Decarbonising heat is among four options for which energy networks can apply for funding in the first round of Ofgem’s new innovation funding mechanism. But major trials for converting the gas network to hydrogen flagged in the government’s ‘ten point plan’ for a Green Industrial Revolution have been kicked off separately.
Ofgem has set out the ‘innovation challenges’ to be addressed by networks applying for innovation funding in the first application round for its Strategic Innovation Fund (SIF). The window to apply for funding under the first four Innovation Challenges will open on 31 August and close on 17 November.
The four challenges are around whole system integration, data and digitalisation, zero emission transport and heat – Ofgem says feedback from stakeholder engagement suggested wide agreement that these were crucial to meeting national net zero targets.
Ofgem has sought to ensure that participants in most challenges are wider than the network companies it regulates.
For the whole system integration challenge the project must include a generator, supplier or consumer group; for digitalisation it must include a research or private sector organisation and relevant data processor; for transport an operator; and for heat a technology, service or infrastructure provider such as a heat pump manufacturer.
Among the issues to be addressed in the whole-systems challenge are the costs and opportunities of repurposing or decommissioning existing infrastructure, and complementary and competing priorities between local, national, and international energy systems.

In the heat challenge the project must directly address as its primary focus at least one of:
• Using smart approaches to manage large-scale electrified heat deployment in a local area, reducing the need for network reinforcement
• Using smart meters with heat pumps to optimise usage and energy system flexibility.
• The commercial and investment case for financing heating technologies alongside energy network innovation.
• Working with partners on how deployment of low carbon heating solutions can be better coordinated to minimise gas and electricity network constraints at lowest economic cost.

Hydrogen networks – ‘village’ trial
The Strategic Innovation Fund’s topics around heat decarbonisation are set around a diverse set of future options. It highlights a variety of technologies with potential in heat transformation, including “heat networks, electric and hybrid heat pumps, hydrogen, biofuels and others,” and adds that “It is likely that the best low carbon heat choices will be dependent on local characteristics (such as local heat sources, or infrastructure capacity) and consumer preferences.”
The SIF does not directly support what some see as a major heat option – conversion of the existing gas network to hydrogen. However, that option is progressing separately.
Ofgem and BEIS have jointly written to gas distribution network operators (GDNs) to invite them to provide outline designs for a ‘village trial’ that would see up to 2000 properties with a variety of building types run as a hydrogen network for up to 12 months.
The project would build on a ‘Neighbourhood Trial’ funded by Ofgem and the Scottish Government (H100 Fife) in which a consortium led by SGN will convert around 300 properties to hydrogen. The ‘village trail’ will be in operation by mid 2025.
The GDNs have been asked to provide ‘Outline Design’ submissions which will form the basis of applications for funding for detailed design work (stage 2). The deadline for receiving applications for funding to support stage 2 is 17 December.
The letter said applications for stage 3 will be required by Q2 2023.
At the end of stage 3, project developers will have to demonstrate that they are ready to begin installation in consumer properties and the conversion to hydrogen, with procurement processes and supply chains in place, along with consumer agreements in place. It also expects system construction and commissioning to be ready for go-live. The letter said, “The trial must be operational no later than mid-2025, however we encourage GDNs to consider all opportunities for commencing trialling earlier than this.”
The regulator said it expected GDNs to work together where appropriate and consider what funding contributions they or their project partners will make, as it expects part of the trial to be funded through private sector investment.
A key part of the project is consumer engagement and strategies for treating consumers fairly. The letter says, “because the existing gas network in the chosen trial area will be converted to transport hydrogen, all consumers in the chosen village will be switched off from natural gas, but this does not mean that they should be forced to use hydrogen for heat. The consumer strategy should set out how the GDN will ensure the fair treatment of all consumers, including those who do not want to switch to hydrogen, including by offering suitable alternatives for heating and cooking during the period of the trial.”

Download details of the Strategic Innovation Fund here
Read Ofgem and BEIS’s letter on the hydrogen ‘village trial’ here