House of Commons - Innovation, Universities, Science and Skills

Select Committee on Innovation, Universities, Science and Skills Fifth Report

4 RESEARCH FUNDING

86. The UK's public energy RD&D expenditure, including that on renewable energy, fell significantly after the collapse of oil prices in the mid-1980s and subsequent market liberalisation.[101] Excluding nuclear fission, the UK budget for energy R&D was €400 million in 1983, €80 million in 1995 and €50 million in 2004. Further, although UK expenditure on renewable energy RD&D is now increasing, it is still substantially lower than some other countries. The Institute of Physics report that, in 2005, investment in renewables RD&D totalled $68million in the UK, $123million in Germany, and $255million in the United States.[102]

The funders

87. UK energy-related RDD&D is currently funded by a number of national and international organisations. As shown in Figure 2, funding organisations can be broadly classified as supporting one of three stages in a technology's life cycle: research and development, demonstration or deployment. We describe the role of a number of funding organisations below.

Source: Ev 282

THE RESEARCH COUNCILS

88. The Research Councils have a key role in supporting the fundamental science that underpins energy-related research. Expenditure on energy research by the Research Councils increased from £40million in 2004-05 to £77million in 2007-08. Over the same time period, spend on renewable energy increased from £8.3 million (a 21% share) to £18.8million (24%; Table 5).

Table 5. Research Council spend on renewable energy research
	2000-01	2001-02	2002-03	2003-4	2004-5	2005-6	2006-7
Wind	£260	£330	£490	£481	£242	£125	£1,140
Solar	£4,125	£4,666	£3,927	£3,834	£4,179	£4,065	£3,685
Fuel cells & Hydrogen	£981	£1,463	£1,984	£2,687	£2,393	£2,705	£3,074
Wave & tidal	£300	£605	£616	£830	£995	£1,026	£1,080
Bioenergy	£622	£752	£927	£1,177	£1,249	£2,023	£2,646
Geothermal	£40	£64	£63	£73	£79	£106	£124
Storage	£837	£888	£809	£730	£466	£789	£1,193
Networks	£919	£1,114	£1,388	£1,804	£2,390	£3,666	£4,037
Other renewable	£267	£432	£587	£453	£1,220	£1,315	£2,380
Total	£8,356	£10,318	£10,795	£12,072	£13,218	£15,822	£19,359

Source: Ev 217

89. In addition to supporting energy-related research under their own programmes, the Research Councils have established a cross-council multidisciplinary Energy Programme. Launched in 2005, the Programme is co-ordinated by the Engineering and Physical Sciences Research Council (EPSRC) and involves the and Biotechnology and Biological Sciences Research Council (BBSRC), Economic and Social Research Council (ESRC), NERC and the Science and Technology Facilities Council (STFC). The programme is expected to spend circa £300 million during the period 2008-11.[103] Funds are distributed via responsive mode grants for individual project proposals, training funds for research leaders, and multidisciplinary research consortia.

THE ENERGY TECHNOLOGIES INSTITUTE

90. Budget 2006 announced the creation of an Institute to accelerate the development of low-carbon energy technologies towards commercial deployment. In September 2007 it was announced that this body, the Energy Technologies Institute (ETI), would be hosted by the Midlands Consortium[104], which comprises Loughborough, Birmingham and Nottingham Universities, with the ETI's headquarters to be located at Loughborough.

91. Dr David Clarke, Chief Executive of the ETI, told us that the Institute will fulfil a unique role in "de-risking" technologies.[105] That is, it will support technology demonstration rather than fundamental research or full-scale deployment. In doing so, it is hoped that the ETI will bridge what the Renewable Energy Association have termed the "valley of death" in the innovation chain (the pre-commercial stage between technology development and full market deployment).[106]

92. The costs involved in testing new devices are substantial, and the availability of dedicated facilities is key. The BWEA highlight the wave and tidal sector as an example of an industry where a number of demonstration facilities are coming online: the New and Renewable Energy Centre, Blyth, European Marine Energy Centre, Orkney, and WaveHUB, Cornwall.[107] We would like to see the same level of support given to other sectors in the renewable electricity industry and were pleased that Dr Clarke was of the opinion that:

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93. We welcome the creation of the Energy Technologies Institute and view it as playing a key role in supporting pre-commercial technologies through the 'valley of death' and into the market place.

