45. The DTI is the principal funder of energy-related
RD&D, even excluding the investment by the OST through the
Research Councils. The Department for Transport, the Department
of Environment, Food and Rural Affairs and the Forestry Commission
also fund energy RD&D.
Department of Trade and Industry
46. The Energy Group, one of the five DTI Directorates,
takes responsibility in Government for pursuing its objectives
of energy diversity, sustainability and competitive prices.
It funds support programmes in new and sustainable energy, cleaner
coal and oil and gas extraction. It will spend around £55
million on sustainable energy-related RD&D in 2002-03 (including
capital grants), which is part of £260 million in support
for renewable energy over the next three years (£10 million
of which will go to the Research Councils).
The RD&D programme supports the early demonstration of prototype
technologies (see Table 6).
Table 6: Examples of DTI-funded RD&D
Funded under the DTI's Renewable Energy Programme, a Northumberland based company, The Engineering Business have successfully developed their ideas for Stingray from concept through to demonstration stage. In September 2002 a full-scale prototype weighing 180 tonnes was successfully operated on the seabed in Yell Sound, Shetland.
The Beddington Zero Emissions Development in South London is a zero carbon development of 82 units, offering affordable, high quality housing incorporating photovoltaics. The DTI's contribution to the project was 25% with another 35% coming from the EU.
Funded under the DTI's Renewable Energy Programme, Cornish company Seacore has developed and built a special purpose rig, which will be used to help build the UK's first large scale commercial offshore wind farm at North Hoyle, Wales.
DTI have provided grant assistance of £1.6 million under the Renewable Energy Programme to Pembrokeshire-based company Tidal Hydraulic Generators Ltd to further develop their novel tidal stream device from concept stage through to prototype testing. The device will extract useful energy from marine currents by developing and utilising water turbines mounted on the seabed to generate electricity. The planned prototype device will operate underwater for at least one year and is expected to generate an average of 200 kW.
The DTI has provided grant support of £1.6 million to Ocean Power Delivery Ltd to further develops their offshore wave energy concept known as Pelamis. The aim is to build the first full-scale prototype later this year and test it at the proposed European Marine Energy Test Centre in Orkney.
The DTI are providing grant support of £2.1 million for Wavegen Ltd to further develop its oscillating water column technology. This has already been successfully demonstrated as a shoreline device in Islay in Scotland. The successful development of this concept will result in a modular device which could be produced in quantity in existing manufacturing facilities and provide an additional option for exploiting wave energy.
47. The DTI's rationale for supporting RD&D is that the social
rates of return on RD&D energy technologies that can help
to address to environmental problems are higher than private rates
of return and involve lengthy development timescales, making private
investment unlikely. The DTI applies seven criteria is deciding
what projects to fund:
- RD&D funding should be consistent with the delivery of
stated DTI's Energy Group or Government policy aims and objectives,
or inform the policy-making process.
- Evidence of one or more relevant market failures should be
- Funding should be related to themes or opportunities identified
by Foresight and contribute to wealth creation, jobs and the knowledge
- The principle of "additionality" should apply; i.e.
the DTI's Energy Group should avoid funding activities that would
otherwise be funded by industry.
- Funding should not duplicate RD&D and related activities
being undertaken overseas unless there is a clear rationale for
doing sointernational collaboration should be used to maximum
advantage and strengthen not weaken UK competitiveness.
- Funded projects and programmes should incorporate a technology
transfer/deployment plan; have reasonable prospects of being developed
to commercial success and/or the results can be utilised by the
Government and its agents to enable it to meet its regulatory
- RD&D support should have a clear industry focus; e.g.
the work should be relevant to industry's needs and include their
input on defining the RD&D and its evaluation.
The most contentious of these is evidence of one or more market
failures. According to the Tyndall Centre, this approach assumes
that the creation of new scientific and technical knowledge is
the main benefit of public research, whereas in practice, there
are other important benefits, such as skills training, stimulating
co-operation and collaboration and the creation of new firms and
industries. In short,
this betrays a simplistic view of the innovation process. Moreover,
in waiting for proof of market failure, opportunities can be missed.
