TT ENERGY Final Report (2)_v011 ... - Cordis - Europa EU

STUDY

Innovation and Transfer of Results of Energy RTD in National and European Community Programmes

A Comparative Study of Mechanisms Results and Good Practices EUR 23122

Interested in European research? Research*eu is our quarterly magazine keeping you in touch with main developments (results, programmes, events, etc.). It is available in English, French and German. A free sample copy or free subscription can be obtained from: European Commission Directorate-General for Research Information and Communication Unit B-1049 Brussels Fax (32-2) 29-58220 Helpdesk: [email protected] Internet: http://europa.eu.int/comm/research/rtdinfo/index_en.html

EUROPEAN COMMISSION Directorate-General for Research Directorate K – Energy E-mail: [email protected] Internet: http://ec.europa.eu/research/energy

http://cordis.europa.eu/fp7/energy/home_en.html

EUROPEAN COMMISSION

Innovation and Transfer of Results of Energy RTD in National and European Community Programmes

A Comparative Study of Mechanisms, Results and Good Practices

Directorate-General for Research 2008

Cooperation | Energy

EUR 23122

Europe Direct is a service to help you find answers to your questions about the European Union Freephone number:

00 800 6 7 8 9 10 11

LEGAL NOTICE Neither the European Commission nor any person acting on behalf of the Commission is responsible for the use which might be made of the following information. The views expressed in this publication are the sole responsibility of the author and do not necessarily reflect the views of the European Commission. A great deal of additional information on the European Union is available on the Internet. It can be accessed through the Europa server (http://europa.eu). Cataloguing data can be found at the end of this publication. Luxembourg: Office for Official Publications of the European Communities, 2008 © European Communities, 2008 Reproduction is authorised provided the source is acknowledged. ISBN 978-92-79-07823-1 ISSN 1018-5593 DOI 10.2777/34665

Contract RTD-J-1-CT-2005-25

Table of contents 1.

ACKNOWLEDGEMENTS .......................................................................................................................... 5

2.

EXECUTIVE SUMMARY ........................................................................................................................... 6

3.

INTRODUCTION ....................................................................................................................................... 12 3.1

THE ISSUES TO BE ADDRESSED .......................................................................................................... 12

3.2

ASSUMPTIONS MADE WHEN ADDRESSING THE ISSUES ...................................................................... 14

3.3

ORGANISATION OF THE REPORT......................................................................................................... 16

4.

THE STUDY METHODOLOGY............................................................................................................... 18

5.

THE STUDY RATIONALE ....................................................................................................................... 21

6.

7.

5.1

RESEARCH AND INNOVATION PROCESSES IN THE PRIVATE SECTOR: RECENT FINDINGS.................. 21

5.2

RESEARCH AND INNOVATION PROCESSES IN THE ENERGY SECTOR: KEY FEATURES ...................... 22

5.2.1

Innovation drivers up to the mid-1990s: a technology push approach ............................... 23

5.2.2

Innovation drivers after 1 July 2007: increase market pull approaches to be in line with the IEM (Integrated Energy Market) 1996 Directive (Directive 96/92/EC) ................. 25

5.2.3

Consequences for public RTD funding: implement measures to remove interfacial barriers impeding the translation of innovative process into regulation.............................. 27

5.3

RESEARCH AND INNOVATION PROCESSES FOR THE ENERGY SECTOR IN EUROPE: UTILISE NEW PLAYERS ............................................................................................................................................. 28

5.4

RESEARCH AND INNOVATION PROCESSES FOR THE ENERGY SECTOR IN EUROPE: COPING WITH THE PROPOSED CHANGE IN RTD APPROACHES .......................................................... 30

AN OVERVIEW OF EXISTING RTD SUPPORT PROCESSES IN THE ENERGY SECTOR AT EU AND MEMBER STATE LEVEL: CONTRIBUTION TO THE INNOVATION PROCESS .... 34 6.1

INTRODUCTION .................................................................................................................................... 34

6.2

MEASURES IMPLEMENTED BY DG ENTERPRISE ................................................................................ 35

6.3

MEASURES IMPLEMENTED VIA DG REGIONAL POLICY FUNDS.......................................................... 36

6.4

MEASURES IMPLEMENTED BY DG ENVIRONMENT ............................................................................. 38

6.5

A SUMMARY OF MEASURES IMPLEMENTED AT MEMBER STATE LEVEL............................................. 39

LESSONS LEARNT FROM PAST OR EXISTING TECHNOLOGY TRANSFER PROCESSES AT EU LEVEL ......................................................................................................................................... 41 7.1

IMPACT ASSESSMENT OF ENERGY RESEARCH AT EU LEVEL ........................................................... 41

7.1.1

The assessment of the socioeconomic impact of FP4 NNE research projects (2001) .... 41

7.1.2

Qualitative assessment of NNE Energy proposals selected in FP5 (2001)....................... 43

7.2

A DEDICATED MEASURE TO IMPROVE TECHNOLOGY TRANSFER IN THE ENERGY SECTOR: THE OPET NETWORK ........................................................................................................................ 44

7.2.1

Electricity from Renewable Energy Sources (RES-e) ........................................................... 44

7.2.2

EMINENT (Early Market Introduction of New Energy Technologies) ................................. 45

7.2.3

Promoting the Use of Clean Fossil Technologies (CFTs) within the Energy Market ...... 46

7.3

AN EXAMPLE OF MISSION-BASED TECHNOLOGY TRANSFER PROCESSES: Final report 2 / 93

THE ESA CASE STUDY .

46


8.

7.3.1

Background.................................................................................................................................. 46

7.3.2

Players ......................................................................................................................................... 47

7.3.3

Achievementsto date.................................................................................................................. 47

7.3.4

Lessons learned through the space initiative ......................................................................... 48

7.4

THE JAPANESE EXAMPLE .................................................................................................................. 49

7.5

REMOVING INTERFACIAL BARRIERS TO HELP INNOVATION PROCESSES: LESSONS LEARNT ABOUT MEASURES IMPLEMENTED IN THE MEMBER STATES............................................................. 49

RECOMMENDATIONS FOR MEASURES TO IMPROVE THE INNOVATION PROCESS AT EU LEVEL................................................................................................................................................ 51 8.1

REDUCE THE DISCONTINUITY OF PUBLIC FUNDING TO IMPROVE THE TECHNOLOGY LEARNING CURVES ............................................................................................................................................... 51

8.1.1

Background.................................................................................................................................. 51

8.1.2

Recommendations...................................................................................................................... 53

8.1.3

Practices in collaborative research .......................................................................................... 59

8.2

ADDRESS MORE INTENSIVELY THE NON-TECHNOLOGICAL BARRIERS THAT SLOW DOWN INNOVATION IN THE ENERGY SECTOR ...................................................................................................................... 59

8.2.1

Background.................................................................................................................................. 59

8.2.2


8.3

SUPPORT THE PACKAGING OF THE PRODUCED NEW KNOWLEDGE TO IMPROVE ITS DOWNSTREAM USE BY INNOVATION PLAYERS ............................................................................................................ 63

8.3.1

Background.................................................................................................................................. 63

8.3.2


8.4

FOSTER DIALOGUE BETWEEN ENERGY TECHNOLOGY INTEGRATORS AND CROSS-CUTTING TECHNOLOGY DEVELOPERS IN THE MATERIALS, ICT AND BIOMASS AREAS .....................................

69

8.4.1

Background.................................................................................................................................. 69

8.4.2


8.5

LOWER INTEGRATION BARRIERS FOR NEW ENERGY TECHNOLOGIES THROUGH FOCUSED RESEARCH AND DEVELOPMENT ADDRESSING END-USER AND STANDARD ISSUES ........................... 79

8.5.1

Background.................................................................................................................................. 79

8.5.2

Recommendation........................................................................................................................ 79

8.6

INCREASE HUMAN CAPACITY IN TAKING INNOVATIVE TECHNOLOGIES TO THE MARKET ................... 80

8.6.1

Background.................................................................................................................................. 80

8.6.2


8.7

DESIGN INCENTIVES TO REWARD THE PERSONAL ENGAGEMENT OF INNOVATION PLAYERS IN THE ENERGY INDUSTRY THAT SHOW DEMONSTRABLY GOOD PERFORMANCE ..........................................

8.7.1

82

Background.................................................................................................................................. 82 Final report 3 / 93


8.7.2 9.

Recommendation........................................................................................................................ 83

CONCLUSIONS .......................................................................................................................................... 85 9.1

THE INCREASING ROLE OF ENERGY COMPANIES IN THE EARLY ADOPTION OF NEW TECHNOLOGIES 89

9.2

THE INCREASING ROLE OF SMES TO INNOVATE IN THE ENERGY SECTOR ........................................ 91

9.3

INCREASED TECHNICAL AND MARKET SKILLS FOR ALL EXISTING AND NEW PLAYERS ...................... 91

9.4

THE FOURTH PILLAR OF PUBLIC SUPPORT FOR ENERGY INNOVATION .............................................. 92

ANNEX I: BIBLIOGRAPHY ............................................................................................................................. 93

ANNEX II: TECHNOLOGY TRANSFER AND INNOVATION IN THE ENERGY SECTOR OF AUSTRIA ANNEX III: TECHNOLOGY TRANSFER AND INNOVATION IN THE ENERGY SECTOR OF BELGIUM ANNEX IV: TECHNOLOGY TRANSFER AND INNOVATION IN THE ENERGY SECTOR OF DENMARK ANNEX V: TECHNOLOGY TRANSFER AND INNOVATION IN THE ENERGY SECTOR OF FRANCE ANNEX VI: TECHNOLOGY TRANSFER AND INNOVATION IN THE ENERGY SECTOR OF GERMANY ANNEX VII: TECHNOLOGY TRANSFER AND INNOVATION IN THE ENERGY SECTOR OF ITALY ANNEX VIII: TECHNOLOGY TRANSFER AND INNOVATION IN THE ENERGY SECTOR OF THE NETHERLANDS ANNEX IX: TECHNOLOGY TRANSFER AND INNOVATION IN THE ENERGY SECTOR OF SPAIN ANNEX X:

TECHNOLOGY TRANSFER AND INNOVATION IN THE ENERGY SECTOR OF SWEDEN

ANNEX XI: TECHNOLOGY TRANSFER AND INNOVATION IN THE ENERGY SECTOR OF THE UNITED KINGDOM

Annexes II to XI provide a detailed description of the energy innovation frameworks in the Member states being examined and are available at: http://ec.europa.eu/research/energy/nn/nn_pu/innovation/article_0010_en.htm

Final report 4 / 93


1. ACKNOWLEDGEMENTS This report was prepared for the Strategy and Policy Unit of Directorate J, Research Directorate-General of the European Commission, under contract RTD-J-1-CT-2005-25.

The lead author was Serge Galant (TECHNOFI), with contributions from Udo Sievers (ICON), Juan Cristobal Garcia (ZABALA), Pau Rey (ZABALA) and Tiziana Pagano (TECHNOFI). TECHNOFI, ICON and ZABALA gratefully acknowledge the contributions of all the interviewed experts. Special thanks go to Mr John Scott (OFGEM, UK) who agreed to review an early version of the report, thus providing extremely valuable comments and insights on innovation issues in the energy sector.

Final report 5 / 93


2. EXECUTIVE SUMMARY The present study, carried out by TECHNOFI, ICON and ZABALA, aims at providing answers to four closely related questions asked by the managers of the European Commission's Directorate-General (DG) Research in the field of Non-Nuclear Energy (NNE) research. These questions relate to knowledge transfer and innovation processes which make use of outputs of publicly funded research projects in order to reach market applications, as described below. •

How can the design of energy research and technological development (RTD) programmes (including their rules of participation) be improved?

•

How can the structure, monitoring and support of the selected RTD projects be improved?

•

How can public funds at Community, Member States and regional level work better together?

•

How can present funding resources at Community, Member States and regional level be more optimally utilised?

Knowledge (or technology) transfer is the process of detecting, developing and validating the potential for practical and profitable applications of the results of scientific and technological research. Innovation is the process of developing, industrialising and profitably selling those products or services, which may have benefited from scientific and technology research. Generally speaking, knowledge (or technology) transfer processes are embedded in innovation processes. Recent findings in several economic sectors, including energy (1), have shown that there is a poor correlation between levels of private companies' RTD funding and the resulting effectiveness of their innovation process (2). Innovation processes are indeed very often inhibited by interfacial barriers (3) that impede new knowledge gained in RTD projects from reaching market applications: these barriers either exist naturally, as is the case with people's resistance to change, or are artificially created, as seen in the national technological standards inherited from a century of industrial growth in the European energy sector. The present study and the resulting answers to the above questions are, therefore, based on three critical assumptions.

1

Jaruzelski, B., Dehoff, K., Bordia R., 'The Booz Allen Hamilton Global Innovation 1000: Money Isn't Everything', Strategy and Business, No 41, Winter 2005. 2 Effectiveness of the innovation process means the capability of innovation managers to bring innovative products, services or business models on time and within budget to profitable market applications. 3 Interfacial barriers (as part of the so-called micro barriers to the diffusion of new energy technologies) may arise from behavioural, cultural, environmental, financial, human capacity, legal, political, institutional, and technological factors. These micro barriers can be identified and addressed directly through focused, committed actions from individual stakeholders. Final report 6 / 93


Assumption 1 Improvements concerning the questions studied must give priority to the removal of interfacial barriers, seeking a collective agreement about those most relevant to the innovation processes in the energy sector The present work aims mainly at pinpointing a list of the most prominent barriers based on a desk analysis of RTD public support measures at EC level and within several Member States, namely Austria, Belgium, Denmark, France, Germany, Italy, the Netherlands, Spain, Sweden, and the UK. The desk analysis searched for public support measures that have identified and addressed the removal of one or several interfacial barriers with demonstrable results.

Assumption 2 Those applications which are capable of reaching the market will combine a portfolio of technologies (4) and a portfolio of business models (5). It is assumed that the selected business models have addressed the removal of critical interfacial barriers adequately Numerous energy and industrial policy scenario studies (6), both at Member State and EU level, pinpoint the need for energy players to validate robust technology portfolios in order to shape the future European energy landscape. The present study focuses on a few technologies to which EC funding has contributed, to build meaningful technology portfolios, above and beyond what is funded within Member States: •

fuel cells and hydrogen technologies;

•

photovoltaic and solar-thermal concentrating technologies;

•

biomass-based technologies (utilisation of biofuels and biomass);

•

clean use of fossil fuels for heat and power (including technologies for carbon-dioxide capture and sequestration technologies);

•

distributed energy resources (DER);

•

generic cross-cutting and horizontal technologies relevant to energy (e.g. materials sciences, nanotechnologies, innovative biotechnologies, information and communication technologies).

These technologies, once developed successfully, are embedded in the portfolios of technology manufacturers and energy companies, most likely in line with industrial and energy policies of Member States.

4

A portfolio of technologies is a coherent set of technical solutions to meet customer needs. A portfolio of business models is the description of business channels and investment requirements which are needed to generate a profitable stream of revenues from new knowledge. 6 It must be emphasised that this study is at the crossroads of industrial policies in the energy sector (with a few Member States very active on the world technology scene) and energy policies (with all the Member States having their own opinions and positions on the future energy landscape of Europe). 5

Final report 7 / 93


Not only the liberalisation of energy markets, the response to the EU directives and to the Kyoto protocol, but also tensions in the fossil fuel markets simultaneously require the development and validation of robust business models. Here, a business model is a validated technology exploitation plan at manufacturer or energy company level, which enables the most successful technologies to add commercial value to existing businesses. New business models must therefore address the removal of critical interfacial barriers, in order to guarantee effective sales of the new knowledge. Because of the future uncertainty of energy markets worldwide, manufacturers and/or energy companies combine their portfolios of technologies and business models to augment the number of value options they can sell to their clients. The first proposal arising out of the present study is that the construction of such portfolios needs a shift in the balance of public intervention at EU level. Technology push approaches (typical of the last twenty years of the 20th century) should migrate towards more market-oriented, integrated approaches, where the players are offered ways and means to circumvent existing (and possibly new) interfacial barriers. Thus, technology manufacturers as well as energy and network companies will identify opportunities to add value to their businesses and create technology pull approaches. The above shift in approaches will impact both technology development cycles (emerging versus growing/mature technology) and the types of RTD projects (technology problem-solving versus market-driven integration). EU RTD funding is then left with the four major options shown below. •

Emerging technologies are developed and validated to prepare for major changes in the overall European energy system. Europe concentrates on key issues, such as materials for fuel cells using nanotechnologies, or technologies for CO2 removal.

•

Interface technologies are developed to make growing or mature technologies more easily adaptable to the still fragmented European markets. This leads, for instance, to the extensive use of power electronics in inverters that can couple photovoltaic (PV) panels with electric grids.

•

Emerging technologies are tested with the participation of the energy market players, in order to understand the shape of the learning curve which will prevail in the design of large scale demonstration projects (such as the validation of new electric network management tools).

•

Validation and demonstration projects are designed both to understand the effectiveness of several business models and to propose to regulatory bodies adapted market incentives that support innovative energy production and utilisation schemes under legally binding contracts.

Assumption 3 Care must be taken in extrapolating good innovation practices from past business models, since a whole new set of players will appear in the coming years across Europe; this will encourage new and market-based approaches to innovation in energy technologies

Final report 8 / 93


Future business models will inevitably involve new sets of energy players, resulting from the policy goals of market liberalisation, unbundling of energy companies and the full application of the 1996 IEM (Integrated Energy Market) Directive (Directive 96/92/EC) by Member States. The advent of new players will most probably mean new interfacial barriers. One must therefore take care when translating past good innovation practices into future promising approaches. Only recent results obtained since the IEM Directive implementation and dealing with effective technology transfer (TT) or innovation processes should be considered: most of them rely on open innovation approaches, i.e. approaches in which networking among players allows the removal of interfacial barriers as early as possible in the innovation process, and of course, within the early RTD stages. Combining the above assumptions and reviewed measures both at the EU and Member State level has led to the identification of the following interfacial barriers. It is the removal of such barriers which will help propose improvements.

Interfacial barriers to be addressed by improved RTD support measures at EU level •

The current discontinuity of public funding in supporting validation and demonstration phases, which inhibits the building of the market learning curve.

•

The shortage of non-technology-based knowledge that is often required to make an innovation process commercially successful.

•

The poor packaging of knowledge created by EC RTD contracts, which inhibits the easy take-up by downstream players.

•

The difficulty of dialogue between the technology specialists involved in materials, information and communications technology (ICT), biology, etc. and energy technology integrators, which inhibits the use of such generic technologies to the benefit of energy systems.

•

The absence of key European technical standards, (for instance, grid connection of renewable electricity), which slows down industrialisation and commercialisation of products and services across Europe.

•

The lack of managerial, business and technical skills to implement innovative technologies in liberalised energy markets, which inhibits new business relationships and new working approaches.

•

The decrease of effective professional engagement among the players in the innovation chain (at most management levels), which remains critical in solving the interfacial issues that enable an innovative idea to move towards sustainable commercial use.

This overall picture of future energy innovation processes has been provided to more than 60 experts in Europe. These experts have been interviewed at length, and their responses requested, in relation to the following three issues. •

What is the extent of the agreement amongst them about the nature and complexity of these barriers? Final report 9 / 93


•

Are there specific measures in their respective Member States that have been implemented to address any of them?

•

What recommendations can be made to significantly improve the rate of transfer of new knowledge gained in EC-funded research projects to real-life commercial applications?

All interviewed players first stressed the need to simplify the application procedures for research proposals and contract management at EU level. Any new measure must avoid increasing the apparent 'bureaucracy' of EU RTD funding, while giving energy innovators the options of applying for and using public funds at regional, Member State or EU level, in the smoothest possible way.

All the barriers described above have been confirmed as critical for those innovation processes in the energy sector supported by EU (and very often by Member States) public measures. A thorough review of such public measures at Member State level led to the identification of 15 recommendations to improve public support measures, and in so doing, to respond to the 3 questions listed above. It is worth noting that several of the recommendations push for the involvement of the following new players at EU level that will be able to effectively contribute towards the removal of interfacial barriers: • regulatory bodies, which are not adequately concerned with the impact of innovation in improving energy market efficiency; • energy foundations, active in several Member States, to expand open innovation models in the energy sector; • the European Investment Bank, which supports more aggressive financing schemes in favour of innovative energy technologies and their efficient use; • National Energy Agencies, which jointly accompany the building of the learning curves of new technologies through early adoption schemes adapted to each of the national backgrounds; • the secretariats of several European Technology Platforms, which with complementary financial supports are capable of specifying cross-cutting and standard research projects that meet manufacturer and energy company needs; • Small to Medium-sized Enterprises (SMEs), that research, develop and market innovative technologies and services in relation to cross-cutting technologies. Overall, these recommendations contribute towards reinforcing the role of the three 'classical' pillars that characterise successful public support of innovation processes: • financial incentives to develop, validate and demonstrate technology performances; • dedicated measures to help the early adoption of technologies, therefore speeding up the market learning process; • capacity building. Final report 10 / 93


Nonetheless, this study recommends that any public authority within the EU dealing with energy research should rely on a fourth pillar in the years ahead, as shown in the diagram below.

