Science and TechnologyWritten evidence submitted by Rolls-Royce

Introduction

Rolls-Royce welcomes the opportunity to submit evidence to the Committee’s inquiry. As one of the leading engineering and high-technology manufacturing companies in the UK, we have significant experience in pulling through innovative new technology into high value products and services. This experience has taught us that to pull through technology and to compete effectively in a global industry requires partnerships with our suppliers, academia and government.

“The Valley of Death”

NASA introduced the concept of Technology Readiness Levels (TRL), which became a lingua franca across many of the sectors and industries Rolls-Royce is involved in. TRL describes the progression of technology from the bright idea (TRL1) through scientific investigation (TRL2–3) to laboratory scale testing (TRL4), large scale rig testing (TRL5), full scale system demonstration (TRL6), flight or in service test (TRL7), product development and prototyping (TRL8) to mature product in service (TRL9). The scale is useful, and in Rolls-Royce R&T programmes go through a rigorous gate review as they pass from one TRL to the next. The programme cannot continue to the next (usually more expensive) level without a successful pass at the previous level. In most of the sectors Rolls-Royce is involved in, this progression takes many years. For a novel material, the journey from laboratory formulation to flying engine component can take 20 years.

The valley of death can be expressed in TRL terms. It normally reflects the difficulty of getting a new technology through TRLs 4 to 7. In this area the investment required is high, but the certainty of success remains low. In many of the sectors Rolls-Royce operates in, the valley of death is deepened and widened by the long timescales referred to above and the safety-critical nature of many of the applications. As we look around the world, we see that bridging the valley of death in sectors we operate in almost always requires some degree of Government intervention, or partnership. Companies and countries that do not offer such mechanisms can be at a severe competitive disadvantage.

Manufacturing Capability Readiness Level (MCRL)

A focus on technology readiness alone is not sufficient to bring a technology to market. In parallel, a manufacturing process must be developed and matured so that the product can be manufactured economically, in volume and with consistent quality. In order to put some structure into this process, Rolls-Royce has developed a set of Manufacturing Capability Readiness Levels (MCRLs), also on a nine-point scale. MCRL 1–4 represent the conception and assessment of the manufacturing technology. MCRL 5 and 6 are the critical “pre-production” phase, where expensive full-scale equipment and processes must be used, but ahead of product launch, or factory investment. MCRL 7, 8 and 9 implements the process on the shop floor and confirms volume production with assured quality. Again, there is a valley of death around MCRL 4 to 6, where investment is high, but there is no certainty that the product will be launched, or that the proposed process will be successful.

TRL and MCRL must be managed together. Letting MCRL get too far ahead means wasted investment if the technology is not eventually proven. Letting TRL get too far ahead means delayed entry to the market, or worse, launch of a product with low quality and unduly high cost.

The Rolls-Royce Research Model

Rolls-Royce develops its technologies through close collaboration with Universities through its University Technology Centres (of which there are 19 in the UK across 14 Universities). A consequence of this approach is that the Universities must be prepared to take the technology to higher TRLs (3–4) before it is brought into the Company for large-scale rig testing and demonstration. We have found our UTCs willing to do this and the Universities willing to invest in the larger scale facilities required.

A second leg of the model addresses MCRL. Again, working with Universities in partnership with other Companies, we have created a series of Advanced Manufacturing Research Centres, jointly termed AxRCs, where full-scale development and maturation of manufacturing processes for novel products, or using novel manufacturing technologies, can be achieved before bringing the capabilty to the shop floor.

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

1.1 The prime difficulty is to provide the correct funding profile so that as certainty of the technology increases (TRL), the investment can be ramped up. High investment too early brings a risk of wasting money. Inadequate investment though the critical TRL 4–7 levels and the technology will never emerge from the valley of death.

1.2 In sectors with long technology maturation timescales, such as those in which Rolls-Royce operates, normal investment mechanisms are inadequate to provide this financial support. The risk/reward profile is not one that most financial investors would accept.

1.3 Continuity of funding over long periods of time is essential. It cannot be turned on and off due to external pressures.

