s) of time for fuel use. Applicants will be required to show evidence of a pathway to a low carbon hydrogen source and projects must begin using low-carbon hydrogen fuel within five years of project completion. Grey hydrogen - produced using fossil fuels without CCUS – may only be used for equipment testing purposes.
• projects involving the installation of equipment with gas-fired heat may be considered, on a case-by-case basis, with reference to conditions such as: use of biogas or waste process gas produced in Scotland; integration into a more circular energy system; and/ or a plan to transition towards net-zero. For such projects a lower intervention rate may be offered.
• SIETF will not subsidise oil and LPG technology

Studies

The same scoping guidance applies to feasibility and engineering studies into energy efficiency or deeper decarbonisation such as through fuel switching. However, due to the earlier project development stage of a study, there are lower expectation on the applicant to determine accurate energy savings by measuring or estimating energy consumption before and after the implementation of a proposed measure.

Defining feasibility and front-end engineering design (FEED) studies

• a feasibility study allows a site to assess the technological and economic feasibility of using a particular technology on their site and make a decision whether to proceed
• a FEED study allows the site to prepare for the build or deployment of a technology, which includes engineering design, planning, health and safety, technical assessments etc. The technology should then be ready for deployment at the manufacturing site. Feasibility assessment that demonstrates that the proposed solution is credible is a prerequisite for FEED study support.

Testing the feasibility of a specific technology 

Study funding does not fund the assessment of all the different energy efficiency technologies on the market to decide which one is the best for that site. However, a feasibility study can consider how an identified technology solution may be tailored, with potential variations, to site conditions to find the most appropriate solution for the given situation; this helps to avoid progressing with a proposed solution that might not be the most appropriate.

Further notes on technological eligibility

Biomass and biogas

Some limited support to biomass, assessed on a case-by-case basis, by the SIETF is available:

• biomass fuel switching from coal (where there is no alternative apparent within the lifetime of the project)
• biomass combustion where site location is near to proposed CCUS clusters giving long term potential for BECCS
• biogas combustion where biogas source is local and site is off gas grid

Biomass is a limited resource with potential applications far exceeding supply. The following are considered poor uses of biomass and will not be supported:

• biomass CHP (new and upgraded?) without fuel switching
• biomass combustion for heat in low temperature applications which could be served by heat pumps
• bioliquid waste combustion, unless waste is not suitable for transport applications

Combined Heat Power (CHP) installations and upgrades

CHP is a system that produces both electricity and heat, and is often used in industry to replace a boiler that produces the same amount of heat. Generation of electricity requires additional fuel compared with a boiler, but bill savings can result in comparison with grid electricity, in part due to avoided policy and infrastructure costs.

SIETF will consider gas and biomass CHP projects with an eligible fuel switch, where the source fuel switches to a lower carbon fuel source, and this lower carbon source could include the gas grid, on condition that:

• financial benefit from installation of CHP should be used to transition to net zero and this intent should be clearly set out with a timescale
• future-proofing is described within a transition plan for design and installation could include a single, or a number of, viable pathways to transform to lower carbon, for example, demonstrable readiness to switch at a later date to use hydrogen as a fuel source

CHP that reduces on-site emissions through other means such as the installation of carbon capture equipment would be eligible.

At assessment, projects will be scored on a range of criteria including cost effectiveness, which requires an estimate of reductions on, energy consumption and GHG emissions. This is a competitive fund and CHP projects may be less likely to score highly because the energy efficiency and carbon savings are often minimal

Carbon Capture, Utilisation and Storage (CCUS)

Carbon capture projects are only eligible where it can be evidenced that the captured CO2 will be utilised either onsite or offsite, or where it is transported and stored permanently

• SIETF will support carbon capture, and carbon capture and utilisation, but not the storage element, which is better delivered by the UK Government Clusters Mission as part of national infrastructure

• deployment of on-site or off-site carbon capture and utilisation is eligible as follows:

• on-site capture for on-site utilisation
• on-site capture for off-site utilisation
• off-site utilisation is only allowed only if there is a contractual agreement between the CO2 provider and the buyer
• Carbon capture and utilisation (CCU) projects should justify their decision to select CCU as a decarbonisation method over other decarbonisation options
• CCUS projects must begin capturing CO2 for utilisation or storage within five years of project completion

Other technologies

Ground source and air source heat pumps must have a Seasonal Performance Factor of 2.5 according to the Ofgem definition of Seasonal Performance Factor.

Fuel combustion applications are only in scope if they are more than 1MWth input and are not intermittent. These will hence fall within the scope of the air quality regulations, namely the Medium Combustion Plant Directive (EU 2015/2192) or the Industrial Emissions Directive (EU 2010/75).

Exclusions (applies to both energy efficiency and decarbonisation measures)

Energy or emissions savings must be measured and take place at site level where there is an existing, identified operational industrial process. This means that funding cannot be used to:

• support capital costs of a new build plant or site
• repurpose a manufacturing site for a new industrial process
• cover the costs of a project which aims to expand the capacity at an existing plant

An exception would be where the measure itself directly leads to a change in production levels or productivity, this might be the case for energy efficiency measures which achieve a per unit saving in energy consumed. In this scenario the SIETF can support the specific elements of the project which can be identified as energy efficiency or emission saving measures (see eligible costs section for further guidance).

Additionally, funding cannot be used to:

• support projects that involve repair and maintenance that would be undertaken in the normal course of business. This includes both repairs to or replacement of components in an industrial process with an identical model or a different model with equivalent performance or capabilities. Any maintenance checks or tests required to identify such issues will also not be funded.
• support any costs incurred from energy efficiency measures that bring the site or equipment up to minimum legal standards.
• upgrade systems in buildings that are not integral to the industrial process itself. This includes but is not limited to building lighting or space heating and cooling where not integral to the industrial process (consider data centre exception)

If work is in stages and a later stage involves deploying mature energy efficiency technology, you could apply for funding for that part of the project 

Plant closures

SIETF will not support projects related to production capacity reductions or plant closure where it is not required in order to deploy or retrofit equipment necessary to achieve energy efficiency savings.

Alternative financial incentives and government subsidies are available for CHP projects provided the sites seek accreditation with the CHP quality assurance (CHPQA) programme, which currently provides:

• beneficial treatment under climate change levy (CCL) and fuel duty 
• beneficial treatment under the carbon price support (CPS) rates of tax 
• exemption from Business Rates of Power Generating Plant and Machinery 

Transportation

SIETF will not support projects that improve the energy efficiency of or lead to a reduction in emissions from modes of transportation used on or off site, including but not limited to:

• off road machinery (such as forklifts and tractors)
• heavy-duty vehicles (such as diggers, cranes, or excavators)
• automotive vehicles, heavy and light goods vehicles
• rail
• ships, boats, barges
• conveyor belts to transport materials or goods off-site (rather than between on-site production stages which would be in scope; in such scenarios, the conveyor belt must be replacing a similar piece of equipment and not a different mode of transportation)

Agriculture and fisheries projects are excluded as these have separate subsidy control issues.