94. Further, we recommend that the ETI establish a test platform for offshore wind technologies.

Funding structure

95. The ETI is a 50:50 public-private partnership. The Government has committed to providing the Institute with matched funding of up to £550 million over 10 years, creating a potential budget of £1.1 billion. The public sector contribution will be provided by the Technology Strategy Board (40 per cent) and by DIUS (60 per cent).

96. DIUS's contribution to the ETI is paid out of the Science Budget, and for the period 2008-11 will be met by EPSRC. EPSRC's 2008-11 delivery plan commits £60 million to ETI, and £21 million of spend has already been allocated.[109] Professor Bruce, Royal Society of Edinburgh, told us that EPSRC's responsibility to fund the ETI is a matter of "real concern to the research community"[110]:

111

97. We share the concern that EPSRC may be forced to reduce support for basic research in order to fulfil its commitment to ETI. EPSRC told us that "there would have been other priority areas to consider for further funding as well as energy if EPSRC had not been asked to fund ETI",[112] and Dr Paul Golby, ERP, was of the opinion that "the Government have come up with matched funding [for ETI] but it has probably got there through taking money from other areas in the pure research area", a sentiment with which Dr Alison Wall, EPSRC, agreed.[113]

98. We believe that the Research Councils are unique in their support for basic and speculative research and that their research budget should not be compromised by the Government's commitment, however laudable, to provide increased support for technology demonstration. As such, funding for ETI must be over and above that allocated to the EPSRC Energy Programme.

99. Public sector funding for the ETI is subject to EU State aid rules which limit the proportion of public funding for a particular project depending on the classification of the type of work being carried out. For any given project, the ETI hopes to match public monies with finance from its industrial partners. However, in order to fund projects at 100 per cent of cost, the ETI has applied for State aid approval. Lodged in October 2007, the application is currently being considered by the European Commission with a decision expected in Summer 2008.

Intellectual property rights

100. The Renewable Energy Association has expressed concern regarding the intellectual property rights (IPR) for projects undertaken in partnership with the ETI. In short, they are concerned that SMEs collaborating on ETI-funded projects will effectively have their IPR 'stolen' by the Institute's industrial partners.[114] When asked about the Renewable Energy Agency's concern, Dr Clarke responded:

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101. The potential for SMEs to drive the creation of new ideas was recognised by the Government in the 2008 science and innovation White Paper, Innovation Nation[116], and it is essential that concerns over IPR do not dissuade innovative SMEs from participating in ETI-funded projects. Further, as 50 per cent of funding for ETI comes from public money, IPR generated from ETI-funded projects should not necessarily be made the sole concern of the Institute's corporate partners.

102. It must be recognised, however, that there is a careful balance to be struck between meeting the wishes of SMEs, and rewarding the Institute's investors. The finance raised from the ETI's industrial partners is central to the Institute's ability to support technology RD&D, and it is likely that large corporate firms would be reluctant to invest in an institute from which they received little return in terms of IPR generated under projects they have part-funded.

103. It is essential that the ETI addresses the concerns of SMEs with regard to the exploitation of intellectual property (IP) generated during ETI-funded projects. We believe that ETI's guidelines on the exploitation of IP should be formulated to encourage interaction between SMEs and the Institute's partner organisations.

THE CARBON TRUST

104. The Carbon Trust was set up by Government in 2001 as an independent company. Its mission is "to accelerate the move to a low carbon economy by working with organisations to reduce carbon emissions and develop commercial low carbon technologies".[117] Since its creation, the Carbon Trust has supported projects spanning the innovation spectrum (from R&D through to early stage venture capital investments). In collaboration with the ETI, the Carbon Trust has launched a £40 million fund for projects aimed at cutting the costs of offshore wind power and accelerating its deployment around the UK.

THE UK ENERGY RESEARCH CENTRE

105. The UK Energy Research Centre (UKERC) was established in 2004 following a recommendation from the 2002 review of energy initiated by the Government Chief Scientific Adviser. Funding for the Centre was allocated in the 2002 Spending Review.

106. Based at Imperial College London, UKERC is headed by Professor Jim Skea, Research Director, and John Loughhead, Executive Director. UKERC organises its networking and research activity under six related themes: demand reduction; future sources of energy; energy infrastructure and supply; energy systems and modelling; environmental sustainability; and materials for advanced energy systems. The Centre's work also encompasses four functions: technology and policy assessment; meeting place; research register; and energy data centre.