1.4 A company will attract shareholders who understand this process and are not in the game for quick returns, but are willing to see their investment in a technologically-based company grow as technology levels in products are increased.

1.5 In most of the sectors Rolls-Royce operates in there is a need for and evidence of Government support as technology is brought to market. Where this support is inadequate, or not available, there is a risk of severe competitive disadvantage.

1.5.1Rolls-Royce invested over £900 million in R&D in 2011. Only half of this from shareholder funds, the remainder from Governments and external partners.

1.5.2In the UK, support from the MoD for defence-related R&D within the Company has fallen significantly over the past 20 years. In 2011 it was less than 20% (in real terms) of the investment in 1990. In the USA, defence-related R&D support remains strong, despite recent cut-backs.

1.6. The TSB has developed efficient mechanisms for supporting collaborative research. Their funding, at just over £300 million per annum is, however, inadequate for the task in hand.

1.6.1The Government is spending over £3.5 billion on low TRL research, and cannot hope to adequately capture the benefits from this investment when spending so little on support through the valley of death.

1.6.2A recent TSB call for manufacturing technology was oversubscribed 20 times, despite having £24 million available, showing the appetite in the UK for technology pull-through.

1.6.3An area for improvement in the TSB mechanism is that it relies on a series of technology-focused calls. We understand the need to focus resources, but recommend improving the long term visibility of subject areas to improve planning and industrial alignment.

1.7 One novel funding mechanism and model in the UK was the formation the Energy Technologies Institute (ETI) and is a consortium of six industrial partners (up to 10 are envisaged). Each company pledges up to £5 million each year, with this sum being matched by Government. The Government’s investment is managed by the TSB. Over the 10 year life of the programme up to £1 billion can be invested in maturing promising energy-related technologies.

1.7.1One great advantage of the ETI model is that because the funding is “pre-geared” grants up to 100% can be provided to promising projects without tripping over EC funding rules. The model has proved very successful and responsive.

1.7.2One example is the ReDAPT (Reliable Data Acquisition Platform For Tidal) project which is allowing Rolls-Royce with its research partners to build and deploy a full-size tidal-stream turbine of the Orkneys.

1.7.3The same model might be applied to other focused technology maturation areas. We would suggest consideration be given to technology institutes in (for example) nuclear technology, advanced electrical machines, cyber defence and mass transportation.

1.8. The AxRCs have had no single, consistent funding source or model. They have been pieced together with support from the RDAs, TSB, EPSRC and their industrial partners/subscribers. The RDAs have been particularly useful in providing underpinning capital investment for machine-tools and infrastructure.

1.8.1The high value manufacturing Catapult (see 1.9), may bring some stability and long-term assurance to the funding for infrastructure and under-pinning capability growth and expansion.

1.9 The recent launch by the Government of Catapults (Technology Innovation Centres) is welcomed. This model envisages a funding stream coming one third from an underpinning, long-term Government grant, one third from industrial members and one third through the collaborative bidding by the Catapult and its industrial partners being successful in other funding competitions, creating an overall 50/50 public private funding model.

1.9.1The first Catapult is focused on high value manufacturing. It provides the underpinning support (especially capital and infrastructure investment) for a network of seven advanced manufacturing centres around the UK.

1.10 The abolition of the RDAs has removed an important source of localised funding for innovation and technology pull-through. The RDAs were particularly useful in being able to support the capital elements of R&D programmes, but often found it difficult to provide revenue support. Combining industrial partner money, TSB funding, research council money and RDA support in individual programmes was complex, but proved to be successful.

1.10.1Under the National Aerospace Technology Strategy, the aerospace industry developed a relatively efficient mechanism for coordinating all of this.

1.10.2The Rolls-Royce led Environmentally Friendly Engine programme (EFE) is a £125 million programme which enjoyed support from four RDAs, the TSB and industrial partners. It was able to equip a test-bed in Bristol and enable several builds of a full-scale, Trent engine core to prove novel combustion and high-temperature component technologies which will reduce the impact of aviation on the environment.

