CHAPTER 5: research and innovation |
The role of research and innovation
139. There was widespread agreement that funding
for research and development (R&D) and support for innovation
in the energy sector are very important, not least in order that
the EU can take the global lead in moving away from fossil-fuel
dependency at an affordable price. According to the ETI, for example,
"innovation is vital to help reduce our energy consumption",
and to "deliver our energy needs with a far lower carbon
content, at prices which do not damage our competitiveness and
in ways that generate broad economic benefits".
ABB Limited, the EESC, the Florence School of Regulation (FSR),
the ECF and E.ON all agreed that investment in research into low
carbon energy technologies and initiatives could have a positive
140. We were warned of threats to the EU's future
competitiveness if it failed to boost its innovation capacity.
While its level of investment in low carbon energy in 2011 was
$94 billion, comparing favourably to the amount of $50 billion
invested by each of the US and China, the EU's level of investment
was expected to be lower in 2012.
Both the European Commission and the Secretary of State argued
that carbon capture and storage (CCS) would be developed in countries
such as the US and China if it was not demonstrated soon in the
EU. Mr Zenghelis
observed that clean energy and energy efficiency were two of the
"magic growth sectors" included in China's most recent
Several witnesses pointed to the fact that China was developing
a strong base in the manufacture of renewable energy equipment,
notably for the solar industry.
141. In terms of boosting R&D, Dr Neuhoff
argued that the EU needed to develop a clear strategy to trigger
innovation and a shift to low carbon processes and products, including
commercialisation. According to ABB Limited, ETI, RenewableUK
and the WWF, more certainty on the direction of energy policy
was needed, so that investors could begin more comfortably to
make the substantial investments needed to create a sustainable
energy market. The IPPR argued that, by pooling investments and
sharing risk, EU governments were likely to increase the attractiveness
of major innovation projects to private sector investors. The
ETI's experience pointed to the value of partnership between public
and private sectors, and taking a strong evidence-based approach
to targeting research and innovation. According to the FSR, public
support, whether in the form of loans, prizes or grants, needed
to be tailored to the features of each project.
142. We discussed with witnesses the extent to
which support should focus on embryonic technologies, or whether
it should also extend to helping relatively new technologies reach
commercial viability. Professor Helm was vocal in his view
that the emphasis should be on researching new technologies that
had the potential to achieve the longer-term goals, such as tidal,
next-generation solar, negative emission technologies to replicate
photosynthesis and demand-side response technologies such as batteries
and smart networks. His preference would be increased support
for research into those technologies, rather than spending money
on the commercialisation of more mature, but still relatively
expensive, technologies such as offshore wind power.
143. On the other hand, a number of witnesses
noted that development work could also help reduce the costs of
building and operating existing technologies such as offshore
wind. The Secretary
of State argued that research also required deployment and that
"if you simply focus in on the researching of new technologies,
you are never going to get there". Referring specifically
to offshore wind, he observed that companies "are learning
how to do it more efficiently and more cheaply every day".
He added that "it would be bizarre" if the UK did not
try to exploit what, in offshore wind, was a "fantastic resource".
The FSR and IET agreed that there was economic benefit to be derived
from acting as a pioneer.
144. Innovation is central to the EU's future
competitiveness, but the EU risks being eclipsed by others, including
the US and China. Two main factors could undermine energy innovation
in Europe: inadequacy of finance; and uncertainty about the future
policy framework. Both of these could be addressed by an adequate
2030 framework, particularly if this included a reformed ETS which
made direct links to innovation through the use of carbon revenues
and greater certainty over long-term price trends.
The EU's approach
145. The EU's approach to research and innovation
in the area of energy is spearheaded by its Strategic Energy Technology
(SET) Plan, which was proposed by the Commission in 2007. It now
represents the technology development pillar of the EU's Energy
2020 Strategy. Key technologies identified in the plan for 2020
are: second generation biofuels; smart grids; CCS; energy efficiency
in buildings, transport and industry; wind (particularly offshore
wind); photovoltaic and concentrated solar power; nuclear fission
(including waste management); and new materials for SET Plan technologies.
The Commission emphasised the importance of developing advanced,
second generation biofuels given the need to move away from those
biofuels that are causing concern about their impact on land use.
