£450m fund to unlock innovation in gas and electricity networks

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The new Ofgem Strategic Innovation Fund, delivered through a partnership with Innovate UK, is seeking innovative, ambitious ideas to transform energy networks.

A new fund opening today will unlock greener ways to travel and to heat and power homes and businesses, by harnessing a new approach to energy network innovation. This will:

  • keep bills as low as possible
  • drive the UK towards its goal of net zero greenhouse gas emissions by 2050
  • help turn the UK into the ‘Silicon Valley’ of energy.

The fund, which opens for application on 31 August, is part of Ofgem’s RII02 price controls for the electricity system operator and the network companies that operate GB’s energy pipes and wires. The fund will be approved by Ofgem and managed in partnership with Innovate UK.

£450 million will initially become available over the next five years through the fund, with the option to increase in response to need and if innovators bring forward strong plans. Together, network companies, system operators, and the world’s leading businesses and researchers will use this money to drive big ideas that:

  • accelerate the transition to an emissions-free energy system
  • help to position the UK as a world leader in energy innovation.

Energy transition

To apply for the first round of funding, network companies must address four major strategic challenges that are crucial for the energy transition. These are:

  • whole system integration
  • data and digitalisation
  • heat
  • transport.

Projects could include, but are not limited to:

  • ensuring the networks are ready to roll out clean heating solutions such as heat pumps to Britain’s homes
  • developing ways for network companies to work together across transmission, distribution, system operation, gas and electricity.
  • developing new technologies for networks to support flexible energy solutions, such as battery storage technology, to ensure electricity is used and stored more effectively, thereby bringing down bills and emissions.

Ideas need to be big, bold and ambitious with potential to scale across the networks upon completion.

Decarbonising the energy system

Energy Minister, Lord Callanan at the Department for Business, Energy and Industrial strategy, said:

The UK is leading the world in decarbonising our energy system, with our innovators playing a vital role in going further while ensuring consumers receive clean and affordable energy.

The Strategic Innovation Fund will ensure the best projects and most talented minds have the grants available to reduce carbon emissions and enable bill payers to see the benefits of building back greener.

Net zero greenhouse gas emissions

Jonathan Brearley, chief executive of Ofgem, said:

What we need more than ever to reduce greenhouse gas emissions and reach net zero is innovation. The Strategic Innovation Fund means cutting-edge ideas and new technologies become a reality, helping us find greener ways to travel, and to heat and power Britain at low cost.

Britain’s energy infrastructure will play a pivotal role in cutting net zero greenhouse gas emissions, and this fund will help make sure our energy system is ready to deliver that.

Indro Mukerjee, chief executive of Innovate UK, said:

The ideas of the UK’s world-leading innovative businesses and researchers have the potential to reshape the gas and electricity networks for net zero, while generating commercial growth.

We are delighted to be working with Ofgem to make sure the Strategic Innovation Fund brings maximum impact over the coming years.

UK net zero business champion, Andrew Griffith, said:

UK businesses have proved time and time again that our country is home to world-leading entrepreneurial talent, innovators and disruptors.

As we approach the COP26 Climate Change summit in Glasgow the Strategic Innovation Fund is an example of how business can provide the solutions that will make our energy cleaner and tackle climate change.

Further information

The purpose of the Strategic Innovation Fund is to support network innovation that contributes to the achievement of net zero, while:

  • delivering real net benefits to network companies and consumers
  • working with other public funders of innovation so that activities appropriately funded by network consumers are coordinated with activities funded by government.

The new partnership brings together the complementary roles of Ofgem and Innovate UK. Ofgem regulates network and system operators to enable net zero at lowest cost to consumers. Innovate UK focuses on business growth and will seek to utilise its expertise in engaging with innovators on funding programmes across multiple sectors, such as:

  • offshore wind
  • energy storage
  • defence
  • transport
  • aerospace
  • healthcare
  • space.

Under the Strategic Innovation Fund, gas and electricity network and system operators, will be able to form consortia with businesses and academics to propose innovative solutions to the challenges facing the networks. They can then apply for funding through the competitive process.

Read about the online briefing event that will take place on 7 September.

Read more information on the Strategic Innovation Fund challenge competition on the the Ofgem website.

For more background on the Strategic Innovation Fund’s approach see Matt Hasting’s blog post.

Network operators can apply to the Ofgem SIF through the Innovation Funding Service.

Ofgem is Britain’s independent energy regulator. Our role is to protect consumers now and in the future by working to deliver a greener, fairer energy system. We do this by:

  • working with government, industry and consumer groups to deliver a net zero economy at the lowest cost to consumers
  • stamping out sharp and bad practice, ensuring fair treatment for all consumers, especially the vulnerable
  • enabling competition and innovation, which drives down prices and results in new products and services for consumers.

Innovate UK is the UK’s innovation agency. It drives productivity and economic growth by supporting businesses to develop and realise the potential of new ideas, including those from the UK’s world-class research base.

Ofgem has determined that the value of the Strategic Innovation Fund will be £450 million over the next network price control period (‘RIIO-2’). However, the level of funding available can be increased if there is a need for greater funding. It will issue regular challenge competitions focused on areas of strategic importance to the future of the gas and electricity networks.

Under the Strategic Innovation Fund, gas and electricity network and system operators, will be able to form consortia with businesses and academics to propose innovative solutions to the challenges facing the networks. They can then apply for funding through the competitive process.

The Strategic Innovation Fund is drawn from the bills that energy consumers pay, and so all projects funded will be required to bring a net benefit to consumers.

Projects will be funded progressively in three ‘agile’ stages:

  • discovery
  • alpha
  • beta.

This is to ensure focus on the right areas and minimise risk. This will help the projects to develop rapidly, react to change and maximise their potential to transform the gas and electricity networks while growing large-scale successful businesses and contributing to UK economic growth. The competition opening in August 2021 is the discovery phase of the first round of the SIF.

Projects must be led by:

  • gas transmission, gas distribution, or electricity transmission network operators
  • the electricity system operator.

They must work in collaboration with other networks, businesses and academics. Distribution Network Operators (DNOs) can partner with these organisations prior to being allowed to lead SIF projects themselves from 2023 when RIIO-ED2 (the five-year price control period for the DNOs) starts.

Top image: Credit: Anna Bliokh / GettyImages

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