Select Committee on Science and Technology Minutes of Evidence


Examination of Witnesses (Questions 200 - 215)

WEDNESDAY 30 OCTOBER 2002

MR DERRICK FARTHING AND MR BRIAN COUNT

Chairman

200.  It would be really helpful to see, from the many inquiries we have, the interaction between industry and universities. If you could provide those figures in some detail it would helpful.

  (Mr Farthing) Yes, we will submit a paper on that interaction.

Bob Spink

201.  Can I just ask you about the role of your technology centre at Ratcliffe in proving your competitive position through research and development?

  (Mr Farthing) I think there is existing technologies where, given existing technologies, we can use the know-how to give ourselves a competitive edge. There is emerging technology and there is keeping a watch on developments such as fuel cell developments, which are not really commercially there yet. They are a couple of years away. So in today's technology some of things we have developed actually enable today's operator to operate his power station more cost effectively and more efficiently. Some of the devices that we develop, as a laboratory cexperiment, we have turned into a commercial device and it aids the operator to operate more efficiently. The cleverest example I can think of is we use neuronet technology to actually operate a boiler more environmentally effectively than a simple operating system. And neuronet can maybe take a fortnight to learn how to run the boiler and then, after that, its learning power is so multi-dimensional it can operate the boiler to the best possible environmental effect. That is an example of something that we developed which is actually used in different power stations in the UK and the US and now in Australia. So there is an example of working with current technology. Emerging technologies, things like home heat and power. We see that as a mass market opportunity in the future and as such we want to be well placed to deliver that to the mass market and therefore we need to understand it very well.

202.  The message I was getting from Innogy earlier—if you will forgive me, Brian—was that you felt that the government regimes were forcing you into a position where you had to sweat the existing plant and leave development to other people. The feeling I am getting from Powergen is that they are much more open-minded on this and free thinking, looking forward. Would you like to comment on that?

  (Mr Count) Yes, I think probably we have a slightly different line. I think this country is very good at taking ideas to a point where we have done laboratory testing and we think it works. The issue then is who takes it—and let us look at Regenesys technology where we have had to pump a hundred million and probably we will have to pump as much in again to take it from that lab thing to reality in the marketplace.

203.  So we fall down at the market.

  (Mr Count) I think we fall down on that.

204.  I think we all agree with you.

  (Mr Count) I think ultimately yes, there is a part to play, but I do have commercial pressures. There is a level of risk that I am prepared to take, there is a level of risk that I cannot be prepared to take when it involves hundreds of millions of pounds. I would only decide have we got any examples where this industry has been able, over the last decade, to put money in what I would say is the first of a kind on the ground in the world stage. I cannot think of one.
  (Mr Farthing) But there is an opportunity.
  (Mr Count) Yes, and I think there is issues in if the market structure should allow this and you talked about grid operators. Why should grid operators do it? All that happens is that they get it smart, the Regulator takes it away the next time. It is not really great incentives to have it. So yes, there is a fundamental structure that by developing these technologies there is a risk, there is a cost associated with it, and one has got to address who is paying because it very difficult to convince our shareholders that they should take that risk.

Dr Turner

205.  What impact has the new R & D tax credit for large companies had on you? Is it going to stimulate you to do more R & D?

  (Mr Count) Can I say that we should do a note on this because ultimately we are investing some 30 million a year on Regenesys, which is a novel technology, world leading. Now as yet we have not yet figured out whether all of that expenditure on putting plant on the ground here and one in the United States qualifies. If it does not qualify, I will come back to you and say that is a problem, because we are taking that development risk. So we will come back to you on that. If it does qualify, then I would say it has a huge stimulus on the development side of the business.

206.  I think that is important. And Powergen?

  (Mr Farthing) Not too dissimilar response. I think without just saying an outright no to the question, I think so far we have seen little benefit. However, anything which is introduced which ultimately does lead to an incentive has to be a good thing in the environment that we are in. Our view at the moment is that we have not seen any benefit because the rules surrounding what can and cannot be claimed as such a tax credit, first of all, are not terribly clear and, secondly, they do not appear to favour the kind of things that we are doing. And yet, from the description that I have given you, I think you would agree the kind of things we are doing are appropriate. We believe they are appropriate. So in theory it is a good idea, but so far, in practice, it has not been a terribly good benefit.

  Dr Turner: I think the best thing, Chairman, is that we need a note from both companies on this because this could be quite a potent factor.