146. The SET Plan will be supported primarily
by the Horizon 2020 Programme, the new EU programme for investment
in research and innovation, running from 2014 to 2020. The Commission's
proposed budget for the programme over that period was around
80 billion. While final agreement on the budget is yet to
be reached, it is likely to represent a substantial increase from
the amount devoted to the current framework programme, which is
50.5 billion, of which 2.35bn was earmarked for energy.
Horizon 2020, by contrast, includes a new societal challenge
'Secure, Clean and Efficient Energy', with a suggested budget
of 6.5 billion for non-nuclear energy research for the period
2014-2020. Futhermore, under the EU's Risk Sharing Financing Facility,
1.1 billion is earmarked for energy-related projects. This
will be managed by the EIB. The Euratom proposal covering the
period 2014-2018 foresees 1 billion for fission and fusion
activities. In addition, 2.7 billion will be available as
the EU's contribution to the international nuclear fusion project,
147. We received mixed views in relation to the
SET Plan. The Commission explained that, when the original research
budgets for the EU for the period 2007-13 were drawn up, no major
priority was given to energy. In recognition of that gap, the
SET Plan was established in an attempt to mobilise public and
private funding monies for researching major issues such as biofuels,
storage and smart grids. The Commission noted, however, that it
had not resulted in any major reorientation of national research
budgets: only EU and private funds support the SET Plan in a significant
way. A particular example of that was CCS, which had failed to
attract the necessary finance by Member States (see Chapter 3).
In terms of the future development of the SET Plan, DECC indicated
that the UK had been supporting proposals for marine energy technologies
to be included in the SET Plan quickly. The SET Plan should be
under ongoing review so that it could incorporate new technologies
as they emerge. Those technologies currently expected to have
an important role for the EU in 2050 include: energy storage;
trans-European energy networks; new technologies for energy efficiency;
nuclear fusion; hydrogen fuel cell vehicles; and generation IV
nuclear fission. The CIBSE emphasised demand-side response technologies
as key, as did the ETI alongside bioenergy, CCS and nuclear power.
148. DECC confirmed that funding to deliver the
SET Plan remained an issue and set out the scale of the challenge:
"Activity under the Plan is estimated to require spending
of up to 80bn over 10 years (a threefold increase on average
cumulative EU and Member State spending in this area over recent
years)". It went on to observe that "there continues
to be an expectation that Member States and the private sector
will ramp up their funding, which seems impractical in the present
financial climate". DECC noted that the low carbon price
under the EU Emissions Trading System (ETS) meant that there was
significantly less funding than expected to spend on the first
phase of projects under the NER-300 programme (see paragraph 57).
That stream of funding was highlighted by WWF, which emphasised
the importance of reinvesting some revenues from the ETS into
the development of new low carbon technologies.
149. Similar doubts as to the source of financing
for the SET Plan were expressed by the EESC, describing the required
expenditure as "massively underestimated". The EESC
therefore recommended that appropriate financing plans supported
by the Commission, Member States and industry be drawn up.
Professor Newbery described the SET Plan as reasonably sensible
but observed that it lacked "the mechanism to mobilise sufficient
funding through collective action, and the institutions to ensure
that any such money is well-spent".
SSE expressed a concern that Member States and the Commission
were not taking an appropriate share of risk on energy technology
development, which could partly explain the difficulties in mobilising
funding. Both SSE and RenewableUK argued that the SET Plan should
have a devoted budget line under Horizon 2020.
150. The Commission observed that Horizon 2020
would allow a "significant increase in our energy research
and innovation expenditure in the EU budget".
This was described as "welcome but still inadequate"
by the Centre for European Reform (CER), particularly as the EU's
"future prosperity will depend on staying at the technological
SSE agreed that "a major increase" in R&D was needed.
It called for administrative hurdles related to EU research programmes
to be removed and flexibility considered for bottom-up initiatives.
151. RenewableUK suggested that one third of
the non-nuclear energy research budget under Horizon 2020 be spent
on the SET Plan and that the remaining two thirds be spent on
renewable energies and on energy efficiency. WWF agreed that a
strong focus of funding should be on renewable energy and warned
against moves to extend the Horizon 2020 energy budget to cover
the gas sector. This was partly because the gas industry was already
investing in research, an assertion confirmed by the Energy Networks
152. As highlighted in paragraph 146, an EIB
Risk Sharing Finance Facility will be available to support Horizon
2020. This facility, which is aimed at R&D, has so far resulted
in loans amounting to over 9.5 billion, of which around
15% has been in the area of energy, particularly in the solar
and wind power sectors and in energy efficiency. The facility,
which shares the risk between the EU budget and the EIB, allows
projects to be supported that would otherwise be too risky for
the EIB to support on its own.
