Energy and Climate Change Committee
Oral evidence: Low carbon innovation, HC 747
Tuesday 18 March 2014
Ordered by the House of Commons to be published on 18 March 2014
Written evidence from witnesses:
- Centre for Low Carbon Futures
- DECC
Members present: Mr Tim Yeo (Chair); Dan Byles; Dr Phillip Lee; Mr Peter Lilley; Albert Owen; Christopher Pincher; John Robertson; Sir Robert Smith; Graham Stringer; Dr Alan Whitehead
Questions 135 - 243
Witnesses: Dr Helen Meese, Head of Engineering in Society, Engineering The Future; Professor Jim Watson, Research Director, UK Energy Research Centre; Professor Paul Stewart, Centre for Low Carbon Futures;
Rt Hon. Gregory Barker MP, Minister of State for Climate Change, DECC ; Dr Paul Hollinshead OBE, Director of Science and Innovation, DECC, gave evidence
________________
Examination of Witnesses
Witnesses: Dr Helen Meese, Head of Engineering in Society, Engineering the Future, Professor Jim Watson, Research Director, UK Energy Research Centre, and Professor Paul Stewart, Centre for Low Carbon Futures, gave evidence.
Q135 Chair: Good morning and welcome. Thank you for coming in. Can I begin with a general question? What are your views on the efforts the Government has made since 2010 to improve its support for low carbon innovation?
Professor Watson: Everybody wants me to start, so I will briefly introduce myself. I am Jim Watson, the Research Director of the UK Energy Research Centre. I am basically positive about the fact that funding has increased, not just since 2010 but since the mid-2000s in general. That is very welcome because the UK was at a very low funding level prior to that. We went through a real trough for about a decade or more.
The other point I am positive about is that the balance of the portfolio has got better so there is more emphasis, for example, as we say in our evidence, on the demand side and it is not just supply side innovation, and also on our network. It is taking more account of the full energy system. Those are the two points I would make.
Dr Meese: My name is Dr Helen Meese. I am a mechanical engineer and I am representing Engineering the Future here today. I would agree with what Jim said. There has been a good start with the investments that the Government have made. I think, though, that the focus has to be not just on the investment in the technology; there is a wider implication in terms of the social change that is needed to encourage people to understand why we need to invest this money in low carbon technology. From that point of view I think we need to be focusing on areas such as transport and home heating, and there needs to be a wider development of some of the areas that we need to put money into.
Professor Stewart: I am Professor Paul Stewart, Professor of Power and Energy Systems at the University of Hull, and I am representing the Centre for Low Carbon Futures. From an academic viewpoint there has certainly been great progress made in the intervening year. I think it is reflected also in the kind of useful research that academics have been conducting with industry as well and is heading in the right direction. As we picked up the activities over the last few years we are falling short slightly on joined-up thinking between the technologies, but in terms of the overall funding direction I think it is definitely positive.
Q136 Chair: Are there any missed opportunities?
Professor Watson: I could not say specifics since 2010 in that context, but I guess as a general point—I am sure I am not the first witness to mention this in this inquiry—in turning the research effort into industrial products and UK leadership, or at least the UK being among the countries that is leading on particular technologies, we do have a leadership position in some. I would mention offshore wind, potentially carbon capture and storage and others, but there are some past missed opportunities that are fairly well documented, such as onshore wind. That is going back into history of some of the R&D that was done in the 1970s and 1980s, and was not capitalised on in that case.
Dr Meese: Yes, I would agree. I think we are missing out on the commercialisation of some of the technology that has been developed. There has been an awful lot of great research done in the academic environment but what we are not doing is turning that into commercial product, moving from the low TRL end of things into commercialised areas. That is something we need to turn our attention to and where more investment needs to be had so that we can bring the private investment in and encourage them to then take this into the market, not just for the UK but globally.
Professor Stewart: From the academic point of view, I think this country should be very proud about our centres of real genius in terms of some of the core aspects of energy, like energy storage and carbon capture and storage. But there must be a missed opportunity somewhere because when I travel globally it is not necessarily recognised as such for one thing. A second point—just following on from the TRL levels—is that there are some missed opportunities in the funding landscape to bring really excellent ideas on from lower levels of TRL into the marketplace.
Q137 Chair: How about non-financial help, removing regulatory barriers or putting innovators in touch with new markets, development of the supply chain, that sort of thing?
Professor Watson: If you look at the evidence of what makes a good innovation, which is in the end what the UK is trying to develop, and if you look at the Low Carbon Innovation Co-ordination Group’s report, it has the features of that. It is about reducing emissions, about building companies, skills, training. It isn’t just about money, inputs in terms of R&D or grants or whatever. It is that the important things are to create markets, which in some areas the UK has done well—and the big emphasis in recent years on networks, forming networks, bringing firms into collaboration with each other and developing networking platforms, if you like, particularly for smaller companies that do not have the resources to keep an eye on everything that is going on. That does extend to networks into potential foreign markets and collaboration internationally. Those things, although they are soft and they are hard to quantify and pin down, are essential features of building a good innovation system.
Dr Meese: We have to remember that 90% of UK industry is small businesses. They cannot often afford to develop, particularly internationally. This is where UKTI comes in and there are some opportunities there to develop markets outside of the UK by bringing these small businesses together and helping them to develop their technology, because we are not going to be able to solve all the low carbon problems in the UK alone. We are going to have to work internationally to solve these problems. There is a great opportunity for the Government to be involved to help that happen and help these small businesses develop their technologies.
Q138 Chair: What would happen if there wasn’t any Government support?
Professor Watson: I think it would end up that a lot of the technologies we have today, if you were to apply that historically, just would not be there. If you look at the history of many of the technologies that we think are commercialised and available, I would take two examples. One is the gas turbine that is the heart of the dash for gas we had in the 1990s, and many people are hoping that we will build more of those in the future to see us on the bridge towards a low carbon economy. If you look at the history of that technology, it is supported and has been supported by billions of dollars of military expenditure on jet engines, which were then transferred to civilian programmes for gas turbines. Those civilian programmes also benefited from public support in countries like Japan, the US, to some extent the UK as well. That is just one example but there are many other technologies where you can look back in the history and show that there is public-private partnership at work. It is not that Government did everything, but Government certainly was there behind it.
The other example I was just going to mention in passing is that the technology behind hydraulic fracturing, fracking, also benefited from some public support in the US over the period of the 1970s and 1980s. So even technologies you might think the private sector has just developed in response to market need you can trace back and see some public involvement there. Of course, it varies by technology.
Q139 Dr Lee: Do you have examples of British technology that has been supported by Government that has been commercialised successfully in this country in the last 30 years?
Dr Meese: There are a number of projects. One particularly is under way now, which is an energy storage programme that has just started. I think that has quite—
Q140 Dr Lee: You are saying it has been commercialised. Are you saying it would not have happened if it had not been for Government money?
Dr Meese: Yes, it needed to have that input. There was not enough finance available to support it. So, yes, it needed the input from Government really to develop it.
Q141 Dr Lee: Is it going to be sold abroad?
Dr Meese: I don’t know.
Q142 Dr Lee: So we are not at that stage of it being—
Professor Watson: Not for storage, no. Just to extend my gas turbine example, Rolls-Royce, for example, which has not done that well in the large gas turbines in the market, has had alliances with some of the bigger players in the past. Again, if you trace back the history, particularly in the 1970s, they received Government support for R&D, they received launch aid for some of their engines when they were developed and commercialised. Of course, other companies were in that market as well but received similar support.
Q143 Dr Lee: So nothing in the last 30 years so far has been mentioned?
Professor Watson: I do not know of any specific examples. That does not mean to say there was nothing.
Q144 Dr Lee: Just finally, was Government support through that period particularly high up until 1970 in historic terms in proportion to GDP, or has it been low over the last 30 years, which explains why we have not commercialised anything or we cannot think of anything that has been successful?
Professor Watson: It was high until about 1985 and coincides with just before the oil price fell. You will find R&D budgets tend to go up and down with the oil price. The oil price will precipitate a big fall in the R&D budgets in the UK. You see the same in the US; a massive fall after the mid-1980s and then a recovery.
Q145 Mr Lilley: Are you talking Government funding?
Professor Watson: Yes, I am talking public R&D budgets there. They tend to follow the oil price.
Q146 Sir Robert Smith: I had better remind the Committee of my entries in the Register of Members’ Financial Interests, in particular a shareholding in Shell. What do you think of the way the LCICG communicates to industry and the academic community? How good is this communication?
Dr Meese: I think it has been rather patchy, to be honest. It has been quite clear, certainly from the people that I have spoken to, that they do not have much knowledge of what the LCICG are doing or what they are able to get from it. I think industry particularly would like to have more involvement. I don’t think from the organisations that are on there that there is any representation from industry. It would be good if it had more industry drive and focused a little bit more on that, so industry could feel they could engage more with it.
Q147 Sir Robert Smith: The academic community?
Professor Stewart: I would just reflect that from the academic community as well. I do not think there is a very broad exposure within the community of what the actual purpose and activities of the LCICG are.
Q148 Sir Robert Smith: It is a fairly large organisation in terms of numbers of different members already. Is that the best way to improve the communication and increase the—
Dr Meese: Not necessarily to increase the numbers, but certainly to have more representation on there. A better balance, perhaps, is a better way of describing it. It would give the LCICG more understanding of the regulatory issues that industry face when it comes to things like low carbon technology. So I think that would give them more exposure to understanding the problems that industry have in getting their technology to market.
Q149 Sir Robert Smith: Have you had any experience of their website and their low carbon funding navigator?
Dr Meese: Not until recently.
Professor Watson: I am aware of all of these things but I am not a target user for them.
Q150 Sir Robert Smith: In this field SSE submitted evidence expressing concern about the lack of information sharing to the wider innovation community. In other words, it had been kept within those people that are actively involved. What realistically could be done to overcome that?
Professor Watson: I think there is a balance here. On one hand, if you are supporting firms to do research and development or demonstration, one of their interests of course is to develop new products out of which they can make commercial advantage. If there is public money there then you have a public interest driver, which is to support innovation more widely and share that intellectual property. The balance between those is always very difficult. It is easier for companies to be relaxed when they are working on things further from market, and they get less relaxed as you get nearer to market.
I have heard, and this is anecdotally, that some of these organisations are difficult to work with at times because of the way that they approach IP and IP restrictions. For academic colleagues who are used to the way that Research Council funding works, working with a body like ETI is rather different; it has more of a commercial edge to it. They said sometimes they feel that the restriction on things like IP and sharing are too tight but at the same time, of course, you have part industry money in that organisation. I think it is getting that balance right and maybe in some cases that balance has not been right in terms—
Q151 Sir Robert Smith: Presumably that is a challenge in other sectors, not just in low carbon innovation—that challenge between intellectual property and widening their knowledge base?
Professor Watson: Yes, it is. I think the thing that marks out low carbon, and probably many other sectors too—you could think of health, you could think of other things, where there is a large public good, a big social goal involved—is there is a social goal of reducing carbon emissions and so on, securing energy, and so there is more of a focus on societal benefit as well as the private benefit in getting the balance right. In some other sectors perhaps there is an easier answer to the question as to what the balance ought to be.
Dr Meese: I think the composites market has made good strides and that is a good example that perhaps the low carbon technologies industry could follow. The composites industry has started to work more closely together. They are crossing boundaries rather than being very siloed, as they have been in the past. It has enabled them to deal with IP issues and to work together in completely different disciplines where they would not ordinarily work together to solve problems. There is possibly an opportunity that the low carbon market could do the same.
Professor Stewart: From an academic viewpoint we are intimately connected and intimately embedded with industry—from one man bands, small-medium enterprises, all the way through to multinationals. There has possibly been an opportunity missed to use academia as some kind of conduit for passing information on through to the broader business and enterprise community to inform them about these activities. There certainly appears to be some kind of disconnect there.