Chairman

207.  We need to follow this up. Could you offer us that, please?

  (Mr Count) Yes, we will.
  (Mr Farthing) Yes, we will. And may I respectfully suggest that you may have looked at some other countries and how they approach this and how they structure those—

Dr Turner

208.  I was just going to ask you about Japan, where energy research in industry is heavily subsidised. Would you welcome such a situation in Britain?

  (Mr Farthing) I do not understand the situation in Japan, I must admit. But I do understand something of it in America and I think it is somewhat similar. I think the answer is a simple yes. Yes please.
  (Mr Count) I may take a slightly different line. I think that we should be clear on policy here. What is the energy consumer paying for and what is the taxpayer paying for? I have no problem with development of technology if we want to—

Dr Iddon

209.  Are they not the same?

  (Mr Count) They are not entirely the same, but they come through different routes and there may be different politics in the way in which one or other is sourced and collected. But ultimately if you want a competitive market based industry, then I think I worry that we get confused with subsidy and what gets passed through to the consumer. I think openness in that is very clear. If the Energy White Paper wants a centralised planned energy economy, then you can do it. But I think that is an issue rightly for Government and the White Paper on Energy Policy.

Dr Turner

210.  What do you think of the DTI's R & D support schemes to encourage industrial involvement in research? Are they working? Do you think they could more? And if so, what?

  (Mr Count) Can I take a good example? I think DTI has been quite good in terms of helping us as much as they can with Regenesys, but it is small. The US Department of Energy is putting $200 million into fuel cells and Regenesys competitors. We are lucky if we get a million pounds. The second issue is we got offers from Europe, but the condition of that was all the intellectual property was shared. Having invested a lot of money, the intellectual property is what I want to make some money out of. So I think there is a huge difference in philosophy here. So I can compare, I think they are being as helpful as possible, but if we are going to compete—I do not know Japan as well as I know the United States—we have either got to play on the big stage and create some real winners in the industry, or we might as well—just spending enough to fail is not that great.

211.  So do I gather that you are not planning to bid for funds from the EU's Framework?

  (Mr Count) Not on Regenesys, no. We will not give our intellectual property away because otherwise all our value to date is destroyed.

212.  Do you have the same inhibition?

  (Mr Farthing) We actually submitted expressions of interest for Framework 6 on basically carbon reduction work and, again, if you wish I could submit a paper that lists those expressions of interest. We have done that. We would have done that anyway as a UK-based company, but with our German colleagues in Eon we have actually submitted joint papers as well.

213.  So you are less worried about the IPR problems? You are less worried about losing control of IPR?

  (Mr Farthing) I think we feel we have a handle on IPR. It is a concern, that is true, but I think ultimately we have come to the conclusion that it is better to be a part of something bigger and get the bigger benefit. The other question about the DTI, I think it is right for the DTI to cover a range of technical options when it comes to sponsorship of R & D. There is no one single answer here. A range of answers will take us through the continuum of improving the carbon position of the country. But if the DTI was to think big, my suggestion would be that carbon capture sequestration demonstration plant that was big enough to actually prove an industrial scale process is, I believe, the most effective way of reducing carbon given today's energy infrastructure. It is very cost effective as well as being, as it were, technically effective. I think it is cost effective. But no one company would be able to resource the investment needed to build an industrial scale demonstration plant. If we were to do that, during the dash for gas days the UK actually moved into the lead on carbon reduction across the globe. Since the dash for gas, we are clearly falling back a little. I think earlier witnesses would agree with that. I think if we were to look at carbon capture sequestration positively and put some money in—I guess I am suggesting government money—to support a demonstration plant, we could move back into the front position because we have the North Sea absolutely there on the doorstep and it is possible to inject the carbon dioxide into North Sea oil wells. It has a further benefit to oil companies in that it allows further oil recovery. But it is immediate disposal of CO2. And it does retrofit. It has a potential retrofit into an existing industry. It is not a completely new installation. It is a retrofit on the exhaust of an existing installation.

214.  Pity you cannot do a car size one.

  (Mr Farthing) We have actually done work on transport. Transport is a very big energy consumer and in the days of fuel cells, 30 years in the future, we could have cars that we park in the garage and they supply the electricity for the house.

215.  No, I was think carbon sequestrations on people's exhausts.

  (Mr Farthing) Oh, right.

  Chairman: Can I say thank you very much for your patience and giving us your thoughts and ideas. It has been very helpful and when the report comes out, hopefully it will make a mark on the policy of the Government. Thank you for sharing that and we look forward to your submissions. Thank you very much. My apologies for the break and intermission.





 
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