Business Case

Summary Sheet

Title: Clean Energy Innovation Programme

Project Purpose:Accelerating the clean energy transition is necessary to avoid the most severe impacts of climate change and to deliver a wide range of development benefits. Supporting clean energy innovation to improve the performance of promising technologies and systems, and to reduce costs, is a key part of contributing to addressing this challenge. The International Energy Agency (IEA) has identified that an immediate "opportunity exists for new, low-cost technologies that will be appropriate for these [developing] countries’ specific circumstances and climates". This programme will help to accelerate clean energy innovation in developing countries by advancing Technology Readiness Levels (TRLs) under three priority themes: sustainable cooling, energy storage and industrial decarbonisation. These themes are under-funded but are crucial for climate change mitigation and contributing to meeting the Sustainable Development Goals (SDGs) in developing countries. The investment risk is in-line with BEIS’s international climate finance (ICF) risk appetite and other risks, such as fiduciary and reputational risks, are lower. The UK has pledged to double its spending on energy innovation to £400 million in 2020/2021 as part of Mission Innovation (MI). This programme complements these commitments.Programme Value: £50 million Country/ Region: Global (ODA-eligible

countries)Senior Responsible Owner: Zoe Norgate

Programme Code: Start Date:April 2019

End Date:April 2023

Quest Number:

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Contents

Summary Sheet....................................................................................................................................3Contents...............................................................................................................................................4Intervention Summary..........................................................................................................................6

1.1 Overview..................................................................................................................................6

1.2 What are the main programme activities?...............................................................................61.3 Why is UK support required?...................................................................................................6

1.4 What are the expected results?...............................................................................................71.5 How does the project fit with country priorities?......................................................................7

1.6 What are the key risks to the success of the programme?.....................................................7

Strategic Case......................................................................................................................................82.1 Overview..................................................................................................................................82.2 The Need for Innovation..........................................................................................................8

2.3 Innovation Market Failures......................................................................................................92.4 Global Trends in Clean Energy RD&D Investment...............................................................10

2.5 Mission Innovation.................................................................................................................112.6 Proposed Intervention...........................................................................................................12

2.7 Strategic Fit for ICF...............................................................................................................132.8 Strategic Fit for the UK Government.....................................................................................14

2.9 Programme Aims and Objectives..........................................................................................142.10 Theory of Change..............................................................................................................15

2.11 Strategic Case for Priority Themes....................................................................................172.12 Energy Storage..................................................................................................................17

2.13 Sustainable Cooling...........................................................................................................182.14 Industrial Decarbonisation.................................................................................................19

2.15 Legal Compliance: International Development Act 2002...................................................202.16 Legal Compliance: Equality Act 2010................................................................................21

2.17 Legal Compliance: State Aid.............................................................................................22

Appraisal Case...................................................................................................................................233.1 Overview................................................................................................................................233.2 Thematic Options Appraisal..................................................................................................23

3.3 Delivery Options Appraisal....................................................................................................243.4 Multi-Criteria Analysis............................................................................................................24

3.5 Programme Options Appraisal..............................................................................................263.6 Value-for-Money Appraisal....................................................................................................28

3.7 Economy................................................................................................................................283.8 Efficiency...............................................................................................................................29

3.9 Effectiveness.........................................................................................................................31

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3.10 Equity.................................................................................................................................313.11 Overall Value-for-Money Assessment...............................................................................32

Commercial Case...............................................................................................................................324.1 Overview................................................................................................................................32

4.2 World Bank and IFC..............................................................................................................334.3 Innovate UK...........................................................................................................................37

4.4 Asian Development Bank......................................................................................................39

Financial Case....................................................................................................................................395.1 Overview................................................................................................................................395.2 Budget and Fund Allocation..................................................................................................40

5.3 Payment Schedule................................................................................................................415.4 Fees.......................................................................................................................................41

5.5 Due Diligence........................................................................................................................42

Management Case.............................................................................................................................436.1 Overview................................................................................................................................436.2 Resourcing and Responsibilities...........................................................................................43

6.3 Governance...........................................................................................................................446.4 Risk Management..................................................................................................................45

Monitoring and Evaluation................................................................................................................497.1 Overview................................................................................................................................49

7.2 Key Performance Indicators..................................................................................................497.3 Logframe...............................................................................................................................50

7.4 Evaluation..............................................................................................................................50

Annex..................................................................................................................................................528.1 Secondary Benefits...............................................................................................................52

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Intervention Summary

1.1 OverviewThis new £50 million programme aims to accelerate clean energy innovation in developing countries by providing grant funding to advance the Technology Readiness Levels (TRL) of promising innovative technologies (specifically supporting TRLs 3-7, as discussed in the Strategic Case), which have the potential to drive transformational change in developing countries. The programme will focus on bridging the ‘valley of death’ for innovation (the activity required after initial investment in earlier stage TRLs from universities and government laboratories and before the stage when industry and the private sector would look to invest) and move technologies closer towards commercialisation. The programme is initially for three years from April 2019 to April 2023 and will be thematically focused rather than geographically focused. In this initial period, three themes will be supported: sustainable cooling, energy storage and industrial decarbonisation. We conducted evidence reviews in 2018 to identify the key clean energy areas that are currently under-supported through climate finance and which have large potential for climate change mitigation and poverty reduction. However, this programme is seen as a longer-term vehicle to support other under-supported themes through potential extensions (such as transport and smart energy) depending on the success of the initial period.

1.2 What are the main programme activities?The main activities of this programme are:

1. To help develop key innovative clean energy technologies by providing grant funding to ad-vance their TRLs closer towards commercialisation through research, development & demon-stration (RD&D), with the aim that they will contribute to climate change mitigation and wider development benefits in developing countries

2. To fund proposals that include technical assistance activities for the supported technology in-novations (such as capacity building) to contribute to developing the necessary enabling en-vironments to allow developing countries to develop and demonstrate innovative energy tech-nologies independently in the medium-long term

3. To encourage knowledge-sharing activities and greater openness in innovation, such as shar-ing lessons learned, experiences, success factors and how to deal with Intellectual Property (IP) issues, both within countries and internationally

1.3 Why is UK support required?The UK is committed to tackling global challenges whilst enabling prosperity for developing countries, which includes addressing the shared threat of climate change. In addition to scaling up the deployment of existing clean energy technologies, the global energy transition will also require the acceleration of innovation, as it has the potential to positively disrupt and compete with the entrenched positions of fossil fuel-intensive energy sources1. According to the Organisation for Economic Co-operation and Development (OECD), innovation can account for a substantial share of economic growth2, which aligns with an objective of the UK’s Aid Strategy that states that Official Development Assistance (ODA) (which this programme would provide) should be used to promote economic development and prosperity in the developing world3.

The UK is a leading country in international initiatives such as Mission Innovation. Mission Innovation was launched at COP 21 in 2015 and currently has 24 members (23 countries and the European Commission) working together to accelerate global clean energy innovation with the aim to make clean energy widely affordable. This new £50 million programme complements the UK’s pledge to double its public sector spending on energy innovation to £400 million in 2020/2021 through Mission Innovation. In 2015, the UK (through HMT) ringfenced at least £100 million of ODA within this pledge through the UK’s International Climate Fund (£40 million from the Department for Business, Energy & Industrial Strategy (BEIS) and £60 million from the Department for International Development (DfID)), which would specifically be used to address the clean energy innovation needs of developing countries. 1 IEA (2018) World Energy Investment 2018, OECD/IEA, Paris, www.iea.org/publications/wei2018/

2 “Innovation, in its various forms, can account for a substantial share of economic growth” OECD (2015) https://www.oecd.org/innovation/innovation-imperative.htm

3 https://www.gov.uk/government/publications/uk-aid-tackling-global-challenges-in-the-national-interest 4

Although this programme contributes towards BEIS’s £400 million pledge, there are strong reasons to undertake this programme regardless of this, as outlined in the Strategic Case.

1.4 What are the expected results?The programme has the overall aim to achieve transformational change in clean energy innovation in developing countries. The outcomes that the programme aims to achieve are:

Advancing the TRLs of clean energy technologies towards commercialisation that will provide cheaper energy and/or improved energy efficiency and emission reductions

Increasing in-country capacity and capability so that beneficiary countries are able to sustain RD&D activity independently in the medium-long term

Increasing replication by encouraging the sharing of lessons learned within & between coun-tries

Due to the nature of innovation, a successful outcome of supported projects is not always guaranteed. This is due to innovation being a trial and error process and thus we expect some supported clean energy technologies to fail. However, this provides valuable learning, particularly for informing the third outcome above. Furthermore, whether supported technologies succeed or fail, all projects will contribute towards increasing in-country capacity, skills and capability, as per the second outcome above. Specific output indicators are outlined in the Monitoring & Evaluation section.

1.5 How does the project fit with country priorities?Unlike other ICF programmes, this programme takes a thematic approach rather than a geographical approach and consequently it does not target specific priority countries. This forms part of the novelty of the programme for ICF, which is also ICF’s first programme aimed at accelerating innovation and supporting new, low-cost clean energy technologies that will be appropriate for RD&D based on the specific circumstances and climates of supported developing countries4. Furthermore, this programme aims to encourage greater international co-operation in openness in innovation by facilitating (where possible) open access and knowledge-sharing between countries and organisations. Due to the increase in global innovation activity that has come out of Nationally Determined Contributions (NDCs) as a result of the Paris Agreement, greater openness in innovation will be important for achieving transformational change, which is one of the main aims of this programme (how to deal with IP issues to facilitate this will be an important learning from this programme).

1.6 What are the key risks to the success of the programme?This programme offers a strong fit with ICF’s risk appetite for moderate to high investment risk, where the expected benefits have strong transformational potential, but may not be realised. There is an inherently higher risk that innovation projects will not deliver the desired outputs and outcomes as a result of context-specific challenges faced in some developing countries, and difficulties in measuring outcomes that can be directly attributed to innovation projects. For example, the impacts of innovation funding will primarily be indirect and difficult to quantify accurately due to the nature of innovation.

As discussed above, there is an expectation that some projects will fail (as is normal in the innovation process), but that valuable lessons can be captured and shared for the benefit of future innovation activities. A risk summary profile and mitigation actions for this programme can be found in section 6.4. However, in summary, the key risks to the success of the programme are summarised below:

1. Markets are unable to absorb the amount of funds provided and therefore there is a risk of over-allocating funds that cannot be spent, as demand may be lower-than-expected

2. Conversely, markets may require significantly more than the available funds, resulting in a risk of requiring a greater amount of funding to achieve the identified outcomes and impacts

3. Differences in national regulation and policy may not allow for greater openness in innovation, or where organisations and countries are less willing to engage in more open innovation

4. Given the novelty of this type of programme for BEIS’s international climate finance (ICF), there is a risk that the impacts may not be as great as envisaged, which might also stem from challenges in monitoring & evaluation for this programme at the outcome and impact levels

4 IEA (2017) Tracking Clean Energy Progress 2017. http://www.iea.org/publications/freepublications/publication/tracking-clean-energy-progress-2017.html

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5. Two of the three themes will be delivered by a Multilateral Development Bank (MDB). There is a risk that MDBs may not have the capacity or capability to deliver clean energy innovation and RD&D activity in developing countries

Strategic Case

2.1 OverviewThe Paris Agreement, adopted at the 21st Conference of the Parties (COP) in 2015, is a global mission that commits participating parties to take measures to restrict global average temperature increase to ‘well below 2°C’, and to pursue efforts to limit such a temperature increase to 1.5°C above pre-industrial levels5 in response to the threat of climate change. To achieve this, participating countries have committed to Nationally Determined Contributions (NDCs), which set national targets for reducing emissions to reach this shared goal. The Intergovernmental Panel on Climate Change (IPCC)’s special report in 2018 on Global Warming of 1.5°C states that urgent and unprecedented change is required to meet the ambitions of the Paris Agreement and to avoid the pathway to 3°C warming that we currently face6. The United Nations Environment Programme (UNEP) have also affirmed that it is ‘extremely unlikely’ that the upper limit of the Paris Agreement goal of curtailing warming to ‘well below 2°C’ will be met. This is due to current pledges covering just one third of required emissions reductions for the most cost-effective pathway7.

The UK’s Clean Growth Strategy, published in 2017, estimates that US $13.5 trillion of public and private investment in the global energy sector alone will be required between 2015-2030 for participating countries to meet their NDCs8. Despite this challenge, clean growth also offers an ‘enormous potential economic opportunity’ internationally9. The strategy also acknowledges that if the UK would like developing countries and other countries to undergo energy transitions to meet the Paris Agreement goal, then low carbon technologies will need to be cheaper and offer more value than current high-carbon incumbent technologies. The International Energy Agency (IEA) states that public and private sector efforts in energy technology innovations, particularly through research, development and demonstration (RD&D), are critical to achieving the long-term goals of the Paris Agreement. There are multiple benefits of this approach: greenhouse gas emissions reductions, reducing air pollution, improving energy security and ‘invigorating the markets of tomorrow’10.

2.2 The Need for InnovationAccording to the Organisation for Economic Co-operation and Development (OECD), ‘innovation, in its various forms, can account for a substantial share of economic growth – often around 50% of total GDP growth – depending on the country, the level of economic development and the phase of the economic cycle’11. The UK Aid Strategy (under the promoting global prosperity objective), states that Official Development Assistance (ODA) (which this programme will provide) should be used to promote economic development and prosperity in the developing world12. Therefore, funding innovation using ODA offers a significant opportunity for countries to meet their NDCs whilst supporting economic development. Innovation can also enable countries in developing their capacity to undertake long-term transformation to a low-emission and climate-resilient future13, as well as help to address core public policy challenges like health, protecting the wider environment, food security, education, job creation,

5 UNFCCC (2018) https://unfccc.int/process-and-meetings/the-paris-agreement/the-paris-agreement

6 IPCC (2018) http://www.ipcc.ch/report/sr15/ 7 UNEP (2017) The Emissions Gap Report 2017 https://www.unenvironment.org/resources/emissions-gap-report 8 https://www.gov.uk/government/publications/clean-growth-strategy

9 https://www.gov.uk/government/publications/clean-growth-strategy

10 IEA (2017) Tracking Clean Energy Progress 2017 http://www.iea.org/publications/freepublications/publication/tracking-clean-energy-progress-2017.html

11 OECD (2015) https://www.oecd.org/innovation/innovation-imperative.htm

12 https://www.gov.uk/government/publications/uk-aid-tackling-global-challenges-in-the-national-interest 13 UNFCCC (2017) Enhancing financing for the research, development and demonstration of climate technologies, Technology Executive Committee Working Paper. http://unfccc.int/ttclear/docs/TEC_RDD%20fin-

ance_FINAL.pdf

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energy security and public sector efficiency14. These wider benefits of innovation contribute to the underpinning objective of the UK Aid Strategy, which is to reduce poverty in developing countries.The global energy transition will require a harmonised acceleration of innovation across existing and emerging clean energy technologies, as technological innovation has the potential to positively disrupt and compete with the entrenched positions of emission-intensive fuels and energy sources15. These interventions are a necessary step on the path to decarbonisation and towards meeting Sustainable Development Goal (SDG) 7 (‘to ensure access to affordable, reliable, sustainable and modern energy for all’) and SDG 13 (‘to take urgent action to combat climate change and its impacts’)16, which the UK is committed to supporting. Interventions through innovation can help to overcome barriers faced by many emerging economies such as developing the operational environments for clean energy and sustainable infrastructure, allowing for connections with the right actors for bold propositions and meaningful collaborations and securing trade deals through practical steps and government support17.

2.3 Innovation Market FailuresMarket failures that are present in the low carbon innovation landscape include: 

Positive externalities and the public good nature of the information associated with RD&D: Individuals/organisations carrying out innovation through RD&D incur the full costs of their efforts, but because of the existence of spill-over benefits, they are not able to reap all the paybacks. The existence of this externality and the public good nature of the information generated by RD&D means that the private sector will carry out less than the “efficient” alloca-tion of RD&D activities for new climate-friendly technologies. 

Unvalued benefits of knowledge spill-overs: RD&D can lead to ‘knowledge spill-overs’. The knowledge gained through investment in innovation activities can be used in other applic-ations besides the original project, stimulating further innovation. These wider benefits may not be taken into account in the decisions of private investors, as they may not be the stake-holders that benefit from the spill-overs.

Unpriced negative externalities: Damage to society from fossil fuel-based energy sources (such as through poorer air quality and longer-term implications of climate change) are not fully reflected in the price of energy, resulting in reduced incentives for private investment in low carbon technologies and the associated RD&D than would be socially optimal.

Barriers to entry (market power): Barriers to entry in the energy market exist that deter new competitors, potentially resulting in insufficient competition to ensure the efficient operation of the market. These include: 

Large incumbent firms using proven technology Capital-intensive demonstration and commercialisation phases Limited private finance due to potentially higher risks and longer payback periods  Sector culture and behaviour in favour of proven technologies

  The key barriers and market failures in innovation that the programme will aim to address are: 

Lack of internationally collaborative activity: The United Nations Framework Convention on Climate Change (UNFCCC) has stated that 90% of all low-carbon energy RD&D activity is funded and undertaken within the same country1, and in 2017, 70% of that total spend was accountable to five countries alone – the US, China, Japan, France and Germany2. The Paris Agreement states the need for “collaborative approaches to R&D, and facilitating access to technology, in particular for early stages of the technology cycle, to developing country Parties”3 to help to meet its ambitious targets. Therefore, addressing the lack of international collaboration, particularly between developed and developing nations, is essential. 

14 OECD (2015) https://www.oecd.org/innovation/innovation-imperative.htm

15 IEA (2018) World Energy Investment 2018, OECD/IEA, Paris, www.iea.org/publications/wei2018/

16 UN (2017) https://sustainabledevelopment.un.org/sdg7

17 FCO (2017) Low-carbon energy study March 2017

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Lack of risk appetite: The Paris Agreement also notes that in addition to the need for collab-orative R&D, large scale demonstrations of unproven technologies will be required so that private sector innovators have the confidence to invest4. Often, these are high-risk, capital-in-tensive projects that require government intervention. In addition, investment is often low in new or unproven clean energy technologies that are also deemed high-risk. This phase of clean technology development (between Technology Readiness Levels (TRLs) 3 (proof of concept) to 7 (having an operational prototype)) is termed the ‘valley of death’ for innova-tion (see Error: Reference source not found), which will be the focus of this programme. This was identified as a clear market failure through Mission Innovation, which states that by ‘coupling sustained public investment in research and development with business leader-ship and insights, fledgling ideas can be more rapidly brought into the mainstream’5. Mission Innovation aims to achieve this through their ‘private sector engagement’ activity, however this is only within the remit of Mission Innovation members and needs to become a shared activity across innovation activity internationally. 