The Energy White Paper recognises the interrelationship between
skills, research and innovation but provides no information as
to how this insight would be reflected in DTI funding policy.
The DTI seems to be looking for reasons not to invest in RD&D.
The Government must be doing more than filling in the gaps left
by the private sector and drive forward important technologies.
48. We are aware of criticisms that the DTI has not taken forward
small projects to demonstration. Dr Nigel Brandon from Ceres Power
said that "The DTI have struggled to help those few companies
that are involved in [the fuel cell sector].... there is a small,
focused programme that has run for a number of years for the fuel
cell sector specifically and that has been useful at getting a
number of UK companies involved in that sector, but time has moved
on. It is about how that area can be taken beyond a few small
research programmes into more of the demonstration stage. That
is an area that at the moment there has not been any funding made
Phillip Wolfe from the Intersolar Group agreed: "Quite often,
there is RD&D thrust at the beginning to get a technology
up and started and all of a sudden the effort comes to a grinding
halt somewhere short of commercialisation. You get to the stage
where you need further support to take something through to commercialisation
and the response comes back, 'That is too near term in terms of
the market. Industry should be paying for that'".
Brian Wilson denied that this was his approach and was critical
of some renewable energy companies: "they have to get out
of this perpetual R&D mode and into things that work and are
making a contribution to the energy needs of the country".
TXU told us that it had funding from the DTI for its fuel cell
programme but that "the procedure for obtaining support was
We have had positive comments on the DTI's activities. Dr Garry
Jenkins of Gazelle Wind Turbines described the SMART Award scheme
(not confined to energy) as "an exemplar", although
he did feel that the UK tended to focus too far ahead and leave
all the development to industry.
The Government has expressed its concern that the UK does not
derive sufficient commercial benefit from the excellence of its
science base. The DTI's inability to fund properly energy RD&D
projects is a clear case of its policies betraying the fine words
of its Ministers.
Department of Environment, Food and Rural Affairs
49. In addition to the funds channelled through DEFRA to the Carbon
Trust (£4.2 million and £8 million in 2002-03 and 2003-04
respectively), the Department funds a Community Energy Scheme
amounting to £20 million in 2002-03 and £30 million
in 2003-04. Strictly, this does not fund RD&D but aims to
install and refurbish community heating schemes, primarily using
CHP. DEFRA invests £700,000 on programmes looking at the
safe handling and storage of radioactive wastes.
50. The Forestry Commission has an interest in energy crops, to
which it contributes around £300,000 annually.
Government capital grants
51. The Government, in its consultation for the Renewables Obligation,
proposed that "a small number of early commercial demonstration
projects should be given additional funding in the form of grants
towards the capital cost of plant construction".
Capital grants enable energy companies make the step from RD&D
project to commercialisation. As such, their availability is an
important stimulus in the development of new technologies. The
distribution of DTI funding is less widely distributed between
technologies than its support for RD&D, probably reflecting
the maturity of the technologies (photovoltaic and wind technology;
see Table 7).
Table 7: DTI expenditure on capital grants for low
carbon energy technologies (£million)
Community and household
Other capital grants are available from the New Opportunities
Fund and DEFRA (planting grants for energy crops). The Energy
White Paper announced a further £60 million for the next
Spending Review period (2003-04 to 2005-06).
In March 2003, Brian Wilson announced that £40 million would
go to offshore wind projects.
New Opportunities Fund
52. The New Opportunities Fund is a Lottery Distributor created
to award grants to education, health and environment projects
throughout the UK. The Fund runs a renewable energy programme
worth £50 million over five years from 2003-04.
The programme has three priorities: projects generating electricity
from energy crops (at least £33 million), offshore wind projects
(at least £10 million) and small-scale biomass heating schemes
(at least £3 million).
53. The European Commission's research funding is allocated through
a series of "Framework Programmes". Energy RD&D
has formed a significant part of all previous European Framework
Programmes. In the Fifth Framework Programme (FP5), which ended
in 2002, non-nuclear energy RD&D was supported by the a sub-programme
called ENERGIE, with a budget of _1042 million over four years.
