Science and TechnologyWritten evidence submitted by Tokamak Solutions UK Ltd

Introduction

1. Tokamak Solutions UK Ltd is a private company based at Culham that aims to develop commercial applications of spherical tokamaks and fusion neutron sources. Culham is currently the world-leading centre for magnetic confinement fusion research. Commercial opportunities for magnetic fusion are beginning to emerge and Tokamak Solutions benefits greatly from being on the Culham campus. Fusion research is one of the very few areas today with enormous global economic potential where the UK has a distinctive global lead.

2. Tokamak Solutions has secured investment from Sir Martin and Lady Audrey Wood, the Rainbow Seed Fund, Oxford Instruments plc and other private investors including members of the Oxford Investment Opportunity Network. Tokamak Solutions has also been awarded two R&D Grants by the Technology Strategy Board and is anticipating further private investment.

3. The Minister of State for Universities and Science, David Willetts, said last year that he would like to see the UK’s scientific and intellectual lead in fusion turn into a technological and commercial lead. Tokamak Solutions aims to play its part in turning this vision into reality.

4. Tokamak Solutions has a distinguished scientific and environmental advisory board chaired by Lord Hunt of Chesterton, FRS and including Sir Martin Wood, FRS (co-founder of Oxford Instruments plc); Jack Connor, FRS (one of the most influential theoretical plasma physicists in the international fusion programme), Professor George Smith, FRS (emeritus professor of materials at the University of Oxford) and Professor Bill Lee (professor of ceramic engineering at Imperial College and Deputy Chair of the Government advisory Committee on Radioactive Waste Management (CoRWM).

5. Tokamak Solutions is working on several aspects of commercialisation of fusion. For example we are developing a spherical tokamak as a plasma research and training facility and are establishing the feasibility of a fusion neutron source suitable for production of medical isotopes, transmutation of nuclear waste and other applications. Tokamak Solutions is also keen to progress the idea of a compact fusion neutron source as a national “user facility” for materials research.

6. Although fusion research is dominated by “big science” facilities such as JET at Culham and will probably be dominated by the ITER facility in France for many years in the future, there is still plenty of scientifically and economically valuable work that can be undertaken by small companies. For example, Tokamak Solutions—in a groundbreaking experiment last year in partnership with Oxford Instruments and the Czech Technical University—achieved a world first in using high temperature superconducting magnets on a tokamak.

Evidence

7. We are pleased to present our views on the questions posed by the Select Committee:

A. What are the difficulties of funding the commercialisation of research, and how can they be overcome?

8. The problems of funding the commercialisation of research arise because of the risk and uncertainty involved. The technology may or may not ultimately work; competitors or alternative technologies may get there first; and the costs and timescales of the development process may be substantial, as well as being difficult to calculate accurately. Investors in commercialisation of research need to be patient!

9. As a result, there is little venture capital aimed at technology businesses in the UK. One important exception is the Government funded, but privately managed, Rainbow Seed Fund.

10. The best way to overcome the difficulties is through a combination of business angel and seed fund investment and Technology Strategy Board (TSB) grants. The Enterprise Investment Scheme helps to encourage business angel investment and R&D tax credits are increasingly important. Corporate venturing investment by established business can be highly valuable, but is quite rare.

B. Are there specific science and engineering sectors where it is particularly difficult to commercialise research? Are there common difficulties and common solutions across sectors?

11. Tokamak Solutions faces a particular challenge similar to many biopharmaceutical companies developing new drugs—the potential value of the technology is very significant, but the risks are substantial and the time and money required to validate the technology are quite daunting.

12. Tokamak Solutions needs to build international collaborations in common with many other high technology companies. UK participation in international science and innovation programmes can help this process and UK Trade and Investment can provide practical support to companies.

13. There is a range of important non-financial solutions, sometimes described as the elements of an “innovation ecosystem”, that can assist in the commercialisation of research. These include clusters and business networks and can often work best around a university or research laboratory. A thriving innovation ecosystem can significantly reduce the risks of commercialising research and substantially improve access to finance.

14. In the case of Culham Laboratory where Tokamak Solutions is based, the elements of the innovation ecosystem include:

An innovation centre providing offices and laboratories on a flexible basis to start-up businesses and managed by a private sector business, Oxford Innovation.1

A technical support package for businesses in the innovation centre provided by Culham Centre for Fusion Energy.

A Fusion Industry programme managed by Culham Centre for Fusion Energy that highlights commercial opportunities in fusion to UK companies.

Grow-on space on the campus for businesses expanding from the innovation centre.

A local technology business angel network, Oxford Investment Opportunity Network.2

A range of local suppliers of specialist products and services to science-based businesses.

A network of serial entrepreneurs with experience of growing technology based businesses.

C. What, if any, examples are there of UK-based research having to be transferred outside the UK for commercialisation? Why did this occur?

15. We are aware of many examples of UK-based research being commercialised outside the UK that occurred through lack of funding and lack of a good innovation infrastructure. In other cases, research commercialisation companies have been able to access start-up funding in the UK, but have then been unable to fund the next stages of growth and as a result have lost out in competition to better funded companies (sometimes with inferior technology) from other countries.

16. In the case of magnetic fusion, the course is set for the UK to lose its world lead as the next step towards commercialisation of large scale fusion is taken with ITER in France. However, because of the long timescales for “big science” fusion, there is still time for fusion businesses to emerge from Culham Centre for Fusion Energy (CCFE) and for a vibrant cluster of research activity and research intensive businesses to develop further at Culham. Indeed it is probable that JET at Culham will continue to be the world’s leading fusion reactor for another 10 years before ITER takes the lead.

