Heat Pump Investment Accelerator Competition - Round 2

The Competition will award non-repayable grant funding for eligible capital costs (‘Grant Funds’) associated with the construction of a new heat pump (or related components) factory or the extension, expansion, retooling, refurbishing, or reworking of an existing facility. It must involve the manufacture of heat pumps and/or heat pump components, such as heat exchangers, compressors, evaporators, control systems or thermal storage that can be paired with a heat pump. 

As an accelerator scheme, projects that apply must have a realistic chance of commencing manufacturing activities and having drawn down all grant funding by no later than 31 March 2030. It is expected that all payments of Grant Funding will be made by 31 March 2030. In exceptional circumstances, this may be extended where it is deemed necessary.

Applicants’ projects will be monitored for a period of up to five years following completion of construction and commencement of factory operations, to ensure delivery aligns with the commitments made in the Competition application.

The total funding available for the Competition is fixed at up to £90 million, with the maximum amount available for any single project capped at £30 million.

Grant Funding may only be used to contribute towards eligible costs of the project. The intervention rate will be assessed on a case-by-case basis, however the amount of Grant Funding requested should be the minimum amount required for the project to proceed. This will be tested through the due diligence process and may result in the Department offering a lower rate of grant if the evidence provided supports this.

Eligible costs are defined as being capital expenditure (as defined in FRS 102) that is relevant to and facilitates the project.

Eligible costs will comprise plant and machinery costs, such as conveyor belts, casing, robotic arms, transportation modules, cutting equipment, brazing equipment, and testing chambers. Similarly, expenditure on fixtures and fittings will likely be eligible, such as for storage racks, lighting, alarm systems, work benches, computers, and other IT equipment.

Eligible costs also include building costs that facilitate the project, such as foundations, walls, access roads, framing, flooring, windows, and roofing. This could also include non- ‘bricks and mortar’ costs that can be capitalised under FRS 102, such as statutory fees, consultancy fees, and insurance.

Similarly, the costs for the general design, development, and management of a project will fall within the scope of Eligible Costs, so long as they meet the definition of capital expenditure under FRS 102. This means that more speculative design costs might be excluded, or the internal cost of senior personnel who might be advising on the project (such as directors).

In the case of a hybrid boiler/heat pump factory, eligible costs will be pro-rata of the expected value of the heat pump units and/or heat pump components production against the value of the total production of the factory up to 2034.

Staff costs, including training, heat pump installer training, as well as research and development costs, are not within the scope of eligible costs, as these are already supported under other Government schemes. However, any installer training and research and development activity included within the project (and any potential benefits they generate) will be considered as part of the scoring process for assessing applications.

Applicants will be required to provide their own substantial contribution to the investment costs of their project. The Department must see significant evidence that the applicant’s commercial interest is aligned with the use of public funds, more details of what is required are provided under the Strategic Alignment Assessment criteria.

In the event of multiple projects requesting grant funding through the Competition in the same product category (e.g manufacturing thermal storage), the Department retains the option to award funding across different product categories, in order to align with wider strategic objectives. Projects across all different product categories will still need to meet all of the criteria of the Competition and have scored above the minimum requirements.

Setting the Standard: What “Good” Looks Like for New Factory, Expansion, and Refurbishment Proposals

New Factory

A strong proposal for a new factory should clearly define the manufacturing scope, with a focus on high levels of on-site production and efficient modern processes, such as automation and robust monitoring. It should demonstrate significant cost and non-cost benefits for consumers, including lower installation and maintenance costs, reduced environmental impact, and improved product features. The proposal must show futureproofing and scalability, robust training, research and development plans and a credible route to market with established distribution networks. Comprehensive supporting documentation and evidence of a capable, experienced team, sound project management, and risk strategies are essential, alongside compliance with all eligibility and subsidy control requirements.

Expansion of Existing Facility

A good expansion proposal should set out the specific enhancements to capacity, technology, or product lines, and explain how these build on current operations. It must show how the expansion will deliver efficiency gains and quantify the resulting benefits, such as increased output or improved quality. The proposal should provide clear evidence of planning, board approval, and strategic alignment, as well as a strong case for why grant funding is necessary. All required supporting documents should be included, with particular attention to integration with existing operations, and the proposal must demonstrate robust deliverability and risk management.

Refurbishment

A high-quality refurbishment proposal should clearly justify the need for upgrades, detailing the issues being addressed and the expected improvements in efficiency, quality, or compliance. It should outline the specific enhancements to equipment or processes and demonstrate value for money, with quantifiable benefits for both the business and consumers. The proposal must provide evidence of thorough planning, financial modelling, and board approval, and show how the refurbishment supports the company’s broader strategy and future growth. As with other classes, all eligibility and subsidy control criteria must be met, and the proposal should include comprehensive documentation and demonstrate strong deliverability.