Written evidence from Reaction Engines
Limited
1. EXECUTIVE
SUMMARY
1.1 The global space market, worth an estimated
£160 billion in 2008, offers massive commercial potential
for the UK. The UK space sector has grown at an average of 9%
per annum in the last decade—three times faster than the
rest of economy. The space sector as a whole has managed to grow
even during the recent recession and is forecast to grow by an
average of 5% a year until 2030 creating an industry potentially
worth £400 billion. Experts have concluded that
the UK has the potential to expand its share of that global market
from its current level of 6% to 10% in the same period.
[23]
1.2 Reaction Engines Limited (REL) is developing
SKYLON, a ground-breaking reusable Un-manned Aerial Vehicle (UAV)
powered by unique advanced British propulsion technology capable
of delivering large payloads into space. If successful, this technology
will have a transformative effect on the space industry by cutting
the cost of putting satellites into orbit from around £15,000
per kg to around £650 per kg, enabling British scientists
and workers to be at the vanguard of new and highly-profitable
markets, and leveraging the UK's existing strength in the space
sector.
1.3 With the proprietary lead in advanced space
propulsion technology built up by REL the UK has the opportunity
to become a world-leader in commercial space exploitation and
exploration, with the creation of tens or hundreds of thousands
of jobs and significant revenue streams coming to the UK. The
development programme for SKYLON would attract several billion
pounds in inward investment over the current decade. The eventual
spaceplane is a unit of commerce similar to an aircraft and will
ultimately be saleable on the global market. Sales of the SKYLON
spaceplanes, manufacturing licenses and support services could
generate a multi-billion pound return.
1.4 Following the recession, it is widely agreed
that the UK economy must be rebalanced towards industry, exports
and innovation. REL and its SKYLON project is an example of the
kind of business that can help the UK economy rebalance through
stimulating hi-tech job creation and the development and exploitation
of the rapidly growing commercial space market. Government support
and advice will help companies such as REL seek out new markets
for their products, particularly on the international stage.
2. TECHNOLOGICAL
BACKGROUND
2.1 REL was established in August 1989 by the
company's current Managing Director, Alan Bond, together with
John Scott-Scott and Richard Varvill. All three were former senior
engineers working on the BAe/Rolls Royce HOTOL spaceplane concept
in the 1980s, with extensive experience in the development of
space propulsion systems including the successful UK Government
Blue Streak and Black Knight programmes, an ICBM and space access
vehicle respectively developed in the 1960s and 70s.
2.2 REL is developing an un-manned, reusable,
winged "spaceplane" in Abingdon, Oxfordshire. SKYLON
would provide routine, low cost access to space and as such would
transform commercial access to space. Its SABRE engines are unique
in combining both jet propulsion and pure rocket technology, making
the spacecraft capable of taking off and landing on conventional
runways. SKYLON will be truly reusable, with no throwaway rocket
boosters or other expendable hardware. The SKYLON spaceplane will
therefore be the first vehicle of its kind and will bring to space
transportation attributes that currently only benefit other modes
of transport such as cost effectiveness, reliability and availability.
2.3 The core of the SABRE engine is an engine
cooling system enabled by ultra lightweight heat exchangers, which
have been developed by REL, and are key to giving the engine its
significant performance advantage over other space launcher propulsion
systems. The SABRE engine design is wholly reliant on this UK
proprietary lead technology, and SABRE is currently considered
by world experts to be the only viable, near-term propulsion solution
for a vehicle with SKYLON's capabilities.
2.4 In February 2009, REL was awarded €2
million by the European Space Agency (ESA) through the British
National Space Centre (BNSC) matched by £7 million private
investment to demonstrate the core heat exchanger technologies
for the SABRE engine. This large proportion of private funding
is impressive at this early stage in aerospace research and development.
Enabled by this investment, a crucial test on a key aspect of
the SABRE engine is planned for June 2011.
2.5 Following the tests successful completion
the next phase of the project, Phase 3, will commence—a
£220 million engine demonstrator which will establish the
capability for a UK-based manufacturing of the SABRE engine. Phase
3 would also act catalytically to enhance existing skills and
capabilities in the UK.