Q152 Albert Owen: I heard your opening responses to the Chair but can I push you a little further on breaking into international markets? The innovation group say they are there to help UK industry and academia find international markets and partners. Can you tell us your views on the current policies that have been used to access international markets?
Professor Watson: I probably can’t give you a detailed response right now. If you were interested in that specific question we would certainly be happy to write to you with something further. My experience of international is a little bit old. I did a lot of work in China in the late 1990s into the 2000s and at that point, it was clear that there was quite a big push in terms of UK-Chinese collaboration. I know that has continued and that is not just about research. It was about finding international markets for British companies who had—I was working on cleaner ways of dealing with coal, burning it, washing it and so on. There I saw quite a proactive approach by the UK Government to making connections between UK firms and their Chinese counterparts, particularly focusing, as colleagues have said, on the small and medium-sized enterprises who did not have those resources. I would imagine that has continued but it is not something I have followed very closely since.
Dr Meese: I think the UKTI is probably the direction that most companies would look to to develop international links and international business. However, again, it is often a little bit patchy for them, and particularly small businesses don’t often feel that comfortable and are not quite sure what is available to them. So if there is any opportunity to develop a stronger, more directed strategy then that perhaps needs to be looked at, particularly in the case of low carbon technologies where it is a developing technology. There are some opportunities to try to improve that support network.
Q153 Albert Owen: Is the innovation group in fact doing enough to help businesses get in touch with UKTI and others to find these markets? That is the crux of the question.
Dr Meese: Perhaps not as it stands at the moment. I think there needs to be a much more structured and stronger voice in terms of, “Here we are; we can help you do this”. I do not think that is there at the moment.
Professor Stewart: I think it is possible also, from my experience with a variety of sizes of companies, that they are only just coming round to looking outwards beyond the domestic market again after the quite rough time they have had just trying to keep afloat over the last few years. Their attention is just starting to come back round to innovating for overseas markets. Coverage is probably patchy in terms of the information on how to engage with those markets.
Q154 Albert Owen: What you are saying there is basically, due to the recession and other issues, they have been holding back.
Professor Stewart: Yes.
Q155 Albert Owen: Is the policy framework there for it to develop now that the rest of Europe is coming out of the economic downturn?
Professor Stewart: The policy framework might be there. In terms of grassroots information, as Helen was saying the overwhelming number of companies who are trying to innovate in this country are quite small. It is the question of getting information on those kinds of frameworks that seems to be breaking down at the moment. It is a resourcing issue at the SME side. There is not enough slack in the system to be able to address this, no matter how good the framework is sometimes.
Q156 Albert Owen: Previous witnesses have told us of a possible need for international standards in order to bring the innovation to the market. How do you think this can be addressed?
Dr Meese: Standards are a very difficult thing; regulation is a very difficult thing in terms of UK, Europe and internationally. I think in the low carbon technology area, because it is a global thing—this is not just something that the UK has to deal with, it is an international thing—there is an opportunity for international regulatory organisations to develop some strong guidelines, not to hamstring industry in terms of what they can and cannot do but to come together to solve those problems by producing some flexible regulations that can help them develop the technology.
Professor Stewart: There are also widespread concerns about protection of IP when operating abroad and that seems to be heading up the list of things that I have seen from companies about operating overseas.
Q157 Albert Owen: We have also had evidence that academia has benefited more internationally than industry when it comes to Government support for low carbon innovation. What is your experience on this? You basically said that academia had benefited. Professor Stewart?
Professor Stewart: In terms of international funding?
Albert Owen: International support; Government support.
Professor Stewart: I think academia has been well funded in those terms over the last—
Albert Owen: Do you think there is an imbalance?
Professor Stewart: Between—
Albert Owen: Industry and academia.
Professor Stewart: There is an imbalance, or rather, there can be a disconnect sometimes in the expectations of industry in terms of innovation, research funding and the activities of academia. My experience over the 10 years is that that gap has probably closed quite a lot and there is a lot better understanding in academia about the higher TRL levels that industry wants to operate in. I think it is getting closer, but it is also treading a dangerous path because some of the genius inputs or incremental inputs in innovation from academia into industry or products are quite often possibly unintended and come from very blue sky research.
Q158 Albert Owen: You mentioned genius twice and yet, when Dr Lee asked you for some examples they were not very forthcoming. Can you square that circle?
Professor Stewart: Yes. First, it is very difficult to identify the British part in some of the companies we deal with, for example. They have an operating part here, and there might be a Malaysian company and so on. You have to bear in mind that more and more technology is becoming a system of systems and becoming built from smaller and smaller component parts, and sometimes the genius is in integrating those parts into the companies. If you wanted to pick up on specific technologies over the last 20 years or so, some of the technologies in hybrid vehicles, electrical energy storage, offshore wind generation, power electronics, are all absolutely hardcore pieces of genius that academia have fed into industry. But because they come in relatively small tranches and are quite often hidden behind IP agreements—how we work with industry—it is quite often difficult to unpick that activity, but it absolutely is critical to the innovation that is being presented.
Q159 Albert Owen: To the other two witnesses: if there is an imbalance between academia and industry, how do we readdress that? What can Government do?
Professor Watson: Just to add a quick point on that. I think the reason why we were struggling with examples—
Albert Owen: You thought of some examples?
Professor Watson: No; there is a timescale issue that I forgot to mention, which is absolutely crucial. That is why I kept talking about history, because innovation between inputs of Government funding and seeing the products can take decades sometimes. That is not a reason not to do it, but I think that is the reason—if you look at the graph, the take-off in R&D funding by Government only started in 2004, 2005. You are really looking at things that are going to be the beneficiary of that.
In terms of the balance of academia and industry, where you see that imbalance is certainly within EU funding schemes. Academia, as has been documented, has done quite well and the UK has probably punched above its weight in terms of academic involvement in some of the European funding schemes. Compared to that, industry has not been as prominent. I think that does point to the need for more co-ordination perhaps between what is happening in the UK and seeing the opportunities at European level. We are all now talking about Horizon 2020, which is the new European programme that is going to start, and some of the calls will start coming out. If you compare the UK with some of the other European member states, they have a much more strategic and co-ordinated approach to this.
We should not co-ordinate and centralise everything because clearly some competition and diversity is a good idea, but when I compare us to what they have done, I think that might be one of the reasons why the industrial involvement has not been as high in the UK, as well as the points that colleagues have mentioned.
Q160 Albert Owen: Tell me your views on Horizon 2020 and the collaboration with Europe. Do you think it is a good thing and is it working?
Professor Watson: Horizon 2020 is obviously in the future but, yes, there are a lot of opportunities there to collaborate in Europe and I think international collaboration is absolutely essential in many of these technologies. As Helen said, you are often talking about international technologies developed by international firms for international markets. So thinking internationally, I do not think there is any substitute for it.
Dr Meese: You have to look at academia and industry in very different lights. The nature of academia is to research and develop. Regardless of what is going on sometimes, the genius comes from coming up with the ideas and developing the technology. Industry is very different. It has to see financial gain from what it does, so in order to benefit from it, it has to see that it will get a good return for its money.
Q161 Albert Owen: I disagree with that. I think within industry you can have genius and great ideas, and countries can come up with that. It is a bit black and white.
Dr Meese: I agree I am looking at these from a black and white point of view. I absolutely agree there is a lot of research that does go on in industry but their main focus, their bottom line, is to earn money, whereas that is not the driving force inside the academic environment. The research is about producing, developing things and coming up with these great ideas. So there is a difference and I think that is why you see industry perhaps not involving itself so much at this point, because they cannot see financial benefit at the moment.
Q162 Albert Owen: Before Dr Lee comes in—I am sure he is itching to get back in here—on small companies and UKTI helping them, which you mentioned a couple of times, what we have heard from previous evidence sessions is that a lot of the co-ordinating group’s information is not easy to access, and small businesses are getting on with the business and they are finding they have been left behind. How do you view that and what steps can be taken by the Innovation Co-ordination Group and DECC to get businesses, small businesses in particular, more involved so that we can have these geniuses coming out in the business sector in the future?
Dr Meese: They have to be more proactive and get out there.
Albert Owen: Who?
Dr Meese: DECC and the organisations. It is about going to the small businesses and not waiting for them to come to them. They have to involve themselves and get out there and talk to them and spread the word, essentially. I think that is the only way that they are going to encourage businesses, particularly small businesses, to take up what they can do for them.
Professor Stewart: There is a pretty good penetration of information that comes down through the local enterprise partnerships and I think that is a fairly good channel for information out into the SMEs. I have done a lot of work with SMEs over the years and the bottom line is that they do not necessarily have the kind of resources—not the time resources but the cash resources as well—to be able to co-operate in many of the calls that come out through the TSB. They do not have the cash there to do it, no matter how good their ideas are.
Q163 Albert Owen: If you follow that logic, do they need more support?
Professor Stewart: Yes. More support and more targeted support for those kind of small industries, because I have seen some great ideas and some excellent operating practices. They are not necessarily tiny SMEs—not one-man bands—but finding that kind of resource to be able to co-operate in a funding call is beyond quite a few of them.
Q164 Dr Lee: Just to come back, you mentioned about return on investment and in industry obviously, that is key. I would suggest also Government wants return on investment, and however small the innovations, they are part of a greater whole. My concern always is that we end up being the world’s laboratory and everybody else gets to benefit. I look ahead and I look at the thousands of people who were employed often in public service, government service-type industries that are not tenable in the medium to longer term. I went to DVLA in Swansea recently. How on earth DVLA employs that number of people in the 21st century I find inexplicable. But then I thought to myself, what is Swansea going to do in the future? The point is that if we can come up with the innovations that you were talking about, and the key thing is to commercialise them, then those people have jobs in the future. I am just slightly concerned that if Government puts in investment, which I understand is required because sometimes you don’t know what you are looking for and it just happens—that is how science and engineers say it works—the Government does not have such an intellectual property contract and it leaks out. All we have ended up doing is designing something, building something that other countries then benefit from in terms of future employment of their citizens. That is my concern.
Dr Meese: With low carbon technologies you are going to get that happening, you are going to get that leakage. It is not like defence work where you can keep it to yourself and make lots of money out of it. It is something that society needs and so I think you are going to see some leakage. We do not have all of the resources in the UK to solve the problems, so we are going to need to work alongside China and Australia and all kinds of different countries to solve the low carbon problems that we have.
To go back slightly to what you were saying about people having jobs and obviously being involved in that sort of thing, energy storage is a great example because there is an opportunity there to make them local to areas that perhaps would struggle with jobs if certain technologies went abroad. By having energy storage facilities in the local area, there is an opportunity to increase the number of jobs because people become responsible in their area for that technology and can earn money from it. I think there will be a change in the way perhaps people work in future, but I think you can’t expect us to hold on to IP solely on low carbon technology—there is going to be some leakage.
Professor Watson: I share your concern, but one reason Government is there in the first place is because the private sector will not invest alone and so some IP leakage is going to happen. IP is not only codified, it is embodied in people who move between firms. There are all sorts of mechanism where that happens and I think that is inevitable. But I think your concern, which I really share, is that investment in the input in the system is translated into outputs and outcomes—not just in rolling out low carbon technologies, but in jobs and industry and development.
Q165 Dr Lee: Does that mean you will not have further input?
Professor Watson: No, and the UK has not historically been brilliant at that. I think an important step that the UK has not been very good at in terms of Government is evaluating the impacts of the policies you put in place. When you supported R&D, the UK, and probably other countries too, have not been very good at systematically evaluating what the impact has been and therefore trying to identify what has worked: what has led to the outcomes we want over time and, therefore, how do we have to adjust our policies, whether it is on the R&D or on some of the other things we have been discussing? A much stronger emphasis on evaluation, which is seen often as a boring subject but I think very necessary, particularly when budgets are tight, is essential if we are going to improve.
