Select Committee on Innovation, Universities, Science and Skills Minutes of Evidence


Examination of Witnesses (Questions 120 - 139)

WEDNESDAY 23 JANUARY 2008

MRS SARAH RHODES, MR MICHAEL DUGGAN AND PROFESSOR DAVE DELPY

  Q120  Dr Gibson: You mean idiot-proof.

  Mrs Rhodes: Let me firstly say that we also are part of ETI so clearly that handoff between ETI and us is never going to be a hard and fast line, there will be all sorts of variants.

  Q121  Dr Turner: There will be crossovers.

  Mrs Rhodes: You are broadly right that we are in large scale proof of concept prototypes, let us show it works at scale, and then our money is very geared at what are the specific barriers to the deployment of this technology and how can we use our capital grants to deal with those barriers. This brings me to your point on microgeneration where, as you look at that sector, what we are attempting to do through our capital grants scheme is really to kick-start the supply market, again in the business that we are around, trying to make things happen more quickly than they would happen without our intervention. We are about trying to build the supplier base that will deliver this and in order to do that you need to build some of the demand base. I accept there have been all sorts of difficulties with us in running household grant schemes, they are very difficult things to run, and we are learning with all of this.

  Q122  Dr Turner: In the past your capital grants have never fully funded projects, they have always been part-funding, and this is what has made life difficult for some people because they have got to get matching funding from elsewhere and it is not always that easy. Will you be changing that?

  Mrs Rhodes: There are two reasons why we do that. The first is that we are bound by state aids rules, so there are limitations on what we can legally—

  Q123  Dr Turner: But, hang on, the ETI is going to be able to totally fund projects.

  Mrs Rhodes: Yes. It depends what sector you are funding. If you are funding the academic sector then certainly you can fund it 100%. If you are starting to fund industry, corporates, then you are limited by EU law as to what funding levels you can find. I would add one other point: quite apart from that being the position—

  Dr Turner: I am confused there because we were told specifically by the Director of the ETI that they proposed to totally fund—

  Chairman: 100% funding.

  Q124  Dr Turner: —early stage commercial projects.

  Mrs Rhodes: Let me add one further point. ETI can do that by procurement, by buying the thing that it wants to develop. In terms of a household grant, the government does not wish to find itself owning panels on people's roofs and people's ground source heat pumps, it is not where we want to be. I would add one other thing, which is if government fully funds things, in a sense we are taking all the risk of doing that, we are taking the responsibility for doing that. If your aim in this is to kick-start a market, kick-start some demand, we would not be funding things, we would create an audience out there, a market out there, that will not move unless we put 100% grants in place and that really is not where we want to be. We also have to look at who is funding who to do what here. The taxpayer is funding people who may be able to afford to do some of their own grants. There are all these issues that need to be balanced in deciding what we think is the right level.

  Q125  Dr Turner: Is there not a way through this because, after all, the ETI is funded partly by industry as well?

  Mrs Rhodes: Yes.

  Q126  Dr Turner: So its matching funding is, if you like, integral to the whole concept. Can you not apply the same concept to your capital funding because it would make it a lot more effective?

  Mrs Rhodes: Partly we are funding, in a way, the supply industry to make this happen, so there is obviously an element of joint funding, and where we are most successful with our capital grant programmes is when we are actually leveraging quite a bit of private sector funding and, indeed, funding from consumers to make these things happen. That is certainly an aim that we need to have. For some of this, for somewhere we are not funding industry, we could legally do 100% but we have to ask ourselves the question of whether we want to, whether that fits the purpose of what the schemes are designed to do.

  Q127  Dr Turner: We will leave that for the moment. How is your future capital grant system going to interact with the Environmental Transformation Fund, which on the face of it is likely to do similar things?

  Mrs Rhodes: Our Capital Grants Programme is the Environmental Transformation Fund, the two are the same thing.

  Q128  Dr Turner: That helps. It is a pity when there are lots of different names.

  Mrs Rhodes: I know, you are right.

  Q129  Dr Gibson: Life is like that!

  Mrs Rhodes: What we have is a set of existing grants and in schemes where they have been effective they will be rolled forward. We also have some new money in our settlement with the Environmental Transformation Fund so, again, and particularly through the renewable energy strategy work, we will be looking at how we best invest that new money.

  Q130  Dr Turner: Do you think your policies are going to be flexible enough to support new innovation? There is obviously going to be an interface, or potential non-interface, between yourself and DIUS because a lot of the work that used to happen in DTI will now be in DIUS. Are you going to be able to integrate sufficiently with DIUS to ensure that the whole innovation process—I will not call it a chain because that is a linear model which is out of date—hangs together so that a technology development in principle does not get lost somewhere because the two departments do not mesh together properly? How do you propose to approach that from your end? We have asked DIUS this question and now we want to hear your answer.

