Science and TechnologyWritten evidence submitted by the Energy Technologies Institute (ETI)

Summary

1. There are two critical factors in commercialising research outputs—having a strong base of innovative ideas and having a rapid (and innovation hungry) market accessible through a development and implementation route where risk is understood and can be effectively managed. Both of these require high calibre people and organisations where the necessary processes and culture favour “risk taking in a controlled way”. The quality of people needed throughout this chain cannot be underestimated.

2. The Energy Technologies Institute provides a unique perspective on this issue having been set-up in 2007 to address this “innovation transfer” and risk management issue in the UK energy sector. The ETI was established as a public-private partnership between major industry groups and the UK Government with public sector representation on the ETI Board from both the Research Councils and the Technology Strategy Board.

3. The ETI has two modes of operation—(1) modelling and analysis of the UK energy system to allow identification of key challenges and potential solutions to meeting the UK 2020 and 2050 targets at the lowest cost to the UK, and (2) investing in major engineering and technology development and demonstration projects which address these challenges with the aim of de-risking solutions—both in technology and in supply-chain development—for subsequent commercial investors. ETI invests in projects as a commercial entity, not as a grant awarding body.

4. ETI has six industry members (BP, Caterpillar, E.ON, EDF, Rolls-Royce and Shell) who offer complementary capabilities in the energy area. Their financial support (£5 million per annum each), skills, business capabilities and market access routes are made available to the Government and ETI project teams through the ETI partnership structure. HMG (through BIS) provides matching support to industry member financial contributions.

5. A major area where ETI adds significant value is in its ability to identify, select, build and manage, effective project delivery teams—teams which “bridge the gap” both in technology demonstration and in skills and capability transfer across the supply-chain. In the last three years ETI has invested over £133 million in 41 projects involving academic groups, SMEs and large industrials. The direct outputs from these projects are expected to return to the project teams (not to the ETI) UK based sales of many £100’s millions over the 2020s and in most cases could also lead to significant export opportunities. The broader outcomes of the projects are expected to reduce the cost to investors and consumers of the UK energy system by £10’s billions over the coming decades.

6. By carrying out rigorous strategic analysis of future UK energy system designs options, and by then investing in targeted and controlled development and demonstration of technology, engineering and manufacturing capability which supports these system designs, the ETI partnership provides an accelerated route to market as identified in paragraph 1. The ETI manages risk through targeting of project requirements, by selection and development of the delivery team and by active decision making around quality assurance of project outputs—throughout delivery of the project

7. The key elements in the ETI model which are seen by the delivery teams to be a substantial benefit are :

(a)Clear identification of well defined needs and goals which are supported by the end-customers in the market.

(b)The comprehensive specification of what is needed to meet this goal and, critically, establishing the buy-in of the delivery team to both the goal and the specification.

(c)Providing long-term visibility and commitment of sufficient investment funding to allow a research team visibility of a complete pathway to commercialisation (an “end-to-end” strategic approach which has been viewed in a 2010 NAO review as a significant benefit).1

(d)Providing a mechanism to manage risk and uncertainty throughout the project by actively engaging with the delivery team to engage additional support (people, financing, technical equipment etc) when appropriate—through the life of the project.

(e)Setting terms at the start of the project for returns during commercial implementation—incentivising both ETI and the delivery team to develop a strong, joint understanding of the commercialisation potential, pathway options and associated risks and mitigations.

8. The ETI model brings tangible benefit in the energy sector where projects tend to be very large (financially and technically), have long lead-times in their development (often owing to the need to ensure the long-term performance of new systems), and tend to have very long asset lives in operation such that the opportunities for major plant replacements and upgrades are limited. Whether the model is entirely appropriate for other sectors, would need to be explored. ETI are currently engaged in a dialogue around this point with the European Commission who have expressed an interest in the overall concept.

General Points

9. The ETI was set-up to specifically address the “valley of death” issue for the energy sector which, at the time, was characterised by relatively low innovation investment and a narrow focus, largely around major electricity generation powerplant requirements. With the development of the low carbon economy and the UK need to renew and diversify the energy system the ETI partnership structure was established to bring in expertise, technology and best practise from outside the core of the sector and, through leverage of both finance and technical capabilities, to incentivise the development and take-up of new systems and technologies.

10. The UK Research Councils’ investments in the academic base and the Technology Strategy Board’s investments in the industrial base provide a hugely valuable platform of innovative ideas and concepts. In the energy sector many of these are being built on by subsequent ETI support to take them through the “valley of death”.

11. The scale of finance needed to take a new technology through from concept to pre-commercial demonstration, in a “heavy engineering” sector such as energy can be anywhere from £10 million to £150 million. Final implementation at commercial scale may require new manufacturing and capital facilities which exceed these levels but which are considered to be affordable in the context of future revenue returns.

