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Science and TechnologyWritten evidence submitted by BP plc

Summary

1. There are many ways in which research creates value for the UK, of which “commercialisation” is but one.

2. The industrial policies pursued by countries—together with their fiscal regimes, IP policies and university funding programmes—influence whether, where and how commercialisation can occur. UK resources should be focused on securing leadership in existing and new global multi-billion dollar markets.

3. Commercialisation carries significant risk and is only likely to occur where companies can justify the cost. In the US, for example, Federal and State governments mitigate the risks of financing commercialisation by contributing to demonstration funding.

4. The UK’s world leading academic base is a key driving force for global innovation. However the UK has yet to realise the full value of this legacy.

5. Multinational companies locate their internal research activities where they can compete for the best students and conduct research cost effectively. They seek out, on a global basis, excellence in universities for collaborative research. There are few if any technical barriers to the commercialisation of valuable discoveries; and financing commercialisation is a mature capability.

6. Small and Medium Enterprises are much more limited in their scope and capabilities, and in particular their ability to raise finance for activities carrying high risk, such as commercialisation.

7. The following proposals would enable both the commercialisation of UK research and retention of the associated value in the UK:

(i)Focus resources on the best UK universities. Provide adequate support to UK world-class universities to maintain their global standing and ability to compete for talent.

(ii)Pick the right races. Focus UK resources on securing leadership in global multibillion dollar markets drawing on the expertise of UK world-leading companies and universities.

(iii)Create effective pathways from research through to deployment of commercial products. Support efficient interfaces between academia, public and private sectors.

(iv)Support SME growth. Increase access to lower cost finance.

(v)Implement policy to support commercialisation. Target policy according to sector and technology maturity.

(vi)Focus on IP exploitation. Avoid a system of IP over-protection to the detriment of value creation for the UK.

(vii)Capture value from UK R&D. Retain value through inward investment, royalties coming back to a UK entity or job creation etc.

(viii)Influence EU priorities. Compete for share of EU funding for research, development and demonstration consistent with the quality of UK research base.

Introduction

1. Value from research accrues to the UK in many ways, of which “commercialisation” is but one. Others include:

the capacity of the UK to absorb valuable knowledge from around the world;

the provision of technical expertise into UK-domiciled industry;

the creation of UK SMEs or subsidiaries, and jobs, based on inventions;

competitive advantage of UK domiciled industry; and

license fees from the use of intellectual property.

2. In responding to the inquiry, we have considered steps that would enable both the commercialisation of UK research and retention of the associated value in the UK. We have highlighted in the Summary above seven main proposals, which are now discussed in turn.

(i) Focus resources on the best UK universities

“Provide adequate support to UK world-class universities to maintain their global standing and ability to compete for talent.”

3. The UK science and research base is world class. In light of current restraints on government spending, it is more important than ever that UK university funding should focus on excellence. This will enable the best UK universities to continue competing for the most talented people globally. Government support to maintain this free flow of talent is critical as the UK faces increasing competition from other countries as they invest heavily in their R&D base.

4. BP spends 40% of its total research & development funds in the UK and has three major research centres in Sunbury, Pangbourne and Hull. The excellence of UK academic research is a key factor in determining why companies like BP choose to site their R&D activities in the UK.

5. BP invests over £25 million per annum in R&D programmes with UK universities, with the greatest amounts going to Cambridge, Imperial, Manchester and Oxford. The UK university sector is a key resource for recruitment, with BP sourcing 25% of graduates globally from UK universities. The 2012 UK graduate intake has increased 50% compared to 2011.

(ii) Pick the right races

“Focus UK resources on securing leadership in global multibillion dollar markets drawing on the expertise of UK world-leading companies and universities.”

6. UK public resources should be focused on securing leadership in global multi-billion dollar markets where the UK can attract and retain the high value elements of the supply chain. The recent TSB announcement on the establishment of the first tranche of Catapult Centres in high value manufacturing, cell therapy, offshore renewables and satellite applications is consistent with this approach.

7. The UK has world-leading companies with an extensive track record of achievement across multiple sectors including aerospace, communications, defence, oil & gas and pharmaceuticals. This industrial science and engineering expertise should be leveraged to accelerate the creation of new UK enterprises.

(iii) Create effective pathways from research through to deployment of commercial products

“Support efficient interfaces between academia, public and private sectors.”

8. Technology commercialisation requires “pump priming” to ensure a continuous flow of options from research to deployment. The TSB plan to support mission-oriented research centres in emerging technologies such as synthetic biology, energy-efficient computing, energy harvesting and graphene is a positive step in supporting this.

9. BP has growing experience and success in creating mission-oriented research institutes in Cambridge (BP Institute for Multiphase Flow), Tsinghua (the Clean Energy Centre, focused on Chinese energy policy) and the Energy Biosciences Institute (in Berkeley and Illinois).

10. Public-private partnerships have a key role to play in accelerating technology demonstration. BP is a founding member of the Energy Technologies Institute (ETI), a public private partnership in the low carbon energy area. The insights gained inform business strategy and policy and de-risk technology through shared investment and IP exploitation.