Lack of consideration of technology transferability: Historically, collaborative international activities on clean energy focus mainly on facilitating deployment rather than innovative RD&D in developing countries. However, to have the greatest impact, it will be important to adapt what has worked in the developed world to newly industrialising countries pre-deploy-ment6, as well as supporting South-South7 transfer of technologies, knowledge and skills, and South-North transfer that may result from this programme. Providing funding for innovative RD&D activities in emerging economies and developing countries will allow individual coun-tries to develop new technologies and modify existing technologies to meet local contextual conditions, thus encouraging replicability in the medium-to-long term and subsequently help-ing them to achieve their NDCs under the Paris Agreement in a cost-effective way. 

Lack of willingness to engage in greater openness in innovation: Innovation often relies upon the ability to draw on knowledge and ideas from across the world. However, it is ‘rooted in unique local and regional strengths’8. Difficulties with collaborative RD&D to date have stemmed from the perceived risks of knowledge-sharing (such as through IP and patents) outside of domestic settings, as well as from limited existing capability and differing national regulations and policies. With the increasing number of value chains that are fragmented across different countries, greater openness in innovation will be important to ensure there is not a disconnect between production, end-use and the innovation activity required9. More openness in innovation activities will be strongly encouraged through this programme.

2.4 Global Trends in Clean Energy RD&D Investment There had been a stagnation of public sector funding towards energy technology RD&D internationally up until the announcement of Mission Innovation in 2015. On average, 0.1% of total public spend is allocated to energy R&D18. Despite an increase in overall energy RD&D investment in recent years, government investment in clean energy RD&D globally in 2017 was still 6% lower than its peak of US $5.4 billion in 200919. The increase in overall energy RD&D spend globally was almost ‘entirely driven by corporate R&D’, which rose by 12% in 201720. The majority of this is from automotive companies that are aiming to ‘meet tighter fuel economy standards and expectations of strong growth in demand for electric vehicles’21, and in the UK this has been accelerated by clear policy drivers, such as the ban of new petrol and diesel cars by 204022, the ‘Future of Mobility’ grand challenge as part of the UK’s Industrial Strategy23, and the Clean Growth Strategy’s £264 million Faraday battery challenge24.

18 IEA (2018) World Energy Investment 2018, OECD/IEA, Paris, www.iea.org/publications/wei2018/ for the UK this figure is around 0.127% (as of 2017)

19 Frankfurt School-UNEP Centre/BNEF (2018) Global Trends In Renewable Energy Investment 2018 http://www.fs-unep-centre.org (Frankfurt am Main)

20 Frankfurt School-UNEP Centre/BNEF (2018) Global Trends In Renewable Energy Investment 2018 http://www.fs-unep-centre.org (Frankfurt am Main)

21 IEA (2018) World Energy Investment 2018, OECD/IEA, Paris, www.iea.org/publications/wei2018/

22 https://www.gov.uk/government/publications/air-quality-plan-for-nitrogen-dioxide-no2-in-uk-2017 23 https://www.gov.uk/government/publications/industrial-strategy-the-grand-challenges/industrial-strategy-the-grand-challenges#future-of-mobility

24 https://www.gov.uk/government/collections/faraday-battery-challenge-industrial-strategy-challenge-fund 8

Despite the establishment of international collaborations such as Mission Innovation and promising trends in increased private sector spend, investment in energy sector RD&D still accounts for less than 5% of total global RD&D activity25.

2.5 Mission InnovationThe UK joined the Mission Innovation initiative at its launch at COP 21, where all members pledged to double their public sector spend on energy RD&D by 2020/2021. Members include both developed and developing countries, including Brazil, China, India, Indonesia and Mexico (whom are ODA-eligible). The 23 countries and the European Commission that make up Mission Innovation account for 80% of global public investment in clean energy RD&D and 70% of the global GDP26, and therefore the initiative offers great potential as a platform for bilateral and multilateral collaboration on energy RD&D efforts. The initiative aims to reinvigorate and accelerate global efforts in clean energy innovation in an ‘urgent and lasting global response to climate change’27 and as a direct response to existing market failures (outlined in section Error: Reference source not found).

The Mission Innovation ‘Innovation Challenges’ (ICs) set out eight key thematic areas of interest to the 24 members (presented in Figure 128). The scope of activity is not limited to these 8 ICs and any energy RD&D activity is supported and encouraged. However, the ICs are initial ‘global calls to action’ aimed at accelerating RD&D in technological areas where members believe immediate increased international attention would make a significant impact in our shared fight against climate change29. The UK is a participant in all eight of the ICs and co-leads ‘Carbon Capture, Utilization, and Storage' (IC#3) and ‘Affordable Heating and Cooling of Buildings’ (IC#7). These are priority areas under the UK’s Clean Growth Strategy30 and the Industrial Strategy31 and are areas where the UK has significant technical expertise.

Although the principal aim of Mission Innovation is to tackle climate change, the energy RD&D activities that it supports also aim to reduce air pollution, increase energy security and create new opportunities

25 UNFCCC (2017) Enhancing financing for the research, development and demonstration of climate technologies, Technology Executive Committee Working Paper. http://unfccc.int/ttclear/docs/TEC_RDD

%20finance_FINAL.pdf

26 Mission Innovation (2018) http://mission-innovation.net/our-work/innovation-challenges/

27 Mission Innovation (2018) http://mission-innovation.net/our-work/innovation-challenges/

28 Mission Innovation (2018) http://mission-innovation.net/our-work/innovation-challenges/

29 Mission Innovation (2018) http://mission-innovation.net/our-work/innovation-challenges/ 30 https://www.gov.uk/government/publications/clean-growth-strategy 31 https://www.gov.uk/government/publications/industrial-strategy-building-a-britain-fit-for-the-future

Figure 1: Innovation Challenges - Leads and ParticipantsFigure 1: Innovation Challenges - Leads and ParticipantsFigure 1: Innovation Challenges - Leads and ParticipantsFigure 1: Innovation Challenges - Leads and ParticipantsFigure 1: Innovation Challenges - Leads and ParticipantsFigure 1: Innovation Challenges - Leads and ParticipantsFigure 1: Innovation Challenges - Leads and ParticipantsFigure 1: Innovation Challenges - Leads and ParticipantsFigure 1: Innovation Challenges - Leads and ParticipantsFigure 1: Innovation Challenges - Leads and ParticipantsFigure 1: Innovation Challenges - Leads and Participants

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for clean economic growth where possible. Activity could also help participating countries to address wider Sustainable Development Goals (SDGs) beyond SDG 7 and 13, such as SDG 9 and 1132.

2.6 Proposed InterventionThis £50 million clean energy innovation programme will provide grant funding to accelerate innovation in developing countries. It will support innovative technologies within TRLs 3-7 (the ‘valley of death’, as discussed in section 2.2.1), which have the potential to drive transformational change in developing countries by accelerating their path to commercialisation. The programme will initially focus on sustainable cooling, energy storage and industrial decarbonisation, which are under-funded thematic areas from a climate finance perspective, but which have large climate change mitigation potential. This is justified further in sections 3.4.1 (energy storage), 3.4.2 (sustainable cooling) and 3.4.3 (industrial decarbonisation). The initial programme will run from April 2019 to April 2023 and extending the programme to support other under-funded themes (such as low carbon transport and smart energy) will depend on the results of an on-going independent evaluation of the programme that will run throughout the initial phase, as discussed in the Monitoring & Evaluation section. Figure 2 summarises the proposed programme activities and Figure 3 provides the definitions of different TRLs.

32 UN (2017) https://sustainabledevelopment.un.org/sdg7 SDG 7 – ‘to ensure access to affordable, reliable, sustainable and modern energy for all’, SDG 13 – ‘to take urgent action to combat climate change and its

impacts’, SDG 9 – ‘to build resilient infrastructure, promote inclusive and sustainable industrialisation and foster innovation’ SDG 11 – ‘to make cities and human settlements inclusive, safe, resilient and sustainable’ .

Key: BEIS

Delivery partner(s) Grant recipientsBeneficiary governments

Figure 2: High-level programme activities and relevant stakeholders

Ensuring knowledge-sharing through greater openness in innovation

Encourage internationally collaborative programmes of work

Provide technical assistance to beneficiary countries

Facilitate the creation of enabling environments (e.g. laboratory equipment, test spaces)

Increase TRLs of innovative clean technologies through RD&D

Allocate grant funding internationally to projects that benefit developing countries

Provide £50m of ODA for clean energy innovation

CompulsoryPreferential

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2.7 Strategic Fit for ICFThe UK is committed to tackling global challenges, whilst enabling prosperity for developing countries. The UK has committed at least £5.8 billion of international climate finance (Official Development Assistance (ODA)) for 2016-2021 across three departments (the Department for International Development (DfID), the Department for Business Energy and Industrial Strategy (BEIS), and the Department for Environment, Food and Rural Affairs (Defra)), of which £2 billion is managed by the BEIS ICF team. The ICF aims to:

Work with developing countries and multilateral organisations to tackle emissions Demonstrate that low carbon development is a viable growth model and shift markets in fa-

vour of ‘clean’ and ‘green’ Raise ambition in line with limiting global temperature rise to ‘well below’ 2°C to help deliver

the UK’s pledge under the Paris Agreement

During the last Spending Review, HM Treasury ringfenced £40 million of the BEIS ICF budget to contribute to the UK’s Mission Innovation pledge of doubling spend on energy RD&D in 2020-2021 and £40 million of this programme contributes to meeting and exceeding this commitment. However, as discussed in the following sections, this new programme has strong justifications to be implemented regardless of this commitment, as it fills an important gap in the climate finance architecture, as well as in BEIS ICF’s portfolio. As the funding is ODA, it must promote the economic development and welfare of developing countries as its overarching objective33. This programme also provides an opportunity for greater international co-operation in openness in innovation by facilitating more open access and knowledge-sharing within and between countries and organisations. Due to the increase in technology innovation activity globally (outlined in section 2.4), greater openness in innovation will be important for achieving transformational change through the advancement of TRLs for clean energy technologies towards commercialisation, building capacity and encouraging replicability.

This programme would also contribute towards achieving the Independent Commission for Aid Impact’s (ICAI) recommendations to ICF in 2014 that greater emphasis be placed on providing technical assistance (TA) programmes, including for middle-income countries, which came as a result of their review of the ICF in 2014. The most recent ICAI review, published in February 2019, similarly highlights 33 https://www.gov.uk/government/publications/official-development-assistance/official-development-assistance

Successful innovation

TRL 5TRL 7

TRL 4

Figure 3: The innovation cycle and Technology Readiness Levels (TRLs)

TRL 8-9

TRL 1-2

TRL 6

TRL 3

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that a ‘combination of capital and technical assistance has helped countries overcome barriers to low-carbon investment, and to articulate their objectives’. As such, it is imperative that all supported innovative technologies include TA activities within proposals to show how capacity building and knowledge-sharing will be undertaken. In addition, ICAI suggested that ‘there may be opportunities for thematic partnerships that build on UK strengths (or those that operate sub-nationally or sub-sectorally)’, and this programme meets this suggestion by taking a thematic (rather the geographical) focus and addressing innovation needs within those themes that are applicable to most developing countries (the justifications for the themes are provided in section 2.10).

Furthermore, the 2015-2019 ‘Compass’ contract identified that: ‘the ICF was designed as a learning portfolio, and value-for-money will only be maximised if the innovations being piloted and tested are learned from and scaled up’. This will be an important part of this programme, such as ensuring that supported innovators are aware of other ICF programmes that are focused on commercial deployment. This is discussed further in the Commercial Case and the Monitoring & Evaluation section. This statement also highlights the importance of learning and being innovative in the ICF portfolio, which is one of the three key outputs of the ICF’s theory of change (alongside ‘demonstration’ and ‘architecture’): ‘…new ways of doing things in a range of developing countries and sectors’.

To date, BEIS ICF programmes have had limited focus on technology innovation activities, though they have demonstrated financial innovation and delivery innovation. It is evident that building domestic capacity and accelerating clean energy RD&D is crucial for supporting high-emitting emerging economies in meeting their NDCs and to raise the ambitions of their climate commitments. Within the energy innovation space, the UK has a strong offering to address this need through the ICF’s funding and developing country experience and through drawing on the energy innovation expertise and engagement with UK stakeholders, which is primarily led by the Science and Innovation for Climate and Energy Directorate (SICE) in BEIS. This programme has been developed in collaboration with SICE, which manages BEIS’s existing energy innovation programmes, including Mission Innovation, in order to learn from their experiences of delivery and monitoring energy innovation programmes.

This programme would build on existing international engagement in energy innovation and hopes to establish the UK’s position as global leaders in supporting RD&D activity in developing countries, which may provide us with greater influence in encouraging other countries to give similar support. There are some existing programmes across HMG that draw some similarities to this programme in their focus on developing countries. These are mapped out in Figure 4 based on whether they support low-income or middle-income countries and whether they support early-stage TRLs (1-3), mid-stage TRLs (4-6) or late-stage TRLs (7-9). We considered these existing programmes as part of the options appraisal for this programme, as detailed in the Appraisal Case (see section ).

Climate Innovation Centres (DfID)

Figure 4: UK Government innovation programmes of relevance to this programme

Newton Fund (BEIS)

Global Challenges Research Fund (BEIS) Transforming Energy Access (DfID)

Middle income

Low income

Early stage TRLs (1-3) Mid-stage TRLs (4-6) Late stage TRLs (7-9)

Clean Energy Innovation Programme (BEIS)Developing Countries (ODA-

eligible)

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2.8Strategic Fit for the UK Government Innovative RD&D is a core pillar of the UK’s Industrial Strategy and Clean Growth Strategy. This includes £4 billion committed to increasing funding in R&D over 4 years through the Industrial Strategy Challenge Fund, with the ambition of leveraging the UK’s world-leading industry and research base to address the biggest industrial and societal challenges of today through innovation34. Furthermore, £2.5 billion will be allocated between 2015-2021 for low carbon innovation across all stages of technology development: from basic research to pre-commercial trials, as part of the Clean Growth Strategy35. The IEA states that governments play an ‘indispensable role’ in clean energy RD&D by investing in such programmes, as many of the long-term or societal benefits are not yet sufficiently valued by markets36. This is particularly challenging for developing countries and where UK ODA could help to overcome.

2.9 Programme Aims and ObjectivesThe overall aim of this programme is to accelerate clean energy technology innovation that will have transformational impacts in developing countries. The objectives of this programme are:

1. To contribute to developing innovative clean energy technologies that will lead to climate change mitigation and wider development benefits in developing countries by advancing their Technology Readiness Levels (TRLs) to move them towards commercialisation through RD&D

2. To support technical assistance activities that will allow developing countries to develop and demonstrate innovative energy technologies independently in the medium-to-long term

3. To encourage knowledge-sharing activities and greater openness in innovationThe aims and objectives of this new programme also support the ICF team’s ‘Guiding Principles’ to:

Innovate to overcome critical barriers in the market by funding pioneering clean energy innova-tion projects

Invest with impact by targeting priority thematic areas where advancements in the TRLs of rel-evant technologies towards commercialisation would have significant climate change mitigation potential and wider development benefits

Inspire by encouraging international collaboration and greater openness in innovation with the aim of building capacity in policy, regulation, governance and technical skills, and enabling knowledge-sharing within and between countries on priority thematic areas to contribute to raising ambition

2.10 Theory of ChangeAs the overall aim of this programme is to achieve transformational change in developing countries by supporting them to mitigate climate change through clean energy innovation. Figure 5 summarises the Theory of Change for the programme, which identifies the interlinkages between inputs, activities, outputs, outcomes and impacts to meet this aim. For outputs this will include:

Number of projects supported with transformational change potential: promising pro-jects and/or a programme of projects are supported that look to accelerate the TRLs of innov-ations under one of the three priority themes closer towards commercialisation

Creating enabling environments: supporting the establishment of RD&D infrastructure, equipment and other resources outside of the funding provided through this programme to en-sure that the environments needed to enable innovation exist

Knowledge-sharing to encourage greater openness in innovation: efforts are made to encourage greater openness in innovation through dissemination activities with the aim of building capacity in policy, regulation, governance, markets and technical skills, and sharing knowledge within the priority themes

34 UKRI (2018) https://www.ukri.org/innovation/industrial-strategy-challenge-fund/

35 https://www.gov.uk/government/publications/clean-growth-strategy/clean-growth-strategy-executive-summary#investment-in-innovation-for-clean-growth

36 IEA (2017) Tracking Clean Energy Progress 2017 http://www.iea.org/publications/freepublications/publication/tracking-clean-energy-progress-2017.html

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As a result of these outputs, the following outcomes are expected: replicability and scalability, innovation through the advancements of TRLs, capacity and capability, and increased interest in clean energy RD&D under priority themes.

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Figure 5: Theory of Change

Developing countries reduce emissions and poverty through clean

energy innovation

Grants given to successful bid recipients

via delivery partner

Increased understanding and partnerships

established

Communication of priority themes based on

evidence

Support from ‘Posts’

Replicability and scalability

Capacity and capability

Innovation through advancement of TRLs of technologies that result in

cheaper energy and/or improved energy efficiency

and emission reductions

Creating enabling environments (e.g.

infrastructure, equipment and other resources provided outside of the initial

funding)

Number of projects supported with

transformational change potential

BEIS funding

BEIS management resources

ImpactOutcomesOutputsActivitiesInputs

Key:Strong linkModerate link Weak link

- BEIS resource available for management, commu-nications and monitoring - Markets able to absorb funds- Funding can be flexibly moved about within the programme to meet de-mand- Advisory committee of experts established for each fund

- Delivery partners have an overview of the market and what the innovation need is- Posts have resource and effective mechanisms for in-country engagement- Agreed prioritisation by country needs- Evidence kept up-to-date and relevant by BEIS and delivery partners- Dissemination and out-reach are effective

- Countries are receptive and show demand- Innovators are receptive and show demand- Evidence of effectiveness of technologies that show promise- Mechanisms to extract lessons learned from successes and fail-ures- Efforts are not being duplicated and funds are additional- Governments are receptive and open to creating enabling environments

- Greater openness & sharing occurs- Universal understanding of TRLs and a linear progression of TRLs- Interest from countries to sustain ca-pacity building, capability and inter-vention activities- Will scale-up and leverage finances from public and private sources to ulti-mately reach critical mass, commer-cialisation and deployment (e.g. know-ledge, awareness and availability of deployment funds)- No major in-country economic, social or political shocks that affect interest or emissions reduction efforts

- Key decision makers, institu-tions and investors have power to implement change- Potential rebound effects do not outweigh climate impacts- Technologies will be intro-duced to a landscape where they can positively disrupt the market and compete with in-cumbents

Assumptions

Theory of Change Knowledge-sharing to encourage greater

openness

Increased interest in clean energy RD&D under priority themes

Evidence and expertise

Number and quality of ‘matchmaking’ events

(where relevant)

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2.11 Strategic Case for Priority ThemesFollowing the ICF Approvals Panel for the Concept Note, which was held on 9 th July 2018, the panel agreed that: ‘spend should be based on thematic areas rather than geographies as long as it does not unnecessarily limit the potential pipeline’37. Due to the novelty of a technology innovation programme within the ICF portfolio, it was felt that this programme presented an opportunity to strategically target thematic areas that are applicable to most developing countries, rather than the specific needs of particular priority countries to the ICF. As part of the options appraisal for this new programme, in-depth evidence reviews were undertaken for seven priority technological themes that align with ICF and SICE strategies. The evidence reviews assessed the quality of evidence from multiple sources and were undertaken by BEIS ICF staff. Furthermore, input was sought from external stakeholders during a workshop held at BEIS in July 2018, and from policy and analytical leads in each thematic area across BEIS. The seven themes (industrial decarbonisation (including carbon capture, usage & storage), sustainable cooling, energy storage, sustainable heating, offshore wind, smart grids and solar) were then appraised based on a set of criteria and ranked according to their scores in meeting those criteria (further details are outlined in the Appraisal Case).