17. The Culham site already has a highly successful innovation centre (which is currently home to some 20 high tech start-ups) and there are several local fusion research spin-off businesses such as Oxford Technologies and Tokamak Solutions. There are also several local companies with significant business in fusion including Tessella, Oxford Instruments and UKAEA Ltd. So long as CCFE’s Fusion Industry programme continues to promote ITER as an opportunity for UK businesses, fusion related business around Culham continues to grow and the Government continues to invest in the world-leading research at Culham, then the UK can remain in an excellent position in the commercialisation of fusion research as the opportunities expand rapidly.

D. What evidence is there that Government and Technology Strategy Board initiatives to date have improved the commercialisation of research?

18. In the case of Tokamak Solutions, we have benefitted from EIS tax relief for our private individual investors, R&D tax credits and TSB R&D grants (to be renamed SMART Awards). We have also received investment from the Rainbow Seed Fund. Crucially the Rainbow Seed Fund was our first investor and provided valuable advice as well as funding for the development of our initial business plan.

E. What impact will the Government’s innovation, research and growth strategies have on bridging the valley of death?

19. Strengthening TSB R&D Grants will have a big impact in helping the early stages of commercialisation. The award of such grants often attracts private sector investment.

20. It would be helpful if exceptional R&D Grants/SMART Awards could be reintroduced. These used to be worth up to £450,000, compared to the present maximum of £250,000.

21. Steady improvements to R&D tax credits will help substantially, as will the welcome improvements to the Enterprise Investment Scheme.

F. Should the UK seek to encourage more private equity investment (including venture capital and angel investment) into science and engineering sectors and if so, how can this be achieved?

22. This would certainly be valuable and the following direct measures to support companies should be taken:

Launching additional Enterprise Capital Funds focused on technology-based businesses.

Enhancing R&D tax credits further for SMEs.

Enhancing EIS specifically for investors in research commercialisation companies. For example, the annual investment limits for investors and the limits on company balance sheet could be increased for R&D intensive companies. There could be further enhancements to EIS to reward “patient investors” in R&D intensive companies.

Re-introducing a Corporate Venturing Tax Relief for trading companies that invest in R&D intensive companies.

Strengthening existing funds such as the Rainbow Seed Fund which have a strong track record in commercialisation of research and can be highly effective at helping new businesses to prepare for further rounds of private investment.

23. In addition some further measures should be taken to encourage more private investment into science and engineering:

The Bank of England used to produce an influential annual report on finance for SMEs. This report could be re-instigated with a focus on technology-based SMEs and would provide feedback on the effectiveness of Government policy in this area.

In the past, winners of SMART Awards (R&D Grants) were presented with their awards by Ministers. This provided valuable publicity and enhanced credibility to the winning companies and was a public demonstration of Government backing for entrepreneurs and the commercialisation of research. The practice should be reintroduced. UK Trade and Investment could then help to promote SMART Award/R&D Grant winners internationally.

The Anglo-US Financing Innovation symposium to be held in London this summer is an opportunity to showcase the successful commercialisation of research in the UK and to highlight future opportunities to investors and the public.

G. What other types of investment or support should the Government develop?

24. There are still some lessons to be learned from the way the US Government supports research commercialisation:

The SBIR (Small Business Innovative Research) programme in the US is well established and highly effective. By contrast the UK SBRI programme is still relatively modest and could be developed further.

The US Department of Energy funds research directly in small companies including in areas such as fusion research, so long as the quality of the proposed research is sufficiently high. UK Government Departments and the Research Councils could adopt a similar approach. It may be best to direct this funding through the industry-focussed TSB to avoid counterproductive competition for funding between academia and industry.

25. The Government has a vital role as a customer for high technology. In the case of fusion, CCFE purchases many high tech products and services from UK companies and also promotes opportunities for UK companies to supply to ITER. This is good practice and is important for the future growth of fusion-related businesses in the UK. Tokamak Solutions itself has already benefited through a contract to supply services to ITER. However, there is much more that could be done and the Government should continue to look for opportunities to be a customer for high technology in fusion and other sectors.

26. Culham Innovation Centre has a track record of supporting the commercialisation of research over more than 10 years. A few other Government research laboratories have similar on-site centres. Such centres are a visible demonstration of a laboratory’s commitment to research commercialisation and they generate significant local and national economic benefits. The Government should encourage all its research laboratories to establish innovation centres. Private sector operators could be invited to refurbish and manage existing surplus buildings, which can provide healthy financial returns for the research laboratories as well as demonstrating their commitment to the commercialisation of research.

27. An on-site innovation centre is a visible demonstration of a research laboratory’s commitment to research commercialisation. The Government should perhaps be asking those laboratories without such a centre whether they are seriously committed to the commercialisation of research and the resulting local and national economic impacts.

Conclusion

28. Our conclusion is that the UK Government is already taking several measures (improvements to EIS; enhancements to R&D tax credits; strengthening of TSB funding) to assist research commercialisation companies such as Tokamak Solutions. However, there is still much more that can—and must—be done if the potential of the UK’s excellent research base is indeed to be the basis for future economic growth.

29. Specifically we recommend:

further improvements to EIS for investors in research commercialisation companies;

further improvements to R&D tax credits;

improvements to R&D Grants/SMART Awards, including the reintroduction of exceptional awards;

reintroduction of a Corporate Venturing tax relief;

the establishment of privately managed innovation centres similar to Culham Innovation Centre at all Government research laboratories; and

further improvements to the role of Government as a customer for high technology.

30. We agree with David Willetts that there is an important and immediate opportunity to turn the UK’s scientific and intellectual lead in fusion into a technological and commercial lead. Tokamak Solutions aims to play its part in turning this vision into reality.

February 2012

1 www.culham-ic.co.uk

2 www.oion.co.uk.

Prepared 11th March 2013