Successful innovation processes

Financial incentives focusing on technology

Measures for early adoption of technologies

'Usual' pillars addressed by public measures

Capacitybuilding measures

Measures to reduce interfacial barriers that inhibit innovation processes

The additional pillar in support of future RTD programmes

This pillar addresses the design of public support measures which will demonstrably help to reduce or remove the interfacial barriers preventing knowledge gained using public funds from reaching market application. Indeed, reducing the number of interfaces, while admirable in this regard, will nevertheless run counter to the general trends of liberalisation and unbundling that are being introduced for broader reasons across the energy sector. Liberalisation and unbundling inevitably introduce new players and therefore new interfacial barriers. Facing this paradoxical situation will require measures of research and development (R&D) public support to accompany the validation of energy technologies. The participation of the key energy market players here is a prerequisite: •

to understand the shape of the learning curve of innovative technologies, which will prevail in the early adoption phase by end-users;

•

to understand the expected effectiveness of new candidate business models, in such a way that regulatory bodies develop market incentives to speed up the expansion of innovative energy production, under legally binding contracts;

•

to understand the factors that will facilitate the implementation of new energy production or consumption schemes by industrial companies in a liberalised environment: this should include business case identification, access to specialist expertise and response to new regulatory frameworks and incentives.

Final report 11 / 93


3. INTRODUCTION 3.1 The issues to be addressed The present work, carried out by TECHNOFI, ICON and ZABALA, concerns the answers to four intertwined questions asked by the managers of EC-DG Research in the field of Non-Nuclear Energy (NNE) research. These questions relate to the knowledge transfer and innovation processes which use outputs of publicly funded research projects to reach market applications, as described below. • How can the design of energy RTD programmes (including their rules of participation) be improved? • How can the structure, monitoring and support of the selected RTD projects be improved? • How can public funds at Community, Member States and regional level work better together? • How can present funding resources at Community, Member States and regional level be more optimally used? The questions listed above deal with the two following processes. • Knowledge (or technology) transfer: the process of detecting, developing and validating the potential for practical and profitable applications of the results of scientific and technological research. • Innovation: the process of developing, industrialising and profitably selling the products or services which may benefit from scientific and technology research. Generally speaking, knowledge (or technology) transfer processes are embedded in innovation processes. While technology transfer and innovation activities have been conceptually practiced for many years (7), the present-day volume of research, combined with high-profile failures, (such as the one at the once famous Xerox Palo Alto Research Center (PARC) of the XEROX company (8)), have led to a focus on the technology transfer and innovation process itself. This focus has led to push for open innovation, where early networking of players significantly decreases the risk of not generating the right knowledge for the right market. Many companies, universities, and governmental organisations now have an 'Office of Technology Transfer' dedicated to identifying research results of potential commercial interest, and to developing strategies for exploiting them. They then address interfacial barriers in order to make the process work better. Take, for instance, a given research result that may be of interest: since patents are normally only issued for practical processes, applying for a patent will require someone (not necessarily the researcher) to come up with a specific practical process that depends on the result. Another consideration is commercial value: there are, for instance, 7

In ancient times, Archimedes was renowned for applying science to practical problems. As a matter of fact, Archimedes became a popular figure as a result of his involvement in the defence of Syracuse against the Roman siege in the First and Second Punic Wars, using practical applications of his scientific findings. 8 A significant number of innovative IT solutions (such as the mouse interface) were invented by researchers at the XEROX PARC, but exploited by others like APPLE or MICROSOFT. Final report 12 / 93


many ways to accomplish nuclear fusion in a laboratory. But in practice, the cases of commercial interest are those that put out more energy than they take in, such as the most promising one validated within the ITER programme. As a result, technology transfer processes frequently involve multidisciplinary teams, including scientists, engineers, economists and marketers. Increasingly in today's liberalised market, there is a need for the engagement of regulatory authorities who determine the nature of the 'playing field' and have the authority to address the barriers that may arise in new situations. The dynamics of technology transfer and innovation processes has attracted some attention in its own right: there are several dedicated societies and journals (9) that specialise in the technology transfer process. Along the same line, optimising technology transfer and innovation processes from publicly funded RTD is a relevant issue not only in all technological fields but also in the energy sector, as is revealed in Annex I, where a summary of the most recent studies pertaining to the topic at hand is presented. The main concern today is to maximise the effectiveness and efficiency of public research spending, with regard to global competitiveness. Two recent papers from the US show, for instance, how technology transfer and innovation processes for different technologies are examined at policy implementation level or at effectiveness measurement level (10). However, the field of energy technologies has historical features which make technology transfer and innovation processes even more difficult to comprehend and optimise: • in a (relatively) cheap fossil fuel era, energy investments are not considered to be suitable for a high return and fast growing sector; • the time needed to reach the market is also very long (at least 5 to 10 years), which makes market timeliness a critical issue; • the capital investments required by users to implement new energy technologies is high, and thus the payback time for investments is also long; • energy development has a high political content: the very strong political driving force is related to the impacts on, say, the reduction of greenhouse gas emissions, climate change or core societal demands for secure energy supply. To this end, many political initiatives and measures have been implemented at global, European, national and regional levels, including measures and programmes to support technology transfer, such as, for instance: • the THERMIE, SAVE, ALTENER programmes of the European Commission;

9

These include the following: the Association of Federal Technology Transfer Executives; the Association of University Technology Managers; the Association of European Science and Technology Transfer Professionals; the Journal of Technology Transfer; and the International Journal of Technology Transfer and Commercialisation. 10 Powell, J., Moris, F., 'Different Timelines for Different Technologies', Journal of Technology Transfer, No 29, 2004, pp. 125-152. Tassey, G., 'Policy Issues for R&D Investment in a Knowledge-Based Economy', Journal of Technology Transfer, No 29, 2004, pp. 153-185. Final report 13 / 93


• • •

the 'Best Available Technologies' project under the European IPPC Directive 96/61/EC; the various networks of European Energy Agencies, initiated originally by the Organisations for Promotion of Energy Technologies (OPET) network; the e7 Technology Diffusion Working Group, to mention an industry initiative.

This has led to a rather complex situation in Europe, concerning the measures in support of technology transfer, where many intentions, levels of intervention, approaches, and organisations interfere. They include, for instance, general awareness-raising campaigns on energy saving and emission reduction, specific technology demonstration projects, tax systems or long-term agreements with industry to reduce emissions, implementation of various energy agencies in support of national energy policies and campaigns organised with industrial associations, just to name a few.

3.2 Assumptions made when addressing the issues Recent findings in several economic sectors, including energy, have shown that there is a poor correlation between the level of private companies' RTD funding and the resulting innovation process effectiveness. Regardless of the amount of money invested in R&D, downstream innovation processes may be often inhibited by interfacial barriers, either naturally existing, such as people's resistance to change, or artificially constructed, such as the existence of technological standards inherited from a century of national industrial growth in the European energy sector. The present study and the resulting answers to the four questions posed above are therefore based on a set of three critical assumptions.

Assumption 1 Improvements addressing the questions studied must give priority to the removal of interfacial barriers, seeking a collective agreement about those most relevant to the innovation processes in the energy sector The present work aims mainly at pinpointing a list of such barriers based on a desk analysis of RTD public support measures at EC level and within several Member States, namely Austria, Belgium, Denmark, France, Germany, Italy, the Netherlands, Spain, Sweden, and the UK. The desk analysis searched for public support measures that have identified and addressed the removal of one or several interfacial barriers with demonstrable results. This list was obtained in particular from a review of papers addressing innovation in the energy sector (see Annex I).

Assumption 2 Those applications which are capable of reaching the market will combine a portfolio of technologies (11) and a portfolio of business models (12). It is assumed that the 11

A portfolio of technologies is a coherent set of technical solutions intended to meet customer needs. A portfolio of business models is the description of business channels and investment requirements which are needed to generate a profitable stream of revenue from new knowledge.

12



selected business models have addressed the removal of critical interfacial barriers adequately Numerous scenario studies, both at Member State and EU level, pinpoint the need to validate robust technology portfolios in order to prepare the future European energy landscape. The present study focuses on a few technologies to which EC funding has contributed, to build meaningful technology portfolios, above and beyond what is funded at Member State level: • • • • • •

fuel cells and hydrogen technologies; PV and solar-thermal concentrating technologies; biomass-based technologies (utilisation of biofuels and biomass); clean use of fossil fuels for heat and power (including technologies for carbon-dioxide capture and sequestration technologies). DER; generic cross-cutting and horizontal technologies relevant to energy (i.e. materials sciences, nanotechnologies, innovative biotechnologies, information and communication technologies).

These technologies, once developed successfully, are embedded in the portfolios of technology manufacturers and energy companies, most likely in line with industrial and energy policies of Member States. Not only the liberalisation of energy markets, the response to the EU directives and to the Kyoto protocol, but also tensions in the fossil fuel markets simultaneously require the development and validation of robust business models. Here, business models mean validated exploitation plans that enable the above technologies to add commercial value, while addressing the removal of key interfacial barriers that will guarantee effective sales of the new technical knowledge. The first proposal arising from the present study is that the construction of such portfolios needs a shift in the balance of public intervention at EU level. Technology push approaches (typical of the last twenty years of the 20th century) should migrate towards more market-oriented, integrated approaches, where the players are offered ways and means to circumvent existing (and possibly new) barriers. Thus, technology manufacturers as well as energy and network companies will identify opportunities to add value to their businesses and create technology pull approaches. The above-mentioned shift in approaches will impact both technology development cycles (emerging versus growing/mature technology) and the type of RTD projects (technology problem-solving versus market-driven integration). EU funding is then left with four major options, presented below. • Emerging technologies are developed and validated to prepare for major changes in the overall European energy system. Europe concentrates on key issues, such as materials for fuel cells using nanotechnologies, or technologies for CO2 removal. • Interface technologies are developed to make growing or mature technologies more easily adaptable to the still fragmented European Final report 15 / 93


•

•

markets. This leads, for instance, to the extensive use of power electronics in inverters that can couple PV panels with electric grids. Emerging technologies are tested with the participation of the energy market players, in order to understand the shape of the learning curve which will prevail in the design of large-scale demonstration projects (such as the validation of new electric network management tools). Validation and demonstration projects are designed both to understand the effectiveness of several business models and to propose to regulatory bodies adapted market incentives that support innovative energy production and utilisation schemes under legally binding contracts.

Assumption 3 Care must be taken in extrapolating good innovation practices from past business models, since a whole new set of players will appear in the coming years across Europe, which will encourage new and market-based approaches to innovation in energy technologies Future business models will inevitably involve new sets of energy players: this is a result of the policy goals of market liberalisation, the unbundling of energy companies and the full application of the 1996 IEM Directive by Member States. The advent of new players will most probably involve the creation of new interfacial barriers. One must therefore take care in translating past good innovation practices into future promising approaches. Only recent results obtained since the IEM Directive implementation and those dealing with effective technology transfer or innovation processes should be considered: most of them rely on open innovation approaches, where networking among players allows the removal of interfacial barriers as early as possible in the innovation process, and of course, within the early RTD stages

3.3 Organisation of the report This report comprises 8 sections and 11 annexes: Section 4 describes the methodology followed to reach the recommendations for public funding at EU level. Section 5 details the study rationale, with an emphasis on the reasons why the focus on interfacial barrier removal is of critical importance for innovation in the energy sector. Section 6 summarizes the existing RTD support at EC level in the energy sector, covering several Directorates General, and at the studied Member States level (Austria, Belgium, Denmark, France, Germany, Italy, the Netherlands, Spain, Sweden, and the UK). Final report 16 / 93


Section 7 describes some of the lessons learnt about public support of technology transfer and innovation processes at EU level, comparing the energy field and the aerospace field, where the ESA (European Space Agency) has been managing a Technology Transfer programme for more than 10 years. Section 8 details the recommendations with references to existing measures in the Member States that support their relevance at EC level. Section 9 concludes with the need to take into account new innovation players in the energy sector in Europe over the next 10 years, and the importance of public measures in support of interfacial barrier removal. Annex I lists the most recent published work on technology transfer and innovation matters in the energy sector that have contributed to shaping the 16 recommendations of the present study. Annexes II to XI provide a detailed description of the energy innovation frameworks in the Member States being examined. These annexes are available at : http://ec.europa.eu/research/energy/nn/nn_pu/innovation/article_0010_en.htm



4. THE STUDY METHODOLOGY Three concurrent processes were implemented from November 2005 to June 2006, as shown below. Comparative study of best practices

•

Effectiveness assessment of potential improvements to remove interfacial barriers, relying on 60 experts' interviews

Recommendations based on the measures focusing on interfacial barrier removal that are of importance at EU level

To identify, document and compare best practices and existing tools and mechanisms: a comparative analysis has been performed, dealing with the practices and results in terms of support to innovation and technology transfer developed by the EU and Member States with respect to energy research. Technology transfer from public or private supported research is a human learning process, where several types of players intervene along the innovation cycle: technology enthusiasts for early adoption, visionaries, pragmatists, conservatives, sceptics. The comparison of processes must be carefully performed based on a systemic approach: identical functional requirements, clear inputs, clear outputs, similar boundary conditions (such as economics, taxes, financial incentives, etc.). Yet there are key features of the technology adoption cycle in the energy field of technology which must be taken into account when measuring the success of technology transfer mechanisms. How would one explain, for instance, that Europe is a world leader of wind technology, but lagging behind on fuel cells (13)? The energy field is very slow in moving from a mature technology to an innovative one. As a matter of fact, the advent of new energy sources has always been publicly subsidised in the 20th century: the learning curve concept should play a critical role in designing public support measures, even though integration constraints make its use more difficult for some of the technologies of interest to this study (renewables, hydrogen, DER).

•

To assess these tools and mechanisms: the market take-up effectiveness has been assessed with more than 60 experts, based on interviews using a common interview guideline. Assessing the technology transfer and innovation processes must comply with the basic policy axiom: 'one must measure what one values and not value what one measures'. For instance, the US public players view the metrics questioning the energy field as involving several distinct kinds of measures to quantify technology transfer performances: 9

programme activity indicators (e.g. licensing, cooperative R&D relationships, invention disclosure, patenting);

13

see for instance: http://www.greatplains.net/activities/meetings/meeting20001115/presentations/gpnleod/sld009.htm Let us bear in mind that the first windmill manufacturer in the world is the Danish company VESTAS, with a yearly turnover of EUR 1. 8 billion in 2004 Final report 18 / 93


9

downstream outcomes (e.g. innovative commercial products and processes, spill-over effects on the economy, benefits flowing back to the transferring organisation); programme productivity (e.g. procedural/administrative efficiency, customer satisfaction, overall return from the RTD project portfolio).

9 •

To indicate which measures could be best improved or undertaken to support innovation and technology transfer in that area, in the light of the situation described and assessed at EU level and in Member States. Relevant practices are argued based on field experience in several Member States. There is a good deal of agreement on what metrics are useful with respect to measuring the effectiveness (quite easy) or efficiency (very difficult) of technology transfer or innovation 'programme activities', yet metrics are predominantly specific tools, and not general probing tools. Public bodies and federal laboratories in the US regularly publish this information, including an increasing amount of information on 'downstream outcomes'. The biggest metrics challenge, then, lies chiefly with measuring 'programme productivity.' Here it appears that appropriate measures are less generalised and much more directed towards tailored performance reflecting an organisation's technology transfer programme, how an organisation's specific programmes relate to its mission and strategic plan, and what is being achieved relative to these plans. Overall, technology transfer or innovation metrics are difficult to define, and impossible to generalise across research entities that benefit from public support. One size does not fit all, especially when too many organisations pursue public funding measures not because they are the right tool but because headquarters are counting: excessive opportunity effects then become a major pitfall of public subsidy to private research organisations. Within the scope of this study, noting the absence of clear effectiveness indicators throughout Europe (14), the comparison of innovation processes is based on their ability to tackle clearly identified barriers to the implementation of innovative energy-related technologies. More specifically, 'micro barriers' must be distinguished from 'macro barriers', as suggested, for instance, in a recent study of the e7 group (15). 9

Micro barriers, which comprise interfacial barriers, exist at R&D and innovation project level, specific to different technologies and geographies. Micro barriers to the diffusion of new energy technologies arise from financial or human capacity, but also from technological factors. These micro barriers can be identified and addressed directly through focused, committed actions from individual stakeholders for each RTD project.

14

European Commission, 'Assessing the Impact of Energy Research', EUR21354, 2005. e7, 'Renewable Energy Technology Diffusion, Final Report', Montreal 2003, published by e7 Network of Expertise for the Global Environment. (e7's current members (see: www.e7.org) are as follows: American Electric Power, Électricité de France, Enel, Hydro-Québec, Kansai Electric Power Company, Ontario Power Generation, RAO UESR, RWE, Scottish Power, Tokyo Electric Power Company).

15



9

•

Macro barriers can be identified at policy level, often spanning technological categories and geographical boundaries. Macro barriers to energy technology diffusion may be rooted in financial, legal, political, institutional, and technical issues. Addressing these macro barriers requires broad, coordinated initiatives from various sustainable development stakeholders. These include especially the environment for energy technology transfer established by political and societal actions.

To confront a draft version of the proposed improvements and related measures, with the opinion of European experts, during a one-day workshop coordinated by the contractors. This workshop was held in Brussels on 6 October 2006, and led to the present final report.



5. THE STUDY RATIONALE 5.1 Research and innovation processes in the private sector: recent findings According to a recent study published by Booz, Allen and Hamilton (16), an analysis of the 1 000 biggest private R&D budget spenders shows that the links between R&D spending and company growth though innovation are very loosely connected. There are indeed few statistical relationships between private R&D spending and business results, the energy sector included. In other words, there is an optimum RTD funding level that nourishes innovation processes, but RTD spending alone is insufficient to achieve effective innovation. What is also required is a minimum of efficiency in managing the interactions between the innovation players that help the move from the idea to business sales. This is the challenge of open (or networked) innovation, which has successfully succeeded close innovation (e.g. the XEROX PARC model). The innovation process optimisation requires that private companies compromise, with a choice between two extreme situations: •

standing below a minimum critical level of R&D expenses does not allow production of the right amount of appropriate, high quality, novel knowledge needed to reach market applications with a sufficiently competitive edge: the innovation process then becomes knowledge limited;

•

producing too much knowledge with a high level of R&D expenses can prove futile, since not enough investment remains available in companies to facilitate the interaction between market players: the innovation process is then interface limited. Interface barriers are not removed properly and do not facilitate market applications.

For industrial companies, there is an optimal area where interactions between innovation players are managed efficiently enough to allow new knowledge to be exploited by business fruitfully. Let us, for instance, recall the TOYOTA versus GENERAL MOTORS current business performances. GENERAL MOTORS has been the largest R&D spender in the US for years. Yet its business performances have been poor, due, most probably, to several internal interface challenges in transforming R&D into business advantages. TOYOTA, while spending significant shares of its revenues in R&D, is also recognised as a world leader in management innovation, with a focus on embedded R&D linking manufacturing and sales. TOYOTA has invented collective innovation techniques in design and manufacturing that have been borrowed by many car manufacturers since the late 1980s. Today, TOYOTA is only the third-highest R&D spender in the car industry.

16

Jaruzelski, B., Dehoff, K., Bordia R., 'The Booz Allen Hamilton Global Innovation 1000: Money Isn't Everything', Strategy and Business, No 41, Winter 2005. Final report 21 / 93


Hence, whatever the sector, minimising the interfaces between idea generation and first business sales will improve the innovation process efficiency, provided that the produced R&D outputs are of sufficient quality and quantity to suit market requirements. This is why industry players often consider that the best technology transfer process ever (using knowledge gained by public researchers) involves hiring them as full-time employees in their development laboratories or within ad hoc spin-offs: this avoids the interfacial issue of shaping research results. Having the inventor brain onboard the business venture always minimises the knowledge transfer risks (loss of sense, of experience, of maturity, etc.). This is also the sense of integrated RTD projects as promoted by the EC in the Sixth Framework Programme (FP6): they have started trying to reduce some interfacial barriers, implementing collaborative projects with intellectual property rights (IPR) rules and responsibilities that are real incentives for transfer knowledge and technology. This is also the way Japan has designed its public R&D support to private companies in the large-scale integration of PV technologies.

5.2 Research and innovation processes in the energy sector: key features Energy markets are characterised by several key features. •

Energy markets always have a strong political component: they are strongly influenced by national regulations that impact price evolutions and end-users' purchase conditions. Unstable regulations and support schemes introduce uncertainty for long-term investments. But stable regulations in Europe still lead to very different tariffs all over Europe.

•

Security of supply is another political dimension of energy markets: policy makers want to avoid ruptures in energy supply, which in turn eliminates any new solutions that could negatively impact the security of supply.

•

Energy (production or use) investments can reach very long time periods (10 years and beyond), with lifetimes for the investment that can reach 50 years (for instance, the Electricity Transmission System). These time scales are unusually long for investors.