2.6 It is anticipated that during Phase 3 (2011-13)
pre-orders for SKYLON vehicles will be received, and the vehicle
manufacturing consortium formed. There has already been extensive
interest on the part of National Space Agencies and major Aerospace
companies in being involved in this development programme—interest
which over the next nine months must be transformed into concrete
agreements which will facilitate the flow of private capital into
the project.
2.7 Government support for the project at this
stage is important, particularly in playing the crucial role of
taking the global initiative to reform the regulatory environment
so that the nascent commercial space industry can flourish.
3. COMMERCIAL
OPPORTUNITIES FOR
SKYLON
3.1 A BIS report last year stated that the global
satellite industry, which accounts for the majority of commercial
revenues, grew in real terms by between 7% and 8% per annum (10%
and 11% per annum in cash terms) between 2000 and 2008.[24]
The substantial reduction in cost per flight made possible by
SKYLON will enable its operators and backers to exploit these
opportunities. SKYLON's primary market is likely to be companies
and government space agencies seeking a cheap, reusable method
of launching large satellites, the demand for which is increasing
due to the growing importance of satellites for services such
as mobile communications; satnav and related navigational systems;
satellite television, including HDTV; instant access to real-time
global data such as weather information; monitoring of climate
change; national security issues; and natural resources management.
3.2 SKYLON's technology would cut the cost of
launching a satellite from around £15,000 per kg to around
£650 per kg. This means that one vehicle, over its lifetime
of 200 flights, could offer end users a saving of over £17
billion when compared to current costs for space access. Consequently
there is also worldwide demand for ownership of the vehicles outright.
Crucially, from a commercial perspective, this means that there
is sufficient upfront interest in outright vehicle purchase such
that the cost of vehicle development could be recovered with considerable
margins through sales of the first generation of vehicles to existing
institutional customers.
3.3 SKYLON is also extremely attractive for a
number of commercial uses currently not feasible with current
launchers on both cost and technical grounds. One such application,
studied in depth by NASA, is the delivery to space of Solar Power
Satellites (SPS) to form a Space Based Solar Power (SBSP) system.
This concept is impractical using current launchers but SKYLON
and its unique capabilities would overcome this obstacle. SBSP
would turn sunlight into electrical energy and electromagnetically
beam it to earth to be collected by a large array of receivers.
It would be a 24-hour, renewable energy source capable of reducing
reliance on fossil fuels; increasing energy security; reducing
the threat of nuclear proliferation; alleviating security challenges
around energy scarcity; and other benefits. Energy from an SBSP
system could be used as base load power for existing national
electrical grids or to manufacture synthetic carbon-neutral hydrocarbon
fuels. SBSP is regarded as a viable near-term technology by the
private sector and foreign governments. This is shown by an announcement
that Japan's Mitsubishi Heavy Industries Ltd is leading a consortium
of 16 companies committed to deploying an SBSP system capable
of powering 300,000 homes by 2030. The reported budget for the
Japanese SBSP programme is $21 billion.[25]
There is substantial interest in SBSP systems amongst other foreign
governments.
3.4 On top of this there is continued interest
in space exploration and investment by foreign governments in
a variety of space-based projects.
3.5 In time, SKYLON would play the enabling role
of creating an existing, fully commercial orbital infrastructure
from which governments would be able to purchase services on the
open market at the lowest possible cost.