The Financial Case outlines and justifies the breakdown of the £50 million funding by theme, as well as the total fund size. As discussed above, the programme is envisaged to be a longer-term fund where future extensions can be undertaken to support other identified under-funded themes that have high climate change mitigation potential. This will depend on the performance of the programme in the initial phase from April 2019 to April 2023 and the priorities for spend in the 2021-2023 financial years. As such, the top three scoring themes that are under-funded from an RD&D perspective energy storage, sustainable cooling and industrial decarbonisation) were chosen for support. Having three themes also reduces the risk of being unable to spend £50 million by April 2021, which is discussed further in the Financial Case. However, the spending constraint was only one criterion in the options appraisal for delivery and the proposed delivery route is the most appropriate regardless of whether or not there is a spending constraint. This is discussed further in the Appraisal Case.

Heating as a thematic area received a low score predominantly due to its lack of applicability to many developing country climates (in contrast to cooling demand). Solar scored low as it remains ‘by far the biggest recipient of overall renewable energy R&D investment’38. For offshore wind, RD&D efforts are primarily being led by industry with cost reductions of 60% achieved between 2010-2017, which indicates that industry targets for 2025 had been exceeded eight years ahead of schedule39. Furthermore, the UK is supporting the World Bank’s Offshore Wind Programme in developing countries through the BEIS ICF’s ODA funding in ESMAP (the World Bank’s Energy Sector Management Assistance Programme). Smart grids is a growing area of importance to developing countries, particularly regarding new grid architectures and demand-side response. However, under the overarching theme of ‘smart energy’, energy storage showed the greatest immediate need than other forms of ‘smart energy’, such as demand-side response, grid digitalisation and smart technologies. In addition, ‘mini-grids’ (as a sub-theme of smart grids) is an area that is strongly supported by DfID for the benefit of developing countries, and consequently there is less need for BEIS ICF support here. Although evidence reviews for low carbon transport and greenhouse gas removal (GGR) technologies were not undertaken, the IPCC’s special report on Global Warming of 1.5°C also highlights the importance of these themes in limiting global warming to 1.5°C and 2°C. A future extension could consider supporting smart energy, low carbon transport and GGR technologies.

2.12 Energy StorageThe evidence review for energy storage identified that a projected move from two-thirds fossil fuels in the electricity system in 2017 to two-thirds renewables in 2050 will require a ‘transformational change in the energy systems of many countries’40. Due to the variable nature of leading renewable energy technologies, such as solar and wind, energy storage is vital to ensure reduced system losses and 37 ICF Approvals Panel 9 July 2018

38 Frankfurt School-UNEP Centre/BNEF (2018) Global Trends In Renewable Energy Investment 2018 http://www.fs-unep-centre.org (Frankfurt am Main)

39 IEA-RETD (2017) REWind Offshore – Comparative Analysis of International Offshore Wind Energy Development http://iea-retd.org/archives/publications/rewind-offshore

40 BNEF (2018) New Energy Outlook 2018 https://about.bnef.com/new-energy-outlook/ 16

security of supply. As a result, energy storage technologies could provide savings of around £2.4 billion per year by 2030 globally from reduced losses41, which would have significant economic benefits to developing countries. Energy storage technologies can therefore encourage the increased uptake of renewable energy, and the United Nations Development Programme (UNDP) states that having ‘access to sustainable energy is critical for making societies more equitable and inclusive’42, which is important for meeting the ambitions of the UK Aid Strategy. At present, ‘1 billion people live without electricity, and hundreds of millions more live with unreliable or expensive power, which poses a key barrier to economic development in emerging economies’43. Energy storage can make access to energy easier and ensure security of supply, which can help to alleviate poverty, including fuel poverty, whilst supporting clean growth in developing countries.

Currently, electrochemical storage, specifically Lithium-ion (Li-on) batteries, are the front-runners for decarbonising transport and for supporting greater deployment of variable renewable energy sources, as grid-scale batteries can ensure their efficient integration into national energy systems. However, electrochemical storage is not the only energy storage solution – hydrogen storage and thermal storage are similarly promising innovation areas that require further exploration. Energy storage innovation aligns with four of Mission Innovation’s ‘Innovation Challenges’, including ‘Smart Grids’ (IC#1) which has two sub-tasks specifically dedicated to storage, ‘Off Grid Access to Electricity’ (IC#2), ‘Clean Energy Materials’ (IC#6) and ‘Renewable and Clean Hydrogen’ (IC#8), and is therefore a priority area requiring attention. Innovation needs for energy storage include (but are not limited to): new and advanced chemistries for electrochemical storage, cost reductions through improved materials, recycling and re-use, grid-scale storage solutions44, and enabling software and digitalisation.

At present, the cost of energy storage technologies tends to be considered primarily in terms of the capital expenditure (capex) of systems, based on the power that they can deliver (in £/MW) – a measure which is dominated by battery technologies. Cost analyses by Lazard and UCL show that:

There are several technologies that have the potential to have lower capex by 2030 in terms of the energy that they store (£/MWh) than Li-ion or other battery technologies, such as flow batteries, pumped heat storage, compressed air energy storage and liquid air energy storage

Non-conventional battery technologies, such as flow batteries and compressed air energy storage, are expected to have lower levelised storage costs (the total costs over the lifetime of the system) than battery technologies for larger scale applications, such as distribution net-work support, peaking plant replacement (plants that only run during periods of high demand) and microgrids.

2.13 Sustainable CoolingAs global temperatures, prosperity and levels of urbanisation rise, the need for cooling technologies will become more prevalent. The number of cooling appliances in use is expected to rise from 3.6 billion in 2017 to 9.5 billion in 205045, resulting in annual energy consumption from cooling appliances growing by 90% between 2017 and 205046. Consequently, it is predicted that by 2030, 13% of global greenhouse gas emissions will be accountable to cooling technologies47. According to the IEA, the prevalent innovation need within the cooling sector is improving the scalability and viability of existing cooling technologies48. However, there are also a wide array of emergent sustainable cooling technologies that require further RD&D effort, including (but not limited to): thermal technology and system controls for solar cooling49, improvements in turbines and engines for district cooling50, reverse heat pumps, and green refrigerants. Climate finance for sustainable cooling (beyond just RD&D) is limited globally. The few sources of climate finance include the ICF’s investments into the multi-donor 41 DECC (2016) Energy storage in the UK http://researchbriefings.files.parliament.uk/documents/CBP-7621/CBP-7621.pdf

42 UNDP (2011) http://www.undp.org/content/undp/en/home/presscenter/speeches/2011/12/08/sustainable-energy-access-critical-for-poverty-reduction-development-in-africa.html 43 World Bank (2018) https://www.worldbank.org/en/news/feature/2018/04/18/access-energy-sustainable-development-goal-7

44 NPL (2018) Energy Transition’s Measurement needs within the battery industry http://www.npl.co.uk/energy-transition/

45 BEI (2018) A cool world defining the energy conundrum for all https://www.birmingham.ac.uk/research/activity/energy/news/2018/toby-peters-cooling-for-all-energy-conundrum-opinion.aspx

46 BEI (2018) A cool world defining the energy conundrum for all https://www.birmingham.ac.uk/research/activity/energy/news/2018/toby-peters-cooling-for-all-energy-conundrum-opinion.aspx

47 GiZ (2017) Green cooling roadmap for the Jetwing Hotel Group in Sri Lanka

48 IEA (2018) The Future of cooling https://webstore.iea.org/the-future-of-cooling

49 IEA (2012) Technology Roadmap solar heating and cooling https://webstore.iea.org/technology-roadmap-solar-heating-and-cooling

50 IEA (2008) The international CHP/DHC Collaborative https://webstore.iea.org/chp-and-district-cooling-an-assessment-of-market-and-policy-potential-in-india

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NAMA Facility, which have helped to support two projects on cooling (in Thailand and Colombia), the ICF’s support to the Innovation Lab, which is helping to support one forthcoming cooling project, the ICF’s investments into the Global Climate Partnership Fund (GCPF), which has supported a few energy efficient air conditioning systems, and the Multilateral Fund under the Montreal Protocol, which specifically supports developing countries to phase-down F-gases.

The majority of incumbent cooling technologies work by absorbing heat from one space and ejecting it to another. This exacerbates the issue as the more cooling appliances used, the greater the need for cooling appliances will become. For example, in Phoenix, Arizona, the temperature of the city is raised by 2°C at night because of the use of air conditioners for thermal comfort51, creating an ‘urban heat island’52. A step-change in the processes for cooling is needed. There is some international activity that looks to address this need, such as the Global Cooling Prize launched by the Rocky Mountain Institute in 2018. The UK demonstrated support for the prize through BEIS’s Chief Scientific Advisor and the University of Birmingham. The prize aims to fund RD&D activity with innovative solutions to incumbent residential air conditioning systems. The prize is aligned with existing cooling activity under Mission Innovation’s ‘Affordable Heating and Cooling of Buildings’ (IC#7), which the UK co-leads with the UAE and the European Commission. However, the sustainable cooling part of this new programme will cover the full cold chain, such as cooling needs in transport, health, agriculture and buildings, as the evidence review identified the important need for thinking about cooling from a systems-perspective.

Sustainable cooling has a wide range of development benefits, which meet the needs of multiple Sustainable Development Goals (SDGs). Providing access to sustainable cooling would contribute to reducing the amount of deaths caused by heatwaves and caused by the reduced availability of vaccines due to poor cold chains. It is estimated that 25% of all vaccines are lost because of breaks in the cold chain53. The International Institute of Refrigeration estimated that improving access to refrigeration in developing countries could prevent spoilage of up to 23% of perishable food produced in those countries54. This would not only allow the individuals producing the food to be able to reduce waste and thus sell more food, but also to reduce the risk of people falling ill after buying contaminated food that has not been cooled properly. For these reasons, addressing the challenge of sustainable cooling would strongly align with several SDGs, such as SDG 7 and SDG 13 (discussed previously), as well as contributing to SDG 2 (zero hunger) and SDG 3 (good health and well-being)55. The UK is also committed to the Kigali Amendment to the Montreal Protocol and has pledged to reduce the use of hydrofluorocarbons (HFCs) by 85% by 2045, which entered into force in January 201956. In summary, sustainable cooling would have a wide variety of important development benefits, which contribute to reducing poverty in developing countries.

2.14 Industrial DecarbonisationAt COP 24 in 2018, the UK Government announced £315 million of funding to produce the world’s first ‘net-zero carbon’ cluster of heavy industry by 2040 in the UK. Alongside this, she announced £20 million of ODA funding for the World Bank’s ESMAP to support developing countries to transition away from coal power as part of the Powering Past Coal Alliance (PPCA). Industry is a ‘hard-to-decarbonise’ sector, as energy-intensive industries, such as iron and steel, chemicals and petrochemicals, cement, paper, glass, manufacturing, etc. are heavily reliant on fossil fuels. This sector is a large contributor to greenhouse gas emissions globally – in the UK alone, which has a more service-based economy than an industrial-based economy, industry accounts for 25% of emissions. In 2014, combined direct and indirect emissions from industrial processes made up 28% of global GHG emissions57. Unlike the power sector where alternative options are becoming more broadly available (such as variable renewables combined with energy storage), some industrial processes have limited options for substituting fossil fuel feedstocks and some industrial processes, such as cement production, emit CO2

51 SEforALL (2018) Chilling Prospects: providing sustainable cooling for all https://www.seforall.org/coolingforall/report

52 Met Office (2012) https://www.metoffice.gov.uk/binaries/content/assets/mohippo/pdf/8/m/mo_pup_insert_health.web.pdf 53 SEforALL (2018) Chilling Prospects: Providing sustainable cooling for all https://www.seforall.org/coolingforall/report

54 GiZ (2016) Promoting food security via cold chains

55 UN (2017) https://sustainabledevelopment.un.org/sdgs

56 https://www.gov.uk/government/publications/ms-no22017-kigali-amendment-to-the-montreal-protocol-on-substances-that-deplete-the-ozone-layer

57 McKinsey & Company (2018) Decarbonisation of industrial sectors: the next frontier (June 2018)

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from processing the raw materials. As a result, there is a strong need for RD&D into innovative technologies that can contribute to decarbonising various energy-intensive industries. Solutions include (but are not limited to): carbon capture, usage and storage (CCUS), fuel switching, co-firing, electrification, digitalisation and deep energy efficiency, hydrogen use, industrial symbiosis, and process innovation.

Carbon capture, usage and storage (CCUS) was previously identified by the BEIS ICF as a critical technology in contributing to reducing greenhouse gas emissions and avoiding the negative impacts of climate change in developing countries. An evidence review was conducted in 2017 to refresh and update the evidence underlying the ICF’s existing £70 million international CCUS programme (which has been running since 2012). This led to the justification for a £10 million extension to the programme, which was announced in the Clean Growth Strategy. The evidence review identified that 12-14% of cost-effective global carbon emissions reduction to 2050 will need to come from CCUS58, otherwise it will be at least 40% more expensive to meet the Paris Agreement target without CCUS59. The IPCC estimates that it will be 138% more expensive without CCUS and the critical need for CCUS was reiterated in the IPCC’s special report on Global Warming of 1.5°C. CCUS is an important technology for the UK and the CCUS Action Pathway was published in 2018 to outline how the UK will scale-up the technology. This follows the announcement of a £100 million CCUS and industry innovation programme in the Clean Growth Strategy, which included a £20 million innovation competition focused on reducing the costs of carbon capture.

However, to date, climate finance for CCUS across different applications (such as the power sector or the industrial sector) has been limited with the ICF’s programme representing one of the few sources of climate finance for developing CCUS in developing countries. £35 million is provided through the World Bank CCUS Trust Fund (which includes funding from Norway) and £35 million provided through the Asian Development Bank (ADB)’s CCUS Fund (where the UK is now the only donor). Globally, the UK is the largest provider of ODA to CCUS. Despite this, the existing programme supports TA activities rather than technology innovation activities. Furthermore, the programme just focuses on CCUS rather than other solutions to decarbonise industry.

Rapid urbanisation and a predicted increase in middle class consumers of ~3 billion in the next 20 years in developing countries and emerging economies will exacerbate existing resource demands and will significantly drive up industrial emissions60. The Mission Innovation ‘Carbon, Capture, Utilization and Storage’ (IC#3) innovation challenge, which the UK co-leads with Mexico and Saudi Arabia, aims to address the challenges facing existing technologies and identifies that innovations need to be focused on: ‘robust materials, gas selectivity, capacity, efficiency, footprint, and [reducing the] cost of the whole capture process, including utilities and support systems’61. Mission Innovation’s ‘Sustainable Biofuels’ (IC#4) and ‘Renewable and Clean Hydrogen’ (IC#8) innovation challenges are also relevant to the industrial decarbonisation theme through the development of advanced biofuels for industrial applications and the use of hydrogen as an industry feedstock.

2.15 Legal Compliance: International Development Act 2002The following three sections outline how this new ODA programme will legally comply with the International Development Act 2002, the Equality Act 2010 and State aid requirements.

Section 4(2)(b) of the International Development Act 2002 provides a power for the Secretary of State (SoS) to “contribute to any fund that is intended to be used (wholly or partly) for one or more relevant purposes”. A “relevant purpose” is (a) furthering sustainable development in one or more countries outside of the United Kingdom, (b) improving the welfare of the population of one or more such countries, (c) relief aid or (d) a purpose which broadly corresponds to purposes (a), (b) or (c). “Sustainable development” is a broad concept under the Act and is stated to include “any development that is, in the opinion of the Secretary of State, prudent having regard to the likelihood of its generating

58 IEA (2017) https://www.iea.org/etp2017/summary/

59 IPCC (2014) Climate change 2014 climate synthesis http://www.ipcc.ch/report/ar5/syr/

60 McKinsey & Company (2018) Decarbonisation of industrial sectors: the next frontier (June 2018)

61 Mission Innovation (2018) http://mission-innovation.net/our-work/innovation-challenges/

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lasting benefits for the population of the country or countries in relation to which it is provided”. In addition, in order to contribute to a fund, the SoS must be satisfied that the contribution “is likely to contribute to a reduction in poverty”62. This programme meets the development assistance requirements of the International Development Act 2002 as it will contribute to sustainable development in beneficiary developing countries. The main aim of this programme (to accelerate clean energy technology innovations that will have transformational impacts in developing countries) will have positive impacts on reducing poverty through energy and resource savings, energy security, economic benefits (both investment and cost savings), increased employment opportunities, health benefits, and sustainable development. The funding provided within this programme will benefit ODA-eligible developing countries, and it is the ambition of this programme that the supported technologies and TA activities will contribute to creating the enabling environments necessary to deploy those technologies in the medium-to-long-term to mitigate the impacts of climate change and lead to poverty reduction through improving health (through reduced local air pollution), improving energy security, reducing energy costs (through reduced reliance on variable fossil fuel prices and declining resources) and the creation of new technology markets (leading to economic benefits and potential job creation).

Regarding funding that passes through Innovate UK, because of the way that Innovate UK is set up, it is only able to provide direct funding to a UK organisation. We are not able to change this position, but we consider there is a good argument that providing funding via Innovate UK still falls within the powers of the International Development Act 2002, as the following steps would be taken to ensure that the funding will still be for the primary purpose of benefiting developing countries. The essential role of the UK organisation would be an administrative one, where the UK organisation just acts as the grant contract holder, distributor and manager of the funds and grant conditions, and as the lead point of contact with Innovate UK. All substantive work would be carried out by the technical lead, which can be a company based anywhere in the world, as well as through consortium partners that can be companies, non-governmental organisations (NGOs) or universities from anywhere in the world. The funding would be passed on to the technical lead and any other partners via the administrative lead, so the administrative lead would be a channel for the funding, management and reporting (unless they are also the technical lead, which is also possible as the call will be open and global). Therefore, the funding is open to all organisations via this route. All documentation will make clear that the funding must be used to benefit ODA eligible countries (i.e. developing countries). The application process will require the applicant to explain how their proposed project is ODA-eligible (i.e. how it promotes economic development and prosperity in the developing world). We will also mandate that innovators must work with partners in developing countries and that the innovative technology must be pilot-tested in the developing country. Therefore, we consider that providing funding via Innovate UK would still be for the purpose set out in the International Development Act 2002.