Nuclear RD&D is funded through the EURATOM programme, which
is part of the Framework Programme, but has a different Treaty
base, meaning that it is negotiated separately from the main programme.
Within EURATOM there are two programmes, nuclear fission (waste
management and safety) and fusion. The budget in FP5 was _1260
million, of which fission accounted for _142 million, fusion _788
million and nuclear research at the Commission's Joint Research
Centre _330 million.
54. FP6 runs from 2002-2006. It will continue to support energy
RD&D through its theme on "Sustainable development, global
change and ecosystems", which has a budget of around _800
million. The EURATOM programme budget will be _1230 million, with
_140 million for fission and _750 million for fusion. A further
_290 million will fund nuclear research at the Joint Research
Centre. Although the energy RD&D budget for FP6 is smaller
than FP5, the DTI believes that this is at the expense of fossil
fuel research and that support for renewable energy has been maintained.
We will return to EURATOM funding for nuclear fusion and fission
later in the report (see paragraphs 163-191)
55. There are large amounts of money potentially available to
UK researchers from the Framework Programmes and tremendous opportunities.
This prompted us to conduct an inquiry into"UK Science and
Europe: Value for Money?", which we announced on 21 November
2002. We will reserve our conclusions and recommendations on this
issue for this report but we have some observations based on the
evidence we have received during this inquiry:
- the application process seems to be extremely bureaucratic
- the low overhead costs paid by EU grants presents problems
of UK institutions;
- the emphasis on collaboration between large research teams
may place the UK at a disadvantage.
56. The European Commission's Directorate-General for Energy managed
a programme called ALTENER II from January 1998 until December
2002. It aimed to stimulate the development of renewable energy
sources. It also encouraged both private and public investment
in the production and use of renewable energy.
57. The Chief Scientific Adviser's ERRG report attempted to make
international comparisons of the UK's expenditure on energy RD&D,
using data collected by British Embassies around the world to
complement those produced by the International Energy Agency.
Although there are many gaps and estimates in the figures, UK
spending on energy RD&D clearly suffers by comparison with
its international competitors (see Table 8). For example, in the
years 1998 and 1999, the USA spent around $2 billion, France around
$600 million, Germany $300 million and the UK around $80 million.
The ERRG report recommends that "Spending, over time, should
be brought more in line with that of our nearest industrial competitors
Even if this were to occur, UK spending would compare poorly with
Japan's investment, which we heard about during our visit (see
Box 1). The UK is spending much less than its competitors on
energy RD&D. The PIU money and the Research Councils' new
Sustainable Energy Programme provide a welcome and long-overdue
boost to energy RD&D in the UK. We are pleased to see the
Chief Scientific Adviser recommending further increases in the
future and strongly urge the Government to make a commitment to
this end over a defined period.
Table 8: Selected government R&D budgets ($million)
Box 1: Japanese investment in energy RD&D
Japan's energy RD&D and deployment is overseen by the Government's Ministry of Economy, Trade and Industry, which sets out the basic policy and its budget. The policies are implemented principally by two agencies: the New Energy and Industrial Technology Development Organisation (NEDO) and the New Energy Foundation (NEF). Both were set up in 1980 as a response to the second oil crisis. NEDO is a semi-governmental body that funds the technological development of new energy technologies and their deployment in the industrial and public sectors. Its renewable energy budget in 2001 was ¥172 billion (around £900 million), of which ¥76 billion is spent on introduction and dissemination. On the RD&D side, ¥7.1 billion was spent on wind and solar, ¥12 billion on fuel cells and ¥5 billion on geothermal. Fuel cells are a major concern and NEDO's programme has defined development targets for different fuel cell technologies, including those using hydrogen fuel. Much of the funding goes to subsidise research being undertaken in industry, which we witnessed at Sanyo and Osaka Gas. NEF is a non-profit organisation which promotes deployment of renewable technologies and has an important role in maintaining an overall view of the development and deployment of technologies. It also administers the Government's residential photovoltaic subsidy scheme. In 2001 this subsidy amounted to ¥23.5 billion.