GOVERNMENT FUNDING PROGRAMMES

The Environmental Transformation Fund

107. On 1 April 2008, the Government launched the Environmental Transformation Fund (ETF) to invest in low carbon and energy efficiency technologies. Funds within the domestic element of the ETF, led by the Department of Food and Rural Affairs (Defra) and BERR, will total £370 million between 2008-09 and 2010-11.[118] The ETF also comprises an £800 million international fund, to focus on poverty reduction and environmental protection, and to help developing countries to tackle climate change.

108. The budget for the ETF's domestic fund is not wholly uncommitted. For example, the ETF incorporates the Sustainable Energy Capital Grants formerly administered by BERR. E.ON UK told us that, when existing commitments are taken into account, the overall funding uplift of approximately £170 million is likely to be insufficient to support large-scale demonstration and deployment of new low-carbon energy technologies.[119] This concern was echoed by Dr Golby (ERP):

120

Capital Grants

109. Concerns over the Government's funding programmes for energy-related RDD&D were not limited to the adequacy of the financial resource available. Speaking of the Government's Capital Grants programme, Dr Paul Golby, ERP, said "we have quite a number of let me call them pet schemes floating around which are subscale and not delivering a bang for the buck".[121] He went on to suggest that the Government's funding programmes should be subject to "a humane cull".[122]

123

110. During our inquiry, we heard particular concern as to the ability of the Low Carbon Buildings Programme to deliver on its objectives.[124] We consider this programme, together with the Marine Renewable Deployment Fund, in more detail below.

111. We recommend that BERR urgently review their funding programmes for energy-related research in order to ensure they are able to support the RDD&D necessary to meet the UK's 2020 renewable electricity targets.

Low Carbon Buildings Programme

112. The Government supports the deployment of microgenerators via the Low Carbon Buildings Programme (LCBP). The programme, managed by BERR, provides grants for the installation of microgeneration technologies. Householders, for example, can apply for grants up to £2,500 per property towards the cost of installing a certified product by a certified installer. Eligible technologies include PV, wind turbines and renewable CHP.

113. Launched in 2006, the LCBP was designed as a three-year grant programme to stimulate the microgeneration industry. While acknowledged to have been helpful initially, we found little support for the LCBP in its current form.[125] Concerns regarding the LCBP were two-fold. First, the grants administered were considered too small[126], and second, as summarised by Dave Sowden of the Micropower Council, the grant-based form in which support is delivered was deemed inappropriate:

127

114. We note that since completing our evidence sessions the Government has announced several changes to the LCBP. For example, since 1 April 2008 public sector organisations and charitable bodies can apply for 50 per cent of the cost of installing approved microgeneration technologies. However, these changes fail to recognise the industry's concerns that a grant-based system is neither effective nor sustainable.

115. We recommend that the Government review the role of the Low Carbon Building Programme, and consider whether it is still a necessary and/or appropriate form of support. We suggest that the Government consider using this financial resource to reward installers for the amount of electricity they generate, rather than to support the installation of a microgeneration device. Further, we urge the Government to re-examine the role of renewable energy in the Low Carbon Building Programme.

Marine Renewable Deployment Fund

116. The Marine Renewable Deployment Fund (MRDF) is a £50 million fund launched in 2005. To date, it has provided support to facilities such as the European Marine Energy Centre, Orkney. The core of the MRDF is its £42 million Wave and Tidal-stream Energy Demonstration Scheme. The Scheme was designed to take forward the demonstration of early stage pre-commercial wave and tidal stream technologies that have completed their R&D, but that are not yet commercially competitive. The Fund provides 25 per cent capital grant and a revenue support payment of £100 per MWh.

117. We were surprised to find that since being launched there have only been two applications to the Demonstration Scheme. Neither of these applications proceeded, however, as they failed to meet the Scheme's eligibility criterion of 3 months continuous operation or 6 months operation with occasional breaks.[128] Mrs Sarah Rhodes, BERR, expressed the Government's concern at the lack of spend, but pointed out that the Scheme retains the support of the offshore renewables industry.[129]

118. In our opinion the Demonstration Scheme is a valuable resource. One of the primary reasons for the Scheme's lack of spend appears to be that it was positioned to fund technology deployment despite inadequate support for early-stage technology demonstration. We expect that ETI's wave and tidal programme will bridge this gap.