4. RATIONALE
FOR GOVERNMENT
INVESTMENT IN
UK SPACE INDUSTRY
4.1 Numerous reports by well-respected economics
consultancies and by the Government itself have concluded that
there are many attributes of the UK space industry that make it
a compelling candidate for government investment. These features
can be briefly summarised as the following:
4.2 Fast growing sector: The UK space
industry, which had a turnover of over £7.5 billion in 2008-09,
is expanding. It is one of the fastest growing sectors in the
economy and continued growing throughout the recession—8%
between 2007-08 and 2008-09 and 21% since 2006-07.[26]
Oxford Economics forecast the industry to grow by 5% per year
until 2020. However, this growth is dependent on investment in
research and development.[27]
4.3 Productivity: A 2010 BIS study
found that the evidence suggests the UK space industry has a "relatively
high percentage of turnover (about 50%)...accounted for by value
added", implying that a sector with a relatively small percentage
of GDP (0.5%) represents a "higher average labour productivity
than most other sectors".[28]
4.4 Benefits to wider economy:
Oxford Economics found in 2009 that: "the employment multiplier
for the UK space industry is estimated to be around 3.65. This
means that for every 10 jobs directly supported by the UK space
industry, another 26 in total are supported indirectly in the
supply chain and from the induced spending of those directly or
indirectly employed by the UK space industry". This equates
to 68,000 jobs and a value added contribution to GDP of £5.6
billion.[29] Oxford Economics
also found that while 75% of the direct turnover of the UK space
industry is in the South East, when indirect and induced effects
are factored-in, the South East only accounts for 39% of employees,
meaning that "the contribution of the Space Industry to regional
development is much greater than the regional breakdown of direct
space turnover may suggest". [30]
4.5 Research and Development: The
industry is about three times more R&D intensive than the
economy as a whole. This has large "spillover" effects
for the wider economy, estimated by Oxford Economics to be £900
million a year currently, and will by 2020 support £1.3 billion
to £2.3 billion of GDP in the UK.[31]
5. THE ROLE
OF GOVERNMENT
5.1 In February 2009, the then Minister
for Science and Innovation, Lord Drayson said of SKYLON: "This
is an example of a British company developing world-beating technology
with exciting consequences for the future of space." The
prospects for the UK economy of SKYLON going into full development
and then, in due course, production, are immense. REL estimates
that the development stage alone will benefit the UK through the
creation of up to 70,000 jobs and investment of £7.5 billion.
5.2 In the summer of 2010 as part of a
UK Space Agency organised international assessment of the SKYLON
concept, REL commissioned London Economics to undertake an independent
assessment of the future benefits of investment in SKYLON, using
government best-practice public sector project appraisal methodology.
Their report, published in October 2010, used this methodology
to identify any market failures (ie a situation where the market
cannot deliver an efficient outcome for society). The report concluded
that: "from an economic perspective, the markets in which
SKYLON would operate have market failure attributes. Namely, SKYLON
generates public goods and has the potential to generate positive
externalities for investing economies. Based on this, there is
a role for government in supporting SKYLON to enable investing
economies to capture these future benefits".[32]
5.3 Quantitative Green Book analysis was
also undertaken by London Economics which demonstrated the huge
potential for a large net positive contribution to the UK economy
from the SKYLON project. This benefit could be in the tens of
billions of pounds even under prudent conditions. Widening this
analysis to include sectors indirectly affected by SKYLON and
also to include other countries, such as potential European or
other partners in the project, has the potential to lead to much
greater benefits. It is REL's belief that as well as inward investment
and job creation in the short term, and the benefits to UK business
identified by London Economics, that its technologies will herald
a significant increase in commercial activities in space for the
coming century and that the impact on the economy and society
would draw parallels with the impact seen by the jet engine.
5.4 REL's experience of working in the space
industry and contact with competing companies in the space field
suggests that the UK Government can help exploit this growing
sector in the following three ways.
5.5 1. International Framework for
SKYLON
The first and most important way government can help
is by assisting REL in implementing the necessary national and
international frameworks that are required to support the development
and use of the SKYLON spaceplane. Due to the scale of operations
necessary for SKYLON's development programme and commercial operations,
ad hoc certification rules are insufficient as these are unlikely
to enable the flight rates required. A new framework needs to
be created that will facilitate the kind of commercial operations
in space which SKYLON will herald. Such a framework would also
need to take into account the ongoing discussion on the "rules
of the road" and deliver the confidence necessary for global
financial and underwriting and insurance institutions to invest
with confidence. REL is at present formulating such a framework
and would be happy to discuss this with the Committee.