Albert Owen: Sorry to take advantage of the situation but I want to put on the record that DVLA do an excellent job and they should be involved with more innovative things for Swansea and Wales.
Professor Stewart: From the academic side, we have concluded that the research framework exercise and impact came as quite a shock to a lot of academics across the country. I think it was the first time that all the universities in the country sat down and looked at a 15-year time frame of what had been achieved, what had been the outputs of the investment in R&D that had come into universities. That is the first step, but I do not feel that we have a good enough grasp, probably, on the throughput of genius that comes through UK universities. Some of this is getting recorded through the funding bodies like RCUK, but I do not think we have a good enough grasp of the real breadth of the flow that is coming through the universities and we are possibly missing out on capturing a lot of that activity.
It is possible that the benefits from the investment the Government put into R&D activity in universities is not being recognised and captured, so we have to do something about that.
Christopher Pincher: Perhaps we should have an inquiry into DVLA.
Chair: Let’s get off DVLA. We are running behind time.
Q166 Christopher Pincher: In terms of the allocation of DECC and LCICG’s low carbon innovation resources, which in the great scheme of things is not a huge amount of money—£185 million—do you think that the Technical Innovation Needs Assessments, the TINAs, are the right vehicle to decide which of the 11 priority sectors require investment?
Dr Meese: I definitely think you need to have a starting point and in order to understand what the state of play is in each of those areas then, from that point of view the TINAs are quite helpful in understanding what is going on in different areas. It is what you do with that information then. That is the next step—that there has to be an active assessment now of what to do next, which areas need to be focused on and what we do take forward. There has to be a single voice, a clear voice, as to what we are going to do, what our targets are, how we are going to approach it, and I think that is very important. That will help industry understand where it needs to put its money and invest.
Professor Watson: I think they are very welcome. It is the first time for many years the UK Government has had anything approaching a strategy. It has often been piecemeal; you have had programmes launched on different areas, but what I have been looking for for many years is a meta-narrative that says, “What are the areas where the UK has a comparative advantage, where are the potential jobs, where is the potential impact in terms of deployment?” and so on and then, “What can we do in terms of priorities?” We cannot do everything. No country can do everything. Even if you talked to people who work in the US Department of Energy, they say they cannot do everything and that is with a budget that dwarfs ours.
It is really important that Government and other agencies have taken this step. I agree that the next step is that implementation and they have a shortlist of 44, I think, areas in the mega TINA, the strategy that has come out more recently, which will be the focus for different funding agencies. Coupling that with what I said earlier in terms of evaluation and monitoring the impact, it gets us much closer towards something strategic that has been missing.
Professor Stewart: It is an excellent idea in bringing certain aspects of development to the fore. There are probably two sides to developing a cogent strategy in the country. One is obviously from the side of jobs, profitability of the companies and so on. There is also the joined-up thinking that ties the technologies together. It is possible at the moment that we are not necessarily looking at low carbon technologies as a complete system for this country, which is where some of the most effective outputs will be found—as in being integration of individual technologies as well and their relative fit with each other.
Q167 Christopher Pincher: It sounds as if two of you believe the next step is to drill down and prioritise with a degree of further focus. If you look at the 11 priority sectors, they are bioenergy, carbon capture and storage, domestic building, non-domestic building, energy network and storage, heat, industrial sector, marine, nuclear fission, offshore wind and hydrogen. It seems to me, with the exception of onshore wind, that there is not a sector that is not prioritised. Would you agree with that?
Professor Watson: I would agree. If I have a criticism, it is that prioritisation may mean saying that we want to be present in all of these areas. There is an important point that, even if you are saying, as the UK, “We will just be an informed buyer of a given technology”—let’s say onshore wind for the sake of argument, because that is where we are now—you still need to invest in some industrial and research capacity in order to adopt that technology, maintain it effectively and so on. Perhaps it has to go one stage further and say, “These are the areas where we are going to go for it”, maybe six of the above or something like that. There is a danger of prioritising everything, which is not a prioritisation at all. That is tricky. It is political, with a small “p”, because you then set off lobbies who will say, “I have been left out” or, “I haven’t got as much as they have”; but at the same time, given budget constraints, to make an impact you may need to go a step further in that.
Dr Meese: Yes, I would agree. We obviously cannot solve all of those; we cannot do everything in the UK. We have to target the ones that we know the UK is very good at and that we have markets for already. I think that needs to be done, and I agree with Jim that there are going to be people who might get a bit antsy about that, but we do need to focus on the technologies that we know that we can work on and we know that we have the brains to put behind, work on and develop.
Q168 Christopher Pincher: Would you like to name any groups that you think should get antsy now?
Dr Meese: That is not for me to say, but there may be some areas that we may not be able to invest in because we perhaps are not as well developed as other countries and cannot compete on those sorts of levels.
Q169 Christopher Pincher: If it is not carbon capture and storage, which was mentioned, offshore wind, which was mentioned, network and storage, which I think Professor Stewart mentioned as being an area of genius, what are some of the others you think should be jettisoned or at least deprioritised?
Dr Meese: There is an opportunity to develop some technology demonstrators and that is the next stage along, going from the research to building some of these systems on a scaled level so that we can look at the benefits of whether or not we have the technology to do it in this country and so on. I think that will give us a better understanding of perhaps where we need to focus our attention in the future. Certainly some of the investment needs to be made in scalable technical demonstrators.
Q170 Christopher Pincher: That leads nicely into my second question, which is, what are your views of the Government’s new strategic framework for low carbon innovation that was launched last month? I think we are going to hear the results of it on 24 March when we have a briefing to look at the assessment of the opportunities for funding in different low carbon technologies.
Professor Watson: I alluded to it earlier with the 44 areas. Just to echo what I said previously, I think it is good, in that you have a sense of a strategy leading to a set of priorities, albeit maybe too many. But even if you were to downgrade some of those, I would not say stop doing them. I also think that one point that may not have been foregrounded as much is that you still have to invest in the science space more generally. One of the unknowns about innovation in the future—not in terms of near-term technologies that you just wish to deploy—is where the big breakthroughs are going to come. If we are going to get the system innovation that Paul was mentioning that might occur more from innovations of materials, ICT and who knows what—in other words, things that are not called the energy sector. Perhaps if it has a weakness, because of having a very directed strategic energy, low carbon focus, it assumes that elsewhere people are supporting things that might in some ways have a really big impact. At the moment, you would not say that is energy sector or low carbon, but at the same time if you look at history, those sorts of things can make a big difference.
Q171 Christopher Pincher: In previous sessions, a view was established among some witnesses that there is or might be too much focus on low risk technologies, particularly with an imbalance towards energy efficiency technologies as opposed to renewables. Would you concur with that?
Dr Meese: I think it is very easy to get a quick win, isn’t it, at the end of the day? We are going to have to bite the bullet and focus on some of the more complex, long-term projects and problems that are going to need to be solved. The approach essentially needs to be a long-term strategy. These technologies are not going to be developed overnight. It is going to take us a long time, so we need to be working on them now. While it is nice to get some quick wins, we also need to make sure that we are focused on some of the more difficult tasks.
Professor Stewart: I think in those terms industry is looking to a consistent, very long-term strategy, especially legislation in terms of expectations of where renewables are going to go, for example. That could probably be one of the key enabling technologies to develop in the renewable sector in this country. It is having a set-out policy that could be relied on by industry so they can have the confidence to invest in these areas, so it derisks their activities when they are looking at their next investment opportunities.
Dr Meese: I think industry is looking for stability at the end of the day. They need to know that the Government have a long-term plan, they know where they want to go, they have an idea of the direction, and industry can then get behind that and develop the technology. We need to have the stability of a strong and well-structured programme and a good framework from which industry can work.
Q172 Christopher Pincher: Therefore, you do not think that the national policy statements for energy that were announced about three years ago, which have renewables in them, are sufficiently strong, or are they not trumpeted enough?
Professor Watson: I think those statements have to be backed up by the detail of the policy. Obviously, there is the detail of policy on paper and then there is the extent to which industry feel confident that that policy will remain stable. At the moment, in some areas certainly, industry are saying that they do not see that stability and confidence, for example in the low carbon generation market. That is where, I guess, this strategy links to the more near-term technology, as has been said, but I also think it ought to be supportive in the further-from-market technologies, which is where industry is not prepared to take those risks. It is a legitimate area where Government ought to be spending money.
One point in the strategy where it pulled its punches slightly was saying, “We will fund things where they are risky and industry will not do it alone”, but I think there is an issue behind that—that a Government-funded programme should be prepared for what might be called failures in the end, things that they support that do not lead to products and so on. I felt that was a sort of mood music through it, which is partly this “quick wins” point: that they wanted to support things that were more likely to be successful. Of course you do, but if you are genuinely doing innovation you have to allow for failure. That is how the average firm will approach it. Some firms will spend a huge amount of money and if one product in 10 works, that is fine if it makes enough money for them over the medium to long term. The public sector obviously approaches things differently—taxpayers’ money—but I think that is an important point to take into account.
Q173 Christopher Pincher: What one thing do you think the Government and DECC could do to boost the confidence of the investor community in those long-term, more complex and technical technologies that you think we do need to back? What should the Government say and do to provide that confidence?
Dr Meese: I would go back to my previous point about technical demonstrators—by building some small-scale systems enabling not only Government to see how their money is being invested and the private sector to see how their money is being invested, but also to gain the confidence of society in general to demonstrate to them that this technology is worth while and this is where their money is going to. If they have the confidence, then you will see a growing understanding and acceptance of the risks that are associated with investing in low carbon technology. Until we start building things and showing that they work and showing how people are going to benefit from them, you are not going to get that national encouragement in low carbon technology. You need to get the people on your side, basically.
Q174 Christopher Pincher: Perhaps you can write to us and tell us which technologies you think should be deprioritised, rather than tell us now.
Professor Watson: I would say it is not our job. I know that is a fudge, but I genuinely think it is not our job.
Q175 Dr Whitehead: We have been told already that it is particularly challenging and problematic for a number of innovators to move up the chain from research into development, the so-called valley of death. I think we know quite a lot about claims of “valley of death” as far as tide and wave, for example, are concerned. One apparent obstacle is lack of UK industrial capacity. I guess another is precisely the point that you, Professor Watson, have mentioned, which is the question of the extent to which public funds may support things that may not prove to be winners. What do you think the particular obstacles are, if there are obstacles? Do you think there is a particular problem in the UK about the so-called valley of death?
Professor Watson: I do not think it is necessarily a UK problem and the phrase actually comes from the US debate. It is something that when I work internationally we end up discussing quite a lot. I am doing some work for the South African Government at the moment on green technology innovation policy and most of our discussions with fellow panel members have been about how to avoid the “valley of death” in South Africa. It is an international phenomenon. It is really captured by the fact that as you develop particularly complex technologies, large-scale ones, as you are going through that demonstration phase, for private companies the risks are still rising because they do not know whether there is going to be a market at the end of it, but the costs are still rising as well. Left to itself, if you just support the R&D, they will not take that extra next step.
To some extent and to their credit, Government in the UK have recognised this and in some areas have started doing something about it. The two areas we pick up in our evidence—carbon capture and storage, with the very longwinded but still moving forward demonstration programme for full-scale CCS on power plants; and smart grids, some of the programmes that Ofgem is allowing distribution companies to indulge in and charge us as customers for—are areas where demonstrations are being taken forward. For me, the important point is that those get supported even though they are expensive and risky, but also that the learning is captured, going back to my point about evaluation. Even if they appear to “fail” in some cases, which they may, we know how to do it better next time and industry knows how to do it better next time.