Innovate UK’s requirement for the funding to be provided to a UK organisation could be argued to benefit UK organisations above others. However, this has not influenced our recommendation for the funding route. The reason we are suggesting that funding is provided via Innovate UK rather than another organisation, despite this procedural hurdle, is because our analysis suggests that this would be the most effective funding route, as explained in the Appraisal Case and section 4.3. Therefore, we consider that funding via Innovate UK would best achieve the purpose set out in the International Development Act 2002. Therefore, we consider that the risk of the funding being challenged regarding compliance with the International Development Act 2002 is low and that the risk of a challenge being successful if brought is low. To note, Innovate UK’s functions, which are set out in section 96 of the Higher Education and Research Act 2017, do not include the provision of ODA. However, we would enter into a grant agreement with UK Research and Innovation (UKRI) (the legal entity which Innovate UK is part of), which will provide for Innovate UK to exercise the necessary functions to provide ODA in accordance with section 98 of the Act.

62 International Development Act 2002 https://www.legislation.gov.uk/ukpga/2002/1/section/1

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2.16 Legal Compliance: Equality Act 2010As per section 1(1A) of the International Development Act 2002, “before providing development assistance under subsection (1), the Minister shall have regard to the desirability of providing development assistance that is likely to contribute to reducing poverty in a way which is likely to contribute to reducing inequality between persons of different gender”. As such, this programme will meet this requirement along with those of the Equality Act 2010. BEIS is required by the Equality Act 2010 to give due regard to the need to eliminate unlawful discrimination, advance equality of opportunity and foster good relations between those who share a characteristic and those who do not (including in relation to age, gender, disability, race, religion, pregnancy and sexual orientation). The duty applies to all of BEIS’s functions. We ensure that appropriate social safeguards are in place and expect suppliers that we fund to factor equality-related considerations into the use of BEIS funds. Additionally, the impacts of climate change are likely to have a disproportionate impact on women so mitigating the impacts are likely to be positive for gender equality. 

BEIS’s funding will be, at a minimum, aligned with the World Bank Group (WB)’s policy on gender for the new programme and we will ensure standardisation of processes with our other proposed delivery partner, Innovate UK, as well as potential future delivery partners. Nevertheless, through this programme, we would like to improve upon existing processes by including a specific indicator on gender quality as part of the monitoring and evaluation for the programme, including pushing delivery partners to gather gender-disaggregated data and integrating gender equality in downstream procurement processes. Similarly, we will ensure that all projects demonstrate how they will improve gender equality in their proposals. Further information is provided in the Monitoring & Evaluation section.

2.17 Legal Compliance: State AidIn assessing the presence of potential State aid to the World Bank, Innovate UK and the end beneficiaries of the programme, we applied the four ‘tests’ of State aid pursuant to Article 107(1) of the Treaty on the Functioning of the European Union (TFEU). The tests are cumulative, so all four of the following elements must be present for there to be State aid:

i. It is granted through the State or through State resources,ii. It provides a selective advantage to certain undertakings or production,iii. It distorts or has the potential to distort competition, andiv. It affects or has the potential to affect intra-EU trade.

This programme seeks exclusively to address market failures in developing countries and emerging economies. The ultimate beneficiaries of the scheme will be located outside of the EU and at that level the intervention is unlikely to impact on EU markets. Consequently, there will be no State aid at the level of the end beneficiary.

In respect of the funding stream to the World Bank, it does not constitute an “undertaking” in State aid terms. The World Bank will procure the innovation projects by way of open, global competitions. Consequently, there will be no “advantage” to the delivery partners who will simply be paid a market rate for delivering the service. The procurement of goods and services goes though International Competitive Bidding (with limited exceptions) and it will in most cases be possible for UK contractors to bid to provide services. However, the World Bank’s procurement policy is driven by “economy and efficiency” as outlined in their Articles of Agreement and therefore no specific countries are given preferential treatment.

In relation to the other funding stream, Innovate UK has confirmed that it will deliver its part of the programme under Article 25 of the General Block Exemption Regulation 2014 (Aid for research and development and innovation). Whilst there is State aid present in this part of the programme funding, it will be aid which is lawful and State aid compliant, provided that it is administered in accordance with the requirements of the Regulation 2014.

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Finally, we consider the risk of a complaint to the European Commission on State aid grounds to be low and the risk of the Commission investigating and finding that there was unlawful state aid to also be low. In the unlikely event that the Commission did find that there was State aid present, the UK would be required to recover the State aid with interest.

Appraisal Case

3.1 OverviewThe Appraisal Case for this programme consisted of three stages, which are discussed in turn:

1. Thematic options appraisal: identifying which technology themes to focus on2. Delivery options appraisal: identifying the preferred delivery routes for each theme3. Programme options appraisal: identifying the overall preferred approach for the programme

3.2 Thematic Options AppraisalTable 1 summarises the results of the thematic options appraisal and the justifications for the chosen three themes are discussed in the Strategic Case. The scoring was undertaken by three BEIS representatives from ICF and SICE using the results of the seven evidence reviews for seven key themes: energy storage, industrial decarbonisation (including CCUS), smart energy, offshore wind, solar energy, sustainable cooling and sustainable heating. Themes were scored on a scale of 0-5 (where 0 = ‘Doesn’t meet criteria’, 3 = ‘Partially meets criteria’ and 5 = ‘Fully meets criteria’) against the criteria listed in Table 1. Table 2 provides the summary results.

Table 1: Criteria for the thematic options appraisal

Criteria Description Mission Innovation Aligns with one or more of the Innovation Challenges

Applicable to developing countries

Climates & geographiesDemandInfrastructureCurrent and future market potential

Needs additional RD&D efforts internationally

Need for funding in developing countriesLack of international programmes

Mitigation potential

Reduces the unit cost of energy (KPI 7i)Increases energy efficiency (KPI 7ii)Reduces energy demand (KPI 7ii)Reduces carbon emissions (KPI 9)

Objectives ICF strategic objectivesSICE strategic objectives

LeverageScale of parallel / follow-on investment likely leveraged (KPI 6i & ii)Potential for collaboration (KPI 4)

Landscape Lack of activity within HMGLack of activity internationally 

Wider development benefits  (e.g. health, comfort, poverty reduction, cost reductions

Table 2: Summary results for the thematic options appraisal

Theme ScoreCooling 56Storage 51

Industrial Decarbonisation 49Solar 47

Offshore wind 45Smart Energy 42

Selected thematic options

Supported through other programmes

Next choice theme for support Less applicable than

cooling for developing countries

Next choice theme for supportNext choice theme for supportNext choice theme for supportNext choice theme for supportNext choice theme for supportNext choice theme for supportNext choice theme for supportNext choice theme for supportNext choice theme for supportNext choice theme for supportNext choice theme for supportNext choice theme for supportNext choice theme for support

Supported through other programmesSupported through other programmesSupported through other programmesSupported through other programmesSupported through other programmesSupported through other programmesSupported through other programmesSupported through other programmesSupported through other programmesSupported through other programmesSupported through other programmesSupported through other programmesSupported through other programmes

Selected thematic optionsSelected thematic optionsSelected thematic optionsSelected thematic optionsSelected thematic optionsSelected thematic optionsSelected thematic optionsSelected thematic optionsSelected thematic optionsSelected thematic optionsSelected thematic optionsSelected thematic optionsSelected thematic options

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Heating 39

Sustainable cooling, energy storage and industrial decarbonisation were the top three scoring themes across the eighteen criteria. Solar and offshore wind are currently supported through existing ICF programmes, such as the ESMAP offshore wind programme, or where deployment needs are greater than innovation needs, such as for solar (which is also well-supported from an innovation perspective globally). Although sustainable heating is relevant to developing countries that have climates with large temperature variations (hot in the day and cold in the night) or with mountainous terrain, overall, due to the tendency for developing countries to be in hot climates, the demand for cooling is greater than the demand for heating.

3.3 Delivery Options AppraisalAs with the thematic options appraisal process, the scoring for the delivery options appraisal was undertaken by three BEIS representatives from ICF and SICE. However, this also included additional inputs from two further colleagues in ICF and SICE. Scoring was undertaken as a group exercise using a multi-criteria analysis (outlined in section Error: Reference source not found). Each theme was scored individually against six delivery options. The six options were drawn from similar ICF programmes (UK PACT and ESMAP).

1. ‘No action’: the ‘do-nothing’ scenario if we were not to set up this new programme. This would re-quire no ICF (people) resource

2. ‘New fund delivered in-house’: BEIS would have full responsibility for the management of the fund (similar to ICF’s UK PACT programme) and be responsible for tasks such as: resourcing, bid reviews, fund allocations, contract management and procurement, monitoring and evaluation (log-frames, annual reviews, etc.), stakeholder engagement, and communication. This would require a team within ICF of comparable size to ICF’s UK PACT programme

3. ‘New fund delivered in combination with a delivery partner’: BEIS would sign Memorandums of Understanding (MoUs) with ODA-eligible delivery partners to manage the funds, though would remain engaged in the allocation of funds. ICF would require less resource than full delivery in-house but would still be responsible for tasks such as: management of the delivery partners, mon-itoring and evaluation (logframes, annual reviews, etc.), and strategic oversight of fund allocations and activities. This is currently the most commonly-used ICF delivery model. However, ICF pro-gramme managers are usually not directly involved in bid reviews under this model. However, we would look to improve upon this process by having final sign-off on all activities that pass the bid review stage based on alignment to the strategic objectives of the programme

4. ‘New fund delivered externally’: BEIS would procure an ODA-eligible delivery partner to fully manage the fund and would remain at arms-length. ICF resource input would be limited and tasks would include annual results collection and annual reviews, and infrequent engagement with the delivery partner on general aspects of the fund to monitor its overall performance. Under this model, there would be limited oversight of programme activities and limited ability to provide stra-tegic direction

5. ‘Extend existing HMG programme’: ICF would extend an existing HMG programme with similar objectives to this programme, which avoids potential issues of resource constraints (in setting up a new programme) and any potential duplication of efforts. This would be subject to the existence of a similar enough programme and the interest of the existing HMG programme managers and delivery partners. This would require minimal ICF resource as this would be managed by the pro-gramme manager of the existing HMG programme. ICF resource input would be limited to annual results collection and annual reviews, and infrequent engagement with the HMG programme man-ager on general aspects of the fund to monitor its overall performance

6. ‘Expand existing HMG programme’: ICF would expand the remit of an existing HMG pro-gramme that has similar objectives to this programme, but which may not be fully aligned with the priority themes (outlined in Table 2). This would reduce potential resource constraints in setting up a new programme and potential duplication of efforts. This would be subject to the interest of the

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existing delivery partner and would require an increase in the existing HMG programme man-ager’s time for ensuring that the new funds go to activities that meet the expanded objectives of the programme. ‘Expansion’ involves expanding the scope of an existing programme whereas ‘ex-tension’ involves the continuation of similar activities supported to date

3.4 Multi-Criteria Analysis17 assessment criteria were used in the options appraisal, which were adapted from similar ICF programmes, such as UK PACT, ESMAP and CEF TA. Two groups of criteria were used to categorise them into tier one criteria (critical criteria for meeting the objectives of the programme) and tier two criteria (important criteria but which are not critical to the delivery of the programme’s objectives).

Table 3: Criteria for the delivery options appraisal

Criteria DescriptionTier 1 criteria Weighting

Programme objectives

Aligns with ICF strategic objectives 3Applicable for developing countries 3Meets MI criteria and aligns with one or more of the ICs 3

ImpactPotential for transformational change 3Scale of parallel / follow-on investment likely leveraged 3Potential for collaboration and knowledge-sharing 3

Landscape Alignment with other HMG programmes 3Consideration of activity internationally 3

Resources Resources to deliver (BEIS and delivery partners) 3Tier 2 criteria WeightingWider objectives

Aligns with SICE strategic objectives 2Aligns with priority countries / regions 2

Finance

Can be spent in 2020/21 2Ability to disburse funds 2Ability to modify spend profile 2Ability to influence investment direction 2

Themes Fills need in thematic priority area 2Programme delivery Flexibility to extend 2

As with the thematic appraisal, each criterion was scored on a scale from 0-5 (where 0 = ‘Doesn’t meet criteria’, 3 = ‘Partially meets criteria’ and 5 = ‘Fully meets criteria’). Tier one criteria were weighted so that the scores achieved were multiplied by a factor of three to differentiate their importance above tier two criteria (which were multiplied by a factor of two). A summary table of scores can be found in Table 4. The scores assigned to each option in Error: Reference source not found4 were calculated based on expert judgement informed by evidence reviews, discussions with internal experts and experts across HMG. As per the thematic options appraisal, the scoring was undertaken by the same three BEIS representatives from ICF and SICE.

Table 4: Summary results for the delivery options appraisal

Delivery Option / Theme Energy Storage

Sustainable Cooling

Industrial Decarbonisation

1. No action 5 5 5

2. New fund delivered in-house 194 185 197

3. New fund delivered in combination 205 195 200

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with a delivery partner

4. New fund delivered externally 166 154 159

5. Extend existing HMG programme 15 15 199

6. Expand existing HMG programme 188 182 210

Option three was the strongest option for sustainable cooling, as there are currently no HMG programmes that specifically focus on supporting innovation in cooling technologies in developing countries. The Strategic Case summarised the few existing ICF programmes that have supported sustainable cooling projects within them to date. Despite some of the scores being close (particularly for options two and six), a new fund delivered in combination with a delivery partner will allow BEIS to maintain strategic input into the investment direction of the funding whilst drawing upon the expertise and the on-the-ground networks of an external delivery partner. In contrast, for option two, BEIS does not have the expertise or on-the-ground networks for sustainable cooling nor the people resources to deliver a new fund in-house, and for option six, there are no existing HMG programmes specifically focused on sustainable cooling that could be expanded (e.g. to focus on developing country contexts).

Option three was the strongest option for energy storage, as, despite the presence of some related programmes in HMG that support innovation under this theme (such as through the Newton Fund and the Faraday Battery Challenge), the existing funds either do not use ODA finance or are not targeted specifically at developing countries. As with the preferred delivery option for sustainable cooling, despite some of the scores being close, a new fund delivered in combination with a delivery partner will allow BEIS to maintain strategic input into the investment direction of the funding whilst drawing upon the expertise and the on-the-ground networks of an external delivery partner. In contrast, for option two, BEIS does not have the expertise or on-the-ground networks for sustainable cooling nor the people resources to deliver a new fund in-house.

Option six was the strongest option for industrial decarbonisation due to the presence of two related BEIS ICF programmes, the international carbon capture, usage and storage (CCUS) programme and ICF support to ESMAP for supporting the Powering Past Coal Alliance (PPCA). Due to the specific focus of the former on CCUS, expanding the remit of the programme to focus on industrial CCUS innovation would limit the funding just to this technology rather than fostering technological innovation for industrial decarbonisation by allowing any technology to be pilot-tested (e.g. fuel switching, process innovation, electrification, etc. as well as CCUS). The latter option (ESMAP) is consequently more appropriate, as it enables this diversity of innovative technological solutions. Furthermore, despite some of the scores being close, option six avoids potential duplication, reduces the BEIS people resources that would be required to set up a new fund (option three) and avoids the need for BEIS to employ in-house expertise or develop on-the-ground networks (option two), which would require a substantial amount of new people resource.

3.5 Programme Options AppraisalDelivery partners that are ODA-eligible were considered as part of this appraisal and the details of the preferred options for delivery partners by theme are discussed in the Commercial Case. Following a review of existing delivery partners that BEIS currently works with on clean energy from an ODA perspective, such as MDBs and research funding institutions, their capabilities and expertise for delivering innovation funding for each of the three themes were determined. Figure 6 summarises the preferred option for this programme.

The International Finance Corporation (IFC) was shortlisted for the delivery of the sustainable cooling funding due to their previous experience of delivering technology innovation (across different sectors, such as health, agriculture, climate change, etc.), their increasingly strong networks on sustainable cooling (which are being developed as part of the World Bank Group’s planned Sustainable Cooling Initiative in 2019) and their strong on-the-ground networks. In contrast, other delivery partners, such as

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the ADB and Innovate UK, do not have much experience with sustainable cooling, though they have delivered innovation for other themes.

At the request of the BEIS programme manager, the World Bank’s climate change group (where cooling sits in the World Bank Group) carried out an internal review of innovation programmes and activities undertaken across the World Bank Group. The IFC’s successful TechEmerge programme delivery mechanism, which has been piloted in the health sector, was identified as the most appropriate model for delivering a new £15 million fund on sustainable cooling. Due to the lack of a dedicated existing sustainable cooling innovation fund to inform the calculation of the size of this fund, the funding will instead be demand-led and will use the proposed flexible funding pool to either increase or decrease funding for this theme as the projected demand becomes clearer in 2019/2020 (further details on this are provided in the Commercial Case). As such, the £15 million figure is calculated based on the experiences of other, wider World Bank Group innovation programmes, such as the TechEmerge programme and the Climate Innovation Centres (CICs). Consequently, the IFC (which created the TechEmerge programme model for delivering innovation in developing countries) is the preferred ODA-eligible delivery partners for the sustainable cooling part of the programme and the Commercial Case provides further details.

The expansion of an existing programme was the highest scoring delivery option for the industrial decarbonisation part of the programme. As discussed above, the World Bank’s existing ESMAP programme was shortlisted as the most appropriate option for this theme due to its strong networks, the established procedures, the familiarity of countries with ESMAP and the global reach of the programme. Other delivery partners either did not have a global reach (e.g. the ADB focuses on the Asia-Pacific region, the AfDB focuses on Africa, etc.) or did not have industrial decarbonisation expertise, particularly in developing country contexts (e.g. Innovate UK).

From the experience of related programmes, such as ICF’s international CCUS programme, which supports feasibility studies and pilot projects for CCUS, £15 million of funding is considered the correct initial size to test demand. However, as activities are not completely comparable, as the support is provided for TA activities, for CCUS technologies only (rather than fuel switching, electrification, process innovation, etc.) and it can support a range of sectors (not just industry applications), the justification for £15 million is based both on these experiences and via a demand-led approach that will use the proposed flexible funding pool to better match demand as projected demand becomes clearer (further details on this are provided in the Commercial Case). Due to the focused nature of the World Bank’s CCUS Trust Fund and the ADB’s CCUS Fund on CCUS technologies rather than other technological innovations for industrial decarbonisation, creating a new window in ESMAP is the preferred option for this funding, as this would ensure that all innovation options for this sector are considered. Through ESMAP, the fund will adopt a similar model to the TechEmerge programme as will be used for the sustainable cooling funding.

Innovate UK’s existing work on energy storage through both the Energy Catalyst and the Faraday Battery Challenge, their strong innovation expertise and networks, and their experience of delivering ODA programmes justifies their selection as the preferred ODA-eligible delivery partner for the energy storage part of the programme. From the experiences of calls-for-proposals through the Energy Catalyst and the Faraday Battery Challenge to date, £10 million is calculated as the level of demand expected for developing country applications. Due to this previous experience, it is not envisaged that this theme needs to build in flexibility to move funds within the wider programme based on demand. The funding will be provided through a new fund in Round 7 of the Energy Catalyst. The Commercial Case provides further details. DfID is similarly providing £10 million of ODA funding towards energy storage (specifically battery storage) alongside this business case. £7 million of this will be delivered through Innovate UK alongside our funding in a new fund in Round 7 of the Energy Catalyst, though DfID’s funding will target low-income countries and primarily off-grid and weak-grid applications. The remaining £3 million of DfID’s funding will support the development of an international arm of the Faraday Institution.