(iv) Support SME growth

“Increase access to lower cost finance.”

11. SMEs need additional assistance, in the form of lower cost financing to support high risk activities such as commercialisation. This entails longstanding regulatory frameworks that foster market conditions for investment, coupled with public finance mechanisms that create pathways for concept development. Leveraging large government procurement budgets in areas such as defence and health are obvious options. The plans to extend the TSB Small Business Research Initiative programme, as outlined in the BIS Innovation and Research Strategy for Growth, is a small but significant step in this direction.

12. In BP’s experience, partnerships between large corporates and SMEs are mutually beneficial. Companies like BP gain first hand insight into operating in new technology areas and markets. SMEs benefit from accessing the skills base in large organisations in areas such as marketing and project, commercial and HSE management.

13. Clustering of businesses around UK universities yields disproportionate benefits with SMEs able to attract the critical mass required to interact with academic and business partners. One example, which BP is familiar with, is the business cluster around Cambridge which has witnessed the creation of a number of significant companies. Such SMEs with high growth probability—so called gazelles—are a vital engine for the UK’s future economic prosperity.

(v) Implement policy to support commercialisation

Target policy according to sector and technology maturity.”

14. Commercialisation risks vary by sector, depending largely on confidence in government policy, time to market and capital intensity. Support for technology demonstration should be tailored by sector.

15. The energy industry requires companies to take significant capital risks over a number of years before receiving a return on investment. If they are to do this, they need to have confidence that the appropriate frameworks are in place to support technology development through its different phases of maturity. The table below outlines support mechanisms required for various energy technologies, which are at different stages of development:

Category

Representative technologies

Support mechanism required

Technology ready to deploy and commercially competitive

End use efficiency
On-shore wind
Enhanced oil recovery
1st generation biofuels

Predictable and stable policy, eg to support permitting and grid connection

Technology ready to deploy but not commercially competitive

CCS
Solar
Offshore wind
2nd generation biofuels

Demonstration funding
Transitional incentives

Technology not ready and not commercially competitive

Energy storage
Generation IV nuclear
Tidal and wave power
Geothermal

R&D funding of the underpinning sciences

16. Commercialisation carries significant risk and is only likely to occur where companies can justify the cost. In the US, for example, Federal and State governments mitigate the risk of commercialisation by contributing to demonstration funding.

(vi) Focus on IP exploitation

“Avoid a system of IP over-protection to the detriment of value creation for the UK.”

17. The UK’s IP regime is world class. Companies are attracted to the UK by the robustness of the IP system and the quality of its science base. The total UK income estimated from IP royalties flowing from UK sourced IP is c. £7 billion a year.

18. Over-protection of intellectual property needs to be avoided where it is detrimental to realising value. To the extent that this is based on research funded by the UK government, then this should be prescribed upfront in the granting or research funding.

(vii) Capture value from UK R&D

“Retain value through inward investment, royalties coming back to a UK entity or job creation.”

19. R&D in multinational companies is conducted locally but exploited globally. The value to the UK comes from those companies domiciled here from their total tax and social contributions, coupled with the inward investment made when R&D activities are based in the UK.

20. There is a significant level of R&D intensive corporate foreign direct investment in the UK. Businesses are attracted by a combination of factors including a highly skilled workforce, a stable political and regulatory regime, the ease of establishing and maintaining research centres and a robust IP framework. This leaves the UK vulnerable to strategic decisions of multi-national companies to remove their R&D activities.

21. There needs to be some “stickiness” of the value associated with the IP generated in the UK whether through inward investment, royalties coming back to a UK entity or job creation. Otherwise, companies are able to exploit the excellent UK R&D base “at cost” without contributing to the on-going investment required to support it in the longer term.

(viii) Influence EU priorities

“Compete for share of EU funding for research, development and demonstration consistent with the quality of UK research base.”

22. Increasing amounts of money are being channelled through the EU’s Framework Programmes for Research and Technological Development and, their successor in 2014, the Horizon 2020 programme. This increase is directly attributed to the EU’s Innovation Union strategy to support Europe in keeping apace with the surge in US and Chinese research activity. The UK needs to play a larger role in setting the future technology agenda in Brussels.

23. EU programmes should address frontier technology areas which are too risky for individual European nations to address independently, in line with the principle of subsidiarity. For example, there is no need for the EU to fund conventional programmes related to wind, solar, biofuels or electric vehicle technologies. Instead, the EU should focus its efforts on energy security, electricity infrastructure and standards, sustainable biofuels standards, carbon capture & sequestration demonstration, and generation IV nuclear.

Conclusion

24. The UK has a world-leading academic base and a highly innovative and entrepreneurial business community with a long and distinguished track record of delivery.

25. The UK is well positioned to exploit the opportunities associated with the wide-scale changes occurring across multiple industry sectors. This will involve high degrees of innovation not only in technology but also in the underpinning business models. Success requires significant collaboration between the UK Government, academia and the private sector through carefully-chosen and well-executed partnerships.

February 2012

Prepared 11th March 2013