Dr Meese: I think there is an international issue with getting from the academic and the theory side of things into commercialisation. The UK is not unique in that problem. For low carbon technologies particularly—and we have touched on many of the points already—there is a lack of drive for companies to invest in low carbon technology because their return is going to be very small at this moment in time. There is a complexity to some of the funding; there are lots of bits of money out there but how do they get access to it and that sort of thing, particularly for small businesses? As we already mentioned, there is also the issue that the complex regulations are different from one country to another. A standardisation of that would make it a lot easier for companies to develop their technologies.
Q176 Dr Whitehead: Is there perhaps a further issue on regulation, which is that regulation is by definition regulating the last lot of stuff? Is there an issue particularly in terms of regulation in innovation developments? Is there a case for a deregulated area or regulators catching up with innovation?
Dr Meese: I do not think it is unique to low carbon technologies. I cite again the composites industry that has a similar sort of problem in terms of regulation. It needs to be flexible enough so that the industry can function, develop and add to the knowledge so that regulations can be strengthened and developed and so on. That takes a long time, but regulation always lags behind innovation so it is very difficult. Initially, it is about guidance and common practice, until that develops into full-blown regulation, but it can take a long time to keep up with what is going on and how technology is developing. It is the same across many industries in that respect.
Q177 Dr Whitehead: One of the criticisms that has been levelled about some low carbon products and ideas is, in fact, they are pushed on to the market too enthusiastically and perhaps one ought to look round the other end of the telescope and see what the level of demand is that is being developed for such products. Is that an issue, and if so what might be done about that?
Professor Stewart: I think there is an issue about the level of demand. I think there is an issue about actual joined-up thinking in putting products on to the market when they are not supported by the rest of the infrastructure. We are talking about a list of different technologies here, but there are certain technologies, for example, that are absolutely critical in technical terms to support other technologies. Energy storage has to be there in order to support offshore wind generation in general so it can soak up transient production when demand is not there. That is the kind of joined-up thinking there.
The other problem for companies producing these products is that they are quite often thinking of driving them into a market where they know they are going to put something on the market through which energy is going to be more expensive to produce than through conventional carbon means. How do we deal with that elephant in the room, basically? How can a company, for example, address that elephant in the room? It is quite a complex issue in terms of local investment.
Dr Whitehead: I think that depends on the extent of the permanency of the elephant in the room.
Dr Meese: I think many of the technologies are going to have to be developed in parallel and it may be that, as Jim said, some of those fall by the wayside along the way or are absorbed into other technologies. Until we start trying, until we start getting more into this, we are not going to know. We are on that cusp at the moment. There are many technologies, particularly energy storage, which have a long way to go yet, and need more investment and to build some test facilities first so that we can see how it would work and we can iron out some of the problems that have been mentioned. We need to take many of these technologies forward in parallel so that we can see what is best for this country. It may not be the same for another country, but what is best for us.
Professor Stewart: If I could amplify that, I would suggest further Government funding while I am here in the actual systems approach to producing an answer to this. Otherwise, we have a bunch of universities and a bunch of companies out there producing products, developing great ideas; but without that actual proper cost-benefit analysis—not just from a financial point of view but from a strategic and technical point of view—in the overall future of the energy-producing landscape in this country, then we are just going to keep on firing off these technologies, putting cash into calls for certain bits of technology, without just taking the big picture and saying, “Come on, what is the answer here?” We have some fairly obvious things that we can work on here. We know the landscape of where energy is going to come from. It is the balance between those things and how we join it up. How are we going to move forward with things like smart grid, which should not just be for reading meters? It has the potential to be much cleverer than that, but it needs that background analysis to draw the strands together so we can get the most out of it, basically.
Q178 Dr Whitehead: That is a much larger proposition than simply saying, how do you derisk investment in bringing stuff forward to scale?
Professor Stewart: I think it ties very much into derisking development because it does put the actual cogent argument into the relative merits and relative sizes of the constituent parts of generation in this country: how it ties together, how it ties into the people who use it, and then tying it together again. It is a tough ask, but it ties it again into efficient use of energy within the built environment and other environments as well. There has to be a big-picture approach taken here, otherwise it is difficult to make those cogent investment decisions at all kinds of levels.
Dr Meese: Industry often has a very siloed approach to what they do. They are very focused on the thing that they are developing. With low carbon technologies, there is an opportunity here for many of those companies and industries to work together to solve some of these problems. I think we would see a faster turnaround to solving problems if we did have cross-disciplinary working, particularly in this field.
Q179 Mr Lilley: First of all, could I say what a great and unusual privilege it is for this Committee to have three engineers addressing us? Normally, when we consider policy, even policy affecting technical subjects, we have people with degrees, possibly brilliant degrees, in PPE, English literature and other unrelated issues. Their skill is manipulating words to make them sound good. Characteristically, the skill of engineers is to manipulate systems and things to make them work. I would like you to apply your engineering cast of mind to this system of Government support for innovation, which manifestly is not working. If you were designing it from scratch, how would you design it to make it work, to make it generate industrial capacity in this country that is profitable, sustainable and generates jobs and worth?
Dr Meese: That is a big question.
Mr Lilley: By all means answer it in written form afterwards, but it is the central question and you have the mental approach that ought to be applied to it. I think Professor Stewart was more or less hinting that in his last answer. Perhaps he would like to start off.
Professor Stewart: I think I would go back to one of my previous answers: consistency across Parliament in terms of the planning for energy in this country, otherwise there will be no confidence within industry to invest in the correct areas and produce the correct innovation, for one thing, and to be able to innovate at all in the first place.
The second thing is to have a multidisciplinary lead from academia and from industry in designing what the future is for this country in terms of the energy balance. I do not think the argument or the analysis has been properly or believably made yet. Then it is led from that analysis. I think there is a huge amount of analysis to be done. I don’t think it can just be led from within industry, because I don’t think you will find the optimal solution to this energy problem through market forces alone.
Professor Watson: I don’t agree that the analysis has not been done, because it has. A lot of analysis been done. The reason all the analysis does not give you one pathway for the future, which would be really nice—I have not practised engineering for quite some time but the engineer in me would really like to know a single pathway where we ought to be going. Even if you accept Government targets for carbon, there is massive uncertainty about how we meet that target. In the power generation sector, if we accept we are getting to 50 grams by 2030 there are many different combinations of technologies that will get you there. If you get into heat and transport, the actual uncertainties are much broader. Taking that into account in the strategy is really important.
An important engineering practice that certainly I remember from my training is the whole process of learning by doing, trial and error, and trying something out until it works. The strategy for low carbon has to embody some of that as well, rather than just saying, “Here is a goal and we are going to blindly go towards it despite the fact the world may be changing out there and we do not really know which innovations are going to go faster and slower”.
I would then come back to saying that some of the ingredients are there, so at least there is a strategy now with a rationale. There is more of a focus on demonstration to get stuff out there, as Helen was saying very eloquently, so we can see what they are, as the public, as industry, as Government. I think the bit that is missing for me is the learning bit. Are we going to learn as we go along and decide that certain things we have done did not work out as planned, and so we should not do them anymore—something we did not expect is working better than we thought it was, so we could do more of it? It is that learning approach that the current strategy kind of has in it, but I do not think is developed enough in order to take account of these uncertainties and things that will happen along the way that you cannot foresee, as we are sitting here in 2014.
Dr Meese: From my experience in industry, in order to start to solve a problem one has to have a clear scope of work to begin with. I think that at the moment, coming back to what we have been saying all along, right now industry does not feel it has a clear scope in order to solve the problem. If we are going to make any inroads in developing low carbon technology in the UK and make it work and have it available to everyone, we have to have a clear drive from the Government in order to tell us what direction they want us to go in. It has to have clear funding and we have to accept that it is going to be a long-term programme that we have to maintain the finance for. It cannot be bitting and bobbing all over the place. It has to be, “This is how we are going to do it, this is what we are going to do, this is where we are going, and we are going to work together”. We have to make sure that the rest of society understands that it is going to cost money. If we are going to make sure we have energy for the future in the UK, it is going to cost money. It has to be a societal thing. We have to change the culture and attitude of the UK and we have to have a clear plan to go forward. That is the way that engineers would solve the problem.
Q180 Mr Lilley: Could I put forward a positive and ask you to knock it down if it is untrue? At present, although we have prioritised to a degree, we still help a whole range of different projects and things, none of them with any guarantee that the help is going to go right the way through to commercial development. Would it not be possible to do a smaller number of projects but with the commitment to take them through to commercial development, unless en route one decides that they are a done deal? As you say, most projects will fail, and some should fail sooner than others. Would it not be better to have a small number of projects where the objective is that if they evolve in the right way we will take them through to the market, rather than a larger number of projects where we offer a bit of help here and a bit of help there but no continuity through to market?
Dr Meese: It has to be a phased approach. I would use the way that the graphing research is being done at the moment, in that they have taken quite a number of projects forward. They will get them to a certain point and identify either where some of them can be joined together into a single project or they can reduce them down because some have fallen by the wayside. It has to be a phased approach to understand. There is no point taking a scattergun approach and just firing lots of money at lots of things and hoping some of it will stick. I think you can have a very structured approach to solving the problems, but do it over time so you can understand what your conclusions are at the end of that first phase and then move forward, taking certain projects into the next phase and so on until you have a solution.
Professor Watson: Yes, I would support that. Some sort of phased approach and learning and so on is really important. In some areas, depending on the stage of the technology, it is not clear which variant of the technology—let us take CCS as an example. If we believe CCS is going to be an important part of the global and UK decarbonisation strategy, we do not know right now which variant of CCS, which of the various candidate capture technologies, storage types and so on is going to be the best, cheapest, and so on. That is so expensive and you would want to partner with other countries to make sure that the diversity of technologies are supported until we know which ones are going to be pulling ahead.
Again, if you look at history—I do keep harking back to history—–that is a normal stage of development for many technologies. At the early stage there are often many variants. Over time that tends to shake out and you get standardisation. Certain variants take off and the market works and they end up being cheaper and more cost effective. I think on scattergun, absolutely: we cannot support everything, spreading resource too thin, but we should not concentrate so much that we are betting the house on a handful of projects and not leaving enough space for some of those failures that you mentioned.
Q181 Graham Stringer: Professor Stewart, you got to the heart of the problem in one of your answers by saying that low carbon technologies would be successful when the cost of producing energy was less than from fossil fuels. That is the heart of the problem. Rather than supporting 11 different areas, don’t we need a Manhattan Project type of research project?
Professor Stewart: So we just go for nuclear?
Graham Stringer: Well, I was not meaning the particular objective of the Manhattan Project of building an atomic bomb. I was meaning that way of approaching research: that you get down to the basics of what the problem is, with a lot of resources thrown at it.
Professor Stewart: It certainly requires resources to be thrown at it. We are not going to solve this problem with a monolithic solution in any one type of energy, for example. The solutions for what we are looking at here are going to come from a portfolio of different energy sources, which will build up into a cogent, overall, reliable and robust method of generating energy in this country and give us energy security, importantly, as well. I am a big believer in the actual hybrid vigour of a broad base of contribution into development. I am not sure about running a—
Q182 Graham Stringer: If you do not go for the basics, are we not then just trying to pick winners? I am in favour of picking winners, it is better than picking losers, but the history of Government support for technology, innovation and science in this country is that we have a bit of a track record of picking losers rather than winners.
Professor Stewart: What Jim was saying earlier about the fact that technologies tend to shake themselves down over the process of the R&D phase I think is happening now. Just by natural selection, you will find that, in fact, the available portfolio will start to come down to the winners’ enclosure, basically, in a relatively short amount of time. It is starting to happen now, isn’t it?
