House of Commons - Innovation, Universities, Science and Skills

Select Committee on Innovation, Universities, Science and Skills Written Evidence

Memorandum 56

Submission from NESTA

SUMMARY

1. While new renewable electricity generation technologies have a role to play in solving climate change, better use could be made of existing technologies.

2. In the UK, there is currently a strong attachment to high-emission technologies, which has been described as "carbon lock-in".[208] However, if climate change is to be tackled successfully, this attachment be broken—something that can be achieved through "disruptive innovation"—innovation that causes a shift in behaviour.

3. The Government should do more to support these disruptive innovations. However, current policy is too heavily focused on large-scale, linear, high-technology innovation. Achieving this could be brought about by a number of measures, including stronger direct communications between BERR, DEFRA and DIUS.

NEW RENEWABLE ELECTRICITY-GENERATION TECHNOLOGIES WILL HELP SOLVE CLIMATE CHANGE . . .

4. Current environmental innovation policy focuses on the creation and diffusion of new-to-the-world technology. Alongside general schemes and policies promoting innovation, such as R&D Tax Credits, Collaborative R&D Grants, and the Knowledge Transfer Partnerships—most of which can support environmental innovation—there are a small number of specific schemes to promote environmental innovation, such as BERR's New and Renewable Energy R&D Programme. The Energy Technologies Institute was established in 2006 as a 50:50 public-private partnership to research innovative low-carbon technologies.

5. The Renewables Obligation was specifically designed to promote the adoption of renewably-generated electricity. It requires generating companies to produce a steadily-increasing proportion of the electricity they sell from renewable sources. Most recently, the Technology Strategy Board has announced a £10 million investment in collaborative R&D to promote low-carbon energy technology.[209]

. . . BUT BETTER USE COULD BE MADE OF EXISTING TECHNOLOGIES

6. Much of the technology already exists to make a substantial reduction in greenhouse gas emissions. Reliable wind turbines have been available from at least the early 1980s, but the UK—one of the windiest countries in Europe[210]—has been notably slow in utilising the technology, with wind electricity capacity only exceeding 1 Gigawatt in 2005. This comes 14 years after the first UK turbine was installed, and well behind countries such as Germany and Denmark.[211]

7. Oxford University's Environmental Change Institute estimate that, with suitable modifications, 80% of emissions from the current housing stock that will be in use in 2050 can be reduced, and that "zero-carbon" new-build homes are a realistic possibility.[212] No new-to-the-world inventions are needed to make this reduction.

8. Yet these, and similarly viable technological solutions, are being adopted very slowly.[213] And even when new low-carbon technologies are innovated, there are no guarantees that they will be taken up—regardless of their technical merits.

THE UK IS "LOCKED-IN" TO SOME HIGH-CARBON TECHNOLOGIES

9. Low-carbon technologies are implemented relatively slowly as a result of the way in which new technologies are invented and, crucially, diffused. Existing technology has many inherent advantages over the new: familiarity amongst producers and consumers; an existing body of research and development makes further research easier; and network effects reduce the cost of additional units—for example, a new petrol car can rely on a huge network of existing petrol stations, making refuelling cheap and easy.[214] By contrast, electric car use has been hampered (to date) by the small number of accessible charging points.[215]

10. All of these create what researchers call "path dependency": once a technology is established in use, the factors listed above make it too costly to shift to another kind. Moreover, path dependency can exist in institutions, too, where well-established ways of working can be exceptionally difficult to alter. Where institutions have become established alongside a technology, mutually reinforcing each other, the costs of transition to a newer (and perhaps better) technology can become exceptionally high. Incumbent firms, for example, can rely on their market power to block new technologies.[216]

11. The resulting strong attachment to high-emission technologies has been described as "carbon lock-in".[217] Traditional theories of innovation would consider this lock hugely costly and disruptive to break. But if climate change is to be tackled successfully, it must be broken—something that can be achieved through "disruptive innovation".

THE IMPORTANCE OF DISRUPTIVE INNOVATION

12. Disruptive innovations are typically cheaper, easier-to-use versions of, or alternatives to, existing products and services that target new customers.[218]

13. Disruptive innovations are often confused with "radical innovations". A radical innovation is one that utilises a significant technical advance; a disruptive innovation is one that causes a shift in behaviour. For example, low-cost airlines were a disruptive innovation, using old technology with a new business model; Concorde was a radical innovation, using advanced technology (but in an old business model). Of the two, low-cost airlines have had the most significant impact on people's lives, despite not utilising new technical knowledge.