•

Energy investment and uses are still subsidised in Europe: subsidisation schemes are part of an overall complex range of subsidisation measures, as described in the reference below (17).

In this section, it is argued that energy market liberalisation will induce a change in the management of R&D project portfolios, at private and public level. Open innovation models will be favoured to integrate new technologies into existing energy networks, which in turn may create more interfacial barriers due to the larger number of players. 17

'Energy Subsidies in the European Union: a Brief Overview', European Environment Agency, Copenhagen, Denmark, 2004. Final report 22 / 93


5.2.1

Innovation drivers up to the mid-1990s: a technology push approach

Since the 1950s and up to the late 1990s, many examples of successful and unsuccessful innovations have seen significant public funds subsidising the research, development and transfer of technologies. Three innovation cases are described below which illustrate technology push approaches.

Innovation case N° 1 Pressurised water reactors using nuclear fuels in France By 1973, France had been spending years developing the graphite-gas nuclear reactor concept at the French Atomic Energy Commission (Commissariat à l'énergie atomique or CEA). The first oil crisis pushed the Government to decide about the deployment of nuclear plants. The newly arrived President Giscard d'Estaing, an engineer, was afraid that the French CEA might not be on time in implementing the 50 or so nuclear plants over the next 25 years. A technology transfer agreement was signed with Westinghouse (US): the French CEA and an engineering company (Framatone) were supposed to implement the technology in France, while becoming free to resell the technology worldwide, once proven in France. Today, AREVA is a key world player, joining SIEMENS for the development of the next generation of nuclear power reactor. French public funds supported both CEA and AREVA in addressing the nuclear fuel production, the nuclear plants and the reprocessing facilities. Nothing would have occurred had they relied on private investments exclusively; the role of Électricité de France (EDF), then a state-owned company, as a utility was key in the technology implementation process, as was the consideration of the sensitive issue of radioactive wastes. And at the same time, deep-sea oil exploration was expanding, with massive private investments made around the world because it was seen as very profitable. Here, small amount of public money covered only some of the most risky technology development projects.



Innovation case N° 2 Windmill technology in Denmark (18) For 25 years, Denmark as a Member State has been a full-scale laboratory for the Danish wind industry. It has helped Danish industry to become a world player and create confidence in this very old technology, implementing evolutions rather than revolutions in windmill concepts, as detailed below. In 1970, wind power injection into the grid was studied, with resulting pessimistic figures (10% of wind power in the grid without major inconvenience). In 2005, in the western part of Denmark more than 20% of the electricity consumption is wind-turbine powered. Since 1992, public planning procedures have been tested using a trial-and-error approach, ordering municipalities to take advantage of appropriate sites. Prior planning has helped public acceptance. In 1997, specific planning procedures were designed for offshore wind farms. Overall, the regulatory policies of Denmark have built a strong homebase of technology companies that are now playing worldwide. They have moved away from cookbook design rules and used the Danish research institutes to develop coherent design methodologies that make the Danish industry a first mover, worldwide. In 2005, the government change in Denmark led the new Energy Ministry to stop wind-energy deployment, with investors becoming reluctant to support its expansion.

Innovation case ° 3 Switzerland: a sizeable public investor in energy research with early technology transfer worldwide The Federal Institute of Technology Lausanne (EPFL) is developing a technology to manufacture hydrogen relying on solar energy to convert water into hydrogen. This is the 'Tandem Cell' technology invented by EPFL and now licensed to Hydrogen Solar (UK), a joint venture with Attain Nanotechnologies (US). EPFL has patented a technology to convert light into energy, using 'Graetzell cells'. These use organic dyes to collect solar power, being a cheaper alternative to silicon-based solar cells: Konanka, a US-based company has raised venture and corporate funds (Chevron) to develop the technology.

18

S. Krohm, Managing Director, Danish Wind Industry Association, February 2002. Final report 24 / 93


5.2.2

Innovation drivers after 1 July 2007: increase market pull approaches to be in line with the IEM (Integrated Energy Market) 1996 Directive (Directive 96/92/EC)

Since the 1996 IEM Directive, the energy landscape in Europe has been changing rapidly and profoundly: •

The unbundling of electricity and gas operators has created four types of independent companies: 9 9

power generation utilities (a few tens in Europe); transmission system operators (30 companies, acting as monopolistic operators that link generation and distribution companies via high voltage transport lines); 9 distribution operators (between 5 000 and 10 000 across Europe) that transport electric energy via low voltage lines; energy suppliers (or retailers) who buy from the generators and sell to endcustomers the energy being transported but not owned by the transmission and distribution operators.

Power generation utilities are corporate groups that have one or more 'unbundled elements' within their overall control. They are obliged by law, however, to ensure internal separation and avoid any crosssubsidy or preferential treatment. These entities (such as SUEZ, RWE, E-ON, IBERDROLA, EDF) can address the European market and beyond. Transmission and distribution system operators will all constitute regulated companies starting 1 July 2007. •

The liberalisation of energy markets has given birth to new unregulated energy suppliers progressively entering the European energy market which will be fully liberalised by 1 July 2007. Any end-user can address any reseller within the local Member State, thus paving the way to Energy Service Companies (ESCO), aggregators and other innovative business models to trade energy with end-users.

•

The Kyoto protocol involves directives to introduce more renewables into the spectrum of energy vectors of European Member States, while taking all measures possible to reduce carbon emissions. The introduction of the Green certificate mechanisms favours the use of renewable energy technologies, since accounting for externalities.

•

The advent of information technology, combined with significant improvements in terms of electricity generation technologies, will make DER a progressively more viable solution in the residential, commercial and industrial sectors. More renewables and more combined heat and power (CHP) units can produce locally innovative business models around national or local aggregation players. End-users can produce their own electricity and sign sellback agreements with retailers and Distributed System Operators (DSOs).



•

Regulators are recognising that innovation can bring favourable cost/benefit features for the end-customer. 9

The obsolescence of the gas and electricity networks requires revamping actions across Europe. The introduction of new technologies can be foreseen over the next 20 years and beyond, which will either reduce operational costs and improve investment efficiency, or significantly augment the benefits of interconnected network operation, thus reducing transmission and distribution costs for society.

9

DER, together with green certificates, are expected to bring new and more efficient business models for energy sales; indeed, they introduce flexibility in investments and redress the previous imbalance observed in the financial ratios used to determine central generation investments and dispersed end-use investments.

9

Local energy trading mechanisms will motivate end-users to better manage their own energy demand, thus reducing further energy consumption, through local responsibility for their own electricity and heat production.

These conflicting trends will most probably trigger conflicting innovation scenarios, leaving public players with paradoxical trends. 9

On the one hand, the competitive pressure on retailers and electricity generators should diminish risk-averse strategies, which in turn initiates innovative, demand-driven business models.

9

On the other hand, regulated actors are motivated to reduce their transport or distribution costs, which may result in risk-averse or short-term strategies (which has been the case so far): they may avoid innovation because of the nature of the regulatory framework within which they operate.

9

This highlights a further paradox: innovation should clearly not be undertaken for its own sake but rather because added value is anticipated. Regulators act in the interests of customers and wish to see the companies they regulate improving their efficiency, i.e. finding ways of adding value. So, in principle, there should be no conflict between the aspirations of regulators and the drive for innovation in the regulated companies. However, problems arise where regulatory frameworks have inadvertent barriers to innovation, such as review periods designed to strongly encourage wider efficiency improvements (say, five-yearly reviews), but which are too short for innovation to be implemented and bring the companies added value for which they are rewarded.



5.2.3

Consequences for public RTD funding: implement measures to remove interfacial barriers impeding the translation of innovative process into regulation

In the energy field, RTD public funding, coupled with political decisions, can either amplify or reduce interfacial barriers.

•

The energy sector is today the poorest private RTD investor, when comparing RTD to sales ratio by industry. In 2004, the worldwide annual spending for RTD in the energy sector reached 1.5% of sales, whereas the average is 4.2% (1.9% for Telecom and 11.2% for Health, two sectors which are also very much public-policy-driven). The public/private relationship on RTD funding therefore has pernicious features: is the level of subsidisation in the energy sector too high, which in turn reduces the commitment of private players for RTD funding? Or are other factors holding back the private players from greater RTD investment?

•

The RTD public intervention in the energy sector at EC level via the Framework Programme so far has brought one key added value: networking of players that were inward and nationally oriented up to the late 1980s (19) because of monopoly situations, except possibly for the Nordic Research Energy Programmes. There is no systematic consistent multilateral RTD cooperation, with the exception of EU projects and International Energy Agency (IEA) Implementation Agreements. Transnational cooperation has become a prerequisite for faster learning on new technologies. This multilateral approach to innovation is also consistent with changes that have taken place in the sector's suppliers. Arising from fierce competitive forces, the majority of manufacturers are now global players and have limited interest in developments (however innovative) addressing the market in only one Member State.

•

RTD public intervention does not bring enough incentives for venture funds to enter the energy business. Recent figures for Germany show that energy is not a field of interest to VCs so far, mainly due to the high political uncertainties linked to national energy policies, but also to the timescales involved in energy investments and the expected returns.

In the future, EC RTD spending will have to address the interfacial challenges typical of the innovation process in the energy sector, i.e. a sector where technology, markets and regulations interfere non-linearly. •

In the energy sector, innovation needs regulatory frameworks that catalyse long-term investment strategies and reward value-added innovation, taking into account externalities in the economic balance. Regulators are key interface players who must engage in solving those interfacial issues that arise from regulatory frameworks. Better

19

This conclusion can be validated by comparing the subsidies delivered to the players (EUR 800 million across FP6) to the costs of preparing proposals to access such subsidies (between EUR 400 million and EUR 800 million, with the known success rate). Final report 27 / 93


identification and quantification of the potential added value of innovation is an important aspect to include as an integral part of RTD projects. •

In the energy sector, innovation needs the capability building of stakeholders responsible for installing and maintaining technologies in a 'fit and forget' mode. Training programmes must be developed as an integral part of EU-funded RTD projects, particularly to address the lowend technology distribution channels, so that early adopters can invest successfully in new energy production technologies.

•

In the energy sector, the market learning curve for new technologies has typical features: the learning ratio (calculated by comparing production costs of a technology each time there is a doubling of manufacturing capacity) ranges between 10% and 20% (20). Clearly, European market appraisal must be encouraged to help innovators improve the learning ratio, based on European volume effects.

•

In the renewable energy sector, the early adoption of innovative technologies requires the involvement of local stakeholders (political authorities, opinion leaders, customer groups, utilities). These moving interfaces should be more involved in demonstration projects. The above-mentioned findings hold true especially for renewable energies, as noted by the e7 group (21). However, they can be extended to any type of energy technology, with adaptations, of course, in line with the maturity stage of their development.

5.3 Research and innovation processes for the energy sector in Europe: utilise new players Since the early 1950s, innovation in the energy sector has involved 11 main players, as described below.

20 21

•

Energy consumers, who DO NOT develop energy technologies: they belong to three main sectors (industry, residential, commercial), and have in general a poor knowledge of their own consumption needs, except for the segments of industry where energy consumption is a fair share of manufacturing costs. The real challenge for the next 20 years for energy retailers will be to understand and to help better manage the energy consumption of their clients, making them more cooperative customers.

•

Utility companies bringing fossil fuels and/or electricity as a commodity to end-users. The 1996 EC Directive will deeply impact their organisation and commercial strategy up to 2015 and beyond. The unbundling of utilities, involving new energy retailers, will lead to major changes of the EU-25's energy markets in the next 20 years.

•

Global energy equipment manufacturers (such as SIEMENS, ABB, AREVA, ALSTOM): they have a world-wide appraisal of technology needs and also support direct innovation relations with utilities, trying to achieve the adoption of their own technology solutions, and in some cases, proprietary standards.

Sellers, R., 'RETD Preparation and Planning', ADEME contract 05 05 C0118, 2005. e7 group, 'Renewable Energy Technology Diffusion', Final Report, 2003. Final report 28 / 93


•

Energy utilisation equipment manufacturers (the car industry, the household appliance industry): they have, at least, a European appraisal of technology needs and support direct innovation relations with consumer groups, trying to achieve adoption of their innovative solutions to increase their market share.

•

Engineering companies, who understand local markets needs (Europe, Japan, US, China, etc.): they are capable of supporting demonstration programmes to show that innovative energy production or energy use makes sense on economical standpoints, before promoting them at a national, European or worldwide scale.

•

Small and medium-sized technology companies whose work is based on specifications from utilities, world-scale manufacturers and less often, engineering companies: they keep the innovation flame alight, launching new technologies or energy services at a regional or national level before reaching national or European markets. The promotion of renewable energies or Demand Side Management approaches has given birth to hundreds of such companies in Europe between 1975 and 2000.

•

Technology Research Centres, either national (VTT, ECN, CEA, CISE) or regional (LABEIN, FHG, etc.) that specialise in hardware and software development work, involving capital intensive equipment; they work both with public and private money. Their expertise at designing and validating items of equipment is key to the innovation process, since they know how to relate to the key players, but perhaps they are too expensive, and also they can sometimes be SME competitors.

•

Technical Universities that are mostly involved in education and research to acquire new knowledge on basic issues, and very often see this knowledge transferred in the form of simulation tools (the University of Manchester, Ecole des Mines, etc.): they are key to the innovation cycle since they contribute to capacity building and training, but they can also perform blue-sky research that has a long-term impact on the energy sector.

•

Consulting companies, that most often have knowledge of energy markets and trends, and work in support of any of the above-mentioned industry players (KEMA, PRICEWATERHOUSE, etc.). They contribute to the innovation cycle by helping in strategy development, market-size assessment and even professional training.

•

Regulatory bodies, some of which are just implementing their role (for instance, Germany): regulators are principally economists and law experts who work within public organisations to set the rules and prices in non-competitive markets in order to make them more competitive in line with the new European directives.

•

Investors in the energy field (banks, venture funds): there are banks that specialise in guaranteeing the implementation of new energy technologies (for instance, the case of wind energy). However, investors Final report 29 / 93


are very reluctant as regards the energy sector due to its unpredictable political dimensions, especially in countries lacking a long-term framework for renewable energy technologies support. Overall, this picture is quite similar to the one of the deregulated telecommunications market in Europe, except that data transfer and use is replaced by energy transfer and use between production sites (located worldwide) and use sites (across Europe).

5.4 Research and innovation processes for the energy sector in Europe: coping with the proposed change in RTD approaches In removing the above interfacial barriers, public funding at EC level, when harmoniously coupled with Member State and regional level funding, will support three long-term EU economic trends that appear as natural incentives for innovation in the energy sector: •

market liberalisation will stimulate progressively more innovative solutions in order to achieve market differentiation, coming from both existing and new players;

•

uncertainties in the evolution of fossil fuel prices should push players to be prepared for the need for greater resilience in facing drastic changes in fossil fuel prices;

•

obsolescent transport and distribution networks (electricity and gas) must be upgraded at costs that are affordable by society. Networks are the bottlenecks for energy technology integrators, and innovation will be required to promote, for instance, local electricity markets with bidirectional flow of electricity energy at distribution level. As indicated in the e7 report guidelines (see footnote 21), new public-private partnerships have to be created to support innovation efforts, based on preparatory efforts, such as the one of the Strategic Working Group (SWOG), that developed, within the Advisory Group on Energy (AGE), recommendations for an efficient use of Energy RTD resources (22). A change in approach can already be observed when one compares RTD strategies in the last part of the 20th century, and today's RTD strategies in the energy sector. Energy companies are increasingly involved in publicly supported RTD projects, either on the basis of internal funding constraints (scarcer funding) or with the need to cooperate more with public authorities in order to integrate new technologies and new business models.

As with any other industrial sector, successful and innovative energy organisations know best how to bet on the future: they remove interfacial barriers that hinder flexibility and innovation by combining portfolios of technologies and portfolios of business models

22

SWOG Report, 'Key Tasks for Future European Energy R&D', EUR 21352, 2005. Final report 30 / 93


Public funding in the energy sector can no longer ignore the fact that research projects must also be implemented to address non-technological barriers that enable new technologies to be successfully deployed through new business models.

The RTD funding balance between technology problemsolving, emerging solutions and market-driven, growing technologies will move towards more integrated, demonstration-oriented RTD projects, so that market viability can be tested on a large variety of business models. The above-mentioned shift in approaches will impact both the technology domains (emerging or growing/mature) and the type of RTD projects (technology problemsolving, market-driven integration), leading to four areas of improvement for EU RTD funding. This is depicted in the diagram below, where the relative emphasis on each of the four areas of public support will change over time.

Yesterday

Tomorrow

Technology

Technology

Growing / mature

Growing / mature

Emerging

Œ

Ž

Emerging

Œ

Technology problemsolving

Integrated marketdriven

Type of RTD project


Technology problemsolving

Ž

Integrated marketdriven

Type of RTD project


Each of these areas addresses specific issues for public RTD support, as shown below. Area 1:

Emerging technologies are developed and validated to prepare for major changes in the overall European energy system. Europe concentrates on key issues, such as materials for fuel cells using nanotechnologies.

Area 2:

Interface technologies are developed to make growing or mature technologies more easily adaptable to the still fragmented European markets. This leads, for instance, to the use of power electronics in inverters that can couple PV panels with electric grids.

Area 3:

Emerging technologies are tested with the participation of the energy market players in order to understand the shape of the learning curve which will prevail in the design of large-scale demonstration projects (such as new electric network management tools).

Area 4:

Validation and demonstration projects are designed both to understand the effectiveness of several business models and to propose to regulatory bodies adapted market incentives that support innovative energy production and utilisation schemes under legally binding contracts.

•

In view of this change (from technology push to customer demand pull), one must be very careful in using Fourth Framework Programme (FP4) or Fifth Framework Programme (FP5) lessons to prepare new measures applicable for the Seventh Framework Programme (FP7). As a matter of fact, the Sixth Framework Programme (FP6) has initiated several instruments (listed below) that are worth looking into to see where improvements can be made, even though the lessons learnt are still very few. The positive role of integrated research with the involvement of enduser companies.

•

The positive role of coordination actions to better prepare RTD efforts at EU level when either European Added Value or critical mass issues are at stake.

•

The positive role of a compulsory consortium agreement before the RTD project starts, that pushes players to address exploitation rules more deeply, and with clearer exploitation goals.

•

The ambiguous impact of the 15% SME target as set in FP6, which pushes big players to strictly comply with the rule, without seriously considering the added value brought by SMEs in addressing market issues. Future energy markets will be more local and decentralised. The expected impact on the installation, innovative use and maintenance of SMEs is significant. DER will need distributed skills for their deployment;

•

The absence of SMEs' dedicated measures to support RTD work specified by SME players only.



The present report avoids detailing lessons learnt from the past. It will rely mainly on large-scale results described in recent impact assessment studies, and on some specific measures taken from recent past experience in Member States, that could be implemented with adaptations in FP7. The main rationale is to continue removing future innovation barriers, as they can be perceived in the next 10 to 15 years.



6. AN OVERVIEW OF EXISTING RTD SUPPORT PROCESSES IN THE ENERGY SECTOR AT EU AND MEMBER STATE LEVEL: CONTRIBUTION TO THE INNOVATION PROCESS 6.1 Introduction A desk review of EC funding identifies three types of public interventions implemented at EU level, namely: • capacity building (PI1); • shared-costs RTD projects as financial incentives focusing on technology (research, development, demonstration) (PI2); • measures for the early adoption of technologies, typical of the energy sector innovation cycle (PI3). The table below identifies the participation of the involved EC directorates. DG Research (RTD) PI1 PI2 PI3

x x

DG Energy and Transport (TREN)

DG Environmen t (ENV) x x

x x

DG Enterprise and Industry (ENTR) x x

DG Regional Policy (REGIO) x x x

EC directorates do often address the same issues, mainly the following: • capacity building: DG Research (RTD), Environment (ENV), Enterprise and Industry (ENTR), Regional Policy (REGIO); • shared-costs RTD projects: DG RTD, DG Energy and Transport (TREN), DG ENV and DG REGIO, even though DG RTD and DG TREN have set a clear framework in FP6, which splits research themes between short- and mid-term topics, and mid- and long-term topics. Funding-wise, the figures below estimate the yearly spending (23) on each of the three types of public interventions, during the period spanning 2000 to 2005 in the energy sector. DG RTD (FP6)

DG TREN (FP6)

DG ENV (LIFE)

23

DG ENTR

DG REGIO (24)

Preliminary figures gathered from EC statistics. The latest figures published by DG REGIO (CORDIS press release, 13/02/06) give the global structural funds support for RTDI. (This amounts to EUR 10.5 billion in the form of grants. Of this support, 97% is provided through the ERDF). Around 8% of total ERDF resources are invested in research and innovation. Structural funds support 4 types of activities: research projects based in universities and research institutes, which receive about 26% of total RTDI investment (some EUR 2.7 billion); research and innovation infrastructure (public facilities, but also technology transfer centres and incubators), which receive slightly more than 25% of the total, amounting to some EUR 2.8 billion; innovation and technology transfer and setting up of networks and partnerships between businesses and/or research centres, which receives about 37% of the total (some EUR 3.6 billion); and training for researchers (co-financed by the ESF), which receives about 3% of the total (around EUR 350 million). 24



PI1 PI2 PI3

€110m/year

€110m/year

0

NA

€5m/year

0

0

€1m (26)

Approx. 39m (25) Research €400m/year RTD €100m/year €4.3m (27)

The following sections expand on the main ongoing measures funded by DG ENTR, DG REGIO and DG ENV.