Dr Meese: Yes. I think we need to understand what we are good at in the UK. We have a lot of universities doing some great research. They are focused on certain subjects because they have formed hubs where that research is developed. Likewise, various industries in the UK are very focused in certain areas. If we are going to pick winners, we need to focus on what we are good at and what we are strong at. There is an opportunity there to develop those businesses within the UK and not to try to take on the world in competition.
Professor Watson: In answer to your original question, Manhattan or Apollo, which is the other one that is often mentioned, are just completely the wrong analogies. We are not trying to develop a single thing, an atomic bomb, or get a person to the moon. We are trying to change an energy system and by its nature that requires innovation in networks, in demand and supply, with some of the uncertainties I mentioned earlier, but at the same time I am in favour of prioritisation. The trouble with the UK track record is that everybody remembers the losers, remembers Concorde and nuclear fast-breeder reactors and that kind of thing where Government has put money in, but we were not the only country where that happened. The French put money into Concorde and many other countries tried to develop fast-breeder reactors and also failed. I do not think it is a peculiarly British phenomenon. Do you remember the times when money was put in and we saw success? Many of those are indirect and those stories just simply do not get told.
Q183 Graham Stringer: You were asked to tell us a story previously on the successes over the last 30 years and none of you could.
Professor Watson: The trouble with the last 30 years is that if you take 30 years off where we are now you go straight back to the middle of the trough in R&D funding. What you are actually asking us to do is tell the story of the last 10 years where R&D funding started to accelerate, and I think my answer was, it is too early to tell. If you go back even further, you can identify times but, of course, the portfolio of R&D was very different going back then. It was mostly nuclear, for example, and that went into the UK nuclear power programme among other things.
Dr Meese: Rather than using the Manhattan Project as an analogy, perhaps we could use the analogy that we put forward in our report, which was decarbonisation is close in scale to the production of armaments during the 1940s. It needs mass social and economic mobilisation. I think it is more from that point of view, rather than a focus just on one technology. It is a holistic issue, rather than just focusing on one technology.
Q184 Graham Stringer: We have heard in previous evidence sessions that market signals from the private sector are more important than signals from the Government, or I suppose also the European Union. Would you care to put in a pecking order what is most important for innovation: European Union signals, Government signals and long-term investment decisions from the private sector?
Professor Stewart: From the university side, I think it probably has Government at the top of it in terms of leading innovation through specific funding calls and through specific strategies for funding. It is potentially true that to a certain extent industry does tend to have a slight time lag behind that and so is following on behind those kinds of initiatives, although I have to say my European consortium will be pushing the button today on the first tranche of H2020 funding. That is absolutely driving a lot of our very innovative research in universities in this country as well. H2020 and the European Union are very much up there as well and a very healthy source of funding at the same time.
Professor Watson: For industry, clearly it is market signals. Were industry left to its own devices, already if you look at what they spend on research it is overwhelmingly in the fossil fuels area. I think Jim Skea’s evidence showed that in some of the work he has done, which I know you have taken evidence on earlier. That is where the market is. People are still paying a lot of money for oil and gas for various applications throughout the world and so it makes sense to spend a lot of money on R&D and getting at more difficult to find oil and gas and so on. The market signals are important, but remember those market signals are shaped by Government policies and regulations. In the UK and many other countries Governments are intervening to say, “Okay, those market signals are out of kilter with where we need to be in terms of our energy system and our emissions”. Adjusting those market signals, whether by broad-based instruments like carbon taxes or specific things like feed-in tariffs, is clearly where Government has a very big influence on what industry then does.
Dr Meese: I can only add to that that Government has to be in the vanguard in terms of driving this forward. It has to have a common voice and goal and I think you will find that academia and industry will follow that. The focus obviously is the UK and after that comes the European market and then globally.
Professor Stewart: I know that we cannot control the media to a certain extent, but the media are hugely important in the take-up of renewable energy and low carbon technologies in this country. I am sure everybody sitting around this table knows it works and we know it can be done and we know what the pay-off from it is. Look at electric vehicles in this country. It is viewed with scepticism until Jeremy Clarkson says it is cool on Top Gear and then suddenly it becomes an entirely different kind of technology. We have a major PR job to do between Government, academia and industry as well, in order to drive the take-up of these technologies and the acceptance and how they are viewed by people in general.
Q185 Graham Stringer: Just a last question. I understand from your previous answers that you do not believe the whole of low carbon innovation should be left to the private sector. What one thing can the Government do now to improve the development of low carbon technologies?
Professor Watson: We had a similar discussion earlier in the session. One thing I would say, which Helen mentioned before, is demonstrating those, but the caveat to that is demonstrating technologies without a sense of where they are going to go afterwards can end up being a dead end, rather than a stage on a journey to where you want to be, which is mass-market roll-out. Evidence from some public funding programmes in other countries—and I would cite the US here, which I looked at in detail several years ago—is that just focusing on demonstration but not thinking about the market can often mean that you are developing some nice technology that industry really enjoyed building but is not optimised to go that next step and say, “How do we bring the cost down and make it more available for the market?” You could apply that to large-scale power generation but you could also apply that to consumer products as well. That is the space where Government at the moment can make a really big difference.
Dr Meese: I would use an engineering term and have a clear scope of work, basically. We need clear direction. Industry needs clear direction so that they can push the message forward.
Professor Stewart: I would definitely support the development of demonstrators, particularly from the larger systems point of view as well to show the even larger economies that are made by integrating these systems and optimising them together into a working system. The same thing has happened with the electric vehicle market. Once demonstrators were on the street that showed that EVs were not just optimised at component level but were optimised for the whole vehicle and they started showing that you could use it on a day-to-day basis and they knew that they had to take an EV to a range of more than 100 miles before it became credible, it totally changed perceptions about the usability and take-up of EVs. I think exactly the same has to occur here in terms of demonstration.
Chair: John, the Minister has been outside for about 20 minutes, so do you want to be brief?
Q186 John Robertson: Yes. You have talked about various things within the portfolio, and yet I sometimes wonder if we have spread ourselves a bit thin, particularly in energy. I go back to the loser part of it you were talking about earlier. The Brits love to back the underdog. The good thing about those people is they sometimes win, and you can make a lot of money on an underdog when they win and it is sometimes sensible doing it. In relation to the media, I have to tell you the media do love a good disaster. They do not do much good news stuff in the press or other media, so I would be inclined to steer clear of them if you are looking for some help to move things forward—unless you want to have a nuclear disaster somewhere. Then I am sure they would report it non-stop, as they did. My question is this: should we limit ourselves even more than we do? I know we do R&D and we do it better than anybody else, but should we limit ourselves a bit more and get a line of renewables or nuclear or gas or whatever? Should we not go down those lines so that we can, in effect—in many ways, as the Germans do—corner the market on a certain subject?
Dr Meese: I would go back to our answer to Mr Lilley’s question, which was that there is the opportunity to develop the technology but in a phased way so that we do not end up having disasters and things that do not work and get reported by the media. Again, as I have said before, the UK is very good at certain things. There are certain technologies that are being developed in the UK, certain manufacturing technologies and so on that we are very good at, and we perhaps can focus on those to build them up and strengthen them. Particularly in low carbon technology there are certain areas that we are good at that we should focus our attention on, but in a phased way so that we can see where the winners and losers will be over time.
Professor Watson: I think when it comes to the more expensive stages of innovation, clearly, we do have to prioritise. Demonstrating carbon capture and storage, as we know, is expected to be £1 billion of public money plus anything we subsidise those plants with through our Energy Bill, so it is very expensive. Clearly, we cannot do many demonstration programmes of that size, and the same for smart electricity grids and that kind of thing. These things by their nature are expensive so that is where the sharp end of prioritisation comes. I do not think we can entirely guard against things going wrong and being reported as “disasters” by the media. Certain sections of the media will always want to find examples where public money has apparently been wasted. In a way, that is a question for Government itself in terms of political will and that consistency of support in saying, “Okay, some things did not work but that is the nature of the innovation process”. That is a hard argument to make when you are talking about public money, but for me it is going to be a necessary argument because not everything Government supports will work, even if you prioritise and do the stage-by-stage thing that Helen has mentioned.
Dr Meese: You mentioned the German approach to things. The Germans take the approach that they know that they are going to invest money; their taxes and so on are invested in a way so that they are prepared. The nation understands that there are going to be some winners and losers in the technology but ultimately it is going to benefit them. I think it is the cultural approach we need to change in this country as well, so that the media do not report on the bad things that happen but encourage us to improve them and do better. You also need a cultural approach to the way that we back winners and losers in the UK.
John Robertson: I do not see us managing that somehow, but okay.
Dr Meese: Perhaps not.
Chair: Right, we must move on. Thank you very much indeed for your time this morning.
Examination of Witnesses
Witnesses: Rt Hon Gregory Barker MP, Minister of State for Climate Change, Department of Energy and Climate Change, and Dr Paul Hollinshead OBE, Director of Science and Innovation, Department of Energy and Climate Change, gave evidence.
Chair: Good morning. Apologies from the Committee for keeping you waiting. I am sorry that our earlier session overran rather badly. It is very nice to see you again. We are happy this is becoming a weekly session. I hope it is giving you as much pleasure as it is us.
Gregory Barker: Immense pleasure.
Q187 Chair: Some of the evidence we have heard on this particular subject has suggested that the awareness among the industry of the Government’s approach to low carbon innovation is not terribly good and the communication between the LCICG and the innovators has not been as good as it might be. What is your view about that? Are there some improvements in communication that could be achieved?
Gregory Barker: I am sure there are opportunities. In fact, I have a meeting with the LCICG this afternoon. It does not meet with Ministers very often. We only have a very strategic oversight role, but that will be one of the things that I will be raising with them, how we can communicate. I think fundamentally there is a good story to tell and a good story to get out there and I would agree with the Committee that we do not hear enough of it.
Q188 Chair: It may be quite a diverse and dispersed audience. Do you know how they are identified and whether there are specific design elements in the communications that will reach those audiences?
Gregory Barker: I do not. I do not know if Dr Hollinshead does.
Dr Hollinshead: Yes, sure. Basically, you have probably heard already about our low carbon navigator and things like that. We do look to communicate with different people. For example, our Energy Entrepreneurs Fund is particularly aimed at SMEs and medium-sized businesses, but we are looking at how we engage. My head of innovation programme has done six meetings with small businesses this year to talk specifically to that community. We do try to target them and we do have one part of our portfolio that is targeting small businesses. We also look obviously to target specific industries that have capability in specific areas, basically.
At the moment, as you heard earlier, part of our communication is starting the debate about the strategic framework, which has come out today, and saying these are our initial thoughts on some prioritisation. It is not the end of the journey, but this makes it clear that by 2015 we aim to prioritise this further, working with industry. I would also add that we have worked with industry on the TINAs. They have been involved in the TINAs and we have talked to industry on this, too.
Q189 Chair: Is that a way of drawing their views back in as a sort of consultation process? Is that what it is designed to do?
Dr Hollinshead: Certainly, the main purpose of this was to respond to the NAO report and for Government to get its act together, but in the process of doing that we have consulted with interested academia. The beauty of both the TINAs and this framework is the fact that it will draw people to comment on it, as it does, and we welcome those comments. We will change this and react to those comments, but to start a dialogue you need to, as people have said earlier, lay out a kind of position: “Here is a starting position we want to discuss”.
Gregory Barker: The other thing it is just worth mentioning to you is that DECC funded the development of a new low carbon portal, which basically is a place where businesses and academics can identify potential funding and collaboration opportunities. I understand that in 2013 the funding navigator had about 80,000 hits.
Q190 Chair: Does that summarise the consultation process, what you have said so far?