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From the review of delivery partners, although the World Bank is a possible contender for delivering the energy storage part of the funding (due to the reasons stated above), the options appraisal process discussed in the previous sub-section identified that a new fund was the most appropriate delivery route rather than an expansion or extension to an existing programme like ESMAP (which the World Bank would have requested in order to deliver this part of the programme). Furthermore, delivering all three of the funds through the same delivery partner increases the risk that potential fund management and delivery issues occurring in one of the funds could also occur in the other funds. Additionally, as discussed in the Strategic Case, as this is a new area for BEIS ICF, there will be a strong monitoring and evaluation component to the programme that aims to ensure that learning is captured and disseminated between the different funds. Therefore, Innovate UK’s expertise and established processes for delivering innovation would be useful for the programme as a whole.

In summary, the new £50 million programme is broken down into five parts, as summarised in Figure 6. A new fund will be set up in the World Bank Group through the TechEmerge programme to deliver the sustainable cooling innovation funding (£15 million), a new fund through a new Round of the Energy Catalyst will be set up in Innovate UK to deliver the energy storage innovation funding (£10 million), and an existing programme (ESMAP) will be expanded in the World Bank to deliver the industrial decarbonisation innovation funding (£15 million). As discussed in the Monitoring & Evaluation section, £1 million will be set aside to commission an on-going independent evaluation of the programme. Due to the nature of innovation and the innovative nature of this programme, we will build in a flexible funding pool of £9 million, which is required for four main reasons:

To be used for any initial set up activities in the 2019-2020 financial year for the three themes and for any early project activities that require support before the 2020/2021 financial year

To be used as a source of top-up funding where initial demand is greater-than-expected for a given theme

To be used to support wider TA activities beyond the TA activities undertaken within suppor-ted project proposals (TA activities will be a mandated component of all supported innovation projects to contribute to creating the enabling environments necessary for scaling-up and rep-licating promising innovations)

To support the next most important theme from the thematic options appraisal (smart energy) in the absence of the need for the above

The governance for the flexible funding pool is provided in the Management Case. In the event that smart energy innovation needs to be supported, we consider the ADB’s CEFPF as an appropriate vehicle to deliver a new innovation fund on this theme for two main reasons: firstly, the ADB introduced a US $8 million innovation fund for clean energy in 2018, which we are tracking as a case study through ICF’s existing funding into the ADB’s Clean Energy Fund (which comes under the ADB’s CEFPF). Secondly, this approach spreads the delivery partner risk to ensure that where any potential issues occur with a delivery partner, this will not affect the ability of the rest of the programme to meet its objectives. However, if the proposed models are effective in delivering funding for clean energy innovation, we will consider emulating this for the smart energy theme (for example, by establishing a new window in ESMAP for smart energy using the TechEmerge model rather than delivering the funding through the ADB’s CEFPF).

Figure 6: Overview of the proposed programme delivery

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3.6Value-for-Money AppraisalThe approach used to assess value for money (VfM) is in-line with the Department for International Development (DfID’s) 4Es approach, which assesses economy, efficiency, effectiveness and equity. The Strategic Case sets out the overall rationale for funding clean energy innovation and ICF will work collaboratively with delivery partners (the IFC, the World Bank and Innovate UK) to ensure that only high-quality project proposals that meet the objectives of this programme are funded.

3.7 EconomyFor the new fund for sustainable cooling, the IFC will meet its administration costs by charging its standard fees, as outlined in the Financial Case, and which are used in other ICF programmes that have the World Bank Group as the delivery partner. The IFC is a strong delivery partner for this programme with the required on-the-ground networks, knowledge and experience in delivering innovation across different sectors, such as health, agriculture and climate, and the administrative costs are required to cover their costs to deliver the programme. From a governance perspective, in the DfID Multilateral Development Review (2016)63, the World Bank was assessed to be in the top tier of multilaterals with a very good match with UK priorities and very good organisational strengths. The World Bank was judged to be Satisfactory+ (0.5 off the top marking) on risk, fraud and anti-corruption. We deem this to be appropriate.

The IFC and the World Bank will charge the standard 5% administrative fee to deliver the sustainable cooling innovation funding. The fees would cover all costs: staff costs, costs of central units, legal, single audit, donor portal and all associated costs connected with Trust Fund management. The fees will be finalised in the Administration Arrangements with the IFC and the World Bank. These fees are charged for other BEIS ICF programmes that use the World Bank Group as a delivery partner, such as the international CCUS programme, ESMAP and the Climate Private Public Partnership (CP3) programme.

Innovate UK has strong innovation expertise, as well as experience with delivering ODA programmes across a variety of different sectors through. Their existing support to energy storage through the En-ergy Catalyst has stringent processes that equal those of the World Bank Group. Innovate UK has provided cost-competitive service fees to those of the World Bank and consequently this represents good value-for-money. Innovate UK will charge 4.3% (~£430,400), which is based on their costs for delivering previous Rounds of the Energy Catalyst. The energy storage fund is smaller than the other two thematic funds and the proposed activities by the IFC and the World Bank (such as market as-sessments and ‘matchmaking’ events) are more resource-intensive than the approach adopted by the Energy Catalyst, but which are potentially more impactful. As such, we would deem a slight in-crease in Innovate UK’s fees to undertake similar activities to the World Bank better value-for-money than seeking to reduce the World Bank’s fees (and consequently undertaking activities with poten-tially lower impacts). However, we are proposing that Innovate UK operates as per its previous Rounds, which have delivered innovation effectively. Nevertheless, we will improve upon existing processes by mandating that developing country partners must be involved and that innovations must be tested in developing countries. An estimated breakdown of the 4.3% administration fees are:

Competitions and assessment costs: ~£36,000 (£120 per assessor with 5 assessors per ap-plication, including VAT)

Project monitoring costs (external): ~£217,600 (assuming ~20 projects of 12 months duration) Due diligence costs: ~£164,800 (assuming 1.5 international partners per project) Portfolio monitoring costs (internal): ~£12,000 (assuming 0.2 of an executive over 12 months)

Innovate UK will not charge any fees to host up to four events for the fund, as they can cover these costs internally through existing budgets under the Global Challenges Research Fund (GCRF). Fur-thermore, Innovate UK will not charge any fees to cover the salary of the Fund Manager or internal delivery costs for the competition, grants and contracts. This provides additional value-for-money.

63 https://www.gov.uk/government/collections/multilateral-aid-review

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In the case that the ADB is used in the future as part of the flexible funding pool to deliver the next theme that was identified as needing support (smart energy), the standard ADB service fees that are charged to contributions from donors to the ADB’s Clean Energy Financing Partnership Facility (CEFPF) would be used. The fees are: i) 5% of the amount disbursed for grant components of investment projects up to US $5 million, or 2% (with a minimum of US $250,000, whichever is greater) of the amounts disbursed for the same type of grants above US $5 million; and ii) 5% of the amounts disbursed for technical assistance operations. We deem these fees to be appropriate, as these are the fees that we have previously agreed with the ADB for our funding to the Clean Energy Fund and the CCUS Fund, which both come under the CEFPF.

Mitigation activities avoid the impacts of climate change, which will disproportionately affect the poorest people the most, which increases poverty and undermines development progress.

3.8 EfficiencyThe outputs that we expect to see through this intervention are:

Number of clean energy innovation projects supported: projects and/or a programme of projects are supported that look to accelerate the TRLs of innovations under one of the three priority themes closer towards commercialisation

Creating enabling environments: supporting the establishment of RD&D infrastructure, equipment and other resources outside of the funding provided through this programme to en-sure that the environments needed to enable innovation exist

Knowledge-sharing, outreach and partnerships: efforts are made to encourage (domestic and international) collaboration, institutional exchanges and greater openness in innovation with the aim of building capacity in policy, regulation, governance and technical skills, and sharing knowledge within the priority themes

Increased interest in clean energy innovation under priority themes: highlighting the im-portance of the priority themes and why the UK is choosing to intervene, to mobilise efforts within beneficiary countries, from other donor countries and from the private sector

These outputs will be delivered through a combination of the programme components, including by BEIS programme staff and UK-organised knowledge-sharing events to share lessons, technologies and experiences. Due to this programme not having a geographical focus, we cannot say at this stage what the demand-pull for each of the priority themes within certain countries will be. However, one of the first activities of the programme will be to direct the delivery partners (the IFC, the World Bank and Innovate UK) to undertake market analyses for each theme. This is important for improving the efficiency of delivering the funding, as it will identify the key countries, markets and technologies that have the greatest potential for meeting the aims of the programme. The Commercial Case discusses this in more detail. As with other ICF programmes, outputs will be tracked using Key Performance Indicators (KPIs) and a ‘logframe’ (Logical Framework) with output, outcome and impact indicators. The indicators and a high-level logframe are discussed and justified in the Monitoring & Evaluation section of the business case. We will carefully consider and monitor whether outputs are delivered effectively, feeding back learning to the programme, as well as sharing lessons for the benefit of other BEIS innovation programmes. There are various methods and processes that we will use to monitor progress, which are outlined in the Monitoring & Evaluation section and the Management Case.

The TechEmerge model, an effective and award-winning model for delivering innovation in developing countries, was developed by the IFC and involves ‘matchmaking’ events between innovators and providers, which are followed by pilot demonstrations that would be part-funded (up to 50% depending on the technology, innovator and provider) through our programme. The IFC will decide on the location of the ‘matchmaking’ events following a market assessment of demand and the identification of stakeholders that will be invited. BEIS will be able to feed into which priority countries to narrow the focus to across Asia, Africa and Latin America. We envisage a similar delivery mechanism and similar activities for the industrial decarbonisation funding through the World Bank’s ESMAP. With Innovate UK, their established and robust processes for independently reviewing project proposals (through a panel of five independent expert reviewers) will determine which projects get funded. For all three of the funds, steering committees will be set up consisting of BEIS and the delivery partner. For the funds

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delivered by the IFC (sustainable cooling) and the World Bank (industrial decarbonisation), expert advisor networks will also be established as per the TechEmerge model, which will have the responsibility of reviewing projects proposals for pilot demonstrations following the ‘matchmaking’ events. This matches the independent expert review process of Innovate UK. The Commercial Case provides further details on how the programme will ensure that resources are used optimally, and the Management Case provides further details on the governance structures for the programme and the different components of the programme.

The efficiency of both the World Bank Group and Innovate UK is further demonstrated through previous, related programmes on delivering innovation in developing countries. In the health sector, for a typical 18-month programme under the IFC’s TechEmerge programme, a US $1.8 million programme in India supported 20 projects across 70 clinical sites and reached 70,000 patients. >10 commercial contracts were signed with companies raising >US $14.5 million, one company exiting for US $102 million and four local distributor agreements were signed. The TechEmerge programme achieved similar success in Brazil. This is a relatively large number of projects for a small amount of innovation funding and this includes all costs for the fund, including pre-implementation costs (~US $40,000), implementation of ‘matchmaking’ events (~US $360,000) and implementation of pilot projects (including technical assistance activities, such as capacity building and supporting policy and regulatory framework development) (~US $1.4 million). Although the types of innovations and equipment for sustainable cooling will vary from those in the health sector, we can expect to support a much greater number of projects with £15 million of innovation funding (~US $19.9 million depending on exchange rates). For industrial decarbonisation, we would expect to support fewer projects than the sustainable cooling fund due to the size and scale of industrial equipment and processes. For Innovate UK, Round 6 of the Energy Catalyst supported 20 energy storage projects over twelve months for a £10 million fund. We would expect to support a similar number of projects through the £10 million energy storage innovation funding. For all three funds, we will ensure that innovators and providers are aware of climate funds that can support commercial deployment and scaling-up activities following the early-stage support provided by this programme (for example, the Clean Technology Fund and the Green Climate Fund).

3.9 EffectivenessThe outcomes we expect to see through this intervention are:

Innovation through the advancement of TRLs of promising technologies closer to-wards commercialisation: these innovations should result in cheaper energy and/or im-proved energy efficiency and emissions reductions

Increased capacity and capability: beneficiary countries are able to sustain RD&D activity independently in the medium-to-long term

Increased replicability: lessons learned are fed back into future innovation activities

ICF analysis does not usually quantify the benefits of TA given the difficulties in consistently establishing causality, attribution and additionality. This also applies to RD&D grant funding, where there can be long lag periods involved before any impacts can be observed and where there is considerable uncertainty surrounding what the end outcome will be. The funding will also be demand-led based on market assessments, which means at this stage we cannot disaggregate benefits and allocate a proportion of them to individual projects and associated work packages. As the impacts of RD&D grant funding and TA that will be funded will primarily be indirect, and for the reasons outlined above, a quantified assessment is not deemed possible at this stage. Given the importance of managing value-for-money where we cannot quantitatively track it, the governance, monitoring, reporting and evaluation processes for a project become critical to providing this assurance.

Like all ICF programmes, this programme will report against qualitative KPIs, such as the transformational change KPI (which is relevant for all ICF programmes) and will be subject to an annual review to assess value-for-money. Progress will be monitored and evaluated throughout the programme through the ICF’s results collection and annual review process, which will show whether the programme is on track and achieving the outcomes and impacts that are expected in the theory of change. This will be used to continually assess value-for-money throughout the programme lifecycle.

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Data collected during monitoring and evaluation will be crucial to ensure value-for-money given that a quantitative assessment at this stage is not possible, along with the robust governance structures outlined in the Management Case. The Monitoring & Evaluation section provides further details.

3.10 EquityThe outputs and outcomes of this programme are not likely to be immediately received by the poorest people or communities in the beneficiary ODA-eligible countries, but instead will be received by research institutions, such as universities or government laboratories, small-to-medium-sized enterprises (SMEs) and RD&D arms of private sector companies. Supporting the activities of these institutions will build capability and transform markets within beneficiary countries.

The Strategic Case sets out why tackling climate change at a macro level is important to protect the world’s poorest and most vulnerable and how funding innovation activity could lead to the creation of job opportunities as a result of being a key driver of productivity and economic growth. Furthermore, it is the ambition of this programme that the funding would accelerate promising clean energy innovations closer towards commercialisation, which will ultimately benefit the poorest individuals within the beneficiary countries. For example, in addition to climate change mitigation benefits, industrial decarbonisation would reduce local air pollution (thus leading to health benefits) and ensure continued or increased industrial output (thus leading to improved productivity and economic benefits). For sustainable cooling, a reduction in the spoilage of food and vaccines in developing countries due to ineffective and high carbon cold chains would make a crucial contribution in achieving a variety of Sustainable Developments Goals (SDGs), as outlined in the Strategic Case. For energy storage, the evidence review highlighted the positive impacts that it has on ensuring energy security in the face of both fluctuating fossil fuel prices (affecting output from fossil fuel plants) and variable renewables (such as wind power and solar power).

We will work closely with the delivery partners (the World Bank and Innovate UK) to ensure that gender equality is improved by providing greater access-to-funding opportunities for female innovators (as well as supporting the development of an enabling environment that fosters female engagement). As discussed in the Monitoring & Evaluation section, we will include a specific logframe indicator to track female participation in supported projects, which will be monitored as part of the annual review cycle.

3.11 Overall Value-for-Money AssessmentAlthough the bid review process (in the case of Innovate UK) and the matchmaking process (in the case of the World Bank) will be managed by the delivery partners, which we deem to be appropriate, the BEIS team will take an active role in ensuring that the criteria for selecting projects to fund match the objectives of this programme closely. For all three funds we will set up steering committees of World Bank and BEIS staff to make the final strategic and investment decisions for all activities funded through the programme. Although this increases the ICF (people) resource required to manage the programme, this will help to ensure that transformational change is achieved in-line with our objectives in this innovative programme, which will be a first-of-a-kind for BEIS ICF. We have been working closely with SICE innovation programme managers and analysts to draw on their expertise and to ensure that value-for-money is maximised. A separate advisory network for each fund will be developed, which will be made up of technical experts and business experts and which will inform the steering committee.

The impacts of innovation funding will primarily be indirect and difficult to quantify accurately due to the nature of innovation and the uncertainty of a successful outcome. As discussed above, at this stage we cannot disaggregate benefits and allocate a proportion of them to individual projects and associated work packages. This disaggregation of benefits would be required to make trade-offs between programmes or constituent work-packages based on value-for-money criteria. As a result, and in-line with guidance for other similar HMG programmes, the BEIS analytical team does not feel it appropriate or possible to consistently and accurately quantify the expected benefits. At this stage, the benefits of our intervention are discussed mainly in qualitative terms. This is an approach used in other ICF programmes, such as UK PACT, the Clean Energy Fund TA programme and the interna-tional CCUS programme. Although these are TA programmes, TA activities draw parallels with innov-

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ation (RD&D) activities. Furthermore, as stated above, we are drawing on the experiences of innova-tion programmes in SICE to assess value-for-money. Monitoring and evaluation will be crucial for en-suring value-for-money is delivered throughout the programme cycle, and it is therefore important that the methodological approach ensures that data is collected that will enable the programme’s per-formance and value-for-money to be robustly assessed following implementation.

Commercial Case

4.1 OverviewThe Appraisal Case provides the justification for using splitting the programme funding into three different, but related, delivery routes:

Sustainable cooling (£15 million): new fund delivered by the IFC’s TechEmerge team using the TechEmerge delivery model

Energy storage (£10 million): new fund/call within the Energy Catalyst Round 7 of Innovate UK’s existing energy storage programme using the existing delivery mechanism

Industrial decarbonisation (£15 million): expansion of the World Bank’s existing ESMAP fund to include a new window on industrial decarbonisation, which will be managed by the World Bank’s energy and extractives group, in partnership with IFC and their TechEmerge delivery model

The publication of the Independent Commission for Aid Impact (ICAI)’s review of the ICF in February 2019 highlighted that: “spending through multilateral channels is key for reach and scale, given capacity constraints and the lack of in-country presence in many countries, while bilateral expenditure helps to promote innovation and piloting”. Multilateral funding also supports the UK’s stated objectives around ‘strengthening the climate finance architecture’. This case outlines the procurement approach for each of the three parts of the new programme and justifies the choice of delivery partners.

4.2 World Bank and IFCMultilateral Development Banks (MDBs), such as the World Bank and the IFC, play an important role in global efforts to support development and tackle climate change through the internationally agreed Sustainable Development Goals (SDGs). Some MDBs are beginning to expand their offerings beyond capital support and technical assistance (TA) to look at innovation and RD&D (the importance of supporting innovation is discussed in the Strategic Case). For example, the IFC has supported innovation through its TechEmerge programme (focused on innovation in the health sector and is being applied to other sectors, such as agriculture), the World Bank has supported innovation through its Climate Innovation Centres (CICs) and the Asian Development Bank (ADB) set up a new innovation fund (US $8 million) in 2018 under the Clean Energy Fund (CEF) (which BES ICF is currently a donor to). Furthermore, in 2019, the World Bank is establishing an Energy Storage Partnership as part of its US $1 billion battery storage initiative (announced in September 2018) to bring together manufacturers, researchers, investors, international organisations and governments to share knowledge, identify RD&D needs and scale-up storage. However, the Energy Storage Partnership will focus on international collaboration rather than specifically financing innovation activities (and it is not yet established).