6.2 Measures implemented by DG Enterprise In the energy sector, DG ENTR funds focused measures towards the commercialisation of R&D results, addressing market/managerial/financial/technology barriers, and also capacity-building measures. The activities include the following: information and advisory services, technical and market due diligence; business plan development; support in preparing demonstration projects for EC funding; network creation/facilitation; profile dissemination and matching, brokerage events, IPR support, facilitation of networking among early-stage investors for good practice exchange, regional technology mapping, best-practice sharing, good practice transfer to emerging countriesand others. The main ongoing measures addressing technology transfer in the energy sector are as follows. • The Organisations for Promotion of Energy Technologies (OPET) (28) Network, a detailed description of which is provided in section 7.2. • The Renewable Energy Technology Transfer Network (RENEWTRANSNET) (29), which aims at assisting SMEs in successfully developing new Renewable Energy technologies and commercialising them both in their own countries and across the EU. The project has developed a renewableenergy-specific technology transfer (TT) process for SMEs, which covers the stages from project analysis up to investor presentation. • The Innovation Relay Centre (IRC) Renewable Energy Thematic Network (TGRE) (30), which is an expert platform in the field of renewable energy (RE) established in 1997 inside the IRC network. The activities performed cover the development of National Strategic Sector overviews, the carrying out of Technology missions; Profile matching-facilitating TT; providing support to the setting up and negotiation of TT agreements. 25

The figures refer only to the total EC contribution to INTERREG III over the period spanning 2000 to 2006. 26 These figures include only the EC contribution to the RENEW-TRANSNET project. Budgets for the OPET network, the IRC Renewable Energy Thematic Network, and the G2G investor net thematic network are not publicly available. 27 The budgets of several funded projects are not publicly available. 28 The network is a DG ENTR-Innovation Programme initiative, in collaboration with DG TREN (under the demonstration component of Joule-Thermie Programme). DG ENTR is responsible for overall management of the Network, including defining Network objectives and dealing with contractual and administrative issues. DG TREN has responsibility for technical coordination of the OPET activities and for ensuring their links with the JOULE-THERMIE programme. 29 The total EC contribution to the project is EUR 968 234. 30 The total EC contribution to the IRC Network is EUR 71 400 000. However, the EC contribution to this specific group is not publicly available. Final report 35 / 93


•

The Gate-to-Growth InvestorNet Energy Technology Group, which was set up in 2004 to bring together funds being invested at different stages and representatives for large corporate energy players.

Although not specifically targeting the energy sector, one should mention also the following initiatives. • The Gate to Growth-Proton Europe measure, aiming at boosting the commercial uptake of publicly funded R&D through good practice dissemination, staff exchange and networking among the members of network (31). • The pilot projects (between 10 and 20 in number) to be implemented in 2006, further to the 2005 call for proposals on the 'Identification of new methods for promoting and encouraging Transnational technology transfer'. This initiative aims at setting up experimental actions in order to explore new and more effective/efficient methodologies and initiatives for Transnational Technology Transfer (TTT). Results are expected to be delivered in the form of services, either directly to principal target groups, or in support to intermediaries offering TTT services, as are the IRCs, for example. Testing new TTT methodologies to reduce TTT costs, improve TTT funding, explore the Internet's full potential, and disseminate the results of successful TTT agreements are some of the themes which will be addressed by the projects.

6.3 Measures implemented via DG Regional Policy funds The majority of the measures funded by the Interreg III initiative (2000-2006) (32) are focused on human capacity building, with an emphasis on raising awareness, training, sharing of best practices, network creation, development of territorial strategy/development plans for sustainable use of renewable energy sources (RES), showrooms for small-scale demonstration, and sharing of experience in regional planning strategies. Some examples are set out below. •

The Interreg B 'Transnational Bioenergy Technology Transfer Network' project in the Baltic and Scandinavian Regions (BSR), the aim of which is to apply the latest research results and know-how to the practical problems of operators in the field of bioenergy. Activities include the education of the operators, such as entrepreneurs, new biofuel users, decision makers and advisers; and international cooperation and establishment of the network of Regional Bioenergy Development Centres (33).

31

ProTon Europe has established a network of 150 Knowledge Transfer Organisations (KTOs) contributing to European-wide guidelines and high standards of conduct, and raising the profile of KTOs. 32 In order to identify DG REGIO-funded TT measures in the energy field, we examined the websites of the programmes funded by the Interreg III initiative, and when the information was available, we selected the projects funded in the renewable energy sector. As under the Structural funds, the decision on the specific actions and projects to be funded is taken by regional authorities appointed by the Member States, there is no centralised project database at EC level. Moreover, each region covers a different mix of innovation activities, which makes comparisons difficult. 33 The total budget of this project was EUR 1 336 000, of which the EC contribution amounts to EUR 895 000. Final report 36 / 93


•

The 'Renewable Energy (RE) Installer Academy', which targets the lack of trained installers, this being identified as one of the main market barriers to the widespread adoption of RE systems. The RE Academy provides training, certification and quality control of professional installers and engineers.

•

The 'CER2 — Central European Regions Cluster for energy from renewables' network, the main objective of which is the development and implementation of the following: 1) regional energy clusters and energy concepts and support of 'Renewable and Rational Use of Energy' startups; 2) standardised 'Education Schemes' for building service engineers, architects, planners, installers and energy advisers in the fields of RES and Rational Use of Energy (RUE); 3) a 'Quality Assurance Support Programme' in order to guarantee the high quality of new RES and RUE technologies in production, planning and installation.

Some projects leverage on R&D activities; an example follows. •

The Center for Fuel Cell Technology in the Ruhr area, which is one of the results of the state-funded Fuel Cell competence network in the Ruhr area. The centre acts as developer and integrator for fuel cell systems in different fields of application. It provides research that directly serves the needs of enterprises as well as of the research sector in the Ruhr area, thereby creating a link between research and practical applications of the technology. It has the function of a 'nucleus' for the development of a Future Energies Cluster in the North Rhine Westphalia (NRW) which already plays a leading role in this area in Germany. After the implementation of the technology-producing centre, the next steps will focus on the implementation phase, through grants supporting SMEs to go to market using fuel cell or other renewable energy-related technologies.

Few projects focus on the commercialisation of R&D results; two examples follow: •

the 'UK Welsh Wood energy scheme', which provides capital grants to facilitate the installation and operation of wood-fuel powered heating and power generation plants;

•

the 'Know-how transfer from South Austria to Slovakia for Biomass Heating individual or network systems' (34), which provides support in business plan writing, access to finance and networking of investors, project developers and biofuel suppliers.

34

Know-how transfer von Niederosterreich in die Slowakei fur Biomasse Nah und Fernwärmerprojekte. Final report 37 / 93


6.4 Measures implemented by DG Environment The specific objective of the LIFE–Environment programme is to contribute to the development of innovative and integrated techniques and methods and to the further development of Community environment policy (35). LIFE-Environment is directed neither at research nor at investment in existing technology. It aims at bridging the gap between R&D results and widespread implementation/market introduction. When relevant, the LIFE-Environment programme is complementary to the Community Research programmes and to the Structural Funds and Rural Development programmes, and thus aims at enhancing synergies with, and added value of, past and ongoing work. To achieve its specific objective, LIFE Environment focuses on two different types of projects: preparatory projects and demonstration projects. Preparatory Actions (36) aim at the development of new or revised Community environmental legislation or policies. In order to have a demonstration character, projects must be implemented on a technical scale that allows evaluation of technical and economic viability of large-scale introduction. LIFE-Environment projects should build upon results of Community research programmes as far as this is possible, as well as on results of promising technologies developed by the industrial sector. These projects should deliver results that could be a basis for wider dissemination activities, for example with the support of the structural funds. In accordance with the action plan for environmental technologies (37), LIFE-Environment encourages projects that lead to the identification of promising environmental technologies/approaches (or methods or processes) and of the obstacles to their development, leading to solutions that will overcome those barriers. LIFE-supported projects have the following characteristics: •

they promote the widest possible application of scientifically verified technologies/approaches (i.e. network projects, dissemination of results by relevant bodies, etc.);

•

they integrate capacity-building measures;

•

they involve financial institutions in the technologies/approaches developed by the projects.

diffusion

of

the

With regard to the projects funded in the energy sector, DG ENV estimates that, since the beginning of the LIFE programme, there have been some 120 projects relevant to the fields of energy, greenhouse gases, climate change and transport (LIFE 1992-2005).

35

Sources: 'Guidelines for Life-Environment Demonstration projects', and the DG Environment website (http://ec.europa.eu/dgs/environment/index_en.htm) 36 Preparatory projects are defined as 'projects which are preparatory to the development of new Community environmental actions and instruments, and/or the updating of environmental legislation and policies'. 37 'Stimulating Technologies for Sustainable Development: an Environmental Technologies Action Plan for the European Union', COM(2004)38 final of 28 January 2004, Brussels. Final report 38 / 93


Since many of the LIFE projects are multidisciplinary and energy issues are sometimes also addressed in projects related to other fields, (such as waste disposal or even water treatment), the EC does not have the exact funding figures for this field (38). The majority of the projects are demonstration projects, such as the instances set out below: •

the 'Building demonstration based on solar cooler and hydrogen converter of renewable energies', which aims at demonstrating how RE obtained from solar cells and wind turbines can, through solar cooling and hydrogen accumulation, effectively and economically supply lighting and cooling for a 2 400m2 building by developing pre-industrial prototypes of the two technologies, before integrating them into the existing public building;

•

the application of innovative photovoltaic (PV) technology to railway trains, which aims at demonstrating the feasibility of applying innovative PV technology to railways, carriages and locomotives in order to utilise the potential of solar energy, improve the use of the electric accumulators and reduce their negative environmental impact.

6.5 A summary of measures implemented at Member State level Annexes I to IX detail the public support measures analysed during the study, stressing the need to consider, whenever possible, the effectiveness of the innovation processes resulting from the use of outputs of R&D projects supported by public funds. First and foremost, all the Member States studied herein rely on the three classical pillars introduced in Section 2, i.e. financial incentives for technology, measures for early adoption of technologies, and capacity-building measures. Next, the striking point for all the Member States covered is the recent evolution of national schemes to address innovation issues in the energy sector, linked with EU directives: •

UK: the need for long-term incentives, in connection with the EU 2010 target involving the renewable contribution to the energy mix, coupled with the involvement of regions in the implementation of programmes;

•

SWEDEN: the implementation of a long-term programme with the involvement of Swedish industry to address Swedish needs and to export the acquired skills;

•

ITALY: the implementation of a reform to better link public research laboratories and industry in the energy sector;

38

Nevertheless, taking into account that the average budget of the LIFE projects is about EUR 1.5 million and the EC funding about EUR 0.5 million, the EC estimates that the total budget of those projects is somewhere around EUR 180 million, and the EC funding some EUR 60 million respectively. Some 30 of these projects were more or less directly linked to renewable energies. The online EC database of LIFE-funded projects in the following energy subsectors was also checked: renewable energy projects, biofuels, biomass energy, use of waste as energy; electricity industry; batteries; heat supply; environmental impact of energy; non-polluting fuels. The total amount of EC funding was estimated at approximately EUR 30 million for a total number of 79 relevant projects (LIFE 1992-2005) Final report 39 / 93


•

AUSTRIA: the merging of different funding agencies to have a one-stop shop for both industrial research and technology promotion;

•

SPAIN and THE NETHERLANDS: the coupling between stable regulations and the advent of new technologies based on renewables that help private bodies invest massively (both inland and abroad) to be at the competitive edge;

•

BELGIUM: the recent implementation of a 'Marshall Plan' on technology development with a specific focus on energy technologies;

•

DENMARK: the demand-side-driven policy approach, based on market stimulation by investment subsidies and subsidy on the payback tariffs, especially for wind energy, which has been very recently changed by the new political power in place;

•

GERMANY: the launch of the Fifth Energy Research Programme with both inland renewable technology deployment and the building of a world class manufacturing industry addressing all R&D issues (generation, network, deployment) and the associated business models;

•

FRANCE: the creation in 2005 of two funding agencies, Agence pou l'Innovation Industrielle (AII), and Agence Nationale de la Recherche (ANR), which both address development projects in a collaborative fashion, with critical inputs either from public laboratories (ANR) or from private companies (AII).

Amongst the pitfalls identified in public support measures, one must highlight several recurring statements that address: •

the impact of unstable regulatory frameworks that can send negative signals to investors;

•

the insufficient R&D spent on identifying end-users' needs and habits;

•

the lack of public measures to improve the links between prototype developers and the actual commercialisation players;

•

the underestimation of capacity-building needs to support new technology deployment;

•

the trend of supporting short-term incremental innovation, avoiding longterm risks in implementing breakthrough technologies and business models;

•

the difficulty of connecting generic technology development in peripheral areas (ICT, biology, materials) with energy technology development;

•

the difficulty of combining national and regional efforts in order to set the right technology priorities (especially for the largest Member States).



7. LESSONS LEARNT FROM PAST OR EXISTING TECHNOLOGY TRANSFER PROCESSES AT EU LEVEL This section summarizes recent results about the impacts of public research at EU level on innovation cycles. Only the EU level is considered here, since this study exclusively addresses the improvements of EU-based support measures to R&D. The energy field is of course used as the reference; however, experience from the European space sector is also presented to show what can be achieved when highly targeted technology transfer measures are funded beyond the first RTD steps. Last, a summary of the Japanese approach is proposed, which includes all the industrial sectors.

7.1 Impact assessment of Energy Research at EU level As of today, two recent impact assessments are accessible at EC level in the energy sector: •

an assessment of the socioeconomic impact of FP4 Non-Nuclear Energy research projects (2001) (39);

•

a qualitative assessment of Non-Nuclear Energy Proposals selected in FP5 (2001) (40).

7.1.1

The assessment of the socioeconomic impact of FP4 NNE research projects (2001)

The first evaluation study aimed at examining the results as well as the social and economic impact of a sample of about 90 already completed NNE projects (20% of the total projects funded), representing in total a EUR 84 million investment by the EC under the EU’s FP4 on NNE (1994-1998). The major finding of the study concerned the strong impact of the policies of national authorities ('political structure of the energy market') on the viability of energy R&D activities related to new sources of energy: 'As long as there is no full 'pricing' of traditional fossil fuels to include external costs as well as other more direct subsidies, the impact of such energy research will be relatively weak'. In terms of initial outputs of funded projects, while the vast majority (approximately 89%) managed to develop new technical advances (with one-third of the projects acknowledging inputs to IPR), only some 10% to 15% reported new products or 39

Chrysochoides, N., Casey, T., Cabo P., Guedes de Almeida, M., Andrada, L., Cutler, A., Drda-Kühn, K., Olliver, J., Salve, M., Starzer, O., 'Clean and Efficient Energies for Europe — Socioeconomic Impact of Energy Research Projects', EUR 19464, European Commission — Directorate-General for Research, March 2001. Further to this pilot impact assessment, a major impact assessment of the remaining four FP-NNE projects was published in 2003, including the following: 'A Synthesis Report on the Impact of the NNE Programme; An Executive Summary of the Synthesis Report'; and five Thematic Reports (Fossil Fuels; Rational Use of Energy; Renewable Energies; Socioeconomic Research and Modelling; and Complementary and Support Measures). 40 'A Qualitative Assessment of Non-Nuclear Energy Proposals Selected in FP5', EUR 19466, April 2001. Final report 41 / 93


services (41). Technology transfer was assessed to be poor. In fact, while indicators of dissemination were high, a major concern was expressed regarding its actual effectiveness: important research knowledge stayed within traditional academic and sectoral bounds. Hence, the panel called for a radically new approach to research diffusion and commercialisation by the NNE Programme. Looking at the socioeconomic impacts, the major immediate/short-term impacts related to increasing competitiveness through relatively conventional means (i.e. cost reductions, increased productivity, lower unit energy-consumption, and annual savings), while impacts related to new or expanding markets were relatively weak at the end of the project. Prospects improved when viewed three years after project completion. The contribution to the two core issues of entering new markets and improving financial viability was seen as somewhat weak. In addition, there was some suggestion that, in the longer term, the projects may provide a better base for companies moving into EU and global markets. The 'leverage effect' of the EU funding was found to be positive, in the order of three times. Finally, although the EAV (European added value) from the projects was found to be good; an even stronger programme focus and cross-project cooperation, as well as the development of the definition of core-concepts and indicators of EAV, was seen as essential to further strengthen the EAV. In the light of these results, several recommendations were made at both project and programme level to improve the commercial viability of energy projects. At project level, the key recommendations were the following: •

To strengthen the project structure and management by including professional project management, which would also plan early for diffusion and commercialisation of results and then ensure their implementation (42).

•

To give higher weighting, at the proposal evaluation stage, to the likely commercial impact in order to increase the probability that commercialisation of research is the goal of the project and of the project partners. In fact, commercialisation 'requires a consortium coming together from the outset, already with a structure and relevant participants committed to commercialisation and a commercialisation strategy built into the proposal'.

•

To give a much greater flexibility to change project directions in order to allow adaptation to the rapidly changing markets and technology. This flexibility might be achieved by broadening the initial research focus so as to define a significant and important problem to which potential customers can respond.

41

According to the report, this low level probably reflects the technological and economic barriers to innovation in the energy field. 42 'Professional project management should be aimed at supporting the project not simply in project coordination and operation, but also in the diffusion and impact requirements and ensuring that these are adequately undertaken. Good project management can be the difference between success and failure in the delivery of the technology to the market place. Energy use is a strongly political issue. There is a need for projects to build around themselves, at a local and particularly at a national level, in each Member State', 'Champions' (p. 15, op. cit) . Final report 42 / 93


At programme level, the following recommendations were put forward to improve the impact of energy research: •

stronger and more strategic programme management;

•

better coordination with Member States, which might go up to seeking a level of co-funding from such authorities or other financial institutions;

•

a greater programme focus on commonly (with Member States) agreed 'critical issues' and 'critical technical barriers', which does not necessarily mean large individual projects, but rather more focusing, clustering and synergy between projects;

•

stronger links to national commercialisation supports;

•

greater integration and support of the R&D programme (financial, legislation, policy) with the policies and needs of governments of Member States.

7.1.2

Qualitative assessment of NNE Energy proposals selected in FP5 (2001)

and

EU

technology

transfer

and

The Qualitative Assessment exercise analysed the NNE selected proposals under the first 3 calls of FP5, namely Energy, Environment and Sustainable Development (and in particular energy) in order to contribute to the redefinition, at mid-term stage, of the FP5 work programme RTD objectives and to refocus the calls for the rest of the programme. The study recommended six mechanisms to facilitate the diffusion of the results of the Energy programme: •

compulsory inclusion of a Technology Implementation Plan in all proposals (operational in FP6 and further emphasized in FP7 since compulsorily linked to the Consortium agreement);

•

adoption of new knowledge protection rules (new proposals used in FP6 and improvements under discussion for FP7);

•

openness of the programme to accompanying measures (43) initiated by the proposers, which must relate to the technology contents of the programme;

•

use of the OPET (44) network as a useful tool for targeted result-oriented technology promotion actions based on the networking approach;

•

facilitation of detailed dissemination of non-confidential information on EC successful projects to all those in charge of the uptake of those technologies;

•

use of the National Contact Points to coordinate with the EC and ECsupported networks and projects for general information at national level.

43

Accompanying measures are defined as activities aimed at facilitating the diffusion of the technologies developed by the programme and their implementation, the transfer and take-up of RTD results and the exchange of information and data as a part of the diffusion and dissemination strategy. 44 OPET: Organisations for the Promotion of Energy Technologies. Final report 43 / 93


7.2 A dedicated measure to improve technology transfer in the energy sector: the OPET (45) network The OPET network (46) is an EC (47) initiative aiming at promoting European energy technologies across the EU and global markets and thereby to reduce global warming. The network sought to provide an efficient flow of knowledge between energy research and the European energy markets through the following actions: •

transferring the results of European and Member State energy RTD that supports European Policy priorities into successful technology deployment within the market;

•

translating European energy policy priorities into concrete actions at local, regional and European level;

•

accelerating the pace of innovation.

