Examination of Witnesses (Questions 200
WEDNESDAY 30 OCTOBER 2002
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.
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 earlierif
you will forgive me, Brianwas 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 itand
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.
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.
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
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
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.
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 competeI do not know Japan as well
as I know the United Stateswe have either got to play on
the big stage and create some real winners in the industry, or
we might as welljust spending enough to fail is not that
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 inI
guess I am suggesting government moneyto 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
215. No, I was think carbon sequestrations on
(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.