Dr Hollinshead: Yes. There has been a mix of web-based tools, stand-up talks to different sectors, talking with some people about the TINAs themselves, the evidence base and gathering a common evidence base, and there have been talks about the initial framework. Going forward, I would see more talks about prioritisation of technologies, as well as about specific innovation projects that we wish to do.
Q191 Chair: Are you confident on the basis of that that the people you are trying to reach, the potential innovators, are aware of all this and are reaching out to you?
Dr Hollinshead: Clearly, what we have heard is that some of them do not feel well sighted on it, so we recognise communication is a priority and we are going to do more. All I am saying is that we have set the actual initial things in place and we are trying to communicate. It is, of course, restrained by how much resource we have and our ability to get round everybody, but we are trying to engage with the sector.
Q192 Chair: Have you heard any comments about the gap between the launch of the new strategy online on 13 February and your ministerial launch next week? Has anyone commented on that?
Dr Hollinshead: Not that I am aware of particularly, no.
Q193 Chair: We have had some evidence that the online launch was not very effectively communicated.
Dr Hollinshead: The Minister is going to launch it next week.
Gregory Barker: I have not seen that feedback but I would obviously take it on board if you have evidence of that.
Q194 Sir Robert Smith: What is your view on the current membership of the group? It is quite a large range.
Gregory Barker: I am sorry, which group: the LCICG?
Sir Robert Smith: Yes.
Gregory Barker: It is a sort of body of bodies, really. It seems to bring together most of the key participants, certainly by spend. As I say, it has not met for a while. It is not something that meets in totality very often. We have one meeting, by sheer coincidence, because it has been in the planning for some time. It comes together. It is more active in its component parts than as a body as a whole, but it certainly brings together the people and the companies who are active. I guess the challenge with a group like that is to make sure that you do not lock in the innovation economy of any given time and set it in aspic, that you constantly open it to, by definition, the new innovators. You need to make sure that we are bringing in those companies, those innovators, who are really delivering and going forward rather than just have membership reflective of what has happened in the past.
Dr Hollinshead: The membership reflects all the public funders of low carbon innovation by and large and their key delivery agencies, and covers the £1 billion this Government is spending over the CSR, of which I am only £181 million. Its vital role for us—and it meets regularly at working level and less at ministerial level—is it allows us to co‑ordinate what we are doing with each other and make sure this relay race you heard about between basic research and later research is co-ordinated. We also discuss priorities and make sure we are trying to fund the right things together, and make sure somebody is ready to receive the baton if it is passed from basic research to a later stage. That is what it does.
Q195 Sir Robert Smith: Ofgem has set the R&D spending of the regulated parts of the energy industry. That is second only to the spending of the Research Councils. Do you think Ofgem should be more of a core member to co-ordinate that?
Dr Hollinshead: We are certainly giving it consideration. They are an associate member because we recognise their spend straight away. I think part of the debate is about how that might or might not conflict with their role as a regulator, but as far as we are concerned we are just looking at that. There is no reason they could not be a full member and we are very happy they are an associate member.
Q196 Sir Robert Smith: How do you deal with the conundrum that I suppose has always been there—intellectual property for commercial people is a valuable asset they do not want to share, yet this is an organisation trying to develop a public good of maximising the benefit to society?
Dr Hollinshead: That is always a source of tension because Government wants to share information and clearly industries want to capitalise on it. By and large, responsibility for exploiting an invention to which a patent relates rests with the patent owner, and Government is not active in the market for inventions and does not really take market risk on behalf of patent holders. In terms of managing it, when we are doing things, for example, in the ETI and my membership, we try to take account where we can of where we are able to share the learning and spread it more widely, and where for good reasons it perhaps has to be closely held for that firm to go and commercialise it. We do try to strike a balance.
Q197 Mr Lilley: What is the primary purpose of this £185 million budget? Is it to build up industrial capacity to enable us to generate green jobs and value added and export to the world, or is it to reduce the cost of us meeting our decarbonisation objectives?
Gregory Barker: Primarily the latter.
Mr Lilley: So all my questions have been aborted now. It is a clear answer, sadly the only clear answer I have received sitting on this Committee.
Chair: An historic moment.
Q198 Dr Lee: My question is, what is the Government’s approach to international collaboration in innovation?
Gregory Barker: DECC and the LCICG members have looked to increase European programme engagement in the last two years. Research Councils UK have offices in China, India and the USA. DECC is the key partner in steering the EC Horizon 2020 programme, which across Europe has at least €5.9 billion for spending on energy technologies. UK organisations are playing a big role in a €600 million-plus hydrogen programme under the EU Horizon 2020 framework. DECC co-ordinated EU collaborations in bio-energy and plans for offshore wind and industrial energy efficiency. These programmes all aim to leverage funding from member states’ EU contributions up to 50% of UK Government spend. I do not know if Dr Hollinshead would like to add something.
Dr Hollinshead: No.
Q199 Dr Lee: Do you think anything more could be done to influence international standards so that UK innovations can compete more effectively?
Gregory Barker: What sort of thing did you have in mind?
Dr Lee: We had evidence from Professor Fisk in which he pointed out that unless a product has a CEN standard you cannot export into the European market. In terms of liaising with Europe so that such a standard is achieved, is there more that we could do in that area?
Dr Hollinshead: In terms of standards, I have done less on Europe. We have done stuff in DECC on heat pump standards very successfully, which I think has helped the industry, and we are working a little bit with CLDM looking at standards because I think that will help with energy efficiency. There is no doubt that in our general talking with Europe, looking at where standards might be important to take innovation forward is a useful thing, but I have not been greatly engaged with Europe myself.
Q200 Dr Lee: To be precise, do you seek out the views of UK innovators so you know which regulations and standards have the most impact on their ability to export?
Dr Hollinshead: That is a mixture of us and BIS. The ETI are doing a particular project at the moment where a strand is looking to identify regulation barriers to uptake, so that we can take those forward to look at them either from a point of view of UK policy or wider policy. This is an area where we are doing some thinking but perhaps could do more.
Q201 Dr Lee: The previous panel were asked questions about protecting intellectual property, particularly where it has been the product of Government investment. What do you think the Government should do to protect IP while still encouraging international collaboration? We have relationships with some countries depending on the technology, and my concern is that we end up just being very clever, because the British have a long, rich history of being clever in developing new ideas and innovations but not so clever in commercialising them.
Gregory Barker: This is obviously a challenge. Those are two different issues, though: whether you are talking about IP protection or whether you are talking about IP commercialisation.
Dr Lee: Presumably you have to protect IP in order to commercialise it.
Gregory Barker: Not necessarily, in that developing IP in a home market, protecting the IP, is not something that is at the forefront of people’s concerns in a way that it would be if they are taking IP into some developing countries where there is a known risk of IP infringement or even fraud. You do not have those problems usually at home. Providing you have a robust patent you have the protection of the law here. The question at home tends to be, is there sufficient funding, innovation and entrepreneurial oomph to develop to a commercial proposition—interesting IP—and then scale it up? That is one issue.
Then there is quite a different issue, which is, having scaled it up, having got an interesting commercial proposition, when you take that commercial proposition that rests upon a high level of patented IP, is it secure, is it safe, is it defensible in these other economies? That is the issue. I am wondering which: is it the commercialisation at home or is it the export of IP abroad?
Q202 Dr Lee: I do not know how you develop an IP protected at home and then think that the Chinese are not checking out the domestic market of the UK for any product that they think might be commercially valuable going forward. I do not see how you take the UK market in isolation from the rest of the globe.
Gregory Barker: It is much easier to protect a product, say, that was a rip-off from another country coming into the UK market than it is to go into a foreign market where you compete on their terms.
Q203 Dr Lee: Sure, but if they have nicked the product and exported it from China to Mexico, we cannot take advantage of our product in the Mexican market.
Gregory Barker: That is true.
Dr Lee: So I do not quite understand, Minister, what you are separating. I understand that if we have a product and Mr Bloggs comes up with it, patents it, settles it—
Gregory Barker: No, we are splitting hairs. It is the difference between commercialising a product using IP, if that is the issue, because if you do not commercialise it in the first place then you are not going to export it—the second is how you protect it when you take that product and insert it into export markets.
Dr Hollinshead: I think the only answer is that you have to try to manage IP to mitigate the risks of international collaboration as best you can, but also remember that international collaboration presents you with opportunities to drive UK exports and growth. It is making sure you are taking sensible steps for the legal cover you need and doing the best to protect it. At the end of the day, if you just hide the IP and do not do anything with it, it is not very valuable either. You have to go out there.
Gregory Barker: I did hear an idea that I have shared with the policy unit at Downing Street, and that I am happy to share with the Committee, which came to me as a result not of a Select Committee hearing but a speech I made in the House of Commons on this issue. One innovator came forward and said, “What we need in this country is the same sort of guarantee and protection for IP for innovators that we have for export finance guarantees”. In the same way that if you are exporting to developing countries the UK Government will underpin your finance risk for not being paid through export guarantees, there ought to be some commensurate or similar tool that offers protection to entrepreneurs and innovators exporting their IP abroad in order to give entrepreneurs greater confidence that if they do go into foreign markets with cutting-edge IP, they are not going to have their legs cut away from them. That was a very nascent idea but I think it is a very interesting one, and one I am sharing with Downing Street and we are developing.
Q204 Dr Lee: Moving on from trying to retain value in IP and innovation, page 36 of your strategy describes for all TINA technologies—TINA is Technology Innovation Needs Assessment—the cost reduction for the UK and the value creation for the UK. How are these values calculated and how robust are they? I look at the table and, for example, marine wave has a potential value of zero or £3 billion. Let us hope it is closer to £3 billion, but I am just wondering—
Dr Hollinshead: The calculations are done by our economists and they are driven by what you assume about the deployment rates of these technologies and what they will ultimately cost, which is why you get the wide range. People this morning talked about the uncertainties. The beauty of it is that although things have ranges, if some things are clearly up here in their ranges and others are clearly down there, it helps you to prioritise. They are calculated by our economists looking at what they think the cost reduction potential for a technology is, or deployment rates or market penetration, to try to produce a view for us of the potential for cost reduction, based on different levels of deployment, the potential for something to earn money back to the UK by the amount it might fall in a national or international market. They also look at the actual carbon emissions we think it will result in and at the cost of the project. A variety of things are used to calculate those figures.
Q205 Dr Lee: But the range is from zero to £48 billion for hydrogen for transport. It begs the question: do we need to pick winners? Do we need to concentrate our resources because we can get a higher return in a couple of them, or do we hedge our bets and play it safe, like we were investing a pension fund?
Dr Hollinshead: Basically, it is about having a portfolio. I do not know if anyone has said to you before—there are some things we do where we want to look at what we need to do in the next 10, 15 years, where we are trying to pick the things that are going to best meet the needs. There are other things that are speculative but you think could be very important, and there are things that you will come to know from the evidence are not very useful at all, which you must eventually divest from. It is about learning as you go along and looking at your portfolio and making sure it is not just a mix of short-term things that look good, and it has some long-term things that might be winners in the future.
But back to your point, what those figures do show is where we have a lot of uncertainty. You might choose to treat that by saying that, rather than spend a lot on this particular area, we will just spend money to watch this technology for a while, rather than investing a lot in a demonstrator; whereas with something else where you are more certain you might take the risk of building a bigger demonstrator. It helps to guide your decision making. I prefer to think about avoiding making decisions about immature things or uncertain things or losers until you have more evidence that they might be a more useful thing to fund. It is a living thing; it is not picking winners or losers at one point in time. It is as you go along, having that information, reacting sensibly as you go along and saying, “I have funded this for a while; it is not working: down it goes”. “I have funded this for a while and that looks quite interesting. Maybe it goes up.” That is the way you can manage an innovation portfolio through time.
Q206 Dr Lee: So, it is like an investment fund?