Nuclear fission and fusion research is undertaken by the Japan Atomic Energy Research Institute (JAERI). Its budget was ¥121 billion in 2001-02 (around £640 million, which is invested in nuclear safety, new reactor technologies and materials, and fusion. Japan is one of the countries bidding to host ITER (see paragraphs 184--191).
Collaboration and cohesion
58. There is concern that the large number of public funding bodies
results in a lack of cohesion between the different initiatives
and policies. The evidence we have received from these bodies
shows them to be at great pains to explain how closely they work
together. We were told of the Inter Departmental Group on Energy
Crops, led by DEFRA.
The Research Councils seem to run a large number of joint schemes
both between themselves and in collaboration with other bodies
such as the Carbon Trust. These are worthy ventures and while
they may make perfect sense to civil servants in Swindon and Whitehall,
we doubt that this view would be shared by the RD&D community
in either the public or private sectors. Professor Acres told
us "There are too many Government agencies involved in this
area and the picture is confusing".
Professor Ian Fells, Chairman of the New and Renewable Energy
Centre in Northumberland, wonders how Government Departments can
develop a coherent strategy: "I see no sign of any coordination
in their disparate approaches, nor does there seem to be any coordination
This view is shared by TXU which believes that "it would
be very helpful to make granting and support mechanisms for RD&D
in low carbon technology simpler and clearer. Currently there
appear to be a wide variety of granting initiatives underway from
a multiplicity of agencies and government departments. It is often
difficult to identify what is available and where to find out
59. The DTI has also been criticised for viewing projects seeking
funding as either too close to market or too speculative. Dr Andrew
Garrad, a wind energy consultant, told us "if you try to
gain money from the DTI for RD&D in wind, it is either too
commercial or not commercial enough. We find it virtually impossible
to find a meaningful route through the present DTI projects".
The EPSRC clearly has its own view of where its remit ends and
the DTI's begins.
We note Peter Hedges' comment that "We are conscious that
in the past our programmes have not been as well integrated with
the DTI's programmes as they could have been". The EPSRC
seems confident that the UK Energy Research Centre will result
in "greater co-ordination between the different funding agencies
with different responsibilities".
60. The Government set up in 2002 (meeting first in October),
a group headed by Sir David King with high-level representatives
from public energy funding bodies including Departments, Research
Councils, the Carbon Trust and the Energy Savings Trust. It aims
to improve the coordination of research and ensure that research
that is funded is in accordance with the recommendations of the
ERRG report. We welcome
this new initiative to improve the coordination of energy research
funding but we are concerned about its reliance on the ERRG report
for its guidance. The group admits that its review "had raised
many relevant issues which it had not had time to explore fully
in the short time available for its work" and that their
"recommendations, if accepted, will need to be filled out
by further detailed work, which is beyond the scope or our immediate
remit". It would
be unwise for the Government to base its energy RD&D strategy
on a short study based on three meetings. In relation to fuel
cells, the Carbon Trust told us it was considering, with the Department
for Transport and the DTI, setting up an "entry portal"
to simplify the process whereby prospective applicants for RD&D
support apply for Government funding.
Fuel Cells UK, announced in the Energy White Paper, does not seem
to embrace this function. We support the idea of a single entry
portal for those seeking support for RD&D in fuel cells, but
believe there is merit in extending the concept to embrace all
new energy technologies.
61. Sir David King seems to have high hopes for the UK Energy
Research Centre, providing linkages between different research
activities, not least with economists and social sciences.
The coordination of public funding bodies and research policy
in the field of energy RD&D has been poor. We shall be monitoring
the progress of Government and the Research Councils in improving
coordination with great interest. The establishment of a UK Energy
Research Centre is a step forward but we have little confidence
that it has the remit to solve the problem.
