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Industrial Energy Transformation Fund – a guide to IETF Phase 3

Director - Grant Advisory
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The combination of volatile prices and the need cut carbon emissions poses technological and financial challenges for businesses who rely on high energy use to power their plants and processes.

Despite industrial emissions almost halving from 1990 levels, further action is needed if the UK is to achieve its net zero ambitions. Meeting carbon reduction targets and growing the economy is even more challenging. This is why the government has intervened with funding to help future-proof industry.

Whatever new technologies emerge, energy efficiency will provide a vital bridge in the transition from carbon-intensive power sources. The Industrial Energy Transformation Fund (IETF) is the key government grant fund supporting industrial sites to make this change. Ahead of the launch of the third phase of the IETF in January 2024, let’s look at what it means for businesses.

What is the Industrial Energy Transformation Fund?

The Industrial Energy Transformation Fund (IETF) was established in 2020 to support the development and deployment of technologies that enable businesses with high energy use to transition to a low carbon future.

The first two phases of the IETF focused on energy efficiency technologies and industrial energy and decarbonisations studies. A total £289 million was available across two application windows (now closed).

What sort of businesses have benefited from the Industrial Energy Transformation Fund?

Successful applications in phases one and two included:

  • A multinational FMCG business received a grant of £363,000 towards the replacement of boiler systems at one of its main UK production hubs, delivering major efficiency improvements.
  • The UK arm of a global group specialising in the supply of building materials received a grant of £632,000 towards delivery of a plant to turn waste product into material for use in the construction sector.
  • A family-owned food business received a grant of £33,000 towards a feasibility study on the replacement of natural gas boilers with a heat pump solution.

IETF Phase 3  – opening in January 2024

In March 2023, a third phase of the IETF was announced. IETF Phase 3 will open for applications in January 2024, following consultation by the Department for Energy Security and Net Zero on the design of the fund. This will make £185 million in grant funding available to support businesses to cut their energy bills and carbon emissions by investing in energy efficiency and low carbon technologies.

Key changes resulting from consultation feedback include expanding eligible sectors, lowering minimum grant thresholds for SMEs, and simplifying the application process.

Key contact

Karim Budabuss CEng

Director – Grant Advisory

  • Want more information on the IETF? – speak to Karim today

What businesses are eligible for the IETF Phase 3?

Types of business which are eligible to apply for funding for energy saving upgrades or decarbonisation solutions from the IETF Phase 3 include:

  • Industrial sites.
  • Data centres.
  • Controlled environment agriculture systems.

Applicants must be:

  • A registered business (of any size).
  • The owner of the industrial site or data centre.

To be eligible to apply, sites must be in England, Wales or Northern Ireland. Businesses with sites based in Scotland can apply for the Scottish Industrial Energy Transformation Fund (SIETF).

What sort of projects and expenditure are eligible for funding from the IETF?

Projects must be either:

  • Studies – feasibility or engineering studies to enable companies to investigate identified energy efficiency and decarbonisation projects in advance of investing.
  • Energy efficiency – deployment of technologies to reduce industrial energy consumption.
  • Deep decarbonisation – deployment of technologies to achieve industrial emissions savings.

How much IETF Phase 3 grant funding is available?

A total of £185 million is available in the IETF Phase 3.  Minimum and maximum grant sizes vary by type of project and size of company, as shown in the table below.

Feasibility and engineering studies Energy efficiency deployment Deep decarbonisation deployment
Minimum and maximum grant sizes Feasibility: £30,000 – £7 million Engineering £50,000 – £14 million £75,000 – £14 million £75,000 – £30 million
Maximum grant as a percentage of eligible project costs Feasibility: 50% (large company) 60% (medium) 70% (small, micro) Engineering: 25% (large company) 35% (medium) 45% (small, micro) 30% (large company) 40% (medium) 50% (small, micro) 50% (large company) 60% (medium) 70% (small, micro)
Categories of eligible expenditure Studies that investigate a defined technology solution that improves the energy efficiency and/or reduces the greenhouse gas emissions of an industrial process). Deployment of proven technology. Deployments with the aim to reduce the emissions produced by industrial processes at site level even if it results in increased energy bills. Deployment of proven technology. Deployments with the aim to reduce the emissions produced by industrial processes at site level even if it results in increased energy bills.

Examples of eligible expenditure:

  • Monitoring and management.
  • More efficient cooling measures to create and maintain the operational temperature of a data centre.
  • Fuel switching where essential to energy efficiency improvements.
  • More effective heat exchange.
  • Energy recovery from waste heat.
  • Carbon capture, utilisation and storage.
  • On-site transport.

Examples of ineligible activity:

  • Building lighting and space heating.
  • Off-site transport.

There may be some crossover with R&D projects, but not all eligible activity will meet the definition of R&D for tax purposes. Contact our FB Consulting team to find out how your grant funding interacts with R&D tax relief.

How do I make an application to the IETF Phase 3?

The first funding window for the IETF Phase 3 opens in January 2024 and closes in April 2024. Applications will then be assessed for up to 12 weeks, with outcomes announced in July 2024. Four weeks follow for completion of financial due diligence ahead of grant contract signing in August 2024.

ForrestBrown’s grant advisory team combines technical and financial expertise with a track record of success in securing funding in previous IETF rounds. Our team are on hand to help you through every step of this process. We start with a workshop to assess your project or projects’ feasibility and then support you through the application process and beyond.