Dr Hollinshead: To a certain extent. What we are looking for is, is it reducing costs; might it create wealth for the UK?
Dr Lee: Yes. But my point is that it is like when you invest your ISA every year and you speak to your financial adviser who says, “Do you want high risk, medium risk or low risk? Emerging markets, high risk: I will put X in that. Low risk: I will put it in a UK income fund in large companies” or whatever. My point is, do you have some sort of equation you adhere to? What is your risk profile? Given the current situation of British debt, you might say, “Do you know what? Bugger this, I am going to go and put all my eggs in the basket of high risk, because if it comes off, fantastic”. My impression of Whitehall is that it is risk averse in general. Is there a tendency for us not to put much into the higher end return ones like the hydrogen for transport?
Dr Hollinshead: No. We put something into hydrogen, but it is perhaps not a large amount. We have put some stuff into some of the marine technologies, which are still a way off getting there. We are putting money into storage, because it is an important technology. The missing lens, as well as your investment bit, is your strategic lens. The other thing we do with these technologies is we look at DECC’s carbon pathways, the CCC’s Markel modelling. We say not just does it look like it is a valuable technology but is it likely to make a contribution to the kind of pathways the UK wants to pursue, or even perhaps Europe wants to pursue because they have calculators too?
Q207 Dr Lee: What weight is given to the nonfinancial gain measures? Is there some sort of breakdown of priority within DECC? Is low carbon more important to DECC than return for UK plc?
Dr Hollinshead: Within DECC we do not tend to weight them. We look at all the lenses. But certainly for my programme, which is about reducing the costs, I tend to put higher weight on the things that are going to reduce the cost to meet the pathway. That does not mean if I get a project whereby, let’s say, if two are equal and one is creating growth, I don’t go for the one with growth in it. But because of my particular lens and job, I start with, “Will it help the Government achieve its objectives? Will it reduce cost? Will it reduce risk?”, all which help the taxpayers and industry economically one way, and then I will look at what we think it might do in terms of jobs and exports.
Q208 Dr Whitehead: The level of funding that we put in overall on low carbon innovation is significantly lower than the OECD average. Is that a cause of concern?
Gregory Barker: Obviously, more is more. I do not think anyone would argue that in an ideal world we would not like to spend more. But if you look at the spend on research and development across the Government since the coalition came to power, in the context of our deficit reduction strategy and the need to rein in public spending, it is worth reflecting on what the Chancellor said to the Royal Society in November 2012: “Even at times of fiscal restraint, we find the resources to enable new scientific breakthroughs, to bridge the gap between discovery and commercialisation and to spread the economic and social benefits of scientific research”.
The overall budget for research and development in Government is a pretty significant undertaking. In the period 2011 to 2015 we have earmarked over £1 billion to spend on low carbon innovation specifically. DECC’s innovation programme is supporting over 150 companies, over 60 SMEs, and has been oversubscribed since its launch in 2011. We can certainly deploy more; if you take our energy entrepreneurs funds, the first two phases of those have been heavily oversubscribed. Between the three core bodies that fund low carbon innovation—BIS, DECC and the Scottish Government—we think we have a robust programme.
Q209 Dr Whitehead: I accept that general overview, but the NAO report recently specifically said and calculated that LCICG’s spending reduced by one third between 2011 and 2012, from £522 million to £351 million. That is a pretty serious drop, isn’t it? What sort of signals do you think that sends out? Are there considerations about how that shortfall might be made up by potential private sector contributions?
Gregory Barker: The International Energy Agency identifies the UK as a medium spender as a percentage of GDP on energy innovation specifically, internationally, and clearly we have had to constrain our overall budgets because of the focus on cutting the deficit. But unlike many other European countries, the UK energy networks and generators are not state owned. We do see a lot of innovation that in many of our competitors and partners in Europe would be classed as state-funded innovation because it is made by state-owned or nationalised energy companies, and that work is undertaken by the private sector in the UK. It is certainly worth noting that we have invested more on energy innovation in recent years than the Netherlands, Spain, Italy and several other European countries. But current public sector spend on low carbon innovation still remains higher than in the years preceding 2009 on a per annum basis.
Q210 Dr Whitehead: I was, frankly, particularly concerned about the substantial fall in one year. Do you think that is an indicator of a trend or, if there is such a fall in one year, does that mean that the sort of cumulative investment and support over a period of time that we have heard about is perhaps at risk? Therefore, although we may compare reasonably well overall with some other countries, the rockiness of the investment environment might be a separate issue to consider.
Gregory Barker: The overall long-term trend, as the Chancellor has made clear, is to support research and development. But I think on that particular point—
Dr Hollinshead: The research and development has been ring-fenced. With innovation, although we had the significant drop when the recession came in, my budget has remained predominantly level over the CSR period, and in 2015-2016 it is due to rise slightly to around £49 million. I am not sensing it is going to be a trend to keep driving it down, which would really worry me. Clearly, as the Minister and some of the other witnesses have said, you would always like more, but what we aim to do is to prioritise as best we can, so that the money we do spend has the best bang for buck. That is why we are going down the route of the TINA evidence base, the framework, and doing our best to ask the question, “Is this the best thing to do with Government money to make a difference?” That is what we are trying to do.
Q211 Dr Whitehead: The evidence that we have received from witnesses is certainly of the view that the balance of investment is tilted in favour of energy efficiency budgets rather than renewables. Is that a coincidental or a planned change? If that is the case, are there any specific considerations on encouraging investment into renewables to restore that balance?
Dr Hollinshead: Just to check, are you talking about the fact that you think renewables is down compared to energy efficiency?
Dr Whitehead: Yes.
Dr Hollinshead: In the DECC programme we have been putting in quite a bit of renewables work, particularly in offshore wind and marine projects and so on. I think the truth of the matter, as alluded to, is you need a portfolio. I think we do want to do a bit more on energy efficiency, for what it is worth, but the DECC portfolio does spread energy efficiency, carbon capture and storage, nuclear and renewable. It is back to the debate that we are going to have here about how much in each area and in each area exactly on what.
Gregory Barker: I think it worth saying as well that this Government has put particular emphasis on energy efficiency. When I came into the Department, there was no separate office for the deployment of energy efficiency. We had nuclear, renewables, oil and gas, coal, but there was no dedicated strategic office for energy efficiency. We changed that. We created a dedicated resource in the Department for energy efficiency policy, and last year the Prime Minister launched the first ever national energy efficiency strategy. The fact is, historically, under successive Governments, energy efficiency has tended to be rather unloved, so it may be fair to say that we are playing a bit of catch-up now with the support for energy efficiency technologies. That is not, as Dr Hollinshead said, to the exclusion of other important areas.
Dr Hollinshead: We do move it around. The NAO produced a report, and we started with a plan. If we see a need, we move it around. Another area where we would like to do more, maybe when the budget increases slightly in 2015-16, is, for example, renewable heat, which is clearly an area that needs more work. We are aware of these things, and we do try to adjust our position as best we can.
Q212 Dr Whitehead: Is that a planned adjustment?
Dr Hollinshead: Yes, it is a planned adjustment. We do not do it for no reason. We recognise a gap, an innovation need, and we are also planning to do some more TINAs in other areas to get the evidence for that. We have certainly looked at the issue, and renewable heat is an area where we think there should be some more scope for innovation. But we are not just going to give it funding. We are in the process this year of working up the TINA and working up the evidence to see what, if anything, we should do, so it will be a planned move. We may need to put a bit more into that area and if we do not have the evidence, then we will not. We do it in an evidence-based way.
Q213 Dr Whitehead: Frankly, what one might construe from the Minister’s thoughts on energy efficiency—I personally think that is all admirable; however, one could conclude that the enthusiasm of a particular Government at a particular point might skew investment arrangements, whether or not that enthusiasm is well placed in terms of what the overall strategic environment looks like. Maybe, therefore, a more strategic view might be something to consider.
Dr Hollinshead: I hope that is not the case. As I say, all of the innovation we have done we have put through a kind of examination of the carbon pathway: was it an important area to cover? Looking at the TINAs, what gap in innovation needed to be addressed? Then, doing net present values—looking at what it might demonstrate. Energy efficiency is an area that is very cost effective, in many cases, for meeting our targets. People might be passionate about it, which is a good thing. I am glad the Minister is, but I do not think it is without good evidence to support the view that energy efficiency is a good thing to do.
Q214 Albert Owen: Minister, I am sure you will agree with me that the most important resource within your Department is human resource.
Gregory Barker: Absolutely.
Albert Owen: There we happen to agree, like you did with Mr Lilley. I think we will find a few issues as we pursue this. How do you determine the level of DECC staff resources when you are allocating to deliver your low carbon innovations?
Gregory Barker: I think that would probably be better from Dr Hollinshead, because Ministers do not get involved in the detail of HR policy.
Dr Hollinshead: I will answer the question. Basically, it is in terms of business planning and what I have to do, as the SRO, is make a bid for the resource I need to run my programme. In terms of DECC resourcing, we have made the case—because we have saved money doing it—to bring our innovation delivery team in-house, with some project managers in-house who are technical. I have 10 extra engineers. Despite a tight budgeting round, I have technical resource to support my innovation delivery team and an innovation policy team. In actual fact, we make our decisions evidence based, and for running the size of programme I have, I think I have a very strong team. The evidence for that would be that my resources have been increased, and the NAO says I run the programme effectively. Clearly, if we had a much bigger investment—
Q215 Albert Owen: Can you tell us what period you are referring to?
Dr Hollinshead: Yes. I am referring to the period 2010 to now. We had a cut in our ability to do external consultancy and give out programme money, because doing things outside costs a lot more money. My equivalents outside are two or three times more expensive, for example, than my teams. I had to think about—
Q216 Albert Owen: So, Whitehall is delivering it cheaper and more efficiently?
Dr Hollinshead: Yes. I can demonstrate that to you. My team is cheaper and more efficient than the previous arrangements by, I think, £2 million to £3 million over the spending review period—about 30 %. My evidence that it is efficient is that the NAO say so. That is what we decided to do. We decided to resource it by bringing the expertise in-house.
Gregory Barker: Can I just say, for which I think—
Albert Owen: Sorry, I am having difficulty hearing or you are talking too fast. Can you repeat the last sentence you said before the Minister interjected?
Dr Hollinshead: I am sorry. What I was saying is that we recognised the best approach was to bring the expertise in-house and it is cost effective. It has taken us a year or two to build that team. That is why we had to change the profile, but that team is now a highly skilled team: engineers across all the disciplines, nuclear, renewables and so on, trained project managers, experienced innovation policy people. It is doing a good job, as the NAO says.
Q217 Albert Owen: You don’t have an opinion on this, but you are in full agreement with Dr Hollinshead?
Gregory Barker: I don’t have an opinion? No, of course; Ministers set the overall strategic framework, but we don’t get involved in detailed HR planning.
Q218 Albert Owen: Either of you can answer this next part. Looking at your new strategic framework—you told us where you are now from 2010, but going forward—it says, “We estimate that delivering all the innovation support activities identified would require the UK Government to invest somewhere between £3 billion and £4 billion over the next five to seven years. By comparison we estimate that the equivalent spend over the five years to 2016 is around £1.1 billion to £1.5 billion.” If Government spending is going to be required as you state, and double over the next five years, what kind of additional resources are you looking for to match that?
Dr Hollinshead: I would have to go away and look at that, because it would not just be me. I am only just over 20% of the innovation landscape, so I would need to talk to TSB and BIS. But, basically, I have about eight or nine FTE looking after £50 million now. So let us assume, if you double my budget I would need another eight or nine. It depends how much of that went through DECC’s books, but if you assume what was going through my books was tripled, because let us say that they think we should triple it, then I would probably need between another 14 to 20 people, depending on how much we were doing and what sort of projects they were.