12. In addition to finance, technology development, demonstration and commercialisation will need a strong, experienced and competent delivery team. Establishing such a team is often harder than securing finance, particularly in new start-up ventures. In many cases the delivery team may not recognise initially the breadth of skills and capabilities needed since few innovation groups in academia or SMEs will have experience in making the transition from research team to development and demonstration including the need to engage successfully with the demands of marketing and production partners. There is a role for industry groups, finance investors and government bodies in assisting research teams to access adequate and appropriate skills during commercialisation. This represents a key necessity in ensuring the optimum return on any investment—private or public sector led.

13. From the point of view of major customers of innovation (eg; “big industrials”), the routes which innovators use to finance the development of their capability or business are often of less significance than the innovators success in developing their complete capability/business. In this context the financial extent of private equity investments to help fund pre-commercialisation activity in SMEs is perhaps less important than the extent to which the investors seek to ensure appropriate structural, governance and business development –factors which will critically impact on subsequent investments in (or with) that group by major customers. In this context encouragement of the engagement of appropriately skilled and competent Non-Executive Directors is critical.

14. The ongoing development of the Offshore Renewables “Catapult” (formerly the Technology Innovation Centre) by the Technology Strategy Board is an important part of ensuring the UK engineering, technology and science base is seen as a significant benefit to major engineering, manufacturing and product support companies who will be considering global industrial development options . The Catapult should be a key bridge between these communities. From the start of the Catapult development process the ETI committed to engage with the new entity—providing it with UK energy system strategic planning information and working with the Catapult on key development, demonstration and commercialisation projects.

15. In seeking to enhance the commercialisation of research it is essential that there is also sustained long-term support for skills and capability development at the research level and in cross-cutting commercialisation capability such as advanced manufacturing. In the energy sector the ETI has provided long-term underpinning funding for the £6.5 million Industrial Doctorate Centre in Offshore Renewables at the Universities of Edinburgh, Strathclyde and Exeter. This will deliver training which will aid in creating future leaders in both the Marine and Offshore Wind industries. Other examples of best practise in commercialisation and capability transfer include the Advanced Manufacturing Reasearch Centres initially developed by the University of Sheffield and now built into a national ‘Catapult’ grouping by the Technology Strategy Board.

Context and Background on ETI

1. The ETI has two modes of operation—(1) modelling and analysis of the UK energy system to allow identification of key challenges and potential solutions to meeting the UK 2020 and 2050 targets at the lowest cost to the UK, and (2) investing in major engineering and technology demonstration projects which address these challenges with the aim of de-risking solutions—both in technology and in supply-chain development—for subsequent commercial investors.

2. ETI has six industry members (BP, Caterpillar, E.ON, EDF, Rolls-Royce and Shell) who offer complementary capabilities in the energy area. Their financial support (£5 million per annum each), skills, business capabilities and market access routes are made available to the Government through the ETI partnership structure. HMG (through BIS) provides matching support to industry member financial contributions. ETI invests in projects as a commercial entity, it is not a grant awarding body.

3. ETI’s in-house strategic modelling capability has been developed with the strong involvement of the UK industrial base (not just ETI Members). The ETI capability addresses the full UK energy system and centres on first developing robust, shared understanding of critical issues for the UK in reaching 2020 and 2050 energy targets.

4. Having identified the key engineering and technology barriers associated with achieving the 2020 and 2050 goals the ETI then establishes projects to demonstrate potential solutions to these challenges. This approach forms a key part of demonstrating the industrial capabilities needed to meet the UK’s future needs, incentivising industry by informing them of the potential business opportunities and developing the supply-chain and skills to deliver solutions for the UK.

5. To date the ETI has invested in 41 projects to benefit the UK. Projects range from £20,000 to £25 million and total over £133 million. The majority of ETI projects involve a mix of SMEs, Academia and large industrial groups.

 

6. Uniquely, the ETI’s energy system modelling focuses on identifying the lowest cost solutions to the UK and provides an assessment of the option value of key technologies in the 2050 energy system (ie answering the question “what is the cost to the UK of NOT implementing a specific technology?”). The primary modelling tool is a bespoke toolset developed by the ETI and termed “ESME”.

7. ETI modelling and ESME was used by DECC in support of its 2050 pathway work and also supported the Committee on Climate Change (CCC) development of the fourth Carbon budget proposals and the 2011 CCC Renewables Review. In addition it is currently being used by a range of academic and industrial groups to aid investment targetting. The ETI modelling systems have been successfully peer reviewed by an international review team led by Imperial College.

February 2012

1 National Audit Office report—“Government funding for developing renewable energy technologies” 10 June 2010.

Prepared 11th March 2013