As the proposed funds are small relative to other global funds, such as the Climate Investment Funds (CIFs), it is unlikely to be subject to specific scrutiny processes through the Multilateral Aid Review (MAR). However, we will ensure that the funds are operated in a manner consistent with the World Bank’s policies and procedures. The World Bank’s approach to procurement aims to ensure open and fair competition in all tenders, to procure high quality goods and services at the lowest cost. Procurement of goods and services goes through International Competitive Bidding (with limited exceptions) (and as such, it will in most cases be possible for UK contractors to bid to provide services).

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The World Bank Group’s procurement policy is driven by “economy and efficiency” as outlined by their Articles of Agreement. In both IBRD- and IDA-financed projects, international competitive bidding is used for all contracts (with exceptions only if the nature of the procured goods or services, or the size of the country and contract, justifies the exception of either quotation-based procurement or a sole source selection). There is considerable oversight and scrutiny of World Bank procurement operations; around 5% of procurement operations are reviewed internally and a smaller amount of operations go to external review every year. The World Bank’s New Procurement Framework has been effective since 1st July 2016, which the funds for sustainable cooling and industrial decarbonisation will abide by (the framework can be found here: https://spappscsec.worldbank.org/sites/ppf3/PPFDocuments/Forms/DispPage.aspx?docid=4002&ver=current ) . In the case of the industrial decarbonisation funding, these will follow the existing processes for the World Bank’s Energy Sector Management Assistance Programme (ESMAP), which BEIS ICF currently provides funding to through our support to the Powering Past Coal Alliance (PPCA).

The World Bank Group’s TechEmerge programme model, which the funds for both sustainable cooling and industrial decarbonisation will adopt, involves four main stages:

COMPONENT 1: Engaging and mapping needs of local providers in selected market segmentEstimated costs: ~US $180,000

Under this component, based on the selected target market, the World Bank team will:i. Identify and select local providers (users/buyers of innovative technologies) that demonstrate

commitment and that have the greatest potential to become partners in the testing and demonstration of shortlisted innovative technologies, and secure their commitment to particip-ate in the programme

ii. Assess participating provider’s challenges and needs related to sustainable cooling or indus-trial decarbonisation services, and identify areas where innovative technologies can create a significant impact while being commercially viable

Providers will have to be able to allocate time and resources to participate in the project, including attending periodic meetings, reviewing material, and planning and implementing potential field tests/pilot projects.

COMPONENT 2: Screening and evaluation of solutions from around the worldEstimated costs: ~US $120,000

Under this component, the World Bank team will:i. Identify innovative sustainable cooling or industrial decarbonisation technologies from around

the world that can address participating provider needsii. Identify and select those innovators that demonstrate commitment and have the greatest po-

tential to deploy and scale their technologies in the selected locations

To achieve this, the project will identify innovative technologies provided by technology companies from around the world that could meet the needs of providers. This will be done through a variety of activities, including a global open call for applications with website campaigns and social media campaigns, as well as targeted outreach to the World Bank Group’s pipeline of companies and networks (e.g. Venture Capitalist investors and funds, and organisations that support innovators, such as accelerators, innovation networks, etc.). The open, global call with be promoted in as many countries as possible to source innovative solutions from across all regions (developed and developing).

To improve gender equality in the support provided through our programme, the funds will be promoted to women-owned technology companies, including dedicated wording in the call-for-applications to encourage women-owned technology companies to apply for support. Furthermore, there will be dedicated outreach activities to gender-oriented funds and fund managers.

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Innovative technologies will be screened and evaluated according to pre-defined criteria with the support of an advisor network of external experts (both technical experts and business experts), which will be responsible for assessing the maturity of the technology, market relevance and adaptability, business capabilities of the innovator, etc. Shortlisted companies will be invited to participate in the programme and a curated list of companies will be shared with providers based on expressed needs and areas of potential partnership.

Technology companies that are eligible to participate will meet at least the following criteria:i. Have a technology proven to at least TRL 3 but no more than TRL 7ii. Meets the needs of participating providersiii. Demonstrated managerial capacity and scalabilityiv. Ability to allocate time and resources to participate in the programme, including preparing

and attending periodic meetings, and implementing field testing/pilot projectsv. Presents solutions demonstrating value-for-money for the relevant marketvi. Demonstrates a supportive enabling environment in-country (e.g. favourable market con-

ditions, supportive policy and regulatory frameworks, etc.)

COMPONENT 3: Matchmaking eventsEstimated costs: ~US $100,000 per event

Under this component, the World Bank team will prepare innovators and providers for matchmaking events and seek to maximise the number of collaborations initiated between the stakeholders for the testing and demonstration of innovative sustainable cooling or industrial decarbonisation technologies. The following process is envisaged:

i. Following the selection of innovators that will be invited to attend the matchmaking event(s), the programme will implement a series of educational webinars to help to prepare innovators for the matchmaking event(s) and to pilot technologies in the selected locations. Topics will in-clude an overview of the respective markets included in the projects, the related regulatory landscapes, challenges/needs, business customs of providers, etc.

ii. Matchmaking events will be held to introduce matched innovators and local providers to dis-cuss potential pilot project opportunities. The process will be demand-driven with providers determining which innovators they would like to meet with. We will direct the World Bank team to hold three events – one in each of the regions that BEIS ICF is active in (Asia, Latin Amer-ica and Africa). To reduce costs, we aim to hold the matchmaking events for sustainable cool-ing and industrial decarbonisation back-to-back in each region where possible. However, this depends on the alignment of suitable markets for each theme. The World Bank team will work with local industry partners and possibly leverage existing events. The World Bank team would also aim to work with a strong media/communications partner to increase the branding and visibility of our programme and the matchmaking event.

COMPONENT 4: Pilot projectsEstimated costs: ~US $450,000 for project management support, local pilot implementation and technical assistance activities, with the remaining funding for pilot grants for local projects between innovators and local providers

Under this component, following the matchmaking events, interested innovators and providers will develop and submit a joint pilot project proposal to the World Bank team (proposal templates will be developed and provided). Proposals will include objectives, key performance indicators, measurable goals, critical assumptions (including hypotheses), resource requirements, budget and funding gaps, timelines, the current contextual environment in-country (demonstrating favourable market conditions, supportive policies, technology acceptance, etc.), and pathways to scalability and replicability. The provision of funding will be dependent on the project proposals demonstrating the achievement of the overarching aims and objectives of our programme. The following process is envisaged:

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i. Proposals will be evaluated with the support of the advisor network discussed above. The World Bank team will seek to maximise the number of collaborations initiated and support as many high-quality pilot projects as feasible

ii. Selected projects will receive technical support and grant funding to defray the costs of field-testing. As per the experiences of the TechEmerge programme in the health sector, up to 50% of the costs of pilot implementation could be covered (funding could cover out-of-pocket costs, but it would not cover staff time). However, the level of grant funding is decided on a case-by-case basis. Funds will be granted to pilot projects that have the highest potential for success and the achievement of the project-level output, outcome and impact indicators out-lined in the Monitoring & Evaluation section. Funding from the World Bank will be disbursed in tranches based on milestones (particularly learning-related milestones), defined per pilot pro-ject, whereas BEIS ICF funding to the World Bank will be paid via cash payments and en-cashed according to a schedule based on needs assessments, as outlined in the Financial Case

iii. The number of pilot projects that will be supported is dependent on the characteristics of the projects. However, it is envisaged that a similar number of projects will be supported as per the energy storage fund discussed in section 5.3 below. Each pilot project will run for approx-imately 4-12 months. The programme will monitor the progress of the pilot projects on an on-going basis, and when needed, support innovators and providers to resolve implementation challenges. Supported projects that do not meet milestones, do not look promising during pilot testing or which have limited potential for scalability and replication will be decommissioned. Funds will then be reinvested to allow other promising projects to be supported or to provide further support to existing projects where the steering committee deems this to be appropri-ate. This flexibility reduces programme risk by accounting for a certain level of failure. After in-novators pilot test their technologies with local providers under the programme and increase their network, some of the technology companies may engage with local distributors to sell their products, or they may raise additional funding to expand operations through wider fin-ance. In the case of the latter, we will ensure that the World Bank supports the innovators to identify potential sources of finance

iv. Alongside support for RD&D activities, all supported projects will be expected to undertake technical assistance activities, such as knowledge-sharing and capacity building (for example, speaking in international and domestic events, capturing and sharing lessons learned locally and internationally, facilitating greater openness in innovation, supporting policy and regulat-ory framework development, etc.), both during project implementation and post-project imple-mentation for a defined period of time

By stipulating that no more than 50% of the pilot implementation costs will be covered by the fund, this exceeds best practice within EU law of at least 10-20% match funding for all project proposals, which is currently applied in BEIS SICE energy innovation programmes such as the Energy Entre-preneurs Fund64. This enables more projects to be funded and the benefits of this approach are:

1. To embed private sector funders (that may be the ultimate customer once commercialisation is reached) within the innovation process, to ensure a sustainable route to market

2. To incentivise recipients to be proactive in leveraging additional funds, which should further drive value-for-money due to monitoring by two (or more) funding parties

3. To partially de-risk ICF investments as the primary funder4. To create better connections between funders (public and private sector)65

We will set up steering committees made up of BEIS officials and World Bank Group officials to ensure that BEIS has strategic oversight and direction for each of the four components discussed above. We will have monthly calls with delivery partners to discuss progress and to make strategic decisions. Additionally, we will hold at least two face-to-face meetings per year and there will be a requirement for quarterly progress reports from the delivery partners. Further details on the governance for the programme and the individual funds are provided in the Management Case.

64 https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/735175/Updated_EEF7_QandA_Final.pdf 65 Based on Nesta’s (2018) Funding innovation: A practice guide https://www.nesta.org.uk/documents/1027/Funding-Innovation-Nov-18.pdf

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Although there are no existing sustainable cooling and industrial decarbonisation innovation funds to estimate the number of projects that will be supported through the funds, the IFC’s existing TechEmerge programme in other sectors, such as health and agriculture, provides an indication for what can be delivered for a given size of funding. In the health sector, for a typical 18-month programme under the TechEmerge programme, a US $1.8 million programme in India supported 20 projects across 70 clinical sites and reached 70,000 patients. >10 commercial contracts were signed with companies raising >US $14.5 million, one company exiting for US $102 million and four local distributor agreements were signed. The programme achieved similar success in Brazil. This is a relatively large number of projects for a small amount of innovation funding and this includes all costs for the fund, including pre-implementation costs (~US $40,000), implementation of ‘matchmaking’ events (~US $360,000) and implementation of pilot projects (including technical assistance activities) (~US $1.4 million). Although the types of innovations and equipment for sustainable cooling will vary from those in the health sector, we can expect to support a much greater number of projects with £15 million of innovation funding (~US $19.9 million depending on exchange rates). For industrial decarbonisation, we would expect to support fewer projects than the sustainable cooling fund due to the size and scale of industrial equipment and processes.

As with previous TechEmerge programmes, pilot projects will receive technical support and grant funding to defray the costs of local field testing (funding up to 50% of pilot implementation). Funding can cover out-of-pocket costs, but it does not cover staff time and will not cover the travel costs. Support for startups and technology companies to obtain visas to attend ‘matchmaking’ events can be provided through local World Bank Group. However, due to the large market opportunity that ‘matchmaking’ events provide for startups from around the world to meet directly with key decisionmakers and potential new customers, travel costs do not need to be supported. Furthermore, by funding their own travel expenses to attend ‘matchmaking’ events, the selected companies show commitment to the programme and an understanding of the market opportunity. After ‘matchmaking’ events, companies can submit pilot project proposals and receive grant funding for project implementation, and travel costs can be included as part of the funding. Grant funding is decided on a case-by-case basis and funds will be granted to pilot projects that have the highest potential for success. Furthermore, funding will be disbursed in tranches by the delivery partners based on milestones, defined per pilot project. For both the sustainable cooling and industrial decarbonisation funds, we will ensure that innovators and providers are aware of climate funds that can support commercial deployment and scaling-up activities following the early-stage support provided by this programme (for example, the Clean Technology Fund and the Green Climate Fund).

4.3 Innovate UKThe most appropriate procurement route for this part of the programme is a new call within Round 7 of the existing BEIS-DfID-UKRI Energy Catalyst R&D competition mechanism. The new call would target RD&D innovation activities for energy storage that are directly applicable to developing countries. The call would be managed using Innovate UK’s existing processes and procedures for the Energy Catalyst programme. The Catalyst programme falls under the budget of the Clean Growth and Infrastructure team and would be managed by that team. Innovate UK is an eligible body to deliver ODA funding and funding would be provided via a grant letter or equivalent between BEIS and UK Research and Innovation (UKRI) (which is the legal entity as Innovate UK has no separate legal status – it is a Council of UKRI). The grant letter will stipulate that the funding will be provided to Innovate UK for the purposes of providing ODA as the primary objective. It will also state that UKRI is providing for Innovate UK to exercise the necessary functions related to this grant under section 98 of the Higher Education and Research Act 2017. Funding will be released to Innovate UK via UKRI in tranches following a needs assessment and a performance review conducted by BEIS. In the event of projects not meeting milestones, limited demand from innovators or poor performance by Innovate UK, funding would be withheld and redirected to the flexible funding pool (discussed in the Appraisal, Financial and Management Cases). This will be made clear in the grant letter (or equivalent) and further details are provided in the Financial and Management Cases.

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Because of the way that Innovate UK is set up, it is only able to provide funding to a UK organisation. We are not able to change this position, but we consider that there is a good argument that providing funding via Innovate UK still falls within the powers of the International Development Act 2002, as the following steps would be taken to ensure that the funding will still be for the purpose of benefiting developing countries. The essential role of the UK organisation would be an administrative one, where the UK organisation just acts as the grant contract holder, distributor and manager of the funds and grant conditions, and as the lead point of contact with Innovate UK. All substantive work would be carried out by the technical lead, which can be a company based anywhere in the world, as well as through consortium partners that can be companies, non-governmental organisations (NGOs) or universities from anywhere in the world. The funding would be passed on to the technical lead and any other partners via the administrative lead, so the administrative lead would be a channel for the funding, management and reporting (unless they are also the technical lead, which is also possible as the call will be open and global). Therefore, the funding is open to all organisations via this route.

All documentation will make clear that the funding must be used to benefit ODA eligible countries (i.e. developing countries). The application process will require the applicant to explain how their proposed project is ODA-eligible (i.e. how it promotes economic development and prosperity in the developing world). We will also mandate that innovators must work with partners in developing countries and that the innovative technology must be pilot-tested in the developing country. Therefore, we consider that providing funding via Innovate UK would still qualify as ODA and that this would not be tied aid. The reason we are suggesting that funding is provided via Innovate UK rather than another organisation, despite this procedural hurdle, is because our analysis suggests that this would be the most effective funding route, as explained in the Appraisal Case.

As discussed in the Appraisal Case, the funding will be combined with £7 million of funding from DfID for the new call within Round 7 of the Energy Catalyst. DfID’s funding will specifically target off-grid and weak-grid applications of energy storage in the poorest countries, whereas BEIS’s funding will focus on supporting developing countries where the greatest climate mitigation impacts can be achieved.

The existing Energy Catalyst programme is designed to accelerate the commercialisation of promising innovations. It typically has three streams of grant funding depending on how close the innovation is to commercial application:

Early stage (technical feasibility): to accelerate the translation and commercialisation of innov-ative research emerging from the research base

Mid stage (industrial research): to accelerate business-led innovation to late stage Late stage (experimental development): to accelerate business-led innovation to market

This matches our programme’s focus on TRLs 3-7, as early stage is TRLs 3-4, mid stage is TRLs 5-6 and late stage is TRLs 7-8. The Energy Catalyst programme is in its 6th round of funding, having already funded >250 projects (involving >700 organisations) and directly leveraging £54 million of private sector funds. In the past, BEIS has directly supported the Catalyst programmes and for the past three rounds, DFID has co-funded 76 projects that have relevance to the energy trilemma in developing countries as part of its Transforming Energy Access (TEA) programme. Of the projects funded by DfID, 22 companies reported launching new products or services or making new sales as a direct result of support with 80 FTE jobs created, 10 patents and approximately 20MWh of clean electricity generated in 2017 with ambitious TWh scale ambitions over the coming decades. Round 6 of the Energy Catalyst supported 20 projects over twelve months from £10 million of funding. We envisage a similar number of projects being supported as a result of our £10 million of funding and that the split of funding will follow Innovate UK’s established criteria, as per previous Rounds of the Energy Catalyst:

£50,000-300,000 (12 months, SMEs only) – TRLs 3-4 (feasibility studies) £50,000-£1.5m (12-24 months) – TRLs 5-6 (industrial research) £50,000-£3m (12-36 months) – TRLs 7-8 (experimental development)

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Due to the timescales over which funding is available for this programme, all projects must reach their final milestone payments by April 2021. Projects do not necessarily need to be completed by then, but they cannot receive funding past this date through our energy storage fund.

We will follow the existing process for the Energy Catalyst programme:i. Clear guidance will be given by the Innovate UK team on eligibility and how to apply, based

on their standard guidance and application templatesii. Once the competition is closed, Innovate UK will undertake an initial screening of applications

based on eligibility (including scope eligibility)iii. Innovate UK will use their bank of existing assessors (which have been used in >100 annual

competitions) and would automatically or manually assign assessors based on the scope of applications received. Up to five independent assessors (minimum of three assessors) will as-sess each application against Innovate UK’s standard assessment criteria to derive a score out of 100. Assessors would also give their recommendation as to whether or not the project is within scope (in terms of meeting the overarching aims and objectives of our programme) and should be funded

iv. Application scores will be compiled by the Innovate UK team to produce a ranked score sheet. The normal process for Innovate UK is to insert a quality threshold of 70/100, which we deem appropriate. Project proposals scoring 70/100 or more would be funded depending on the availability of funds. Whilst Innovate UK’s standard process is to fund from the highest score until the funding runs out, they are able to portfolio manage to ensure a good variety of projects are funded and we will be able to provide oversight and strategic direction at this stage

v. Innovate UK then conducts due diligence and the project start-up phase begins, which usually takes three months (though for late stage projects with multiple partners, this is usually longer). During the start-up phase, each project is assigned an independent, qualified Monit-oring Officer (MO) by Innovate UK. As well as support during start-up, the MOs undertake quarterly monitoring of the projects against a milestone-based project plan. Payments to pro-jects are made in arrears and only occur once the MO is happy with the work that has been completed and has signed off the outputs

vi. Innovate UK undertakes project-level evaluations via a survey administered after project clos-ure

As with the sustainable cooling and industrial decarbonisation funds, we will set up a steering committee of BEIS and Innovate UK officials, which will involve holding bi-monthly calls to discuss progress and to make strategic decisions. Additionally, we will hold at least two face-to-face meetings per year. As discussed in the Monitoring & Evaluation section, we will commission an on-going independent evaluation of the programme, which will complement the monitoring undertaken by the MOs for Innovate UK and the project leads for the World Bank. This will enable continual learning and improvement to be built into the programme.