1.10.3On a smaller scale, the relocation of the QinetiQ light piston tunnel for turbine blade aerodynamic testing from their site in Farnborough was achieved with support from SEEDA, Oxford University, Rolls-Royce and the TSB. This has provided Oxford University with a vital facility for TRL4–5 work.

1.10.4Whilst we are not advocating the re-establishment of RDAs, a mechanism for fast-access to funding for capital-intensive R&D would help maintain key capabilities in the UK.

1.11 Our overseas competitors benefit significantly from access to rigs and facilities in National research centres which are funded and maintained at the state-of-the art out of the public purse (eg NASA in the USA, DLR in Germany, ONERA in France). In the UK, such facilities have largely been privatised. It is no surprise then that many of these facilities have been, or are being closed as they cannot be maintained as a commercial operation, or else face under-investment so that they become uncompetitive. Such facilities are essential to take technology through the TRLs 4, 5 and 6. Below are some examples:

1.11.1The UK no long has an engine altitude test facility

1.11.2The Noise Research Centre in QinetiQ is under repeated threat of closure.

1.11.3The Aircraft Research Association in Bedford finds it difficult to raise the level of investment needed to modernise its facilities.

1.12 In the EC Framework 7 programme a new instrument was introduced, specifically focused on large-scale technology demonstration, the JTI (Joint Technology Initiative). In aerospace, a JTI called Clean Sky was formed. It has €1.6 billion available, with half of this coming from industry, and half from the EC.

1.12.1The JTI is managed by its twelve founding industrial members, of which Rolls-Royce is one. 75% of the programme budget goes directly to these prime industrial members and their associates, with the remaining 25% being released through open calls managed by the industrial consortium.

1.12.2The programme is committed for seven years, giving long term stability, but allowing flexibility to change shape and direction of the programmes as market needs and technology developments might dictate.

1.12.3A similar mechanism at a National level in the UK should be considered.

1.13 The EPSRC is an essential part of the technology maturation pipeline. With its increased focus on “impact” of research and ability to co-fund university research activities with the TSB, or in direct partnership with companies, it provides a significant stimulus to taking technology through TRL 3 and 4. Improved focus on EPSRC funded Centres for Innovative Manufacturing (CIM’s) is welcomed, however, we would recommend better alignment to the AxRC’s and the development of a requirement led framework based on a gap analysis rather than open bidding process.

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

2.1 The valley of death gets deeper and wider as the timescales for technology maturation in a particular sector increase. In fast-moving consumer electronics, technology can be brought to market relatively quickly and normal investment mechanisms can apply. In sectors like aerospace, with stringent safety requirements and the need for rigorous, large-scale, system-level demonstration; or pharmaceuticals, with its need for lengthy clinical trials, the investment and return horizons do not favour conventional funding mechanisms.

2.2 Venture capitalists will normally be looking for a return in three to five years. They will tend to find aerospace and energy technologies unattractive for such investment.

2.3 The most extreme investment return sector for Rolls-Royce is nuclear where it is not unusual for a new technology or design to take 30 years to make it into service. This sector has always seen the need for significant Government intervention.

2.4 Each sector is different. One common theme is the increasing use of computer simulation, rather than physical testing, to reduce the cost and time-to-market across most sectors. Access to major computational infrastructure by Companies as well as Universities is essential. (see 5.4)

2.4.1We welcome the increased investment in e-infrastructure in the Government’s “Innovation and Research Strategy for Growth”. However, unless companies have adequate access to this at affordable rates, it will not drive the innovation required.

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

3.1 Rolls-Royce has recently transferred the centre of gravity of its solid-oxide fuel-cell development to Ohio, USA because of the significant opportunities for Department of Environment investment.

3.2 Compressor and fan aerodynamic and noise testing facilities have been consolidated in Brandenburg, Germany because of the support and funding mechanisms available.

3.3 Outdoor noise-testing of large engines has been transferred to Stennis, Mississippi because of noise regulation and planning difficulties in the UK.