153. The CER was critical of EU funding for the
international nuclear fusion project, ITER, arguing that the EU
should cancel its participation in the project: "Even if
it works eventually, ITER will not generate electricity for the
grid until 2040 at the earliest, so fusion will contribute little
to efforts to control climate change or to increase energy security."
It was explained that the budget of the project had tripled since
2001. In our report, 'EU Financial Framework from 2014', we strongly
regretted the delays, cost overruns and management difficulties
that had beset ITER.
While we did not argue against EU participation, we emphasised
the need for improved financial management.
154. The Committee was also told about the 'Smart
Cities and Communities' European Innovation Partnership (EIP),
which is encouraging consortia of industry to link up with cities
to promote the most innovative ways of using energy, water and
EESC highlighted the EIP as of particular benefit. On the more
general principle of EIPs, it emphasised that there must be close
ties with stakeholders at national, regional and local level with
a view to taking account of particular national and regional features.
155. We heard about some of the work in which
the private sector is investing. For example, ABB Limited is supporting
the development of the UK wave and tidal sector by providing components,
systems and expertise. EDF highlighted two tidal stream and wave
projects, in Brittany and in the French Overseas Territory of
Runion, which are focused on demonstrating the potential
commercialisation of both technologies. ABB Limited has also developed
and delivered the first battery energy storage device which is
connected to a local distribution network. This allows the network
to manage power flows and voltage levels on part of the system.
By contrast, EDF is not undertaking any new work in the area of
battery storage. The company does not see significant market opportunities
for this technology at an industrial scale. 
156. Funding to support research and innovation
activities across all areas will be increased for the next financing
period running from 2014 to 2020. Clarity on how it will divide
between the various priorities is now required. The
EU's research and innovation policy is explored further in our
report, 'The Effectiveness of EU Research and Innovation Proposals.
157. We are alarmed at the degree of evidence
that we have heard to suggest that the SET Plan is at risk of
failing to deliver its objectives due to inadequate funding. We
conclude that the Commission must, as a matter of urgency, revise
the SET Plan with a view not only to the technologies on which
it should concentrate but also to how the SET Plan will be financed.
Such work must be undertaken in partnership with Member States,
the private sector and the EIB.
158. The EIB's risk-sharing finance ability
will be of particular value in the context of the market's reluctance
to lend to certain Member States because of budget deficits.
159. In terms of the future focus of investment
in R&D, we agree with those witnesses who emphasised the increasing
importance of demand-side technologies and so an increased focus
on areas such as storage and smart meters would be helpful. As
regards renewable energy, further work on advanced biofuels would
be helpful, as it would on solar and tidal energies.
160. We welcome innovative approaches to energy,
including those that might be developed through innovation networks
such as the new Smart Cities EIP. The value of such partnerships
is dependent on their ability to engage with local, regional and
270 ETI Back
Q 123, ABB Limited, EESC, E.ON,FSR Back
Q 171 Back
Q 66, Q 368 Back
Dimitri Zenghelis Back
Q 43, Q 88, CER, EUI, Scientific Alliance Back
ABB Limited, ETI, FSR, IPPR, Dr Karsten Neuhoff supplementary
evidence, RenewableUK, WWF Back
Q 134 Back
QQ 263-264, E.ON, SSE Back
Q 380 Back
FSR, IET Back
COM(2007) 723 Back
Q 66, Q 270 Back
Decision 1982/2006 Back
Q 66, CIBSE, DECC, EIT Back
DECC, WWF Back
Professor David Newbery Back
SSE, RenewableUK Back
Q 66 Back
ENA, RenewableUK, WWF Back
Q 174 Back
op. cit. Back
European Union Committee, 13th Report (2010-11): EU Financial
Framework from 2014 (HL Paper 125) Back
Q 270 Back
ABB Limited, EDF supplementary evidence Back
European Union Committee, 15th Report (2012-13): The Effectiveness
of EU Research and Innovation Proposals (HL Paper 162) Back