14. Moreover, a reliance on discovering technological fixes, is both dangerous (since hoped-for technologies may not emerge) and potentially counter-productive, weakening incentives to change behaviour.

15. The traditional model of innovation saw the invention and diffusion of new products and processes as a one-way process, in which suppliers offered innovations to largely passive consumers. More recently, the importance of users and user-led innovation has come to be recognised.[219]

16. In particular, users (or potential users) will often know better than suppliers their own particular needs and circumstances. Adapting to a low-carbon world will require recognising such specific knowledge, and utilising it effectively.

DISRUPTIVE INNOVATIONS ARE ALREADY MAKING A DIFFERENCE

17. Electricity is typically generated through large power stations attached to a centralised grid. But this imposes its own carbon costs, including the relative inefficiency of transmission, and the mismatch between generating capacity and typical demands.[220]

18. Decentralised generation, based on smaller-scale generators closely matched to their users' needs, offers a solution to this problem. Funding and installing such schemes, however, imposes its own challenges for existing power generation business models, where large power generating companies may be uninterested in relatively marginal developments, and lack the local knowledge to make such schemes work.[221]

THREE EXAMPLES OF RENEWABLE-ELECTRICITY GENERATION[222]

19. Baywind, based at Harlock Hill, Cumbria, was the UK's first community-owned wind farm. Based originally on a Swedish example, Baywind was established in 1997 and now has 1,350 individual shareholders, each of whom receives a dividend from the company's profits. The farm consists of five Danish-built turbines, providing 2.5 Megawatts of generating capacity—enough to power 1,300 local homes. The estimated carbon savings are approximately 4,200 tonnes of CO₂ equivalent every year.

20. The co-operative's structure, with locally-held shares, also enabled a difficult planning process to run more smoothly, with local residents able to see tangible benefits from the scheme's operation.[223] The success of the original Baywind co-operative led to its expansion to a further site at Haverigg in Cumbria. Government support for renewable electricity generation has been vital in guaranteeing a market for the co-operative's output, and ensuring electricity can be economically generated.

21. In Denmark, such co-operatives are well-established, with half of the country's privately-owned windfarms being owned by community co-ops. The success of co-operative ownership has been attributed to three main ingredients: first, a stable pricing mechanism for wind-power, credibly guaranteeing a high price for wind energy fed into the national grid; second, a planning system that actively encouraged the development of wind-farms; and, third, a strong tradition of co-operative ownership.[224]

22. Another example is SolarStructure. They have developed a product for use in buildings with vertical, transparent facades, perfect for skyscrapers or large domes.[225] The SolarStructure product looks like a high-tech Venetian blind, but rather than blocking the sun, it harnesses its power to produce electricity and potentially hot water for the building.

23. Replication of such schemes can enable significant reductions in carbon emissions to be achieved. But successfully reproducing the model will require continuing Government support for renewable electricity, and a legal environment that can support non-traditional forms of business ownership.

24. Geopressure from natural gas can be used to generate emission-free electricity. Natural gas, as used in domestic heating, emerges from the ground at too-high a pressure for safe use, and some of this pressure has to be removed at periodic intervals in the pipeline network. 20C have proposed installing geopressure generators utilising this spare energy to provide an estimated 1 Gigawatt of additional electricity, saving one million tonnes of carbon a year.

25. However, 2OC have faced substantial difficulties in acquiring start-up funding, especially from Government-backed sources: both the Carbon Trust and the then-DTI refused to fund the company as it did not fit with conventional definitions of "renewable" energy, despite conceding that it was carbon-free.[226]

SUPPLY AND CONNECTION WITH THE NATIONAL GRID

26. Dynamic Demand is promoting a technology which could change the way that the National Grid works. The device allows appliances like fridges to "talk" to the grid, and switch themselves off at peak times. If introduced across the network, this could help to smooth out spikes in demand for electricity, or supply from renewables, leading to efficiency savings.

27. A dynamic demand device would be invisible to the consumer, hidden in appliances which turn off during periods of peak energy use. The technology could be adopted on a widespread basis as appliances are replaced.