119. The MRDF was designed to support the deployment of marine technologies. However, it was launched in a funding landscape that did not provide adequate support for technology demonstration projects. As a result, marine energy devices failed to develop to the extent required to qualify for support under the MRDF. We recommend that BERR consult the Energy Research Partnership, Energy Technologies Institute and Renewables Advisory Board when developing future funding programmes, to ensure they are targeted appropriately.

European initiatives

In addition to national funding for research, there are a number of European programmes that provide support for energy-related RDD&D.

FRAMEWORK PROGRAMME SEVEN

120. Funding for energy research is available under the EU's Framework Programme for Research and Development. The Seventh Framework Programme (FP7) took over from FP6 on 1 January 2007 and will run for seven years. FP7 has a budget of ?2350 million for research under its energy theme.

121. Under FP7, projects need to have a minimum of three partners from three different nations. Two of these have to be Member States. The Institute of Engineering and Technology told us that "historically UK companies and research establishments have been under-represented EU energy research programme".[130] We note that the Government's white paper on science and innovation, Innovation Nation, reports that the Technology Strategy Board will develop a plan to help deliver a 'step-change' in the level of UK business participation in consortia competing successfully for grants in FP7.[131]

INTELLIGENT ENERGY EUROPE

122. Intelligent Energy Europe is part of a broader EU programme on Competitiveness and Innovation Programme which supports promotional sustainable energy projects and 'integrated initiatives'. The aim of the programme is to improve market conditions so to encourage the use of renewable energy sources and save energy. The programme has a budget of ?727 million, which will be used to co-finance international projects, events and the start-up of local or regional agencies.

EUROPEAN INSTITUTE FOR INNOVATION AND TECHNOLOGY (EIT)

123. The European Institute for Innovation and Technology (EIT) is a new initiative which aims to become a flagship for excellence in European innovation. Based on partnerships known as 'Knowledge and Innovation Communities' (KICs), the Institute aims to bring together Higher Education, Research and Business to "transform education and research results into tangible commercial innovation opportunities".[132] On 11 March 2008, the European Council announced that within 18-months of being established, two or three KICs would be established in the areas of renewables, climate change and ICT-technology. The location of the EIT headquarters will be determined by the European Council during 2008.

124. European funding programmes provide valuable support for energy-related RDD&D in the UK. We welcome the announcement that the Technology Strategy Board will take steps to increase the involvement of UK business in Framework Programme 7. Further, we believe that the creation of a European Institute for Innovation and Technology is an exciting development, and one with which the UK research base should actively engage.

The funding landscape

125. A common criticism made to us of the RDD&D funding landscape was that it was both overcrowded and lacking clarity.[133] This concern was summed up by the Renewable Energy Association:

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126. There are benefits to be gained from having a range of funding agencies. For example, as Professor Peter Bruce commented, "with a single body, you can have a uniformity of view, whereas if you have a number of bodies, they tend to occupy different parts of the landscape".[135] However, critical for any funding landscape is that applicants can easily identify the organisation best placed to meet their needs. The evidence we received suggests this is not currently the case.

127. In reviewing the funding available for energy-related research, the Energy Research Partnership (ERP) recommended that the Government establish a "linear supply chain" of research funders.[136] Essentially a national programme for energy-related research, the chain would comprise 'the Research Councils at the front end, the Energy Technologies Institute in applied research and the Environmental Transformation Fund at the tail end in terms of deployment'.[137]

128. Although we agree that the funding landscape requires clarification, we do not believe the concept of a "linear supply chain' is appropriate. As pointed out by the Minister, "there is never a final chapter to a technology"[138], and technologies may require support from funders in different 'spaces' in the landscape at the same point in time. To take PV systems as an example, first generation products are commercially available at the same time that basic research is being conducted into third generation nanotechnologies.

129. We find the funding landscape for energy-related RDD&D to be complex. We recommend that the Government review the role of each funding organisation, and that these roles be clarified and defined. Further, we recommend that the Government develop a strategy for communicating the remit of each funding body to the UK RDD&D community.

101 Ev 134, Institute of Physics Energy Management Group, Spring newsletter (2006), p 7 Back

102 Ev 72 Back

103 Ev 324 Back

104 Ev 328 Back

105 Q 165 Back

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107 Ev 283 Back

108 Q 201 Back

109 Ev 369 Back

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112 Ev 370 Back