Established by the EC in the late 1980s to foster the market penetration of innovative energy technologies (in particular, those related to technologies demonstrated through the NNE programme), the network was restructured in 2002 around a series of thematic consortia in order to provide an integrated view of ongoing research and to further innovative technologies deployment. These thematic consortia deal with the following: •

electricity from renewable energy sources (RES-e)

•

clean fossil fuels (CFF)

•

EMINENT (early market introduction of new energy technologies)

•

buildings

•

co-generation and district heating and cooling

•

CO-OPET

A summary of the activities of the thematic consortia, which seem to be the most relevant to the present study, is provided below. 7.2.1

Electricity from Renewable Energy Sources (RES-e)

Launched in 2003 under the coordination of O.Ö Energiesparverband, Austria, the European RES-e network promotes energy technologies for the generation of electricity from renewable energy sources (RES). The network matches European policies (notably the RES-e Directive 77/2001/EC) with local technology uptake by 45

Source: OPET network website (http://www.opet-network.net), and OPET Thematic Consortia 20032005 Activity reports. 46 The network currently incorporates 115 partner organisations extending across 48 countries from within the EU, candidate countries of central and eastern Europe, Cyprus and Associate States, Latin America, China, India, Southern Africa, ASEAN, the Black Sea region and former CIS (Community of Independent States) countries. 47 The network is a DG ENTR-Innovation Programme initiative, in collaboration with DG TREN (under the demonstration component of Joule-Thermie Programme). DG ENTR is responsible for overall management of the Network, including defining Network objectives and dealing with contractual and administrative issues. DG TREN has responsibility for technical coordination of the OPET activities and ensuring their links with the JOULE-THERMIE programme. Final report 44 / 93


disseminating knowledge and targeting decision makers in both public and private entities. Special emphasis is currently given to accession countries, as well as India and China. The project will contribute to the EU RES-e Directive targets by boosting local technology uptake and by bringing results from research and technical development to local actors. The project will also integrate knowledge and give feedback to the EC on the application of the European renewable energy technologies at the local level. The consortium report on results of 2003 to 2005 activities shows some success stories. The work undertaken within the Consortium includes regional technology mapping, best-practice reports on public acceptance, financing case studies, targeted dissemination activities, information activities, advice and support to project developers, public awareness, good practice transfer to emerging countries with high potential for REs use (India and China), programmes, technical seminars, survey of barriers to REs implementation and related workshops, policy information events targeted at local planning authorities, economic and technical advice to project developers. 7.2.2

EMINENT (Early Market Introduction of New Energy Technologies)

Coordinated by the Netherlands Organisation for Applied Research (TNO), Environment, Energy and Process Innovation (48), the EMINENT project was launched by the EC-DG TREN in 2003 and recently granted continuation until 2007. Its main objective is to identify and accelerate introduction and implementation of leading edge European energy and environmental technology into the marketplace in Europe and worldwide. The EMINENT software tool aims at identifying and assessing the potential of earlystage technologies (EST). This shall enable potential investors as well as developers of new energy technologies to identify current and future market opportunities. The score of a new technology in terms of potential market volume and environmental and financial performance can be essential when deciding how to proceed with the further development of technologies that are not yet mature. EMINENT absorbs and evaluates data on the performance of ESTs both directly from R&D organisations as well as DG RTD-supported initiatives. By evaluating these ESTs on their potential merits and fields of application, before offering them to the OPET network, EMINENT should lead to increased awareness and reduced lead-time in the transfer of results from pure research to viable social or industrial solutions. Dissemination activities within the EMINENT project included the development of technology assessment reports, the organisation of thematic workshops, an interactive website and other kinds of technology transfer.

48

Partners of the network are as follows: TNO; University of Manchester; Instituto Superior Tecnico; PTJ ; VTT Processes; Riga Technical University; Risoe National Laboratory; and Moscow State University. Final report 45 / 93


7.2.3

Promoting the Use of Clean Fossil Technologies (CFTs) within the Energy Market

Coordinated by CIEMAT, this thematic consortium focuses on the stimulation of industry-led RTD within the fossil fuels sector. By promoting such innovative approaches, its aim is to ensure the deployment of CFTs. The EC is committed to introducing into the European Market the use of CFTs that enable power production that is both efficient and low in emissions. The project explores ways of securing the future market penetration of CFTs, furthering compliance with the Kyoto Protocol restrictions, and providing relevant knowledge transfer to new associate countries and third countries. The activities undertaken relate to: •

workshops and reports (i.e. the report on foresight activities on CFTs , efficient decision making and promotion of emerging technologies in the oil and gas sector, CO2 capture, reduction and sequestration techniques, etc.);

•

establishment of cross-border collaboration information exchange on coal gasification;

•

identification/development of new markets concerning clean power and efficient heating systems;

•

support of the market introduction of FP5 (and beyond) technologies.

schemes

to

enhance

7.3 An example of mission-based technology transfer processes: the ESA case study Another approach was implemented in France and several other Member States in the late seventies to introduce renewable technologies (the agency today called ADEME): it is a mission-oriented agency with dedicated intervention means to address challenging issues, including resistance to change, in the energy sector. It is interesting, then, to examine the technology transfer performances of a missionoriented European Agency, the European Space Agency (ESA), which has had a Technology Transfer Programme running since 1990. 7.3.1

Background

ESA is a mission-oriented organisation, funded by the EU-25 Member Sates and others (like Switzerland or Norway). Its goal is to support the development and launch of space infrastructures for various missions (the ARIANE launcher, Telecom and Galileo Satellites and the GMES system, among others). Since the early 1990s, the European Space Agency's Technology Transfer Programme (TTP) has aimed at finding applications for space-developed technologies in non-space sectors, thus stimulating space to non-space technology transfer (spinning-off). It identifies new business for space providers, thus maintaining and increasing expertise in the space industry and facilitating creation and business growth of start-up companies through incubators. Technology transfer in this context is meant to accompany innovation processes in non-space sectors. Final report 46 / 93


7.3.2

Players

Fifteen years ago, ESA gave birth to a network of technology and market experts located throughout its Member States: they market suitable space-developed technologies in view of meeting innovation needs and requirements of non-space industries. This network: •

identifies suitable functions to be met by these technologies;

•

finds additional sources of funding which will help the transfer process;

•

supports start-ups created by entrepreneurs willing to exploit spacedeveloped technologies or space infrastructures.

When considering developments in technology transfer and commercialisation in Europe over the past 15 years, ESA can therefore be regarded as a pioneer. The Technology Transfer Network (TTN) sets the innovation needs of industry sectors. Quality control procedures are applied to all needs identified, including the check of the willingness of the searching party to invest in further developments of potential solutions offered from the space sector. The members of the TTN act as intermediaries between companies searching for innovations and technology providers stemming from the space sector. ESA's scientific and technical experts are involved in the evaluation of proposals and feasibility studies received for adaptation and adoption of a technology.

A new old initiative has been born, where ESA scientific and technical experts are directly providing ideas for transfers resulting from their normal professional activities. They identify the possibilities for non-space applications from the space developments, thanks to their close collaboration with contractors running the activities in the space sector. This is supported by a mandatory clause in each ESA contract which stipulates that the transferability of technologies being developed must be assessed. 7.3.3

Achievements to date

Since 1992, the TTP initiative has claimed the effective transfer of more than 200 space-developed technologies in non-space sectors, This created cumulative a Final report 47 / 93


turnover for both technology providers and technology receivers of nearly EUR 1 billion at the end of 2005. It has been calculated that the revenues of Member States generated by such transfers of technology exceed their initial RTD expenses by 15 to 20 times. Spin-offs cover the transport, health and machinery sectors. Regarding technology areas, over 30% of spin-offs deal with sensors, 20% have embraced materials, 15% concern computer hardware, software and processes, and 12% are related to mechanical components and systems. The diagram below locates space technology providers and receivers.

The following figure shows the increase in turnover generated through technology transfer activities in both the space sector (provider) and in non-space sectors (receiver). The data is based on actual figures provided by the receivers and providers, and on an estimation of future turnover to be generated from the signed transfer agreements.

Cumulative Provider TO (M€)

Cumulative Receiver TO (M€)

90

1600

80

1400

70

1200

60

1000

50

800

40

12

600

30

10 8

20

400

10

200

0

0

6 4 2 0 92 93

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07

7.3.4

94

95

96 97

98 99

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07

Lessons learned through the space initiative

This dedicated programme brings direct benefits to space research. On innovation management standpoints, it shows that networking technology providers and adopters with outside investors is a profession per se: outside support, though often difficult, is a must, especially when public researchers and private companies want to find a 'good deal'. Networking is another way to remove some of the interfacial barriers that naturally occur in innovation processes, whatever the sector of interest. Final report 48 / 93


7.4 The Japanese example (49) In the late 1990s, the Japanese government assessed the lack of result exploitation from research funded at academic level (with few university-industry partnerships). Since 1996, three five-year plans have aimed at improving this poor performance level, when compared, for instance, to the US. Amongst the key measures, let us mention: • the creation of new IPR rules, similar to the Bayh-Dole Act in the US; • the creation of centres for collaborative research, including private partners within universities; • the creation of Venture Business laboratories and incubators in public universities to encourage and help researchers in the commercialisation phase of their innovative ideas; • the changes in university professors' working rules allowing them to sit as board members of start-ups, and become shareholders; • the unbound royalties from patents to be paid to public researchers; • the administrative autonomy given to research institutes and universities; • the creation of Technology Licensing Organisations (TLOs), as intermediaries between universities and industry, to sell licences based on patents obtained by public researchers. By 2006, indicators show that TLOs are still striving to become profitable, thus showing the difficulty of managing interfaces between public and private research players on a commercial basis.

7.5 Removing interfacial barriers to help innovation processes: lessons learnt about measures implemented in the Member States More than 60 experts in Europe were interviewed at length for the present study, to confirm the change in RTD approaches, to validate the barriers, and ultimately to address three issues: • How extensive is the agreement amongst them about the nature and complexity of the innovation barriers based on the desk research? • Are there specific measures in the covered Member Sates that have been implemented to remove anyone of them? Can the measure of effectiveness be quantified? • What are the recommendations that can be made to largely improve the rate of transfer of new knowledge gained in EC-funded research projects to reach real-life applications? Whereas all the interviewed players stressed the need to simplify the application procedures for research proposals at EU level, the following barriers have been shown to hamper innovation processes in the energy sector, based on EU (and often Member State) public funding.

49

Werner, É., 'Relations entre les Universités et l'Industrie au Japon', (research conducted by Codognet, P. and Miaux, Y., for La Science et la Technologie de l’ambassade de France au Japon), Tokyo, 3 July 2006 Final report 49 / 93


Interfacial barriers to be addressed by improved RTD support measures at EU level •

the current discontinuity of public funding in supporting validation and demonstration phases, which inhibits the building of market learning curves;

•

the shortage of non-technology based knowledge that is often required to make an innovation process commercially successful in the energy sector;

•

the poor packaging of knowledge created by EC RTD contracts, which inhibits the easy take-up by downstream players;

•

the difficulty of dialogue between the cross-cutting technology specialists (involved in materials, ICT, biology, etc.) and energy technology integrators, which in turn inhibits the use of such generic technologies to the benefit of energy systems;

•

the absence of key European technical standards, which slows down the industrialisation and commercialisation of innovative products and services across Europe;

•

the lack of managerial, business and technical skills to implement innovative technologies in liberalised energy markets, which inhibits new business relationships and new working approaches;

•

the decrease of effective professional engagement among the players in the innovation chain, (at most management levels), which remains critical in solving the interfacial issues that enable an innovative idea to move into sustainable commercial use.



8.

RECOMMENDATIONS FOR MEASURES TO IMPROVE THE INNOVATION PROCESS AT EU LEVEL

The following sections describe a set of recommendations to remove the abovementioned interfacial barriers typical of innovation processes in the energy sector using EU (and often Member State) public funding. A set of 15 recommendations is proposed, articulated around the following 7 main action lines: 9 reduce the discontinuity of public funding to improve the technology learning curves; 9 address more intensively the non-technological barriers that slow down innovation in the energy sector; 9 support the packaging of the knowledge produced with the help of public funds, to improve its downstream use by innovation players; 9 foster dialogue between energy technology integrators and cross-cutting technology developers in the materials, ICT and biomass areas; 9 lower integration barriers for new energy technologies through focused R&D, addressing end-user and standard issues; 9 increase human capacity in taking up innovative technologies to the market; 9 design incentives to reward the personal engagement of innovation players in the energy industry that show demonstrably good performance

8.1 Reduce the discontinuity of public funding to improve the technology learning curves 8.1.1

Background

Energy technologies, like any other technology, become competitive in the market through intricate innovation processes that include not only research, development, demonstration and early adoption by pioneer end-users, but also incremental improvements obtained through the learning process of installing and operating energy systems. This issue has been recognised since the inception of renewablesbased innovation. For instance, a study by the International Energy Agency (IEA) (50) has compiled the types of public policy measures since 1973 that have been enacted worldwide to promote new energy technologies, with an emphasis on RES. The apparent continuity of public measures (a combination of early development subsidies, fiscal incentives or voluntary/obligation programmes), however, were not sufficiently successful at: •

accelerating the pace of RTD activities;

•

lowering the technology costs;

•

improving the effectiveness and efficiency of technology adoption in the market learning cycle.

50

IEA, 'Renewable Energy — Markets and Policy Trends in IEA Countries', 2004. Final report 51 / 93


Research Development and Demonstration

UK ITALY BELGIUM CANADA GERMANY NETHERLANDS SWITZERLAND USA JAPAN

Investment Incentives

DENMARK

Tax measures

USA

Incentive tariffs USA

Voluntary programmes

Switzerland

Obligations

Switzerland

Tradable certificates

Netherlands

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

One of the reasons for such a relative failure is that public funding measures have not yet grasped the impact of the technology learning ratio (ADER (51)): it is the ratio calculated by comparing the manufacturing costs of a technology each time there is a doubling of the manufacturing capacity. For energy, it ranges from 10% to 20%, thus showing that technology improvements gained from the early experience of new technologies have much larger benefits than the ones observed for mature technologies. Early and efficient technology adoption requires a significant market size and cash-flow availability to implement and learn from technology uses. In the energy sector, unlike Japan or the US, Europe has so far failed to provide continuous public funding from research to early adoption (52), at large sales. A more optimal combination of continuous European and Member State funding is needed to provide this required increase in market size and financial support. 51

Sellers, R., 'RETD Preparation and Planning' ADEME Contract 0505C0118, ADER, December 2005. 52 This is with the possible the exception of wind technologies in Denmark, and probably PV technologies in Germany. Final report 52 / 93


These continuity needs have been recognised as key by Germany. The Fifth German RTD Energy Research Programme successfully implements continuity of funding from the research to the demonstration phase. The programme is a joint initiative of three federal ministries (Economy and Technology, Research and Education, Environment) and is managed predominantly by the Project Management Organisation Jülich (PTJ) established at the JULICH Research Centre (FZJ), while the biomass section is managed by FNR (Federal Agency for Renewable Resources). The same management office covers basic research, technology development and demonstration. During programme implementation, the management office performs close monitoring of projects and evaluation of the project outputs. Once a project is successfully completed, advice is provided to project teams in response to the following questions: •

How to pass to the next development phase?

•

Is it appropriate to request new public funding?

•

How to link with private investors?

A similar approach is being followed for programme implementation in Austria by the FFG (Research Promotion Agency), which even provides a project roadmap to be followed, from research to demonstration. This also ensures a better exploitation of results. Apart from these examples, the 'average energy innovator' in Europe must overcome regional, national and European barriers to access the right amount of both public and private funding required by early adoption phases: •

Public funding is often implemented through periodic, and not continuous, calls for proposals;

•

Time to access funds at EU level is at least one year from idea inception to the project kick off meeting, with selection rates much lower than national ones (10% to 15%, compared to 30% to 50% in Member States);

•

DG TREN has progressively abandoned demonstration funding in relation to DG RTD contracts (the THERMIE programme);

•

DG REGIO does not coordinate with either DG RTD or DG TREN to foster large-scale demonstration projects. DG REGIO budgets have been evaluated at roughly EUR 400 million per year, some of which is allocated to the fostering of market adoption within supported regions.

8.1.2

Recommendations

It is proposed to improve continuity of funding via four complementary recommendations. All four are based on the learning ratio figures for energy technologies. Public and private partnerships must facilitate early experience, which, when coupled with large market sizes, favour cost improvements larger than when maturity has been reached.



Recommendation N°1 Ensure — whenever appropriate — that RTD projects involve energy companies in the research consortia applying for EC grants

Energy companies have been unbundled slowly since the 1996 IEM Directive approved by the Member States. Having such companies onboard the RTD projects, together with technology manufacturers and engineering companies, brings further guarantees of developing strong business cases and hence more continuous funding, with a focus on more rapid market application. •

The co-funding of part of the total RTD costs means that their internal innovation review process has considered the topic as a candidate option for operations in the future (5 to 10 years ahead).

•

Deregulated energy companies are and will be under competitive pressure: successful work within public-supported projects brings these projects within strategic scope (53) of industrial implementation.

•

Even though their participation should not be considered as a full guarantee of future field use, successful RTD outputs can then be taken up more easily by energy companies, since they have access to demonstration sites and are knowledgeable in assessing demonstration costs and benefits more accurately than any technology manufacturer.

•

In the event that public funding is required for demonstration, energy companies are able to bring the internal funding resources requested to bridge funding gaps between the end of the technology development cycle and the beginning of demonstration work. Moreover, providing the bridging funds shows that energy become more and more committed to future exploitation. It is with the intention of encouraging such early adoption that Spain has implemented dedicated participation rules in the National Strategic Technological Research Consortiums (CENIT) and PROFIT programmes. The rules of the CENIT programme (Spain) establish that only private companies can be considered as partners in the proposals; the participant companies have then to subcontract more than 25% of the project budget to technology centres and universities. The same rule applies to the PROFIT Energy programme (Spain), where projects have to be led by companies, allowing technology centres to participate as project partners or subcontractors.

53

This means that strategic development projects in emerging companies are kept confidential, and are therefore beyond the scope of public funding. Final report 54 / 93


•

So far, new energy technologies are validated by energy companies quite late in the innovation cycle. For the technologies considered in this study, support mechanisms, such as feed-in tariffs or renewable obligation certificates, are required to ensure higher visibility of financial returns. They provide assurance of legally guaranteed revenue streams. Yet they are subject to short-term changes in national policy, outside of the control of technology performance and independent of the technology performance. Energy companies have more political power to prevent from such upturns, even though the recent Danish example reveals the weaknesses of energy companies in the face of political changes.

Recommendation N°2 Favour energy foundation or association projects as they better guarantee both continuity of funding and maximum impact directed toward their industrial members Examples of association or energy foundations (54) are VGB (Verband der Großkessel-Besitzer) in Germany, and more recently, the Building and Energy Foundation in France. Beyond specific fiscal measures that help large industrial groups invest more in research, such organisations are built around private companies that have specific interests in contributing to innovation in the energy sector. The VGB Foundation VGB is an international association dedicated to advances in power and heat generation. It carries out research projects related to RES and Distributed Generation, as well as centralised nuclear and fossil fuel power plants. Each ordinary member pays a yearly fee calculated in euros per ton of maximum equivalent permanent steam capacity. Affiliate members and sponsors have different fee calculations. It must be emphasized that VGB performs also operational services such as construction monitoring of power plants, materials testing, technical consulting and chemical investigation.

The Building and Energy Foundation The 'Building and Energy' Foundation has been created by four industrial players in the field of construction and energy (EDF, Gaz de France, Arcelor, Lafarge). They have brought EUR 4 million, with an equivalent amount brought by the French State (Ministries of Research, Industry, Public Works and the Interior). Hosted by the French Energy Agency (ADEME), it selects projects based on call for proposals by multidisciplinary teams. Research lasts two to three years and is reviewed every six months.

54

For these purposes, a foundation is a legal entity, with legal characteristics, and is entered in a public registry like a company. Unlike a company, it has no shareholder and holds assets in its own name for the purposes set out in its constitutive documents. A foundation has a distinct patrimony independent of its founders. In Europe, according to most of the Member States, research foundations are created as tax shelters. Final report 55 / 93


The access to Framework Programme funds from such organisations, as single or multiple players, appears as another route to secure the continuity of funding to reach market applications. Large energy companies or technology manufacturers that contribute to early research steps, while complementing national or international projects with EC funds, would probably accelerate the pace of the existing RTD activities. In case of funding gaps between research outputs and first validation studies, the industrial partners would have the capability to bridge these gaps slowing down the work progress.

Recommendation N°3 Support schemes for large-scale demonstration of energy technologies should be made available to provide funding continuity at EC level

Everyone recognises that, between the existence of a promising energy technology prototype (developed successfully, possibly with the help of public funds) and a largescale demonstration, involving early adopters, there remains a grey area. This is often called the 'death valley', in reference to the amount of cash needed to cover demonstration and commercialisation costs. At the time expenses occur, there is not enough income from commercial revenues, leading to severe cash-flow demands for technology developers and even technology users, and for all the stakeholders. Revenues

0

Demonstration and Commercialisation Research Development

Sales Time

Death valley

Up to FP5, DG TREN provided such funding, under the THERMIE programme, in line with the further validation of 'proofs of concept' projects launched by DG RTD. But the energy arena has changed, leaving innovators with three complementary options: Final report 56 / 93


•

the use of demonstration projects with dedicated support measures, like IDAE in Spain;

•

the use of market incentives, where it is the prerogative of each Member State to design what is considered as adapting to their energy market features: this is the case of feed-in tariffs for wind or solar energy; or

•

a combination of both the options above.