The costs of the application assessment, due diligence and project monitoring, as well as the general management of the funding, will be covered within £10 million designated for energy storage. However, the flexible funding pool could be used to extend the amount of funding available in the event of stronger-than-expected demand. Innovate UK will charge administrative fees of 4.3%, which are cost-competitive with the standard 5% administration fees of the World Bank and the IFC, as discussed in the Appraisal Case.

4.4 Asian Development BankAlthough the Asian Development Bank (ADB) will not be involved in delivering the threes themes of the initial phase of the programme (sustainable cooling, energy storage and industrial decarbonisation), as discussed in the Appraisal Case, in the event that the full amount of the flexible funding pool is not required for initial activities in the 2019-2020 financial year for any of the three funds or to provide additional funding where projected demand is greater-than-expected for any given thematic fund, this funding (total of £9 million) will instead be used to support the next highest scoring thematic area where ODA financing is limited. Consequently, smart energy would be supported and the ADB’s high-

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performing CEFPF would be the delivery route of a new, small innovation fund on this theme with links to the ADB’s new US $8 million innovation fund within the CEFPF (as justified in the Appraisal Case). The funding would follow the ADB’s existing CEFPF processes for governance, procurement, quality control and oversight, which we deem to be appropriate and which we have extensive experience with through our existing funding in CEFPF (both in the CCUS Fund (£35 million) and in the Clean Energy Fund (£19 million), which are housed within the CEFPF).

Unlike for energy storage, Innovate UK has less experience of delivering smart energy innovation and there is currently no existing Rounds dedicated to smart energy where a new fund could be created. Furthermore, as discussed previously, delivering three of the four thematic funds through the same delivery partner increases the risk that potential fund management and delivery issues occurring in one of the funds could also occur in the other funds. As such, we would not consider the World Bank or the IFC as the delivery partners for this new fund unless the results of the on-going independent evaluation indicate strong performance (discussed further in the Monitoring & Evaluation section).

The ADB promotes country-level partnership strategies with a pipeline of projects and technical assistance. Consulting services and procurements financed by the CEFPF will follow ADB’s ‘Guidelines on the Use of Consultants by Asian Development Bank and Its Borrowers’ (2013) (as amended from time-to-time) and ‘Procurement Guidelines’ (2015) (as amended from time-to-time). As with the World Bank and Innovate UK, the selection and engagement of consultants and the procurement of goods and services will be the sole responsibility of the ADB.

The ADB would apply their ‘Anticorruption Policy’ (1998) and ‘Integrity Principles and Guidelines’ (2015) (both as amended from time-to-time) in administering the UK’s funding. The ADB's ‘Anticor-ruption Policy’ requires staff, grant recipients, beneficiaries, consultants, bidders, suppliers and con-tractors to observe the highest standards of ethics and personal integrity. Any party found in breach of ADB's ‘Anticorruption Policy’ may be subject to sanctions and remedial actions in accordance with ADB's ‘Integrity Principles and Guidelines’. Any legal entity or individual debarred or cross-debarred in accordance with the ‘Integrity Principles and Guidelines’ will be ineligible to participate in activities financed by the CEFPF.

Financial Case

5.1 OverviewAs set out in the Appraisal Case and the Commercial Case, this new £50 million programme will be split into three funds to support three different themes: sustainable cooling (£15 million), energy storage (£10 million) and industrial decarbonisation (£15 million). Additionally, £1 million will be set aside for an independent evaluation of the programme in 2021/2022 and a flexible funding pool of £9 million will be created with the following objectives:

To be used for any initial set up activities in the 2019-2020 financial year for the three themes and for any early project activities that require support before the 2020/2021 financial year

To be used as a source of top-up funding where initial demand is greater-than-expected for a given theme (in addition to supporting new projects, this may also include providing follow-on funding to existing projects where the steering committee deems this to be appropriate)

To be used to support wider TA activities beyond the TA activities undertaken within suppor-ted project proposals (TA activities will be a mandated component of all supported innovation projects to contribute to creating the enabling environments necessary for scaling-up and rep-licating promising innovations)

To support the next most important theme from the thematic options appraisal (smart energy) in the absence of the need for the above

The flexible funding pool will not fund travel costs or additional staff costs

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The governance for the flexible funding pool is discussed in the Management Case. The spending power for this new programme is the International Development Act 2002. The full £50 million is Official Development Assistance (ODA) from BEIS ICF spend and is capital spending (CDEL).

5.2 Budget and Fund AllocationThe total amount of £50 million is affordable from within ICF’s approved programme fund for this Spending Review period and £40 million of this was ringfenced by HMT as part of the previous Spending Review to contribute to the UK’s total Mission Innovation pledge of £400 million in 2020/21, as discussed in the Strategic Case. Table 5 summarises the breakdown of the £50 million programme. The presence of the flexible funding pool enables funds to be reallocated flexibly based on projected demand (which will be determined in the 2019/2020 financial year).

Table 5: Breakdown of amount of ICF spend per thematic call and fund

Thematic Funds Delivery partner Amount (£m) % of TotalEnergy Storage Innovate UK 10 20

Sustainable Cooling IFC 15 30

Industrial Decarbonisation World Bank 15 30

Other Funds Delivery partner Amount (£m) % of Total

Flexible funding pool World Bank / IFC / Innovate UK / ADB 9 18

Programme Evaluation Independently commissioned 1 2

Total Investment (2019/2020) 5 10Total Investment (2020/2021) 45 90Total Investment (2021/2022) 0 0TOTAL PROGRAMME (2019-2022) £50m 100%

Of the £50 million, £5 million will be spent in the 2019/2020 financial year and £45 million will be spent in the 2020/2021 financial year. The flexible funding pool enables up to £10 million to be spent in 2019/2020 if required, as confirmed in ICF’s spending profile for the 2019/2020 financial year. As such, section 5.3 outlines the minimum required costs for setting up the three funds in 2019/2020 and supporting early activities (such as running the calls-for-proposals, undertaking market assessments, identifying key stakeholders, etc.).

The initial programme will run from April 2019 to April 2023 with no spend by Promissory Note in the 2021/2022 or 2022/2023 financial years unless an extension of funding to the programme is deemed to be a strategic priority for ICF spend in that year. However, we will track supported projects across the three funds until April 2023 to look at the longer-term impacts of how technologies are performing beyond their project end date. We envisage that this new programme is a longer-term vehicle for supporting new themes from the 2021/2022 financial year onwards. This is discussed further in the Monitoring & Evaluation section.

5.3 Payment ScheduleFor the £15 million sustainable cooling innovation funding, the IFC will be paid via four instalments, which are upfront commitments. The World Bank’s ESMAP will be paid via four cash payments for the £15 million industrial decarbonisation innovation funding. For both funds, the drawdown will take place immediately following the processing of the cash payments after BEIS conducts a needs assessment and a performance review. In the event of limited demand and/or poor performance, the funds will be redirected to the flexible funding pool (held by BEIS) before cash payments are made and used as per the discussions of the flexible funding pool provided in the Appraisal Case and the Management Case. Table 6 summarises the spending profile for laying the cash payments in the 2019/2020 and 2020/2021 financial years.

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Table 6: Spending profile for the sustainable cooling and industrial decarbonisation funds

Recipient July 2019 April 2020 August 2020 December 2020 TotalSustainable Cooling:IFC £2m £5m £5m £3m £15m

Industrial Decarbonisation: World Bank £2m £5m £5m £3m £15m

For the £10 million energy storage innovation funding, Innovate UK will be paid based on need linked to project milestones. Table 7 summarises the indicative payment schedule for the energy storage fund, which is developed based on Innovate UK’s previous experiences with the Energy Catalyst programme Rounds and their standard procedures for quarterly payments. As with the IFC and the World Bank, BEIS will conduct a needs assessment and a performance review before releasing funds as per the indicative schedule for payments, and funds will be redirected to the flexible funding pool in the case of limited demand and/or poor performance.

Table 7: Indicative spending profile for the energy storage fund

Recipient By August 2019

By December 2019

By May 2020

By August 2020

By November 2020

By April 2021 Total

Energy Storage: Innovate UK

£0.5m £0.5m £1m £1m £2m £5m £10m

5.4 FeesAs discussed above, payments will be made through a schedule of instalments and cash payments to the IFC and the World Bank to provide them with the certainty that they need to initiate projects in the 2019-2021 period and to help BEIS manage its funding within timeframes over which the funding is available. This will also enable the funding to be disbursed over a longer time period beyond April 2021, as per the rollout plans for the sustainable cooling and industrial decarbonisation funds. In-line with HM Treasury’s guide on ‘Managing Public Money’, we will ensure that BEIS is not disbursing payments to delivery partners in advance of need, as stated in section 5.3.

As discussed in the Appraisal Case, the IFC and the World Bank will charge their standard 5% administrative fee to deliver the sustainable cooling innovation funding. The fees would cover all costs: staff costs, costs of central units, legal, single audit, donor portal and all associated costs connected with Trust Fund management. The fees will be finalised in the Administration Arrangements with the IFC and the World Bank. These fees are charged for other BEIS ICF programmes that use the World Bank Group as a delivery partner, such as the international CCUS programme, ESMAP and the Climate Private Public Partnership (CP3) programme. The expected number of projects supported under the sustainable cooling fund is outlined in the Appraisal Case.

Innovate UK has strong innovation expertise, as well as experience with delivering ODA programmes across a variety of different sectors through. Their existing support to energy storage through the En-ergy Catalyst has stringent processes that equal those of the World Bank Group. Innovate UK has provided cost-competitive service fees to those of the World Bank and consequently this represents good value-for-money. Innovate UK will charge 4.3% (~£430,400), which is based on their costs for delivering previous Rounds of the Energy Catalyst. The energy storage fund is smaller than the other two thematic funds and the proposed activities by the IFC and the World Bank (such as market as-sessments and ‘matchmaking’ events) are more resource-intensive than the approach adopted by the Energy Catalyst, but which are potentially more impactful. As such, we would deem a slight in-crease in Innovate UK’s fees to undertake similar activities to the World Bank better value-for-money than seeking to reduce the World Bank’s fees (and consequently undertaking activities with poten-

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tially lower impacts). However, we are proposing that Innovate UK operates as per its previous Rounds, which have delivered innovation effectively. Nevertheless, we will improve upon existing processes by mandating that developing country partners must be involved and that innovations must be tested in developing countries. An estimated breakdown of the 4.3% administration fees are:

Competitions and assessment costs: ~£36,000 (£120 per assessor with 5 assessors per ap-plication, including VAT)

Project monitoring costs (external): ~£217,600 (assuming ~20 projects of 12 months duration) Due diligence costs: ~£164,800 (assuming 1.5 international partners per project) Portfolio monitoring costs (internal): ~£12,000 (assuming 0.2 of an executive over 12 months)

Innovate UK will not charge any fees to host up to four events for the fund, as they can cover these costs internally through existing budgets under the Global Challenges Research Fund (GCRF). Fur-thermore, Innovate UK will not charge any fees to cover the salary of the Fund Manager or internal delivery costs for the competition, grants and contracts. This provides additional value-for-money. In-novate UK’s Round 6 of the Energy Catalyst supported 20 energy storage projects over twelve months for a £10 million fund. We would expect to support a similar number of projects through the £10 million energy storage innovation funding.

In the case that the ADB is used in the future as part of the flexible funding pool to deliver the next theme that was identified as needing support (smart energy), the standard ADB service fees that are charged to contributions from donors to the ADB’s Clean Energy Financing Partnership Facility (CEFPF) would be used. The fees are: i) 5% of the amount disbursed for grant components of investment projects up to US $5 million, or 2% (with a minimum of US $250,000, whichever is greater) of the amounts disbursed for the same type of grants above US $5 million; and ii) 5% of the amounts disbursed for technical assistance operations. We deem these fees to be appropriate, as these are the fees that we have previously agreed with the ADB for our funding to the Clean Energy Fund and the CCUS Fund, which both come under the CEFPF.

5.5Due DiligenceBespoke due diligence assessments are not required for the delivery partners: existing due diligence assessments are up-to-date for the World Bank and the IFC, and as Innovate UK is a Non-Department Public Body (NDPB), its systems and processes are similar enough to BEIS for this not to be required. Furthermore, Innovate UK has delivered ODA through DfID-funded programmes in the past. Additionally, BEIS legal advisors have conducted legal assessments to ensure that Innovate UK is compliant with ODA and State aid requirements. The risk of the energy storage funding being challenged regarding compliance with the International Development Act 2002 is low and that the risk of a challenge being successful if brought is low. As part of the 2019 annual review of DfID’s Transforming Energy Access (TEA) programme, DfID rated the performance of Innovate UK’s Energy Catalyst team as A+.

Our proposed approach for addressing any performance issues with the three delivery partners is to withhold payments for particular periods where performance and/or need is lower-than-expected, as stated in the Financial Case. This will be stated clearly in the administrative agreements and MoUs with the three delivery partners. Furthermore, where underperformance is identified for a particular delivery partner, we will commission a light-touch due diligence assessment to be undertaken.

Management Case

6.1 OverviewThe new clean energy innovation programme will be overseen and managed by the BEIS ICF team and delivered through three delivery partners (the ICF, the World Bank and Innovate UK), as discussed in the previous cases. Due to the three components of this programme, which involves three funds and three different (but related) procurement routes, and the strategic need for us to be more involved in directing the funding and monitoring the performance of supported projects, the programme requires a

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small team of new resource to manage it. We calculate that two 1.0 SEO FTE of new resource plus 0.5 G7 FTE of existing resource is required. This is the minimum required resource for the programme to be implemented.

6.2 Resourcing and Responsibilities The Senior Responsible Owner (SRO) for the programme is Kate Hughes. Due to the reasons outlined above, we estimate that the minimum resource requirements to deliver this programme are two 1.0 SEO FTE of new resources and 0.5 G7 FTE of existing resource.

G7 0.5 FTE of existing resource is required due to the scale, complexity, risk and innovative nature of the programme. Responsibilities include overall leadership of the programme, providing strategic direction, representing the UK on the programme board and steering committee, representing the UK at relevant international events, leading the policy work on international clean energy innovation (particularly for the themes supported by the programme, such as sustainable cooling, energy storage and industrial decarbonisation), and line managing the two 1.0 SEO FTE of new resources. The split of activities between the two SEO FTE 1.0 of new resources is summarised below:

SEO FTE 1.0: managing the sustainable cooling and industrial decarbonisation fundso Managing the delivery partners for the sustainable cooling and industrial decarbon-

isation fundso Undertaking day-to-day programme management activities (such as risk manage-

ment, quality management, communication with the delivery partners, stakeholder engagement and financial management)

o Supporting the other SEO FTE 1.0 on monitoring & evaluation activities related to the sustainable cooling and industrial decarbonisation funds (such as supporting the annual results collection process, the annual review and updates to the Pro-gramme Delivery Plan)

o Organising events related to the programme and/or to the specific funds for sus-tainable cooling and industrial decarbonisation (such as launch events, matchmak-ing events and dissemination events)

o Supporting the 0.5 G7 FTE on policy and strategic work and leading the policy work for international cooling and international industrial decarbonisation (such as managing reactive commissions, liaising with domestic teams, and feeding into BEIS and HMG strategies)

SEO FTE 1.0: managing the energy storage fund and monitoring & evaluationo Managing the delivery partners for the energy storage fund and the on-going inde-

pendent evaluationo Undertaking day-to-day programme management activities (such as risk manage-

ment, quality management, communication with the delivery partners, stakeholder engagement and financial management)

o Leading the programme-level monitoring & evaluation (such as leading and man-aging the annual results collection, annual reviews and the updates to the Pro-gramme Delivery Plan), including managing the monitoring & evaluation for the en-ergy storage fund and working with the other SEO FTE 1.0 to gather data and in-formation on the performance of the sustainable cooling and industrial decarbon-isation funds

o Organising events related to the programme and/or to the energy storage fund (such as launch events, matchmaking events and dissemination events)

o Supporting the 0.5 G7 FTE on policy and strategic work and leading the policy work for international energy storage (such as managing reactive commissions, li-aising with domestic teams, and feeding into BEIS and HMG strategies)

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We estimate that the required internal resource for delivery partners for the sustainable cooling fund is: two 0.5 FTE project leads supported by one 0.5 FTE industry specialist and one 0.5 FTE analyst support. This is based on the experiences of previous TechEmerge programmes and discussions with the IFC. We envisage that the internal resource requirements for the World Bank to be similar for the industrial decarbonisation fund, which will use a similar delivery model to the TechEmerge pro-gramme.

Through discussions with Innovate UK based on their experience of six previous Rounds of the En-ergy Catalyst, we estimate that the required internal resource for Innovate UK for the energy storage fund equates to: 4.32 FTEs: 0.20 FTE for competitions, 1.20 FTE for claims, 0.85 FTE for monitoring, 1.47 FTE for grants and contracts, 0.10 FTE for finance and 0.50 FTE for an innovation lead.

6.3GovernanceFigure 7 summarises the governance for the programme, both at the programme level and the indi-vidual fund level. The SRO is accountable for the programme, the 0.5 G7 FTE is responsible for the programme as the programme manager, and the two 1.0 SEO FTE are responsible for the manage-ment of the individual funds and for monitoring and evaluation activities.

At the programme level, there will be a steering committee made up of ICF staff (the G7 programme manager, the two SEO fund-level managers, the Deputy Director for Policy & Investments and the G6 Head of Decarbonisation) and SICE staff. The programme manager will chair and lead the steer-ing committee, which will consist of quarterly updates and discussions on the performance of the pro-gramme. The programme steering committee will also be the main route for engaging with wider cross-HMG activities on energy innovation, such as the cross-HMG Energy Innovation Board, the Single Integrated Plan, the International Energy Innovation Strategy Framework, DfID’s energy innov-ation funding, and BEIS’s ODA funding through the Newton Fund and GCRF.

At the individual fund level, each fund will have a steering committee made up of BEIS staff (the G7 programme manager and the SEO fund manager) and delivery partner staff (the fund manager and the project leads). The purpose of the steering committees is to track progress, implement improve-ments and make strategic decisions. Separate independent expert advisory networks will be re-sponsible for reviewing all project proposals and ensuring that the funding is directed towards high quality projects. Delivery partners and BEIS staff will oversee this process through the steering com-mittees but will not be able to influence the outcome of the expert reviews to ensure a robust, inde-pendent expert process for making grant-funding decisions. This process has been particularly effect-ive in contributing to the success of the TechEmerge programme in other sectors, such as health (for the IFC and the World Bank), and the previous Rounds of the Energy Catalyst on energy storage (for Innovate UK).