28. Although Dynamic Demand could cut costs and carbon, it is difficult for it to enter the market. In theory, the technology could earn money from the services it provides to power system operators, but it has proved difficult to realise this potential. The way that the electricity market functions, and is regulated, inhibits new entrants like Dynamic Demand from offering a profitable service. This is partly because they offer a new solution that wasn't available when the regulations were developed.

29. The Government has begun to recognise the potential of Dynamic Demand, publishing a report in August 2007.[227] However, it stated that they needed to conduct more analysis before the promotion of the technology. The results of this are expected to be published later this year.

WHAT THE GOVERNMENT SHOULD DO

30. Current policy is too heavily focused on large-scale, linear, high-technology innovation. Innovation policy has previously been considered a branch of science and technology policy, with the discovery and invention of new ideas and products as its overriding aim. But much innovation is based on the novel exploitation of existing technology, or other forms of change such as the implementation of new business models. These require a different set of policy responses from Government.[228]

31. Innovation and environmental policymakers have historically sat in separate silos, based on different research agendas and policy goals, with little direct communication between the two. Currently, BERR oversees electricity regulation, DEFRA emissions control, and DIUS has an overview role in promoting innovation.[229] Although efforts are now being made to better tie innovation and environment policy together, such as through the Technology Strategy Board, the distance between them remains large.

32. As part of the Business Support Simplification Programme, Government could consider better integrating advice on establishing small businesses into its environmental information campaign, alongside improved advice on establishing environmental co-operatives.

33. Proposed reforms to the system of government procurement are welcome,[230] potentially freeing up the £120 billion annual procurement budget to better support innovation. The creation of lead markets, where sophisticated users place new demands on producers, can help stimulate and sustain disruptive innovations. Where appropriate, disruptive environmental innovation could be supported through ensuring government procurers take a broader account of potential social benefits.

34. Small investors in new firms can currently benefit from some tax privileges through the Enterprise Investment Scheme, which offers generous rates of tax relief. Reforms to this scheme, further incentivising investment in low-carbon co-operative businesses, would encourage investors and stimulate the sector as a whole.

35. Funding could help with the costs of developing and trialling new business models, but (as the 2OC example showed) it is too often tied to specific technologies. The UK Government should therefore consider making flexible funding available for disruptive innovations.

WHAT NESTA IS DOING

36. The NESTA Big Green Challenge is a £1 million prize fund aimed at communities who innovate to reduce their carbon use. Communities must come up with innovative ways to reduce their carbon footprint and demonstrate their ideas work to win a share of the prize fund.

37. NESTA invests directly in early-stage companies in a number of sectors including the environmental technology sector. It seeks to invest up to £500,000 over several rounds in each company. In exceptional circumstances, it can provide follow-on investment to existing portfolio companies, beyond this level.

38. Many of the messages from this submission come from the NESTA report "The Disrupters: Lessons for low-carbon innovation from the new wave of environmental pioneers". NESTA is following this up with a number of research projects in 2008, including one working with BMRB, Millward Brown, Ogilvy and the ESRC Centre for Business Relationships, Accountability, Sustainability and Society, which will look at changing mass behaviour in relation to climate change.

January 2008

208 Gregory Unruh, "Understanding carbon lock-in", Energy Policy 28 (2000). Back

209 BERR, "TSB to invest £10m in low carbon energy technology research", 8 January 2008. Back

210 The International Energy Authority claims Britain has "perhaps one of the best wind resources in Europe". IEA (2006), Wind Report 2006, p 233. Back

211 Ibid. Back

212 Brendan Boardman, Home Truths (Environmental Change Institute, 2007). Back

213 See evidence to the Select Committee on Science and Technology, Fourth Report (2002), para 120. Back

214 Tim Foxon and Peter Pearson, "Overcoming barriers to innovation and diffusion of cleaner technologies: some features of a sustainable innovation policy regime", Journal of Cleaner Production (forthcoming). Back

215 See particularly the example of California, where, despite heavy state-led promotion in the early 1990s, electric car use failed to take off. Back

216 Douglass C North, Institutions, Institutional Change and Economic Performance (1990). Back

217 Gregory Unruh, "Understanding carbon lock-in", Energy Policy 28 (2000). Back

218 C Christensen, M E Raynor (2003), The Innovator's Solution. Back