The links between technology development and technology early adoption must be clarified through continuous, public and private funding made available in support of demonstration activities. There is room for improvement, combining a set of simple implementation rules: •

EU demonstration funds must address only EU-wide markets (based on the above learning ratio argument);

•

demonstration activities at EU and Member State level must use the same risk assessment tools: 9 demonstration will be 50% funded in FP 7, acknowledging that ENERGY TECHNOLOGIES AT THE DEVELOPMENT STAGE are still far from market applications, 9 but demonstration funding should not compensate for a lack of national market incentives at Member States level;

•

demonstration activities at EC level again become funded through continuous calls for proposals, in harmony with existing or future national market incentives;

•

third-party financing, like the Spanish example developed by IDAE, must be envisaged at EU level, since it would allow funds from the European Investment Bank to complement EC funds (DG RTD, DG TREN, DG REGIO); the issue is to fund the appropriate organisations, like an energy agency, that would be able to play the role of IDAE in Spain (see below). Third-party financing: the example of IDAE in Spain

Third-party financing was born in the US in the early 1980s. It was adopted by Spain in 1987 under the management of IDAE. The main underlying idea is that the initial energy investment is undertaken by a third party (IDAE), which is not the enduser. The payback of the investment is ensured by the sales of the generated power or by the achieved savings. Up to 2005, IDAE has managed 226 projects for a total investment of EUR 550 million, dealing with solar, wind, hydro, combined heat and power (CHP) or tri-generation. The funding can follow two routes: • simple rules: IDAE, the user and technology suppliers are involved; • complex rules: a financing intermediary is also involved. The measure has several advantages: • it addresses projects with high capital investments; • the user avoids upfront cash-flow problems and their impact in the balance sheet; • IDAE provides the appropriate technical expertise; • access to new technologies is allowed without further increasing the risk level. Final report 57 / 93


Nonetheless, it must be recognised that a high initial capital outlay is required, and that IDAE must acquaint investors with energy issues.

Recommendation N°4 A European Demonstration label should be developed by the public funding organisations that supported successful development projects, in order to facilitate wider deployment of beneficial innovation with the help of demonstrations funding measures

Today, thorough technical and commercial evaluation of the R&D results at the end of EC-funded projects is lacking. The experience of the Austrian and German energy programmes, involving at least a technical evaluation as an integral part of the funding procedures, shows that this evaluation prepares for demonstration. As a matter of fact, successful European innovators in the energy field, using EC funds, still strive to find the right complementary public support to perform meaningful demonstration activities: • if they have been funded at Member State level and need to reach at least a European market, they should be able to link with the above continuous demonstration funding mechanisms at EC level; • if they have been funded at EC level, and need to reach local demonstration (as is often the case for renewables), they would like to combine EC, Member State or regional public funding. A European Demonstration label would definitely help innovators in constructing their technology learning curve without much complexity being added to EC funding rules: • there is already a similar label, delivered by the EUREKA programme, which allows the combination of public Member State funding in view of supporting technology development projects: the template has seen more than 20 years of field experience; • the label, if delivered by the public funding bodies at the end of the funding measure, will send positive signals to investors and early adopters, whereas today, any positive output of a research project has to be promoted by the innovator alone. This added value (sending positive signals to investors) is currently used by the SBIR programme in the US (55); • the Demonstration label can then either trigger some additional public money to complete the learning curve understanding before private players take the lead, or trigger private investment right away since the potential business models are better understood by incoming players;

55

SBIR (Small Business Innovation Research) and STIR (Small Business Technology Transfer Programme) are two programmes run by the Small Business Administration with various federal agencies: the SBIR/STIR grants appear to send positive signals to private investors to accompany the development, demonstration and commercialisation phases of an innovation project. Final report 58 / 93


• •

8.1.3

it can be delivered under the control of outside experts involved in project selection, monitoring and assessment (see Recommendation 7 below); it would also demonstrate that the EC does care about result exploitation, beyond the production of a contractual deliverable called the 'Plan for Using and Disseminating Knowledge'. Practices in collaborative research

The above recommendations imply that open innovation will require more and more upstream linkages between the key players that will intervene downstream to reach market adoption. The recent handbook on Responsible Partnering issued by the European University Association (EUA), the European Association of Research and Technology Organisations (EARTO), the European Industrial Research Management Association (EIRMA) and ProTon, a pan-European network of Knowledge Transfer Offices linked to universities and public research organisations. Europe provides useful guidelines for durable partnership, including best practice rules in constructing collaborative research agreements (56).

8.2 Address more intensively the non-technological barriers that slow down innovation in the energy sector 8.2.1

Background

Innovation in the energy sector is essential to delivering security of supply, sustainability and industrial competitiveness, as pinpointed in the recent Green Paper 'A European Strategy for Sustainable, Competitive and Secure Energy' (57). But 'there are needs for tools and mechanisms to overcome the non-technical barriers to the take up of new and effective technologies' (58). Although the programme 'Intelligent Energy –Europe' (including the ALTENER and SAVE programmes) already addresses non-technical barriers in energy innovation (such as regulatory frameworks, market liberalisation, and integration of renewables in rural or urban areas), there is not enough research work performed on the sociological, economic, business or political issues embedded in energy innovation. This has been pinpointed by the EDEN association in France — which will create a research foundation on the matter in 2006 — and by the Energy Research Centre of the Netherlands (ECN) for Policy Studies.

56

'Responsible Partnering: Joining Forces in a World of Open Innovation' a guide to better practices for collaborative research between science and industry', EUA, EARTO, EIRMA and ProTon Europe, January 2005. 57 EU Green Paper on a European Strategy for Sustainable, Competitive and Secure Energy, COM (2006) 105 final 8 March 2006. 58 Ibid. p. 14. Final report 59 / 93


The EDEN foundation and the ECN centre for Policy Studies EDEN is an association created in Sophia-Antipolis (France) in 2004. Its goal is to raise European awareness about energy issues in Europe, involving both enterprises and the public. It is going to be transformed during the year 2006 into a research foundation with an initial endowment of EUR 3.8 million for 3 years. The foundation will be structured in two platforms: • a research platform with calls for proposals dealing with : 9 Economic and sociological aspects of the energy sector, 9 Energy and IT technologies, 9 The innovation and entrepreneurship features of the energy sector; • a dissemination platform that will expand the activities of the existing association and will deliver the research outputs for their use to the benefits of the European society. Along the same line of thinking, the ECN unit for Policy Studies in the Netherlands (http://www.ecn.nl/en/ps/ ) offers public authorities, companies and civil society independent advice with respect to energy and environmental issues.

The observed lack of non-technical research originated from the technology push paradigm that prevailed up to the early 2000s in publicly funded programmes devoted to new energy production schemes. Since FP5, the European Commission has launched 'stand-alone' socioeconomic research projects around four themes, as described in FP6: •

social acceptability and human behaviours

•

policy instruments and governance

•

modelling and scenarios

• direct and external costs. The importance of socioeconomic issues is also underlined by published studies on the innovation capabilities of industrial groups (59): they show that companies successful at innovation management know how to 'make the right bets'. They know not only how to manage a portfolio of technology development projects that will optimise company profits, but also how to create and manage a portfolio of business models to bring the technologies to market. Business models involve an in-depth knowledge of stakeholder behaviours, the capability to push for innovative regulations through lobbying with policy makers and the knowledge of clients' needs and demands. Clearly, this knowledge is developed, validated and used by commercial companies as an integral part of an innovation tool box of practices. 59

Jaruzelski, B., Dehoff, K., Bordia R., 'The Booz Allen Hamilton Global Innovation 1000: Money Isn't Everything', Strategy and Business, No 41, Winter 2005. Final report 60 / 93


8.2.2

Recommendations

Two recommendations are proposed, which aim at increasing the level of nontechnological, innovation-related tasks at research project level.

Recommendation N°5 Encourage, through adequate ranking of RTD proposals, more research on the early removal of interfacial barriers, such as improved regulatory models, economic behaviour of energy stakeholders and the development of new business models: these studies must be integrated into technology-based research in order to identify which nontechnological barriers might impede the take-up of promising new energy

30 Years of public-funded R&D in SCP Since 1977, Plataforma Solar de Almería (PSA) has been involved in the SolarPACES initiative within the International Energy Agency. In 1977, PSA erected the Central Tower System of 1,2 MW which was included in the project CESA-1. The PSA increased solar research in the 1980s and 1990s incorporating Through Parabolic systems (LS3) and also Dish Stirling systems (DISTAL). Since 2002, IBERDROLA and ABENGOA (in parallel) in collaboration with PSA have been developing the technologies required for the commercial exploitation of SCP with support from the Spanish National R&D programme called PROFIT, and also from European funds through the FP6 projects. Nevertheless, no commercial exploitation of SCP occurred in Spain and Europe until the following favourable regulatory conditions were established in 2004: • •

RD 436/2004: Feed in Tariff plus a Premium for the first 500MW installed; RD 2351/2004: allowing the SCP hybridisation with gas turbines.

Due to this new regulatory framework, ABENGOA and IBERDROLA have announced the initiation of commercial exploitation as from year 2006, of several solar thermo-electric plants (first thermo-electric industrial application in EU), with projects approved for the next 3 years with a total power of 900 MW. The technologies of these plants come from Technology Transfer and collaboration R&D projects together with the PSA. ACCIONA ENERGÍA, another major Spanish player in RES power generation, has recently acquired (February of 2006) the American company SOLARGENIX and is promoting a 64 MW SCP power plant in Las Vegas. SOLARGENIX is the company that operates the only commercial applications of SCP to date. Currently, ACCIONA ENERGÍA, IBERDROLA, ABENGOA, and even ACS (a construction company) are engaged in a race for the installation in the next 5 years of more than 1400 solar MW in Spain. Innovation and positive impact only occurred when the adequate Final report 61 / 93


regulations were put in place. In the 20 years ahead, the energy sector will see significant evolutions originating from the 1996 IEM Directive, coupled with the tensions on fossil fuel supply, the implementation of the Kyoto Protocol and the growing energy needs of Europe. Since 2000, the EC has promoted more integrated research about new energy technologies, in order to maximise Europe's energy mix. Market-based research to address all the barriers preventing innovative solutions must be expanded, like in the US or Japan, where any technology-based research project contains embedded socioeconomic research. The innovation case study below shows how the Spanish players have coupled public funding and regulations over 30 years to introduce concentrated solar-thermo-electric plants as a new source of electricity production.

Recommendation N°6 Specific support actions at EU level should be launched to study recent major innovation failures in the EU-25 energy sector. Such studies will shed light on the barrier combinations, which, since 1996 (the date of the IEM Directive implementation) may have prevented innovative ideas from reaching market applications.

Recent research work has adopted the 'Innovation System' perspective to analyse energy innovation successes and failures. This is, for instance, the case with a recent UK work dealing with the emerging marine sector (the use of waves and tidal streams as energy sources).


Contract RTD-J-1-CT-2005-25 The Building Renewable Energy Innovation Systems (BREIS) project

This project is part of the Edinburgh University programme entitled 'ESRC's Sustainable Technologies' programme. This innovation system approach allows analysis of the components of the innovation process, highlighting the key factors that enabled or blocked the renewable industry growth in the marine sector. It first shows that renewables are somehow disruptive for firms, regulators, and policy makers. It follows Christensen's (1997) work, which showed that established firms have difficulties in committing resources and efforts on disruptive technologies over extended periods of time. Hence, disruptive technologies tend to be left to start-ups or SMEs. Analysing the UK background for the marine sector, early barrier analysis shows that: • stakeholders (public and private) lack consensus on the scale and tuning of the opportunity; • there are policy tensions and contradictions, where the regulator, utilities and investors (unlike Denmark with wind energies before 2005) are largely opposed to any changes to market-support mechanisms; • there is still scepticism from the incumbents (investors and utilities) about marine technology; • dominant utility and financial organisations do not accept the transfer of economic models from other EU countries to the UK.

Similar work performed for the whole EU has directly attacked the foundations of FP7 (60), on the grounds that it does not support innovation. It is therefore time to understand why innovation failures have occurred, both from EC- and Member Statefunded technologies, and why policy initiatives could help remove non-technological barriers. It is of course understood that the success of such support actions require that players talk freely about their failures, in view of proposing improvements based on actual poor performances. This task, known as continuous process improvement in ISO-certified organisations, is one of the most difficult since it is based on the willingness of people to talk about failing activities.

8.3 Support the packaging of the produced new knowledge to improve its downstream use by innovation players 8.3.1

Background

'Europe suffers from an innovation gap that separates it from its global competitors. While the European research base is solid and produces excellent scientific output, the rather low levels of exploitation of these research findings hamper the innovation performance of many industry sectors. Especially publicly funded projects tend to fail to commercialise their results' (Katharina Krell, Secretary General, the European Renewable Energy Centres (EUREC) Agency).

60

Liebreich, M., 'Europe's Deficit in Clean Energy Innovation', New Energy Finance, 28 April 2005. (see: www.newenergyfinance.com) Final report 63 / 93


When research consortia are granted EC funds to support a project, each partner has their own strategy in mind. Consortia agreements commonly do not foresee the precise exploitation rules that will be followed, even though the EC participation rules require an agreement before public funds are distributed. This is due to several reasons: •

a lack of collective conviction about the research outputs;

•

often there is a large consortium size, that may lead to too many bureaucratic processes in the decision process on critical issues, involving too many compromises and slow decision making;

•

possible internal competition within the consortium, where people avoid presenting their own development strategy;

•

a consortium mix where only a few partners drive the project, while the rest of the participants are followers;

•

a consortium composition where a majority of players are researchers that are basically interested in producing new knowledge, rather that exploiting the knowledge produced. Moreover, once research work has been performed, very often unexpected findings pop up, and sometimes failures to reach the initial objective are observed. People are then discouraged to think about alternatives to the initially foreseen technology transfer journey. They stop thinking about other exploitation routes, vehicles, engines or pilots, as described below. •

If an energy company is about to exploit the energy technology (vertical transfer), it may happen that the findings are worth valuing in another application sector (for instance, an industrial end-user willing to use distributed energy): this is called 'horizontal transfer' and constitutes another exploitation 'route'.

•

If the initial development is aiming at validating a new electricity-producing small turbine, and the research project also ends up with new simulation software to understand grid coupling issues, then a new transfer vehicle would be born. The new knowledge goes beyond a technology prototype. It constitutes a software simulation package allowing the understanding of complex turbine/grid coupling phenomena.

•

Where the initial 'innovation driver' is a technology push objective (for example, showing the impact of a new membrane material for a fuel cell device), the final results deliver a product that can be used by an Energy Service Company in the beer industry (market pull application): here, the innovation driver has changed due to outstanding technology performance.

•

Transfer agents should be linked with the consortium players at the outset of research (technology manufacturers, energy service companies). Yet for any one of the above reasons, including a change in development strategy, they might no longer be interested in valuing the research outputs. Outsiders, like intermediaries, or other end-users might be Final report 64 / 93


interested to take this up, showing the needs for other 'pilots' to drive the transfer vehicles. This, for instance, is the role of the TTN network of brokers supported by the European Space Agency and described in Section 6. It is therefore critical for research outputs to be packaged or packageable in a form that is suited for market applications. This, for instance, is the role of an ongoing specific support action, ProRETT, funded since early 2006 by DG TREN.

ProRETT: a Sixth Framework Programme (FP6) support measure to help public research laboratories better exploit their research results and reach market applications Initiated by the European group of renewable energy research centres, the EUREC Agency, the DG TREN-funded project 'Promotion of renewable energy research results' (ProRETT) is applying a new methodology for quicker and broader exploitation of scientific research results in the fields of renewable energy and energy efficiency, in the form of licensing or spin-off creation. ProRETT offers transfer services to teams that wish to commercialise new technology applications, materials or processes elaborated in publicly funded research projects. The team behind this project unites all the stakeholders and skills required for a successful technology transfer: researchers, technology transfer professionals, finance, and industry. In a first selection round, 27 research results stemming from a broad range of renewable energy technologies and supporting tools were proposed for further support. Of the proposals, 12 were selected for potential commercialisation. They will now receive individual coaching for market and risk analysis, business plan and model development and brokerage to interested investors. Entrepreneurial training for the teams aiming at spin-off creation is also part of the package. Although most research centres already have technology transfer offices, ProRETT provides an additional European dimension which many transfer agents lack, as well as a complete range of services that cannot be offered by any individual transfer centres. To be eligible for support with commercialisation, three conditions must be met: the research must have benefited from public funding for its development, the proposal must be related to the fields of renewable energy and energy efficiency, and the commercialisation must happen in Europe. If successful, ProRETT could serve as model for technology transfer from public research to the market in the form of spinoff creation or licensing. A public event is planned for late 2007 to discuss the strategy and policy implications of the project findings. 8.3.2

Recommendations

Two recommendations are proposed to improve the packaging of the new knowledge produced by research consortia.

Recommendation N°7 Involve a continuous set of market and technical experts in the selection, Final report of research projects. monitoring and final assessment 65 / 93


As in several mission-oriented agencies (Defense Advanced Research Projects Agency (DARPA) in the US and the European Space Agency (ESA) in EUROPE), project selection, monitoring and assessment requires a multidisciplinary team of technology and business experts. This is, for instance, the choice made by the recently created French Agence de l'Innovation Industrielle (AII).

The selection and monitoring procedure of AII The French Agence de l'Innovation Industrielle (AII) was created on 29 August 2005. It is intended to support the development phase of highly innovative product or services to be sold on the European and world market within 5 to 15 years. Selection criteria have been defined: • the leader is from industry, thus allowing a full understanding of the research needs in view of reaching market applications: this simplifies the project ranking by teams of academic and industry experts; • significant European and world market size; • RTD costs from one to several tens of million euros; • exploitation within 5 to 15 years. The first projects, that were selected in early 2006 in the energy field, are set out below. Project BIOHub HOMES

Leader Topic Roquette Agricultural waste valorisation Schneider Low-energy buildings

Cost (million EUR) 98 88

Eligibility is checked by an expert group that will follow the funded project throughout its life with AII, up to the end of the public funding.

A similar process is used in Spain (the CENIT proposals) where CDTI experts evaluate the business-related aspects, whereas the Agencia Nacional de Evaluación y Prospectiva or ANEP (a pool of evaluators from research organisations) evaluates the technological aspects. The implementation of such review groups has several advantages, as recently experienced in the monitoring of large Integrated Projects of FP6: •

they are involved in the selection of proposals, on the basis of technology, market and investment prospects;

•

they can be involved in the negotiation process between the EC and consortia: the consortium agreement will increasingly describe exploitation rules of the results, and external experts may give useful advice on promising exploitation schemes; Final report 66 / 93


•

they are involved in yearly monitoring reviews, and can shed light on project steering issues;

•

they should be involved in the final output assessment, including the Technology Implementation Plan.

Even though the mix of review groups will remain difficult to organise (due to the availability of such experts and the funding of their efforts at reasonable levels), their work can probably reduce the administrative work on the EC side, and could also initiate the process of digging into hidden knowledge for further exploitation.

Recommendation N°8 Dedicate support actions to package and market research results that can be considered as 'future technology nuggets' along with technology programmes focused on areas such as fuel cells

In the past, several attempts were made to support the packaging and dissemination efforts for technology 'nuggets' developed within research projects (national or ECfunded). This was, for instance, the role of the Organisations for Promotion of Energy Technologies (OPET) network or of the THERMIE B programme, which have not led to indisputable performances. A work with similar objectives is ongoing within the EC Nanosciences, nanotechnologies, materials and new production technologies (NMP) Directorate, through the European Strategic Seminar (ESS), within the French Environment and Energy Management Agency (ADEME), on dedicated technologies related to wind farm development (see below), or, within the IP group for UK universities or Cambridge University Enterprise in other areas.



ESS seminars: a free-of-charge service for research consortia funded by the NMP Directorate Following a first contract designed to finetune the methodology, CIMATEC (Italy) was awarded a service contract by DG RTD to support research consortia in the construction of their Technology Implementation Plan. This six-day consulting work allows the delivery of: • a market research study on competition and potential conclusions on the marketable results; • a one-to-two day workshop with the consortium to create an exploitation plan to assess the risks of exploitation, and to design an action plan to manage such risks.

ADEME: a support in marketing new technologies When assessing the electric power potential of a wind farm, there is a need for meteorological studies over the period of at least one year to assess the wind potential. It uses meteorological poles and data acquisition: the data are processed and analysed by experts to quantify the amount of electric power that can be obtained. For offshore wind farms, this technology is revealed to be either too costly or not suited for power production assessment. ADEME supports Ecole des Mines in France in the use of satellite data, in order to assess wind power resources. It is now helping this public research laboratory find the right endusers.

Another valid example is the German BINE information service on renewable energy technologies and efficient energy use, sponsored by the German government through the DENA energy agency. It is provided with information from public funding organisations (for instance, PTJ or FNR) and private actors. The BINE service is the most topical and comprehensive information source in this field in Germany, and is used also by many SMEs as first-hand information on new R&D results in the sector (61). The above-mentioned experiences demonstrate that such support actions must help overcome several types of barriers.