62. There is a tension in energy RD&D funding between providing
broad support for a range of technologies and funding certain
promising technologies selectively. It is unfortunate that the
latter option has been branded as "picking winners"
as this obscures the debate about how much support individual
technologies justify. It is our view that Government does have
a role in giving priority to those energy technologies where the
UK has strengths, in terms of resource, skills and knowledge,
and which have a chance of delivering real benefits, avoiding
the danger of spreading modest resources too thinly. We were pleased
to see the ERRG report identify six priority areas for research,
which Sir David King terms his "broad menu approach",
even if we do not necessarily agree with them. Of course, the
Government does prioritise. Looking at its planned energy RD&D
expenditure for the next few years (see Table 1), it clear that
the Government thinks that solar and biomass are high priorities.
63. In its review of UK energy policy, the International Energy
Agency describes the UK's RD&D policy as "mature and
circumspect" but suggests that "the priority and focus
among the Government's various RD&D objectives and programmes
could benefit from further clarification of the respective roles
of government and industry to efficiently facilitate the deployment
of new technologies". It also argues that the UK should clarify
the priority of different technology areas.
64. Not only is Japanese expenditure far higher than the UK's
($3580 million in 2000): it is also more targeted.
It supports a handful of technologiesnuclear fission and
fusion, photovoltaics, fuel cells and energy efficiencybut
gives less attention to wind, and very little to offshore technologies
(see Box 1). As a result, in some of these technologies Japan
is a world leader and has the largest amount of installed photovoltaics
in the world. We
appreciate the pitfalls, however. We were impressed by the scale
of Japan's fuel cell programme but we were interested in Dr Nigel
Brandon's view in this context that "There are a number of
technology programmes around the world, a number of them in large
corporations, where the approach taken will never result in a
cost effective product in today's climate".
65. We appreciate the Government's nervousness about saddling
the wrong horse. It would be roundly condemned if it were to put
millions into a technology which the market would not support.
One need look no further than the nuclear industry for instances
where this has occurred. Nevertheless, it is reasonable to
ask how the Government can have an energy RD&D policy that
does not embrace a vision of which technologies should be backed.
If the Government is worried about getting its fingers burnt,
the Danish experience with wind technologies is one that it would
do well to study (see Box 2). One cannot find a 'winner' without
picking some losers: finding solutions to problems requires the
research community to explore all reasonable paths in often unknown
and risky territories, and inevitably some will be dead ends or
'dry holes'. Thus risks have to be taken; the right strategy is
to pull out once an option has been explored and is a proven 'loser'.
The Government has the option of creating a framework of incentives,
such as tax credits for RD&D, which will devolve the responsibility
for picking winners (and inevitably some losers) to industry;
but it also has to make choices and take risks too, especially
in its support for RD&D, where it cannot avoid setting some
priorities. The Government has an important role in identifying
those of Britain's strengths that are consistent with the industrial
environment and the market. It should provide a clear and unambiguous
Box 2: The Danish experience
Denmark currently generates 18% of its electricity from wind and is responsible for over 10% of the EU's wind generation. It is the largest manufacturer of wind turbines, responsible for around 60% of global sales. Demark has achieved this by introducing a number of Government incentives, which have been introduced through a series of energy strategies dating back to the oil crisis of 1973-74. The current scheme, Energy 21, was launched in 1996 and lays down the policy agenda until 2030. Danish schemes both stimulate demand and technological development.
This law requires electric utilities to purchase output from private wind turbine owners at 85% of the consumer price of electricity plus ecotax relief or about Krone 0.62 per kWh. Electric utilities receive Krone 0.10 per kWh production subsidy for power generated by wind.
The Danish International Development Agency provides both direct grants and project development loans to qualified importing countries such as India.
Individual farmers or cooperatives have been given incentives to develop small wind clusters and utilities have been required to connect any new wind generation to the distribution grid. The cost of grid connection is split between the wind turbine owners and the electric utilities.
Research, Development and Demonstration
The Danish Government has long supported development of technology for its manufacturing industry. Between 1976 and 1996 period, total RD&D funding was about Krone 350 million (around £30 million). Demonstration projects received about Krone 170 million (around £15 million) over the same time period.