5.6 2. Cross-government approach needed
Secondly, while successive Government Ministers (of
all parties) have spoken of the need for government to champion
the space industry internationally, their calls have not resulted
in a coordinated cross-government approach. For example, given
the growing demand in India, China and Brazil for space technology,
championing the UK space industry should be part of the Treasury,
Foreign and Commonwealth Office and UKTI's ongoing programme in
fostering exports.
5.7 3. Investment
Thirdly, until now, REL's development of SKYLON and
the SABRE engine has unusually relied upon private sector investment.
Apart from a €2 million grant from the European Space Agency,
REL has not needed direct funding from the UK Government. This
is in part because REL have proven the commercial viability of
the manufacturing processes required for industrial production
of its technology in conjunction with demonstrating their technical
viability. This has significantly reduced the risks associated
with the overall commerciality of the project and encouraged unusually
high levels of private investment at an early stage. REL is anticipating
that private institutional and corporate investment will be sufficient
to bring SKYLON to production after the next stage of the development
programme, Phase 3, ends in 2013. Phase 3 will prove the full
technical and commercial viability of the spacecraft and is likely
to generate much larger expressions of interest, including potential
vehicle pre-orders. Before Phase 3 can be initiated a key engine
test planned for June must be successfully completed and subsequently
£220 million of investment secured, an activity that would
benefit greatly from Government support. On the subject of government
assistance for Phase 3 David Willetts, Minister of State (Universities
and Science), Business, Innovation and Skills has stated that:
"The European Space Agency is funding proof
of concept work for Skylon from UK contributions. This work is
focusing on demonstrating the viability of the advanced British
engine technology that would underpin the project. Initial work
will be completed in mid 2011 and if the trial is successful,
we will work with industry to consider next steps."
We believe that Government support could be vital
to REL in raising this capital and ensure that phase 3 of the
programme can be accomplished here in the UK.
6. CONCLUSION
6.1 Reaction Engines Limited has been able to
develop world-beating technologies with the potential to transform
a growing, strategically important industry with the result that
the UK would reap immense economic benefits and become a hub for
the future commercial exploitation of space. As the Government
looks to rebalance the UK economy, projects like SKYLON provide
a massive opportunity to boost the UK's hi-tech industry and exploit
a growing market. The rationale for government support for the
UK space industry is clear and compelling. Our industry is growing
strongly and has the potential to tap an expanding global market;
it is significantly more productive than other sectors of the
economy; it has significant and positive "spillover"
effects for the broader economy; and it supports hi-tech jobs.
Furthermore, limited government intervention in SKYLON will counter
market failures which might otherwise be an impediment to the
UK economy realising the significant gains of this transformative
technology.
January 2011
23 UK Space Innovation and Growth Strategy, 2010-2030,
Executive Summary. Back
24
BIS ECONOMICS PAPER NO. 3 - The Space Economy in the UK: An economic
analysis of the sector and the role of policy, February 2010,
p.viii. Back
25
Bloomberg, "Mitsubishi, IHI to Join $21 Bln Space Solar
Project", 31 August 2009, http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aJ529lsdk9HI Back
26
The Size and Health of the UK Space Industry,
report for UK Space Agency by Oxford Economics, Executive Summary,
p.3, November 2010. Back
27
The Case for Space: The Impact of Space Derived Services and Data,
Oxford Economics (commissioned by the South East England Development
Agency), July 2009, p.5. Back
28
BIS ECONOMICS PAPER NO. 3 - The Space Economy in the UK: An economic
analysis of the sector and the role of policy, February 2010,
p.ix. Back
29
The Case for Space: The Impact of Space Derived Services and Data,
Oxford Economics (commissioned by the South East England Development
Agency), July 2009, p. 19. Back
30
Ibid., pp.20-21 Back
31
Ibid., pp.3-5. Back
32
The SKYLON Project: Independent economic assessment of the future
benefits of investment in the SKLYON reusable launcher, London
Economics, October 2010, p.24. Back
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