61

•

Public researchers must first concentrate on producing new knowledge of potential added value.

•

Apart from noticeable exceptions, public research laboratories are generally not directly interested in the commercial exploitation of their results. The first motivation must remain new knowledge production. They know how to package this knowledge for scientific publications: they are much less concerned by the packaging of knowledge for exploitation. In consortia with innovative enterprises, this packaging is internally produced, provided that exploitation rules have been agreed in the consortium agreement. But in consortia where enterprises either behave as followers or are not interested in further exploitation, most of the knowledge produced will remain unexploited.

•

Unless clearly defined at the start of the contract, conflicts of interest between consortium members may inhibit exploitation potential: outside support is usually capable of detecting and anticipating such cooperation failures, thus providing solutions to ensure that continuing exploitation is

For more information, please see: http://www.bine.info/ or http://www.energie-projekte.de/ Final report 68 / 93


within business rules that are considered acceptable by all the stakeholders. •

Hidden knowledge may very often reveal more promising exploitation opportunities than the mainstream knowledge produced by the contractors. In the energy sector, several parallel 'nuggets' may be uncovered, some examples of which are set out below: 9 design methodologies embedded in software tools developed during the contract; 9 performance monitoring techniques used during experiments; 9 training tools.

•

The existing formats used at EC level for results communication and dissemination are not capable of encompassing the wide spectrum of endusers who usually are not in a position to utilise the details of research outputs through scientific publications

•

IPR rules of the Framework Programme are flexible enough to favour exploitation: it is the absence of exploitation schemes at the start of the contract that leads to exploitation conflicts. FP7 rules should cope with such drawbacks: the consortium agreement should provide exploitation rules at the start of the project.

The above barriers are of primary relevance for public research organisations. It is therefore suggested that such support actions should target them, and that they be implemented very early in the research contract to avoid conflicts when exploitation agreements have been signed between the partners. Several national Energy agencies are candidates for performing these tasks since they are well-linked to the national energy sector and knowledgeable about the future end-users, especially innovative SMEs.

8.4 Foster dialogue between energy technology integrators and crosscutting technology developers in the materials, ICT and biomass areas 8.4.1

Background

There is scientific and technological evidence concerning the role of cross-cutting technologies in the successful development of innovative energy solutions: •

genomic research has and will contribute to the design of plants that are optimal for future fuel production: this has already been implemented successfully by Brazil for its ethanol programme;

•

ICT technologies have demonstrated their benefits in the management of Distributes Energy Resources (see, for instance, the outputs of the 'Distributed Intelligence in Critical Infrastructures for Sustainable Power' (CRISP) project (62)): they will allow for maximisation of the economic benefits of small generation units for Electricity Distribution System

62

CRISP, ENK5-CT-2002-00673. See Project Deliverable D4.3: 'Selected Publications from the CRISP Project', Ed. Akkermans, H., October 2005. Available online at: www.ecn.nl/crisp Final report 69 / 93


Operators, end-users and aggregators, within local electricity markets born from the deregulation of the electricity markets; •

composite materials stemming from the aerospace sector have been key in helping develop new wind turbines for wind farms, thanks to their ability to withstand fatigue constraints over very long working hours (3 000 hours per year over 20 years).

However, there is no innovation management evidence about the optimal way to link both types of expertise in order to speed up the development of innovative energy technologies. •

The present route followed by DG RTD (joint calls on materials, biotechnology, agriculture, or ICT) is to be further encouraged, but the split of responsibilities between directorates remains unclear to the players, including the allocation of research project monitoring.

•

France's experience on the same issue is controversial. On the one hand, technology integration groups have been implemented in the PREDIT programme (63) to deal with ICT in the car industry. Coordination from French project officers themselves was critical to the success of the project: today, nuclear energy experts work for the car industry on the reliability of firmware solutions in cars. On the other hand, the recent 'Pôle de Compétitivité' deals with the same issues by funding generic topics, letting industrial end-users pick their best choice (project NUM@TEC within the SYSTEM@TIC pole (64)). The key issue is then to have industry specify long-term needs and market ambitions.

•

Germany has included the so called 'Networking Funds' as one component of the German Fifth Energy Research Programme, with the distinct aim of linking generic materials research and mathematical simulation tools with energy technology development. Networking these specific fields had been identified as particularly useful for further progress in the energy sector: so far this has proved very valuable within programme implementation.

Functional research is a tool that can help market pull demands (the needs of industry) cooperate with scientific push approaches (the use of laboratory inventions to the benefit of energy technologies). What is meant by functional research is described in the diagram below, taking nanomaterials technology for fuel cell membranes as an example. Fuel cell membranes use catalyst and gas diffusion media, layered between conductive plates, to produce electricity from direct hydrogen/air combustion. This generic function can be fulfilled using several materials technologies that borrow the knowledge needed to manufacture reliable components from physical and chemical sciences.

63

The 'Programme of Research, Experimentation and Innovation in Land Transport' (PREDIT) is a French coordinated programme focusing on innovation in the transportation industry. 64 See: www.numatec-automotive.com Final report 70 / 93


Market Pull

fuel

Membranes

Technology Push

Technolog y- driven

of

Needs: electricity from hydrogen/air combustion

Ideal Middle Ground

Management - driven

Example cells

Function: electricity generation

Candidate materials

Interfaces

Nanoparticle science and microparticle science

The art of functional research is to find the ideal middle ground, where generic functions can be fulfilled for the energy sector using the most recent advances in materials, ICT or biotechnologies. This work is currently performed in industry for a wide range of sectors: the successful template is, for instance, the development of the GSM standards with the support of the European Commission in the late 1980s. The functional approach of mobile telephones has allowed the development of a standard which uses critical functional blocks in mixing telecommunications sciences and key user needs.



8.4.2

Recommendations

A complementary set of three recommendations is proposed in order to address the above issues. The first two propose to lean on support and coordination actions to amplify interactions between demand pull (management-driven) industry specifications (via the Technology Platforms) and technology-push science answers (via the European Research Area Network (ERA-NET), for instance). The third one addresses the development of breakthrough, disruptive innovative solutions with the help of SMEs.

Recommendation N°9 Finance, with the help of support actions, the industrial players of Technology Platforms capable of specifying long-term technology needs of the energy industry, in order to better anticipate the interplay between There are several Technology Platforms that deal with the technology scope of the present study: •

SmartGrids: European Technology Platform for the Electricity Networks of the Future (with a large focus on DER)

•

EUPV: European Photovoltaic Technology Platform

•

European Hydrogen and Fuel Cell Platform

•

Zero-Emission Fossil-Fuel Power-Plant Technology Platform

An examination of their working group structures and research agenda has not revealed structured tasks aimed at extracting functional needs, such as, for instance, the efforts made by the NUM@TEC project in France for the car industry.

The NUM@TEC project: designing a firmware supply for the car industry in France Num@tec Automotive is a project that coordinates and structures RTD efforts on firmware for the car industry. It was created by six industrial players (Renault, Renault Trucks, Delphi, Siemens VDO, Valeo and Visteon) and five research institutes (CEA, CNRS, Ecole des Mines de Paris, INRETS and INRIA). Its main goal is to manage quality for embedded software in cars. Research projects deal with six functional issues: • electronic architecture and dependability • dependability of supervision systems • methodologies and software tools • breakdown diagnosis • Man-Machine Interface by 2020 • data fusion and algorithmic. Specifications have been made by industry; research is performed by public Final report 72 / 93


laboratories utilising their experience in other fields like aerospace, nuclear power or telecommunications. Materials-related research is, for instance, part of a German programme directed towards energy end-use based on nanosystems and microsystems research (see below). The key feature of this programme, as in the US for advanced materials in fuel cells, is to encourage the take-up of nanotechnologies/microtechnologies for applications by industry, and in particular by SMEs.

LWSNet: a network to overcome the fundamental problems involved in developing highly efficient latent heat stores on the basis of inorganic storage materials (micro encapsulation with hybrids) Funding by BMBF, Strategic Funds, Duration: 01.04.2005 - 31.03.2008. The 'Network to Overcome the Fundamental Problems Involved in Developing Highly Efficient Latent Heat Stores on the Basis of Inorganic Storage Materials' is funded by the German Federal Ministry of Education and Research (BMBF) within the BMBF initiative 'Fundamental Research Networks for Renewable Energy Sources and Rational Energy Usage', and supervised by the Department for Strategic and International Tasks (GIN) of the Project Management Organisation Jülich (PTJ). The LWSNet research network deals with fundamental considerations concerning the application of inorganic latent heat storage materials (phase change materials = PCMs). The objective is to develop solutions to overcome the main problems involved in PCM technology. The main difficulties are that: •

the charging and discharging efficiency of PCM stores is too low since the surface is too small in relation to the volume and the thermal conductivity is insufficient;

•

super-cooling effects occur due to poor crystallization which causes the storage systems to discharge at specific temperatures. Solutions will be devised to overcome the above-mentioned difficulties for a whole series of inorganic phase change materials, by way of investigating exemplary types of PCMs. The following project objectives will be pursued with regard to the above-mentioned problems: •

development of synthesis methods for stable micro encapsulation of salts and salt hydrates at high temperatures using sol-gel and plasma technology (increase in surface-volume ratio);

•

clarification of the essential mechanisms for producing salt/carbon compound PCMs with high thermal conductivity;

•

development of theoretical methods to systematically search for nucleating agents, and development of experimental procedures for specific crystallization initiation.



Recommendation N°10 Financially support more coordination actions involving public and private researchers in the energy sector to identify and work on crosscutting technologies to the benefits of end-users in the energy sector.

The ERA-NET programme has launched coordination efforts for research performed in the energy sector (for instance PV-ERA-NET). Coordination aims at understanding and interacting public research efforts performed by the participating Member States. However, apart from some dedicated efforts in a few ongoing EC contracts (see, for instance, the RELIANCE coordination action (65) for the research on electricity transport), little is done relating to the research needs of the energy sector, seen as service companies delivering fuels, electricity or heat to end-users. Market liberalisation has put pressure on cost-cutting processes, causing companies to cut their research to minimal levels in several countries. A recent study on the electricity sector in the UK reveals (66) that deregulation induced a progressive decline in basic R&D and innovation, which may impact the electricity network performance in the long term. The authors concluded that there was a need for the reorientation of energy technology policies and spending toward R&D, engaging more firms in R&D within appropriate public private partnership. The UK regulator identified and addressed this issue in its last price control review of the electricity distribution companies; new financial incentives were introduced for innovation and its field application. Following the positive responses to this, a similar approach is currently being implemented on the price control review for electricity transmission. Coordination actions should therefore be launched with several objectives in mind. • Catalyse collaborative thinking of companies in areas where companies are regulated monopolies on their areas of operation (gas and electricity transport, gas and electricity distribution). Collaborative thinking may involve topics of interest to several regulated companies, but also technology development that requires interactions along the innovation chain. • Identify research agendas that could be of benefit to all players, relying on existing public research institutes to provide part of the missing workforce in network companies.

65

See: www.ca-reliance.org Jamasb, T., and Pollitt, M., 'Deregulation and R&D in Network Industries: The Case of the Electricity Industry', August 2005. (For more information, see: http://www.electricitypolicy.org.uk/pubs/wp/eprg0502.pdf ) 66



•

Specify cross-cutting technology needs (materials and ITC are prime candidates here) for which manufacturers would perform development work.

These proposals are in line with the suggestions presented in the recent Green Paper on Energy by the European Commission: a 'European Centre for Energy Network' leading to a single European grid for a real European electricity and gas market. Catalysing research thinking within groups involving public and private researchers will maximise the probability of using the research outputs in real life in the long term.

Recommendation N°11 Encourage the development of disruptive, breakthrough innovation through two-steps dedicated RTD calls61 involving SMEs as technology pioneers, start-ups and research laboratories with a focus on the use of cross-cutting technologies in the energy sector.

The European renewable energy industry has increased its turnover tenfold (from EUR 1.5 billion to EUR 15 billion) between 1990 and 2004. The renewable energy sector is mostly made up of technology-focused SMEs, most of which did not exist 20 years ago. This energy-related example shows that SMEs are key economic growth players, but not all SMEs can contribute to growth through innovation. They indeed need the ability to manage technology development, to use or to adopt technology within innovative business models to be more competitive than other industrial organisations (whether SMEs or large industrial groups). The diagram below depicts schematically the four types of existing SMEs in Europe, with their respective funding needs. The SMEs that deserve the most attention are the ones that strive to 'escape' from the SME 'world', in order to become large-scale industrial organisations. Paradoxically, public funding of research projects should address SMEs that want to 'escape' from the SME world, i.e. the ones with internal technology development capabilities.



This issue has already been managed by the support actions funded by the DG RTD 'SME Units' such as SYNERGY (67) or DETECT-IT (68). Here, SME-leading technology developers are supported in integrating larger research projects or proposing RTD activities on their own. And SME technology users or adopters (the companies that have lower RTD capabilities but enough market networking to industrialise and to sell innovative solutions based on technology development tasks performed elsewhere) can also join and work with peer SMEs. Overall, there are only a few thousand such companies active in the energy sector in Europe. The main barrier they do face today is access to appropriate financing (equity, loans or both) to reach their first sales safely. This is even more crucial when disruptive technologies (69) can be used to give birth to new high-growth-rate companies in the energy sector, using some cross-cutting technologies that larger industrial groups would not be ready to develop. Successes on membrane materials for fuel cells in the US (70) or a new PV material to produce hydrogen directly from solar radiation in Switzerland (see below) have shown the importance of paying attention to such disruptive approaches. Switzerland: a sizeable public investor in energy research with early technology transfer worldwide 67

See: www.synergy-project.org See: www.detect-it.org 69 Christensen, C. M., Raynor, M. E., The Innovator's Solution: Creating and Sustaining Successful Growth, Harvard Business School Press, 2003. 68

70

Plug Power was created in 1997 with 22 employees; EUR 110 million of public funds was used up to 2002 to demonstrate that a better material than Naflon of Dupont could do the job. Final report 76 / 93


The Federal Institute of Technology Lausanne (EPFL) is developing a technology to manufacture hydrogen relying on solar energy to convert water into hydrogen. This is the 'Tandem Cell' technology invented by EPFL and now licensed to Hydrogen Solar (UK), a joint venture with Attain Nanotechnologies (US). EPFL has patented a technology to convert light into energy, to make 'Graetzell cells'. This uses organic dyes to collect solar power, being a cheaper alternative to silicon-based solar cells: Konanka, a US-based company has raised venture and corporate funds (Chevron) to develop the technology. The existing instruments of the past Framework Programmes did not allow for the support of very disruptive approaches, even though integrated projects for SMEs, used by the Nanosciences, nanotechnologies, materials and new production technologies (NMP) Directorate of DG RTD, and also by DG for Information Society and Media (INFSO) for the development of ITC-based innovations, have tried to do so in FP6. The above recommendation proposes to implement a two-step financing scheme at EC level (71) which addresses markets for cross-cutting technologies where at least the European scale is a prerequisite to achieving application. This scheme borrows from the Small Business Innovation Research (SBIR) (72) scheme which has been implemented in the US since the early 1980s with success in the energy sector. Pioneers or technology lead users, when SMEs, may not have enough financing options to support their endeavours, beyond networking with public research laboratories. Several Member States have organised seed and venture funding opportunities to support high-growth development businesses, based on research in biosciences or information and telecommunication technologies. Yet, even in the US (where a 15 to 20 years' background of such financial engineering techniques for new technologies exists), seed and venture funds contribute to less than 8% of the SME funding needs (73). The proposed two-step financing scheme was first mentioned in a study performed by the EUROMAPLIVE consortium for the European Commission (DG RTD, Directorate for Industrial Technologies): it introduces a proposal which the European Commission can initiate thanks to the increasing role of the European Investment Bank (EIB). Two conditions for public support of SMEs should prevail, which break up with the existing support measures at Member State level. 71

As mentioned in a study performed by the EUROMAPLIVE consortium for the European Commission (DG Research, Directorate for Industrial Technologies) in 2004 72 According to the SBIR statute, federal agencies with extramural R&D obligations exceeding USD 100 million must set aside a fixed percentage of such obligations for SBIR projects. This set-aside has been 2.5% since FY 1997. To obtain this federal funding, a small company applies for a Phase I SBIR grant of up to USD 100 000 for up to 6 months to assess the scientific and technical feasibility of ideas with commercial potential. If the concept shows further potential, the company can receive a Phase II grant of up to USD 750 000 over a period of up to 2 years for further development. In Phase III, the innovation must be brought to market with private-sector investment and support; no SBIR funds may be used for Phase III activities. 73 By comparison with venture funds, the SBIR programme injects nearly USD 1 billion per year worth of public subsidies into innovative SMEs, thus contributing to 30 % of the US SME funding needs. Final report 77 / 93


•

In a first step, public grants to support an RTD project brought by SMEs must be engaged if and only if a feasibility study of the innovation has been performed, using up to 100% EC support. Based on simplified proposals introduced by SME-led consortia, examination and selection for the feasibility study can be performed with the help of local intermediaries, who already operate in all regions of Europe to support innovation in energy (for instance the Energy Agencies).

•

In a second step, the full RTD public financing is allocated to SME-led consortia (single SMEs with public research laboratories or consortia of SMEs), provided that they have demonstrated a viable access to appropriate private funding resources, in order to reach commercial exploitation of the innovation. In other words, public subsidies must be in support of innovative business models coming from SMEs, and not only of RTD projects, that stop after the prototype validation because SMEs lack funds to reach business exploitation.

These private funds can come from the SMEs themselves, but also from local private investors (bringing equity, loans or both). Local investment funds must therefore be encouraged, primarily as long-term equity players in SMEs and future high growth industrial groups, based on the following considerations. •

Many European SMEs and medium-sized industrial groups are family owned: this is an opportunity and a threat for innovation-based growth. It is an opportunity since the pressure from short-term profitability can be relieved by long-term ownership goals, thus favouring long-term investments to increase the equity value of the SME. But this is also a threat, since family-owned businesses may not welcome outside investors. The success of local fund investments in the past few years (see the Caisse des Dépôts et Consignations experience in France) must encourage the EIB, with the help of the European Investment Fund, to inject more equity money in regional funds, but at a much larger scale than in the early 2000s for seed funds. And energy should be one of the privileged sectors of equity use.

•

Private investors are professional risk managers: when they do not know how to appraise the risks of a business plan, they quit. This behaviour will be further reinforced by the new BASEL II risk regulations for banks. An innovation subsidy at a European scale, granted along European standards, will help change the picture (see, for instance, the IDEA example in Spain): 9 It will make the risk of the selected projects more visible to private investors and better funded, since public money will cover a fair share of the RTD part, i.e. the tasks still at a distance from market applications. 9 It will also support the production and use of non-financial information (market projections, management, team evaluation, technology rating) during the proposal evaluation phase, thus reducing the information asymmetry between innovators and private investors.

•

Venture capitalists are, by their nature, interested by high growth business plans (even though the recent Internet bubble burst showed the Final report 78 / 93


limit of their own selection rules). Yet energy-based SMEs may have a more moderate growth (10% to 20% per year). These moderate-growth SMEs would be even more sustainable if their managers had access to outside funding resources to cover the technical, commercial and managerial risks of their innovative projects. Subsidies to innovators in the energy sector are probably the most efficient tools for policy makers to address direct market intervention, especially in a counter-cycle economy, when only large industrial groups, with a world-based vision, can face rapid downturns. Under the impetus of the Framework Programme, this two-step approach applied to the energy sector would rejuvenate the support of breakthrough innovation in SMEs, by helping them reach the extra private funds needed to reach market applications. And the recent performance indicators of the SBIR programme (which was created by the Small Business Innovation Development Act of 1982 (Public Law 97-219) and was last reauthorized in 2000 through September 2008), show how SMEs with breakthrough disruptive approaches have been successfully helped to reach world-scale excellence in a few years (74).

8.5 Lower integration barriers for new energy technologies through focused research and development addressing end-user and standard issues 8.5.1

Background

Integration issues of new energy production/consumption technologies are critical to ensuring that markets are ready to accept innovative solutions. A few examples are provided below: • network integration of dispersed generation units, where 25 connection standards currently coexist in Europe, requiring extra development work from manufacturers and introducing risk; • network evolution, such as the technology changes induced by the hydrogen vector, where new knowledge must be gained (for instance materials behaviour under mixed CH4/H2 composition); • process integration for the industrial manufacturing of goods, where new energy production units must meet stringent reliability constraints. This requires development work between the technology manufacturers and end-users; • the harmonisation of national regulations, in order to help technologies to be eligible for market incentives and deployment in several Member States; • the promotion of EU standards at international level, with benefits for European manufacturers (see below). 8.5.2

Recommendation

74

See 'Research and Development: Funds and Technology Linkages' (Chapter 4), Science and Engineering Indicators, National Science Foundation, US, February 2006. (For more information, see: http://www.nsf.gov/statistics/seind06/c4/c4s5.htm) Final report 79 / 93


Recommendation N°12 Favour research projects that address technology integration issues in their research proposal, with appropriate tasks, implemented in a way similar to the introduction of compulsory training for the Integrated Projects in the Sixth Framework Programme (FP6).