66. EPSRC also seemed shy on the subject of prioritisation. Looking
at its expenditure, it is clear that of the low carbon technologies,
photovoltaics and fuel cells are getting significantly more funding
that some other technologies such as wind or even wave and tidal,
which exploit the UK's natural resources.
EPSRC should be more forthright about why it has decided to support
some technologies and not others.
67. The Government seems nervous of being accused of picking
winners. As a result tough decisions have been avoided. We should
be selecting all of those research projects for funding which
we have the capacity to execute and which have a reasonable chance
of delivering solutions and significant benefit for UK society.
68. In the course of this inquiry we have encountered a large
number of Government bodies with interests in energy. We asked
Brian Wilson whether he had considered re-forming a Department
of Energy. He said that it had been abolished "for ideological
reasons" but that "energy is dispersed among various
Departments ... there will a lot of virtue in bringing it together".
He went on "everything I do suggests to me there are too
many organisations with functions which are not all that dissimilar
and which is a maze for people to find their way through, and
they are organisations with big budgets". It is therefore
extremely surprising that a Department of Energy was "not
really considered at any length".
We are disappointed that this idea did not warrant more serious
consideration, particularly given this Government's enthusiasm
for shifting departmental boundaries. Britain's energy structures
are too complicated. As a result, efforts to stimulate RD&D
are fragmented and directionless. No public body or Minister is
taking responsibility for driving forward technological innovation
and deployment. Much bolder action is needed to make non-carbon
technologies play a significant contribution to the UK's energy
mix. For this reason, we recommend the creation of a Renewable
Energy Authority. It should emulate the function of UKAEA in driving
the nuclear industry after the World War II. The Authority would
subsume the UKERC and the Carbon Trust, the DTI's energy programme
and the energy policy unit. It would:
- conduct applied research and development in selected technologies;
- conduct demonstration programmes, usually but not exclusively
in collaboration with industry;
- provide a fast-track planning service to non-carbon energy
- supervise infrastructural modifications to the grid and
distribution netwoks to facilitate the connection of distributed
Ev 101 Back
Ev 101 Back
Ev 118 Back
Ev 104 Back
Ev 42 Back
DTI, Our energy future-creating a low carbon future, Cm
5761, February 2003, para 7.21 Back
Qq 263-264 Back
Q 267 Back
Q 597 Back
Ev 30 Back
Ev 8 Back
Ev 112 Back
DTI, New & Renewable Energy: Prospects for the 21st Century-The
Renewables Obligation, Preliminary Consultation, October 2000,
annex C Back
DTI, Our energy future-creating a low carbon future, Cm
5761, February 2003, para 4.13 Back
Speech to British Wind Energy Association's Offshore Wind 2003
conference, 26 March 2003. Back
Ev 118 Back
Ev 105-106 Back
Q 157 Back
Q 161 Back
Q 165 Back
OST, Report of the Chief Scientific Adviser's Energy Research
Review Group, February 2002 Back
As above, para 23 Back
As above, para 29 Back
Source: International Energy Agency Energy Technology R&D
Statistics Service; OST, Report of the Chief Scientific Adviser's
Energy Research Review Group, February 2002, page 37. n/a
= data not available Back
Ev 105 Back
Q 157 Back
Ev 6 Back
Ev 28 Back
Q 265 Back
Qq 33-37 Back
Q 37 Back
Ev 102 Back
DTI, Our energy future-creating a low carbon future, Cm
5761, February 2003, p 2 Back
Ev 63 Back
Q 574 Back
Q 568 Back
International Energy Agency, Energy Policies of IEA Countries:
The United Kingdom 2002 Review, pp 42-143 Back
Ev 120 Back
Data presented to us by the New Energy Foundation during our visit
to Japan in September 2002. Back
Q 293 Back
European Wind Energy Association briefing, November 2002, www.ewea.org Back
International Energy Agency, Wind Energy Annual 2000, pp
Ev 76 Back
Q 578 Back