  Mrs Rhodes: I very much hope it is the same, and I am sure it is. We have very close working relationships with DIUS. We work very closely together, our ministers meet regularly, they have regular bilaterals, and obviously Malcolm Wicks has just been the Science Minister. We have all sorts of institutional links built in. I would say we also have a whole system of links, a whole system of co-ordination, to make sure that all these different funding bodies do work reasonably well together. To add to those two, through our renewable energy strategy we are going to do some work which is co-ordinated with the Carbon Trust, the Royal Academy for Engineering and DIUS as well, and indeed other partners, asking precisely those questions: are we sure we have got the links right; how do we know this system is fit for purpose; what is the right amount of funding in any different part of this system.

  Q131  Dr Turner: How will you measure those outcomes? Who are you going to ask for the evidence?

  Mrs Rhodes: We are going to have to do a lot of work for this. As we all know sitting here, it is very, very difficult to measure innovation. That is no excuse for not trying but there are no easy measures in this so you need to work out how on earth you are going to do it. It is work we know we need to do. There are changes to the targets, to the bodies that are united in helping deliver those targets, and do we really know this system is as good as we can make it.

  Q132  Dr Turner: One of DTI's past initiatives which has not yet produced is the Marine Renewables Deployment Fund. Why has anybody not been able to qualify for that yet? The OPD have had Pelamis developments in the water for some time but they have not made it either. Why is this, do you think?

  Mrs Rhodes: I am very pleased you have asked that question. I was very interested in your discussion on this before. The MRDF is a fund for deployment and, indeed, the fact that it is not spending is something which obviously has concerned us. We have gone back through the Renewables Advisory Board to ask for advice on should we change the scheme. Their report is due this month. They have suggested some small changes to it but they are not suggesting changes to the critical issue which is there is a three month criterion for eligibility for this funding, which is three months' proven testing in the water.

  Q133  Dr Turner: Does that mean three months' continuous successful operation?

  Mrs Rhodes: Yes, you have the evidence of three months' operation in the water, successive operation.

  Q134  Dr Turner: So if you have a maintenance break to fix a fault for a couple of days that breaks the three months?

  Mrs Rhodes: We really are not in the business of being hard and fast about this. We are not aiming to trip people up through this.

  Q135  Chairman: Sorry to interrupt, but you say you cannot get access to the Marine Renewables Development Fund grants until you have had your appliance in the water for three months?

  Mrs Rhodes: Yes, and let me explain why, which is your next question.

  Q136  Chairman: Yes.

  Mrs Rhodes: The why is because this money is there for demonstration, it is to show that it works. If you have really got no evidence coming out of R&D that this works then the issue is have you done enough R&D and that is what the Renewables Advisory Board's report is telling us, that the issues here are mostly in the R&D chain, which is why we are delighted, and we are part of this decision, that this is one of the areas that ETI will start off in. We need to get the technologies and show we can get the technologies to the point where they work in the water and they are worth demonstrating at scale. This is all an issue about spending money in the right places.

  Chairman: This is a valley of death that we are talking about.

  Q137  Dr Turner: My understanding is that in order to apply for the MRDF developers had to have been already the beneficiaries of capital grant funded programmes from the DTI which had already done the demonstration and this is really about initial commercial deployment. Have I got completely the wrong end of the stick? Are you really seriously saying that a developer must do the development, which is going to cost several million quid, without knowing and only when that is done can they apply to you for the fund? That does not make much sense at all.

  Mrs Rhodes: Let us not lose sight of the fact that the industry itself has reviewed this scheme and they are finding that the way we have organised the money here is sensible.

  Q138  Chairman: That is why nobody has got any of it.

  Mrs Rhodes: You are absolutely right to ask me the question, but we have asked these questions too and we have asked them in collaboration with the industry itself. What you have got here is an industry that is very much small firm based and it finds it difficult to get access to the capital so you are tending to find that three months is critical. We, through the Technology Fund Programme, now part of the Technology Strategy Board, have been funding these technologies but we need to make sure that there is proof they are viable, feasible technologies and, until we get that, and this is what the industry is telling us too, it does not make sense to crack into MRDF funding. That is why we accept there is a hole there and we want ETI to plug that hole and really get a grip on how we are going to get those three months in the water. ETI is meshing totally with MRDF to make sure that happens.

  Q139  Dr Turner: Surely you must identify candidates beforehand?

  Mrs Rhodes: There are a lot of candidates. This is another feature, how many candidates do we mean to have here.


 
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