Much of the necessary knowledge to achieve closer integration is not considered as part of a research programme today; it is viewed as too difficult to specify and is often seen as not involving technology-based research, and therefore it is considered to be beyond this scope. This is a particular concern in an increasingly liberalised market with multiple players appearing — if these interfacial issues are not addressed as an integral part of an innovation project they are not likely to be addressed by anybody. The definition of 'research' and what qualifies for funding, and the breadth of the responsibilities of project managers require careful examination here, since the risk is likely to be an increasing one as innovation moves increasingly from the closed to the open model. Project ranking rules must therefore take into account the efforts of research players at addressing such integration tasks at research level. Technology Platforms, as described above, should be instrumental in specifying the research required to overcome the above integration barriers, since they are led by industry. Commitments will then go beyond the newly funded Network of Excellence dealing with testing laboratories (DERlab).

8.6 Increase human capacity in taking innovative technologies to the market 8.6.1

Background

Integrating new energy technologies into the market requires a chain of skills, which are not all dealt with at research level. The example below, dealing with new micro hydro-solutions, shows the skill barriers to introducing a technology amongst the engineering bureaucracy.

A new micro hydro solution for small cascades MJ2 is a French start-up addressing the market of waterfalls with heights lower than 2 metres. In France, this concerns 300 sites. The innovation deals with a configuration that requires much less civil work, dividing the civil engineering costs by the order of four to five. Each machine delivery is around 300 KW. There is no real competition so far. The implementation of such systems requires the involvement of upstream design and engineering companies that know about hydropower. The designers are used to dealing with usual configurations (like Pelton turbines), yet they have some Final report 80 / 93


reluctance to get involved in new technologies, since it requires gaining skills at designing new turbines, with lower revenues due to the simplicity of the design. They have to be trained (investing in the creation of new skills) at designing such configurations with the use of appropriate software tools. This is still a niche market, for which the probability of making new profits does not appear very promising for such engineering companies. The inventors must therefore invest in such training activities to remove the innovation barriers brought about by local design companies. 8.6.2

Recommendations

Two recommendations are proposed to better address human capacity issues.

Recommendation N°13 Adjust the selection criteria of research and demonstration projects so that proposals with indisputable needs for training tasks get both a higher grade and 100% funding of the training costs The relatively short-term experience with training tasks in Integrated Projects introduced at the onset of FP6 shows two types of benefits: • it helps researchers think about the targeted audience for their research outputs at the proposal stage, which in turn, helps the consortium think about exploitation plans; • it helps introduce the full chain of intermediaries requested to make a new technology work under real-life field constraints. However, training must address only external players, with tools and techniques appropriate for making people change. Professional training methodologies must be applied, and whenever possible, existing national or regional training programmes should be utilised or linked (such as the Austrian 'klima:aktiv' programme or the Danish 'Energy Advisory Offices'). Training on successful research outcomes must also be expanded during the RTD process to nourish the innovation cycle with concepts and methodologies that will be implemented during demonstration phases and early deployment. Such training should reach maintenance and service companies constituting barriers in the early development of more efficient energy technologies (such as heat pumps). Also, awareness actions funded by DG REGIO should be used to disseminate DG RTD and DG TREN research and demonstration outputs, in such a way that the messages are properly tuned to the local energy stakeholders in their native language.

Recommendation N°14 Invest in dissemination actions and link with DG REGIO and DG ENTR that have the budgets to involve appropriate local players



There is a wide recognition that dissemination actions on energy matters by DG RTD and DG TREN have not proven very successful in terms of awareness raising. It must be understood that successful awareness raising is very much a culturedependent communication process. Their implementation should, therefore, be close to the end-user, and performed by people he/she is confident with, including the regional offices of National Energy Agencies, or the Innovation Relay Centres, supported by DG ENTR. The joint launching of the FP7 and the Structural Funds should allow closer cooperation between DG RTD and DG TREN, and a new impetus for driving research and demonstration projects, linking with DG REGIO budgets to ensure local awareness-raising about the new knowledge gained.

8.7 Design incentives to reward the personal engagement of innovation players in the energy industry that show demonstrably good performance 8.7.1

Background

Successfully completing a research innovation project requires the professional engagement of intermediate managers. This is especially evident when collaborative work at EU level is at stake: •

unless stated otherwise, the coordinator has no authority to withdraw under-performing players;

•

participants frequently have to arbitrate between the demands of the collaborative project and internal demands;

•

in many companies, there is no reward scheme to acknowledge good performance in a collaborative research project; in fact, it may be seen that their participation is a distraction from their 'day-to-day job' which is the focus of their colleagues.

Incentives for innovation on behalf of the regulatory authority: the UK example A recent survey in the UK, led by the IEE, sends alarming signals for the energy sector: there is a discontinuity of behaviours found between the aspirations and actions of top management in industrial companies and their project managers. At the lower management levels there increasingly less commitment to the cross-sector participation that is key to innovative projects; this 'professional engagement' provides access to more than their own field of expertise. In a parent paper, John Scott and Chris Pearse (IEE Professional Networks) have addressed the underlying causes of this trend and suggested possible solutions to address the declining levels of professional engagement: recognition for the champions is part of the picture, but this warrants further work. In the UK, the regulator Ofgem has examined the issue of innovation. For electricity distribution companies it has introduced specific financial incentives to address inadvertent barriers that existed in the regulatory frameworks. The motivation of Final report 82 / 93


added-value innovation has been implemented in the UK by two mechanisms. • A distribution network operator is allowed to spend 0.5% of its revenue on innovative projects each year (Innovation Funding Incentive, or IFI). This occurs on a 'use it or lose' basis. • Financial incentives have also been introduced to encourage the connection of distributed generation. Where a DSO (Distributed System Operator) employs genuine innovation to connect this generation, it can apply for a further financial reward through a scheme known as Registered Power Zones (RPZ). This applies for the first five years of operation and recognises the additional risks a company accepts when deploying new technologies in an operational context. • This scheme is now extended to the UK TSO (Transmission System Operator). A Good Practice Guide (GPG) has been developed by the professionals in the sector and approved by OFGEM. It is now used to help ensure that appropriate innovation management techniques are put in place at DSO level.

8.7.2

Recommendation

Recommendation N°15 Design incentives to reward the professional engagement of key people in theofinnovation liberalised First, itthe is companies, proposed to that seekcomprise the support regulatory chain bodiesininthe Member States, so sector; it could give recognition in particular to regulated network that regulated companies have suitable business incentives to undertake added companies involved value research to the benefitin ofresearch Europeanprojects society. with the assistance of their Gas and electricity network companies are key to the integration of new energy technologies. Trends show their lack of innovation due to cost constraints and people motivation for innovation. Following the UK example, the involvement of more network companies at the research level should be provided through an incentive system to be discussed with regulatory authorities, for instance ERGEG at the European level. Secondly, the commitment of private players (to put the right people at the right level of competence and engagement to manage RTD projects) must be motivated. At proposal selection level, the CVs and professional backgrounds of coordinators and work package leaders could be scrutinised further to provide a higher ranking when the commitment of the consortium is demonstrably shown. This higher ranking should also take into account the conflict management rules adopted by the consortium (who is going to arbitrate in each industrial organisation) and the support of top management to project leaders in scenarios of conflict. Final report 83 / 93


Thirdly, ERGEG and DG RTD should meet at regular intervals to study which type of practical incentive schemes could be put in place to increase innovation spending in the energy sector, with an emphasis on innovation projects related to early EU research spending.



9. CONCLUSIONS The present work aims at providing answers to four intertwined questions asked by the managers of DG RTD in the field of Non-Nuclear Energy (NNE) research: •

How can the design of energy RTD programmes (including rules of participation) be improved?

•

How can the structure, monitoring and support of the selected RTD projects be improved?

•

How can public funds at Community, Member State and regional level work better together?

•

How can existing funding resources at Community, Member State and regional level be more optimally used?

Fifteen recommendations are described, that all aim at smoothing and accelerating the innovation process in the energy sector, supported by effective public/private RTD funding. The table below summarises interlinking elements between each of these recommendations, and the four questions raised at the beginning of the study.



Recommendations

Recommendation N° 1 Ensure — whenever appropriate — that RTD projects involve energy companies in the research consortia applying for EC grants Recommendation N° 2 Favour energy foundation or association projects, as they better guarantee both continuity of funding and maximum impact directed toward their industrial members Recommendation N° 3 Support schemes for large-scale demonstration of energy technologies should be made available to provide funding continuity at EC level Recommendation N° 4 A European Demonstration label should be developed by the public funding organisations that supported successful development projects, in order to facilitate wider deployment of beneficial innovation with the help of demonstrations-funding measures Recommendation N° 5 Encourage, through adequate ranking, more research on the early removal of interfacial barriers such as improved regulatory models, economic behaviour of energy stakeholders, and the development of new business model development: these studies must be integrated into technology-based research in order to identify which non-technological barriers might impede the take-up of promising new energy technologies.

Design of energy RTD programmes

Structure, monitoring and support of the RTD projects

x

x

x

x

x

x


x

Articulation of public RTD funds between EC, Member States and regional levels funds

Optimal use of RTD

x

x

x

x

x


Recommendations

Recommendation N° 6 Specific support actions at EU level should be launched to study recent major innovation failures in the EU-25 energy sector. Such studies will shed light on the barrier combinations, which since 1996 (the date of the IEM Directive implementation) have prevented innovative ideas from reaching market application. Recommendation N° 7 Involve a continuous set of market and technical experts in the selection, monitoring and final assessment of research projects. Recommendation N° 8 Dedicate support actions to package and market research results that can be considered as 'future technology nuggets' along with technology programmes such as fuel cells. Recommendation N° 9 Finance, with the help of support actions, the industrial players of technology platforms capable of specifying long-term technology needs of the energy industry, in order to better anticipate the interplay between energy and cross-cutting technologies. Recommendation N° 10 Financially support more coordination actions involving public and private researchers in the energy sector, so as to identify and work on cross-cutting technologies to the benefit of end-users in the energy sector.




x

x

x

x

x

x

x

x

x


Optimal use of RTD

x

x


Recommendations

Recommendation N° 11 Encourage the development of disruptive innovation through twostep dedicated RTD calls involving SMEs as technology pioneers, start-ups and research laboratories with a focus on the use of cross-cutting technologies in the energy sector. Recommendation N° 12 Favour research projects that address technology integration issues in their research proposal, with appropriate tasks, implemented in a way similar to the introduction of compulsory training for the Integrated Projects in FP6. Recommendation N° 13 Adjust the selection criteria of research and demonstration projects so that proposals with indisputable needs for training tasks get both a higher grade and 100% funding of the training costs Recommendation N° 14 Invest in dissemination actions and link with DG REGIO and DG ENTR, that have the budgets to involve appropriate local players Recommendation N° 15 Design incentives to reward the professional engagement of key people in the companies that comprise the innovation chain in the liberalised sector; it could give recognition in particular to regulated network companies involved in research projects with the assistance of their national Regulatory Authorities



x

x

x

x

x

x

x


x


Optimal use of RTD

x

x

X

x

x

x

x


It must be emphasised that the above measures address the three pillars of successful public support at innovation processes: •

capacity building;

•

financial incentives to develop, to validate and to demonstrate technology performances;

•

dedicated measures to help early adoption of technologies, and therefore speed up the market learning process.

These pillars provide a set of incentives to innovation players. This study proposes a fourth pillar: the design of public measures which inherently reduce interfacial barriers to innovation. Indeed, in the next 10 to 20 years, two particular sets of players must be encouraged to engage effectively with innovation, with an accompanying increase in technology and market skills to address commercial opportunities in the liberalised sector. These new players will generate new interfacial barriers.

9.1 The increasing role of energy companies in the early adoption of new technologies The Green Paper on Energy stresses the evolution of energy markets in Europe in the 20 years ahead and beyond. This evolution has already started, for instance, with several changes in ownership of central electricity production (e.g. EDF/Montedison, the ongoing competition between E.On and Gas Natural in the takeover of Endesa, the possible merge of Gaz De France and SUEZ, etc.), the unbundling of gas and electricity systems or the strategic choices of several global players (in Denmark or Spain) to use wind energy systems in a dispersed electricity generation mode. Central utilities, once monopolies in their respective Member States, are staying dominant in their old territory, and adopting aggressive commercial postures in other Member States …. and even beyond. In parallel to this evolution, technologies, involving the use of renewables (wind, solar) or promoting new (ripe) energy vectors, have come out of development laboratories: national programmes (in Germany for instance) have paved the way to integrate such components into real life systems, extending what was initiated in industry with combined heat and power (CHP) systems in the early 1990s. The widespread use of renewables, CHP or hydrogen will require an in-depth integration into existing electric or gas grids, together with new grid management technologies. Grid integration will require imaginative innovation by the former utilities and the new grid operators, together with manufacturers and other parties. This will bring new opportunities and new constraints for operating margins — much beyond what has been experienced so far.



Decentralised production of electricity will become both a threat for grid security and an opportunity for grid extension and power quality. There are many regions of Europe (the UK and Greece, for instance) where the electricity networks are old and will progressively be refurbished, and extended due to consumption growth. Regulators, in each Member State, will therefore be faced with the development of new electricity/gas market rules and new asset investment requirements (both for the grid and generation facilities) that may conflict. Making the sector more efficient, through competitive and regulatory incentives, will put pressure on production and transport/distribution costs, whereas the demand for innovative grids will require increased RTD, innovation and demonstration expenses. Innovation should only be undertaken if it brings added value that will benefit companies and their customers — however, the timescales for innovation to deliver returns may be at variance with regulatory and other business mechanisms that guide decision making in a liberalised environment. Sooner or later, the conflict between operating cost minimisation and innovation maximisation becomes unresolved, requiring that this aspect of regulatory frameworks be critically reviewed and that public money be injected, where appropriate, to support the innovation cycle, thus encouraging smooth, progressive but irreversible integration of DER under increasingly efficient market conditions. The magnitude of the above challenges in the next 20 years, as well as the reputation of low innovation spending in the energy sector, pushes for a blending of public and private money that will be spent to support the integration of renewables, and later, hydrogen into existing networks. This blending is of paramount importance, in order, for instance: •

to avoid duplication of work between various public organisations;

•

to encourage coherent awareness and action plans at all levels on sensitive matters such as energy network reliability;

•

to address the integration barriers with the right amount of efforts and the right critical size of developers, which requires finding the right compromise in public and private funding to produce outputs that will be brought to market;

•

to encourage industrial engagement in the learning curve construction, paying special attention to network integration matters of several promising technologies;

•

to raise public and private money with a view to meeting innovation goals in a committed and deployment-focused fashion.

RTD funding at EC level is the single example of international collaborative work between generation and grid operators located in EU-25. This cooperation has led to technology learning curves which must be continued through future RTD projects driven by network demands, themselves in response to better known end-user needs. Final report 90 / 93


On the basis of the above trends, the conviction of this report is that generation utilities network operators and equipment manufacturers must become the leading technology integration agents of innovative power production, transmission and distribution technologies. They are the ones that are best placed to specify innovative solutions for dispersed generation integrators. They are also the ones that can make the transport systems (gas and electricity) more easily interoperable. Network operators will become more and more instrumental in removing interfacial barriers that prevent DER and hydrogen from being integrated into global energy production and consumption.

9.2 The increasing role of SMEs to innovate in the energy sector SMEs are not sufficiently encouraged to become involved in shared-cost contracts as efficient take-up stakeholders of innovative energy solutions, especially for those proposed by public research laboratories. Moreover, the exploitation of blue-sky research by innovative SMEs or start-up structures within niche markets must be considered EU-wide: this is not yet possible using FP instruments, another handicap when compared to the US or Japan activities in the energy sector.

9.3 Increased technical and market skills for all existing and new players There is clear evidence that in many energy production and transport sectors, there are: •

not enough researchers to produce the basic knowledge needed to innovate;

•

not enough high-level engineers to deal with novel grid management concepts;

•

not enough trained operators to ensure maintenance of distributed energy systems;

•

not enough energy managers aware of the new business models they will be confronted with to choose their future energy uses.

Even if appropriate funds could be raised for greater innovation in renewables or hydrogen, there would not be enough skilled personnel to perform the necessary tasks and enough skilled operators to install and maintain the systems to the required reliability levels. Blue sky research must be encouraged to attract more students towards high-level research, in order to address the daunting knowledge issues involving multidisciplinary research and to understand the technology, market and regulation non-linear couplings. Even if this blue sky research does not lead to breakthrough technologies, it will help shape the minds of a new generation of energy engineers in Europe.



9.4 The fourth pillar of public support for energy innovation Energy challenges for Europe are daunting. The needs for public private partnerships appear evident for all the players involved. The 15 recommendations proposed in this study address, of course, the three 'classical' pillars of successful public support at innovation processes: •

capacity building;

•

financial incentives to develop, to validate and to demonstrate technology performances;

•

dedicated measures to help early adoption of technologies, and therefore speed up the market learning process.

Yet this study recommends to all the public authorities within the EU that deal with energy research, the introduction of a fourth pillar in the years ahead: designing public support measures that will demonstrably help reduce or remove the interfacial barriers that prevent knowledge gained using public funds reaching market application. Reducing the number of interfaces nevertheless runs counter to the general trends of liberalisation and unbundling that are being introduced for wider reasons across the energy sector. It will become critical to face this paradoxical situation with R&D public support that includes measures to accompany: • •

the validation of energy technologies with the participation of the energy market players to understand the shape of the learning curve which will prevail in the early adoption phase by end-users; The validation of energy technologies with the participation of the energy market players to understand the effectiveness of candidate business models, in order to propose to regulatory bodies adapted market incentives that help innovative energy production expand, under legally binding contracts.



ANNEX I: BIBLIOGRAPHY •

European Commission, 'Getting More Innovation from Public Research: Good Practice in Technology Transfer from Large Public Research Institutions', Enterprise Directorate-General, EUR 17026, 2000.

•

'Key Tasks for Future European Energy R&D: a First Set of Recommendations for Research and Development by the Advisory Group on Energy', EUR 21352, 2005.

•

'Non-Nuclear Energy Research in Europe: a Comparative Study', EUR 21614/1 and 2, 2005.

•

'Energy Scientific and Technological Indicators and References', EUR 21611, 2005.

•

'Assessing the Impact of Energy Research', EUR 21354, 2005.

•

OECD, 'Innovation in Energy Technology: Comparing National Innovation Systems at the Sectoral Level' (the case of fuel cells), 2006.

•

Chambolle, T., Meaux, A., 'Nouvelles Technologies de l'Energie', 2004.

•

Arnold, E., Chesshire, J., Deiaco, E., Stroyan, J., Whitehouse, S., Zaman R., 'Evaluation of the Swedish Long-Range Energy Research Programme 19982004', 2003.

•

Bruun, H., Hukkinen, J., Huutoniemi, K., Thompson-Klein, J., 'Promoting Interdisciplinary Research: the Case of the Academy of Finland', 2005.

•

'Evaluation of DG Enterprise and Industry Activities in the Field of Innovation', report submitted by the European Evaluation Consortium, Contract: BUDG-0201L2, September 2005.

•

'Technology Transfer Desk Reference' The Federal laboratory Consortium for Technology Transfer, US, April 2004.

•

Palmintera, D., Hodgson, R., Tornatzky, L., Lin, E. X., 'Accelerating Economic Development through University Technology Transfer', Innovation Associates Inc., 2005.

•

'Renewable Energy Technology Diffusion', e7 report, 2004.

•

'Green Paper: A European Strategy for Sustainable, Competitive and Secure Energy', SEC 2006, 317, 8 March 2006.


European Commission EUR 23122 — Innovation and Transfer of Results of Energy RTD in National and European Community Programmes A Comparative Study of Mechanisms, Results and Good Practices Luxembourg: Office for Official Publications of the European Communities 2008 — 93 pp. —21 x 29.7 cm ISBN 978-92-79-07823-1 ISSN 1018-5593 DOI 10.2777/34665

SALES AND SUBSCRIPTIONS Publications for sale produced by the Office for Official Publications of the European Communities are available from our sales agents throughout the world. How do I set about obtaining a publication? Once you have obtained the list of sales agents, contact the sales agent of your choice and place your order. How do I obtain the list of sales agents? • Go to the Publications Office website http://publications.europa.eu/ • Or apply for a paper copy by fax (352) 2929 42758

KI-NA-23122-EN-N

EU funded Research and Technology Development (RTD) is moving from supporting a wide range of projects with very specific technology objectives to structuring the European Research Area. Despite of this change in focus, maximising the return to the European economy and society – by ensuring that research results are eventually taken up by the market – remains a priority. This is all the more valid for energy research as the important challenges, with respect to security of supply, reduction of green house gases and competitiveness are to be met urgently. The study identifies, documents and compares best practices and existing tools and mechanisms in the domain of support to innovation and technology transfer developed by the EU and Members States with respect to energy technologies .