Face-to-face consultation meetings (at least twice per year) will be held for each of the fund-level steering committees. Additionally, quarterly calls will be held for each of the funds and a requirement for at least six-monthly reporting of the results will be stipulated in the Administration Arrangements that we sign with the delivery partners.

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Figure 7: Governance for the clean energy innovation programme

For the external advisor networks, the IFC has established networks of ~35 technical specialists per TechEmerge programme, which we deem to be appropriate for both the sustainable cooling fund and the industrial decarbonisation fund. The role of the networks is to review pilot project applications and provide in-kind support to the programme. Specialists include industry specialists, venture investors, academics and thought leaders. Innovate UK’s established independent peer review process in-cludes the commissioning of five external expert reviewers per application, as discussed in the Ap-praisal Case, which we deem to be robust and appropriate for the energy storage fund.

As discussed in the Appraisal Case, the flexible funding pool will be used for the following purposes: To be used for any initial set up activities in the 2019-2020 financial year for the three themes

and for any early project activities that require support before the 2020/2021 financial year To be used as a source of top-up funding where initial demand is greater-than-expected for a

given theme To be used to support wider TA activities beyond the TA activities undertaken within suppor-

ted project proposals (TA activities will be a mandated component of all supported innovation projects to contribute to creating the enabling environments necessary for scaling-up and rep-licating promising innovations)

To support the next most important theme from the thematic options appraisal (smart energy) in the absence of the need for the above (or not spent if there is not sufficient demand for the theme)

The flexible funding pool will not fund travel costs or additional staff costs

The management and use of the funding in the flexible funding pool for any of the above purposes will be the responsibility of the BEIS programme manager. The BEIS programme manager will submit proposals for using the flexible funding pool to the programme steering committee to discuss and clearances will be provided by the ICF Deputy Director for Policy & Investments.

6.4Risk ManagementThis programme offers a strong fit with the ICF risk appetite for moderate to high investment risk, where the expected benefits have strong transformational potential, but may not be realised. There is an inherently higher risk that innovation projects will not deliver the desired outputs and outcomes as a result of context-specific challenges faced in some developing countries, but also due to difficulties in measuring outcomes that can be directly attributed to innovation projects. Furthermore, there is an expectation that some projects will fail (as is normal in the innovation process), but that valuable

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lessons can be captured and shared. As such, we assess the overall risk for the programme to be major.

Table 8 presents a summary of the risk threats assessment (including risk mitigation actions) for this programme. Probability and impact ratings are on a scale of 1 to 5 (low to high), following the standard BEIS and DfID processes for risk management. The risk level is then established by adding the two together (which gives a scale of 1 to 10, low to high), where 2 to 4 is green (minor), 5 is yellow (moderate), 6 to 7 is orange (major) and 8 to 10 is red (severe). Table 9 uses the same methodological process to assess and present the risk opportunities for the programme. Figure 8 provides a summary risk profile of the risk threats and Figure 9 provides a summary risk profile of the risk opportunities. Figures 8 & 9 also present the number of risks that fit into each part of the probability-impact matrix.

Almost certain >80%

Major (6) Major (7) Severe (8) Severe (9) Severe (10)

Likely >50%<80% Moderate (5) Major (6) Major (7) Severe (8) Severe (9)

Possible >20%<50% Minor (4) Moderate (5) Major (6) Major (7) Severe (8)

Unlikely >5%<20% Minor (3) Minor (4) Moderate (5) Major (6) Major (7)

Rare <5% Minor (2) Minor (3) Low (4) Moderate (5) Major (6)

Insignificant Minor Moderate Major Severe

For this programme, we identify five risk threats that sit around the ‘risk appetite’ line for HMG. However, none of these risks fall within the ‘severe’ category and we have established risk mitigation plans for all identified risks (as shows in Table 9). The SRO for the programme will have high-level accountability for the risks and will be kept regularly updated by the BEIS programme manager. The BEIS programme manager will liaise regularly with the BEIS fund managers and the delivery partners to ensure that the risk responses for each risk are carried out effectively. For this programme, we also identify four risk opportunities that are uncertain events that we might wish to exploit or accept.

Figure 8: Summary risk profile for risk threats

1

3

1

Figure 9: Summary risk profile for risk opportunities

Almost certain >80% Major (6) Major (7) Severe (8) Severe (9) Severe (10)

Likely >50%<80% Moderate (5) Major (6) Major (7) Severe (8) Severe (9)

Possible >20%<50% Minor (4) Moderate (5) Major (6) Major (7) Severe (8)

Unlikely >5%<20% Minor (3) Minor (4) Moderate (5) Major (6) Major (7)

Rare <5% Minor (2) Minor (3) Low (4) Moderate (5) Major (6)

Insignificant Minor Moderate Major Great

11

1

1

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Description Impact Probability Category Risk Response Description

Markets unable to absorb the amount of funds provided and therefore a risk of over-allocating funds that cannot be spent.

Major Possible >20%<50% 7

Response: ReduceDescription: The TechEmerge model involves a market assessment as part of the first stage. Furthermore, the flexible funding pool allows funds to be flexibly moved between different thematic funds based on demand.Owner: BEIS Programme Manager Actionee: Delivery partners

Markets requiring significantly more than the amount of funds provided and therefore a risk of having little climate mitigation and development impacts in these thematic areas.

Major Possible >20%<50% 7

Response: AcceptDescription: The TechEmerge model involves a market assessment as part of the first stage. Furthermore, the flexible funding pool allows funds to be flexibly moved between different thematic funds based on demand.Owner: BEIS Programme Manager Actionee: BEIS Programme Manager; Delivery partners

Differences in national regulations and policies may affect the ability for innovators to be more open with innovations and they might be unwilling to share information.

Major Possible >20%<50% 7

Response: ReduceDescription: To be eligible for funding, innovators must demonstrate how they will facilitate greater openness in innovation and knowledge-sharing.Owner: BEIS Programme Manager Actionee: Delivery partners

Given the novelty of this programme in ICF, there is a possibility that the mitigation and development impacts could be limited due to potential lack of scalability and replicability for certain promising innovations, or methodological challenges in demonstrating these impacts through monitoring & evaluation.

Moderate Likely >50%<80% 7

Response: AcceptDescription: We will carefully consider and monitor whether outputs are delivered effectively, feeding back learning to the programme, as well as sharing lessons for the benefit of other BEIS innovation programmes. There are various methods and processes that we will use to monitor progress.Owner: BEIS Programme Manager Actionee: BEIS Programme Manager; Delivery partners; Independent evaluator

MDBs (and other organisations) may not have the capability to deliver funds focused on clean energy innovation and RD&D, and therefore may not be viable delivery partners.

Major Unlikely >5%<20% 6

Response: ReduceDescription: We have held extensive discussions with the World Bank, the Asian Development Bank and other potential delivery partners, such as Innovate UK, to shortlist delivery partners that have the interest, capacity and capability to deliver innovation funds related to the three thematic areas.Owner: World Bank, Innovate UK Actionee: Delivery partners

Table 9: Summary risk opportunities assessment for the programme

Table 8: Summary risk threats assessment for the programme

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Description Impact Probability Category Risk Response Description

Demand for certain innovation support for certain thematic areas is less-than-expected, allowing other themes to be supported without committing additional ICF financial and people resources.

Moderate Possible >20%<50% 6

Response: AcceptDescription: The flexible funding pool allows funds to be flexibly moved between different thematic funds based on demand. Furthermore, we have established a process and a potential delivery partner to deliver any remaining funding in the flexible funding pool (a new fund on smart energy delivered by the Asian Development Bank within their CEFPF).Owner: BEIS Programme Manager Actionee: BEIS Programme Manager

Markets requiring more funding than is available could justify an extension to the programme, thus meeting the goal of the programme to be a longer-term vehicle for innovation support without requiring additional ICF people resources.

Major Possible >20%<50% 7

Response: AcceptDescription: We will track the demand for support for each theme, as well as regularly monitor the programme’s performance against the indicators in the logframe, to inform a decision on whether or not to provide further funding.Owner: BEIS Programme Manager Actionee: BEIS Programme Manager

Given the novelty of this programme in ICF, there is an opportunity to come up with new ways to deliver, measure, monitor and evaluate innovation programmes, particularly those focused on developing countries.

Minor Likely >50%<80% 6

Response: ExploitDescription: We will work with both ICF and SICE M&E advisors to develop an appropriate M&E framework that can be used for innovation programmes using ODA financing.Owner: BEIS Programme Manager Actionee: BEIS Programme Manager, BEIS ICF and SICE M&E advisors

Innovation programmes are historically uncommon within MDBs. Therefore, this is a chance for the UK to pioneer these types of (initially single-donor) programmes in collaboration with MDBs.

Minor Possible >20%<50% 5

Response: ExploitDescription: We will set up the three thematic funds as initially single-donor funds (with a view to potentially turning them into multi-donor funds at a later date) to test this innovative delivery model.Owner: BEIS Programme Manager Actionee: BEIS Programme Manager, World Bank

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Monitoring and Evaluation

7.1 OverviewAs this is one of BEIS ICF’s first technology innovation programmes, we will use this opportunity to learn from the monitoring and evaluation experiences of BEIS SICE’s energy innovation pro-grammes, as well as relevant DfID programmes (such as the Climate Innovate Centres (CICs)), to apply innovative methodological approaches for monitoring and evaluation for this programme. We will also apply innovative approaches for monitoring against Key Performance Indicator (KPI) 15 (on the potential for transformational change) that were developed in ICF’s Clean Energy Fund Technical Assistance (CEF TA) programme. In summary, the monitoring and evaluation approach will be based on the following approach:

Regular calls (at least once every two months) with the delivery partners to discuss progress Face-to-face meeting (at least twice per year) with the delivery partners to discuss progress

against the output, outcome and impact indicators in our Logical Framework (logframe) Logframe updated bi-annually (twice per year) and used as the main tool for recording pro-

gress, as per the standardised ICF process for monitoring and evaluation. The logframe will include both fund-level indicators and will track case study projects that are being supported in each fund. The logframe will be updated both by delivery partners and by the BEIS fund managers (from independent data collection)

Independent data collection by the BEIS programme manager and fund managers through on-the-ground fieldwork (at least once per fund per year), such as interviews with supported innovators, discussions with wider stakeholders at events, participant surveys from ‘match-making’ events and knowledge-sharing events, and calls with project leads directly

ICF annual results collection in January-March will form the main period for updating the log-frame and the annual review for the programme will immediately follow this process (which will be published). However, the logframe will be updated throughout the year as activities are undertaken and outputs are achieved to ensure a continual process for monitoring & evalu-ation. This will enable us to capture and disseminate lessons learned more effectively

An on-going, commissioned independent evaluation, which will feed in progress reports to BEIS staff on a quarterly basis, as well as conducting more detailed annual reports. Delivery partners have confirmed that they will ensure that the independent evaluators have full ac-cess to requested data, and we will guarantee this by including access to data in the Adminis-tration Arrangements that we sign with the delivery partners

7.2 Key Performance IndicatorsWe expect the delivery partners (the World Bank and Innovate UK) to prepare annual reports cover-ing the full calendar year on programme activities, outputs, outcomes and impacts, as well as to pre-pare semi-annual progress reports covering the first six months of the calendar year. These will be aligned to the two periods for updating the logframe and the delivery partners will be expected to up-date the logframe alongside the submission of the progress reports. Additionally, the delivery part-ners will be expected to submit a concise needs assessment document ahead of scheduled encash-ments or payments, as discussed in the Financial Case.

Due to the limited experiences of ICF with innovation programmes, the only relevant ICF KPI is KPI 15 on the potential for transformational change, which all ICF programmes must report against. As such, we have discussed relevant KPIs for innovation programmes with SICE M&E colleagues. Table 10 summarises the KPIs that we will report against for this programme.

Table 10: Key Performance Indicators (KPIs) for the programme

KPI  Performance Metric  Type of Indicator 

Actual achieved 2016-17 to 2020-21 

Potential up to 2035 

SICE KPI 1  Number of innovation projects supported completed

Output  X  

SICE KPI 2  Number of projects that have successfully Output  X  

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met objectivesSICE KPI 5  Advancement of low carbon projects –

Technology Readiness LevelsOutcome  X  

SICE KPI 6i) 

Initial financial leverage from the private sector

Impact  X  

SICE KPI 6ii) 

Follow-on funding Impact    X

SICE KPI 7i) 

A. Cheaper energy – reducing the unit cost of energy

Impact  X  

B. Cheaper energy – reducing the unit cost of energy – potential

Impact    X

SICE KPI 7ii) 

A. Increase in energy efficiency. Reduced energy demand

Impact  X  

B. Increase in energy efficiency. Reduced energy demand – potential

Impact    X

SICE KPI 9  Reduction in carbon emissions – potential Impact    X

ICF KPI 15  Extent to which ICF intervention(s) is likely to have a transformational impact

Impact  X

SICE KPI 5 and ICF KPI 15 form the two primary KPIs for this programme, though we will monitor against each of the KPIs in Table 10.

7.3 LogframeDuring the set-up phase for the programme, a more detailed logframe will be developed in discussion with the delivery partners (the World Bank and Innovate UK) and BEIS evaluators. However, Table 11 presents a high-level logframe for the programme, which outlines the proposed indicators for inputs, outputs, outcomes and impacts. This was developed from the Theory of Change that was presented in the Strategic Case. The monitoring strategy will be consistent with the ICF Results Framework. In addition to indicators at the programme level and the individual fund level, we will track case studies of individual projects in each fund, using a similar approach to ICF’s Clean Energy Fund Technical Assistance (CEF TA) programme. This will provide us with deeper insights into the performance of technologies on-the-ground at the individual innovator level. We will track supported projects until April 2023 to look at the longer-term impacts of how technologies are performing beyond their project end date.

7.4 EvaluationAs discussed in the Appraisal Case, £1 million of the £50 million programme will be used to commission an on-going independent evaluation of the programme throughout its initial phase (April 2019 to April 2023). This will allow the monitoring and evaluation of activities throughout the programme, which will enable a continual process of identifying, acting on and disseminating lessons learned. Evaluation advisors have deemed £1 million to be an appropriate level of resource for an on-going evaluation lasting the lifetime of the programme. Despite this, we will ensure value-for-money through the procurement process. For ICF’s Clean Energy Fund Technical Assistance (CEF TA) programme, which has similarities to this programme from an M&E perspective, we commissioned an evaluation plan to design an independent evaluation of the programme. This would cost £0.5 million and would be conducted once rather than as an on-going evaluation and would cover the one fund rather than the three funds that make up this new programme. As such, £1 million demonstrates good value-for-money, as each innovation fund could otherwise cost £0.5 million if evaluated independently of each other. The specific details of the terms of reference for the on-going independent evaluation will be drawn up following programme approval. However, in the Administration Arrangements that we sign with the programme delivery partners, we will include their agreement to participate fully in all monitoring and evaluation activities for the programme, such as quarterly progress reports to BEIS staff, the annual results collection process, logframe updates, the annual review process, and access to data, documents and information requested by the independent evaluators (on a quarterly basis).

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Table 11: High-level logframe for the programme

Component Description Indicators Source

Outputs

Number of projects supported with transformational change potential

- Number of innovation projects funded- Number of projects that have successfully met objectives

- Delivery partners (World Bank, Innovate UK)

Creating enabling environments (e.g. infrastructure, equipment and other resources provided outside of the initial funding)

- Number, type and quality of technical assistance activities under-taken as part of project activities

- Number of innovation projects funded- Number of projects that have successfully met objectives- Amount of wider finance leveraged

- Delivery partners (World Bank, Innovate UK)- Posts and in-country programme monitoring- Independent data collection (fieldwork, surveys,

calls)

Increased knowledge-sharing to encourage greater openness in innovation

- Number, type and quality of technical assistance activities (e.g. events, communication activities, publications, etc.) undertaken as part of project activities

- Number and type of stakeholders involved in supported projects

- Delivery partners (World Bank, Innovate UK)- Posts and in-country programme monitoring- Independent data collection (fieldwork, surveys,

calls)

Outcomes

Increased interest in clean energy RD&D under priority themes

- Amount of wider finance leveraged per project- Amount of wider finance leveraged per thematic fund

- Delivery partners (World Bank, Innovate UK)- Posts and in-country programme monitoring- Independent data collection (fieldwork, calls)

Innovation through advancement of TRLs of technologies closer towards commercialisation that result in cheaper energy and/or improved energy efficiency and emission reductions

- Number of projects that have advanced Technology Readiness Levels (TRLs) for innovative technologies

- Number of technologies that result in a) cheaper energy – reducing the unit cost of energy; b) increase in energy efficiency; c) reduced energy demand; or d) reduction in carbon emissions – potential

- Delivery partners (World Bank, Innovate UK)- Independent data collection (fieldwork, surveys,

calls)

Capacity and capability - Number, type and quality of technical assistance activities under-taken as part of project activities

- Number, type and quality of innovation projects funded- Number of projects that have successfully met objectives- Growth in existing SMEs and new SMEs established

- Delivery partners (World Bank, Innovate UK)- Posts and in-country programme monitoring- Independent data collection (fieldwork, surveys,

calls)

Replicability and scalability - Amount of wider finance leveraged per project- Amount of wider finance leveraged per thematic fund- Number of additional projects following support for initial pilot pro-

ject(s)

- Delivery partners (World Bank, Innovate UK)- Posts and in-country programme monitoring- Independent data collection (fieldwork, surveys,

calls)

ImpactsDeveloping countries reduce emissions through clean energy innovation

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Annex

8.1 Secondary BenefitsAs a result of this intervention, there are potential secondary benefits to the UK that have been identified, but which did not affect the options appraisal process for this programme. These include:

Increasing the UK's visibility and political soft power in the countries that are supported through the new programme

Increasing the UK’s leadership and reputation on clean energy innovation through interna-tional fora, such as Mission Innovation, UNFCCC climate negotiations and other international events

Providing opportunities for UK organisations with expertise in the supported themes (sustain-able cooling, energy storage and industrial decarbonisation) to export their knowledge, products and services by bidding into procurements from each of the three funds

Improving the UK’s networks through international collaboration Promoting UK leadership in greater openness in innovation and knowledge-sharing Influencing the strategic direction of clean energy innovation in beneficiary developing coun-

tries and thus contributing to helping those countries to meet their Nationally Determined Con-tributions (NDCs)

Improved alignment between the UK’s domestic and international climate and energy policies (for example, the Industrial Strategy’s £246 million of funding to develop battery technology in the UK, the UK’s co-leadership of the Mission Innovation heating and cooling innovation chal-lenge, and BEIS’s announcement at COP 24 in 2018 to provide £315 million for industrial de-carbonisation in the UK)

We will ensure that organisations, including UK organisations, are aware of the procurements that result from this programme. The Department of International Trade (DIT) might be interested in recording the UK companies that do participate in procurements that result from this programme for their own policy work, such as to help them to map out UK expertise in key themes (such as sustainable cooling, energy storage and industrial decarbonisation) for non-ODA purposes. For the energy storage funding, UK organisations will be the administrative leads for supported projects. This is due to the procedural requirements of Innovate UK (the delivery partner), which we cannot change. This is discussed further in section 4.3.

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