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

4.1 The Rolls-Royce led Environmentally Friendly Engine programme (EFE) is a £125 million programme which enjoyed support from four RDAs, the TSB and industrial partners. It is able to equip a test-bed in Bristol and enable several builds of a full-scale Trent engine core to prove novel combustion and high-temperature component technologies which will reduce the impact of aviation on the environment.

4.2 The ETI REDAPT project is allowing Rolls-Royce, with its research partners, to build and deploy a full-size tidal-stream turbine off the Orkneys.

4.3 There are numerous examples from the TSB part-funded Advanced Manufacturing Research Centre in Rotherham where novel manufacturing technology has already helped bring significant reductions in the cost of our products, thus ensuring our continued competiveness in our very price-conscious, high technology markets.

4.4 A good example is the Advanced Simulation Research Centre (ASRC) in the South West that brings together industry and academia around advanced simulation using high power computing. It benefits multiple sectors including rail, marine, aerospace and wind energy.

4.5 Significant programmes in a number of the AxRCs have been conducted or are in progress that are key to the investments in new Rolls-Royce UK factories , eg Advanced Blade Casting Facility—Rotherham, Civil Nuclear Facility—Rotherham and UK Disc Production Facility—Washington, Tyne & Wear.

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

5.1 The Government’s publication “Innovation and Research Strategy for Growth” December 2011 sets out the latest policy in this area and this document is referred to below.

5.2 Science investment needs to be supported as part of the wider innovation infrastructure, whereby research results can be efficiently brought to market. This is best done by aligning research with national strategies such as NATS (National Aerospace Technology Strategy), which has been a successful partnership between Government, Industry and Academia, transitioning research into technology demonstrators and through to products that bring economic growth, exports and sustains jobs in the UK.

5.3 The proposal from Government for more Catapults is welcomed. This model envisages a funding stream coming one third from an underpinning, long-term Government grant, one third from industrial members and one third through the collaborative bids by the Catapult and its industrial partners being successful in other funding competitions.

5.3.1The first Catapult is focused on high-value-added manufacturing. It provides the underpinning support (especially capital and infrastructure investment) for a network of seven advanced manufacturing centres around the UK. However, there is concern that the funding model is now shifting away from capability growth and towards capability maintenance. We strongly believe this shift towards revenue-based funding will reduce ambition and stifle growth.

5.3.2Offshore Renewable Energy is another area where a Catapult has recently been announced and is well matched to the UK capabilities and resources.

5.3.3The Catapults have, as part of their inspiration, the German Fraunhofer institutes. However, we must not be under any delusion that we are going to emulate this system. Total direct funding for Catapults at £200m over the next five years, even when geared by the third/third/third model, pales into insignificance when compared to the €1.6 billion annual turnover of the Fraunhofer network.

5.4 We welcome the Government’s increased investment in e-infrastructure of £158 million.

5.4.1Companies must have adequate access to this at affordable rates, or it will not drive the innovation required.

5.4.2Even this funding will not put the UK in the world top 20 in supercomputing.

5.5 The return of “Smart” grants for SMEs is welcomed.

5.5.1The document, however, perpetuates the myth that all/most innovation originates from SMEs. Large companies have a significant role to play in innovation in the UK. Very few SMEs and inventors have a direct route to market. Their technology must be integrated and proven as part of a bigger system (normally provided by a large company) before it can be taken to market.

5.5.2Large-scale technology demonstrators enable elements of the supply chain, including SMEs and universities, to come together in order to integrate and demonstrate technologies at the systems level. They allow fair, transparent and mutual partnership; SMEs develop their technologies quicker, gain exposure through showcasing their capabilities and assimilate invaluable knowledge; systems integrators are able to integrate those into products that meet market demand.

5.5.3US Small Business Innovation Grants recognise this and allow the SME to use part of the grant with a larger company for system-level verification.

5.6 The Government policy document pledges £25 million for “large-scale demonstration” without any further explanation as to its application.

5.6.1From our experience, large scale demonstrator programmes require funding a scale of which is greater than this amount of funding. The already-mentioned EFE technology demonstrator will cost around £125 million, for a single demonstrator.

