Phase 3 of the £185m Industrial Energy Transformation Fund (IETF) is now open. Karim Budabuss, Director of Grant Advisory, ForrestBrown, explores the benefits – and potential pitfalls – businesses need to be aware of when applying.
Although greenhouse gas emissions have fallen by 46% since 1990, the UK is still far from meeting its commitment of reaching net zero by 2050. Indeed, the CCC has argued that it is ‘technically feasible but highly challenging’. While many businesses are setting ambitious carbon reduction and net zero goals, uncertainty remains around financing this transition in the private sector.
To this end, the government has intervened and launched the Industrial Energy Transformation Fund (IETF) as a valuable tool for UK businesses to enable the transition to a low carbon future. The IETF supports the development and deployment of technologies that aid higher energy businesses in reducing their carbon footprint whilst cutting energy bills.
The first two phases of the fund have already been implemented, delivering £289 million in investment capital. The third phase, providing a further £185m, is already generating extensive interest from businesses seeking to kickstart their transition. However, there are certain considerations they need to bear in mind to maximise the chance of their applications being successful.
Eligibility for the fund
Only businesses that own sites with activities that correlates with specific industrial SIC codes are eligible for IETF funding such as manufacturing, production, data centres and controlled environment agriculture.
For businesses considering applications, it’s worth noting that the IETF is predominantly concerned with long-term investment projects. When determining which businesses will receive the funding, the fund considers the impact of an investment into the businesses, including the business case of the venture, whether the funding will make the business more efficient in the long-run, and the significance of its environmental impact. It’s critical that the funding offers the best value for taxpayers’ money which is why applications are so carefully considered.
Supporting the UK’s innovative businesses
For R&D intensive businesses, the fund presents an exciting opportunity. Whilst it is not necessarily an R&D grant (although limited R&D is supported for decarbonisation projects) and more of a capital expenditure grant, these businesses can make applications which will have a ripple effect on wider innovation investment in the UK.
The fund serves as an important incentive, especially due to its continuation and clear policy objective.
Ultimately, the IETF is intended to act as a springboard for the country to catch up with its competitors by fostering an environment where R&D investment in sustainable innovation is at the forefront of its priorities.
Preparing for any pitfalls
In order to make an airtight application, businesses must also be aware of some of the pitfalls. The scheme aims to fund initiatives that businesses currently aren’t able to, but it doesn’t offer immediate re-imbursement of expenditure (the grant is paid in arrears on quarterly basis and only when the grant contract is signed by all parties) which makes it difficult to invest immediately and elongates the application process. For smaller businesses that need this injection of capital to kickstart their initiative, it could hinder growth and cause uncertainty when it comes to financial planning ahead.
We are also witnessing separate challenges for both smaller and larger businesses with the fund. Originally, SMEs did not take advantage of the IETF, due to the threshold on minimum expenditure required set at a high level. This threshold has since been lowered by the government but may still act as a challenge for smaller firms who are unable to meet this financial commitment.
At the same time, larger businesses face a different set of issues. In these organisations, there is often a disconnect between showing interest in the IETF grant funding and the ability to mobilise resources to initiate the application process for the fund within the limited timeframe. Having a Chief Sustainability Officer is one way to maintain a strong line of communication and information on policy timelines, but this will not always be possible for businesses on tighter budgets, meaning they could lose out on the benefits.
What are the solutions?
The IETF offers businesses an important avenue to fund their sustainability investment, but it’s imperative that they keep the nuances of the application process in mind to maximise the potential of the fund.
It’s positive that the government has demonstrated a willingness to offer funding and flexibility, but going one step further and increasing the frequency of the re-imbursement could make the fund more accessible for smaller businesses by avoiding potential cashflow issues.
Employing a split-scheme approach for SMEs and large organisations can also help addressing any pain points more precisely and enhance the efficiency of the process, all whilst ensuring the fund is widely utilised. There’s no doubt that the launch of the IETF is a welcome move that will bring the UK closer to its net-zero goals, but the government must reinforce its commitment to sustainability by making the fund accessible and efficient for all.