5.7 The Universities receive too little attention in the policy document given that they are a key part of the UK’s innovation landscape. Close working between Rolls-Royce and its UTCs is essential to delivering proven technology.

5.7.1We await with interest the report BIS commissioned from Sir Tim Wilson on University/Industry interaction which should recommend the policy context to redress the balance.

5.8 The role of the EPSRC in funding research and partnering with industry to focus on impact of research is also understated.

5.8.1The Strategy seems almost apologetic about the EPSRC’s recent statements on “Shaping Capabilities”. The focus on research with real impact and areas UK industry has the proven capability to exploit and access to growing global markets in order to contribute to growth is essential. This is particularly true against a budget which is decreasing in real terms despite bold statements on ring-fencing science and engineering.

5.9 Proposals in the document for increasingly “Open Data” must be implemented with great care. If such proposals help all companies access the mass of data in the public domain more effectively and free up Government-owned data for easier access, they are to be welcomed. However, if they make it easier for our overseas competitors to access and exploit the research base in the UK, especially those elements where UK companies, like our own, have made a significant contributions, then, far from promoting growth in the UK, they could be severely damaging our competiveness.

5.10 The EU “Horizon 2020” (Framework 8) proposal will go to the Council of Minsters for approval this year. The document promises full engagement of UK business in the programme, which is welcomed. We need, before then, to endorse the significantly-increased budget and ensure that the topic areas chosen for research funding reflects those where the UK industrial base has a proven track-record to develop and exploit.

5.10.1The perpetuation of the new JTI mechanisms in the Horizon 2020, especially the Clean Sky programme, is seen as essential for encouraging collaborative research at TRL 5, 6 and 7.

5.11 The document lists the selection of three key emerging technologies: “synthetic biology, energy efficient computing and energy harvesting”, seems narrow and idiosyncratic. No explanation is provided as to why these three were selected. Nor is it obvious they meet the test of a UK industrial base well-positioned for exploitation.

6. 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?

6.1 Cuts in public funding for research give the private-sector less confidence to invest its own money, or drive it to consider such investment overseas, where Government’s support and incentives for such investment are stronger. This will ultimately hurt UK economic growth, exports and jobs.

6.2 If mechanisms can be found to encourage private equity investment in science and technology with longer term gestation periods, then this will be welcomed. A radical view of the necessary tax incentives will be required, along with a stimulus package to initiate private investment.

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

7.1 The Government should consider whether a funding mechanism and governance structure like the Clean Sky JTI might be applicable at a national level for sectors where there is a strong UK supply chain to benefit.

7.2 Government should consider whether the successful ETI model and governance structure could be extended to other sectors beyond sustainable energy.

7.3 Government should take an urgent and radical view of the UK nuclear power generation industrial sector to consider how to create wealth from investment in the next generation of reactor technology and associated fuel cycle. This has the opportunity to stimulate both a significant export industry and more rapidly meet climate change targets. We welcome the announcement that the Government will publish a long-term strategy and R&D roadmap for civil nuclear.

7.4 Government should look to stop the further decline in S&T funding in the MoD. Among major developed nations with significant defence industries, the UK alone considers its defence S&T to be simply a cost rather than a national wealth creation opportunity. We believe that this area deserves significant review.

7.5 Government should ensure that the capital support for collaborative research programmes, previously provided by the RDAs is replaced by some other mechanism.

7.5.1The Catapults are doing this within their individual scopes, but a broader mechanism, possibly through TSB need to be supported.

7.6 Government needs to support test equipment and test infrastructure (eg wind tunnels) which are vital to UK business, but which are unable to be operated and invested in to keep them at the state-of-the-art status purely on a commercial basis.

7.6.1Our competitors enjoy access to such facilities embedded within publicly funded National research centres.

7.7 Tax credits need to be converted in to a real cash benefits to assist those less-profitable companies that cannot directly benefit from the tax credit in the near term.

February 2012

Prepared 12th March 2013