Q219 Albert Owen: I hear what you say about the other Departments, and it is difficult to give an exact figure, but how do you sit down with your equivalents in the other Departments to work this out? Can you give us a flavour of how that works?
Dr Hollinshead: Yes. Basically, a large part of it depends on what your approach to innovation is. If your approach is just to post a grant out that is not ours, that can be fewer people. Our approach is actively to manage it, so we review the bids, we give advice, we manage the projects. So I have to sit down and say that for something like offshore wind, I need at least a dedicated project manager, supported by, in my case, a programme management office that does all the finances, contracts and other stuff. Basically, per topic, if it is, say, a £10 million project, that needs at least one technical project manager who can do that well, and that is how I do the resourcing. It is driven a lot by the number of projects I am doing and the nature of those projects.
Q220 Albert Owen: So there will be a rise in staff resource to manage these growing budgets?
Dr Hollinshead: If I can get more budget, yes, I will make the bid for more budget and it will be up to the Ministers to decide.
Q221 Albert Owen: Can I remind you what the NAO said, and witnesses have told us exactly the same: that they think that DECC is under-resourced, and the NAO reported that, “Spending has been lower than budgeted. The delay was in part due to slow recruitment of staff.” I am sure you have a view on this, Minister, because this has come from the National Audit Office. “The recruitment has been slow. The full team was not in place until early 2012.” Can I ask you, Minister, what impact do you think these resource levels have had on policy delivery between 2010 and now?
Gregory Barker: I think it is a very valid criticism, and it is one of the frustrations that I found as a Minister in the past, particularly where it was not always immediately apparent to Ministers that there was under-resourcing. On the diagram there would be a number of allocated positions. We would agree the resources for those allocated positions. We would be told that those positions were there but, as I said, Ministers are not involved in the individual HR issues. Only when there would be something wrong—
Q222 Albert Owen: I am sorry—I fully understand; I have been a manager myself. You can’t micro-manage everything. What I am saying to you is that you are below budget, so you would have had those figures—the budget that you have for allocating staff—and you have not met the budget.
Gregory Barker: We do not review the budget on a monthly basis or week to week.
Q223 Albert Owen: No, I am not talking about monthly. I am talking 2010 to early 2012, on your watch.
Gregory Barker: Absolutely. If you would allow me to finish what I was saying, it did become increasingly frustrating, and there were a number of occasions that I can think of where it only became apparent to me that there was this under-resourcing, or not really under-resourcing, because the money was there. The resource was there to pay for the posts, but they were not put in place, when policy that I wanted was not delivered or completed. If you look at the renewable heat incentive, for example, it was one of the reasons that it took longer to develop a policy, which we are now much happier with and that we are in a good place to launch the final strand of this spring. But if you go back two years, there was significant frustration in that. That is one example. However, this is something that Ministers became increasingly concerned about—the grip—and the new Permanent Secretary made this a priority. I think that the grip on the Department when the new Permanent Secretary came in, taking his lead from the concerns of Ministers about how the Department was being run, reflects that. I think he has done a good job in taking that on.
Q224 Albert Owen: All right. Just to clarify, the previous Permanent Secretary did not have a grip on it? Is that what you are telling the Committee?
Gregory Barker: I think the new Permanent Secretary has improved the situation significantly.
Q225 Albert Owen: I will take that as a yes. You were very good with quick answers with Mr Lilley, so that is a yes. You feel that the previous Permanent Secretary had not got a grip on it. A number of staff have left, of course, a number of senior staff within the Department. Would you like to comment on that? I am going slightly off innovation—the whole Department.
Chair: I have noticed.
Albert Owen: I am sure it is legitimate, because for some time this Committee has been raising the issue of delivery of policies and not having adequate resources in place. We raised it on a number of occasions when EMR has been delayed, and the Bill coming before Parliament has been delayed, so we are pretty consistent on raising this issue with you.
Gregory Barker: I think it is a valid concern, and it is right that you do.
Q226 Albert Owen: I will leave it at that, because we are both in agreement as we move forward.
Can I look to another issue, which is the UK influence in EU standards to support UK innovations? Can you describe how resources are allocated for that at an EU level?
Dr Hollinshead: To be fair to the Minister, and it is very clear, I am responsible, so I have to bid for all of this. He only gets involved at the macro. On Europe, I have been trying to bid for more resource on Europe and I have only got 1.5 people, so that—
Q227 Albert Owen: Who do you bid to? I am sorry if I am asking elementary questions.
Dr Hollinshead: I have to make my business case into DECC’s system, in terms of priorities, and what I am trying to say to you is that in running my capital innovation programme, while taut, I have all the right skills now. It has taken two years, and that has been trying to recruit good people. Believe me, engineers and scientists are not lying around in the street waiting to be employed. Getting good people takes time. There are other things I would like to do and, like I say, if we get more innovation money I would need more technical people. But on Europe, I probably would need more resource to get into standards. The level of resource I have at the moment allows us to comment on their strategy and take part in the prioritisation activities. To be completely honest with you, for standards and things, I don’t have the resource to get involved.
Q228 Albert Owen: Can you be equally honest: are we losing out as a consequence, because other countries are better resourced and sitting there now? We mentioned very good examples—Horizon 2020—that we are bidding for, and hopefully the UK is successful in this. Are we losing out to other European countries?
Dr Hollinshead: It is very hard to say whether we are losing out, because I do not see all the opportunities, given the level of resource I have.
Q229 Albert Owen: Witnesses have told us, early on in this inquiry, that they have been there at the table representing the UK and that other countries have greater resources and are moving forward quicker.
Dr Hollinshead: It is an area where, if you want to get more into accessing EU funds and standards, my view would be I would need some more and different skill resource to do that.
Q230 Albert Owen: Just for clarification, you only have 1.5 resource in—
Dr Hollinshead: Yes, but that is about policy and strategy, and that has worked quite well. In addition, the CSA and I go—
Albert Owen: Are they based in Brussels or are they backwards and forwards?
Dr Hollinshead: Backwards and forwards, as I do and as the CSA does.
Q231 Graham Stringer: EDF told the Committee that they are working with you at DECC to develop a roadmap to 2050 in the energy sector. Can you tell us how these roadmaps are being developed?
Dr Hollinshead: There is a variety of work in place, as you heard today. As I said, there are several models. There is DECC’s 2050 calculator, which looks at different technology pathways and their costs. It also looks at the land use they would require, because for some things, the barriers, there is not enough land to do them. There is the CCC’s work on Markel, which again tries to take a pathway view in looking at different costs and difficulties in different pathways, and there is ESME.
In addition, we are doing some work on the system modelling, and you heard a lot of from your witnesses about trying to model the system. I agree that is an issue. That is work led by Craig Lucas, my head of engineering, who is working with EDF to do system modelling, trying to look at what the system is looking like going forward and understand the different systems and how they would look.
How they will ultimately fit together is, they will help us to understand the most cost-effective pathways to the future. As you have heard from other witnesses, things will change. Some technologies will succeed; some will not. The situation will change and we have to be agile, but they will help us understand the pathways and the different bits of the system that work and do not work together, so that we can prioritise better and write better policy. But the work that you are alluding to with EDF is more about systems modelling leading into the 2050 roadmaps, I think.
Q232 Graham Stringer: There has also been criticism that there has been a gap between the targets and that roadmap. Do you think that is a fair criticism?
Dr Hollinshead: I am sorry, which targets in particular?
Graham Stringer: Just the general 2050 targets, either sectoral targets or emissions targets, which are pretty tough.
Dr Hollinshead: I would put it another way. The targets are the targets. What we are trying to do is still work out what the best pathways are to get to those targets.
Q233 Graham Stringer: So, the criticism is fair, that the pathway is not worked out?
Dr Hollinshead: It is not so much not worked out—there is still debate about what the best pathway is and some of the figures in it. I would see it as part of an ongoing debate. We have things laid out in the carbon plan that suggest how we might get there, but people debate different things. The one thing that is interesting is you can look at all four models: everyone says that you need some energy efficiency, low carbon transport, CCS, nuclear and renewables. They argue about the levels, but no one seems to be arguing about the fact that you need something in all those areas. The debate is getting more granular about how much you put into different areas. I would not describe it as a disconnect; more the fact that it requires more detail and more work, which is exactly where we are trying to go. We have some initial thinking about areas that are important for the future and we need to get down to the detail a little bit more.
Q234 Graham Stringer: You are very clear, aren’t you, on what percentage of the UK’s energy requirement will come from electricity in 2050?
Dr Hollinshead: Yes. Again, with all these things, it is clear at the moment. I go back to the fact that a plan is a plan. As you have heard from the other witnesses, and I could not agree more, we need to learn as we go along and adapt that plan.
Q235 Graham Stringer: I would like to learn, because I think it is part of the criticism—you have the emissions targets, you have the sectoral targets—what does that electricity target mean for gas supply and how many homes in the country will be supplied with gas? Have you told the public what that will be?
Dr Hollinshead: I am afraid I do not get involved in the calculation of that target. My job is the technologies that support it.
Graham Stringer: Perhaps the Minister can tell us.
Gregory Barker: Are you alluding to the fact that we expect by the middle of the century to have switched to primarily electric heating from gas?
Graham Stringer: Yes.
Gregory Barker: Have the public been told? Is that what you are saying?
Graham Stringer: Yes. Have they been told what the implications of that are for gas supply? I am trying to get at the gap between the targets and the pathway and what the pathway will mean for the people who live in this country.
Dr Hollinshead: Let me try to have a go at it, although I do not set the targets. That is more down to other places. We are doing modelling, and one of the models is very much electricity based, where everyone has heat pumps and that sort of thing. Clearly, the implications are that you would need far less gas supply if you go down the route of everyone having efficient heat pumps and so on. However, there is a piece of work going on at the moment, which I am not core to but my head of engineering is, looking at the balance between an all-electric world and what you might still need the gas network for, and indeed whether the gas network had other things flowing down it, like methane and whatever else.
I can’t answer your question per se because we are still thinking about it. One of the things we do with our tools is to try to allow people to think about what different futures look like. What the future would look like if we have a lot of electric heat pumps is, clearly, there would be less of a gas network and there would be a demand for green electricity to drive those that is different to today. It would also have to cope with the peaks and troughs of heating in a way that it did not have to with just lighting and power.
Q236 Graham Stringer: What I am trying to get at is, with that ambitious target for electricity, how is it going to be possible to continue to supply gas to domestic users who want it?
Gregory Barker: I do not think we know yet. The only thing that is absolutely set in stone is the need to reduce our emissions by 80% by 2050. Beyond that we can have a good idea, but we are not setting or casting in stone any of these pathways. The further they go out the less certain they become. They will be driven by cost and technological innovation and they will also be driven by consumer acceptability and choice. We anticipate that the most likely and cost-effective route by the 2040s will be a principally electricity-based domestic heating economy. That is a forecast and I would challenge anyone to say whether or not in 1914, politicians sitting at Westminster could have accurately forecast what the world would look like in 1950. Did they anticipate the explosion of the nuclear bomb and the creation of nuclear power? Were they thinking of the other technological breakthroughs? It is important that we have a plan. It is important that we continue to invest in research and development that will inform that plan. We know that we need more innovation, but I do not think we can address with any certainty the exact shape of the energy economy in the 2040s.
Q237 Graham Stringer: But aren’t the numbers certain? If you are serious about those electricity targets, then people will not have gas supplied to their homes, whatever other innovations have been made, will they?
Gregory Barker: I think that is an assumption too far at this point in time. As Dr Hollinshead said, it is quite possible that there could be other types of gas. There could be biogas and so on. We simply do not know. We do not know what the consumer choice will be. It may be that there will be such advances in electricity, appliances for heating, that it becomes an absolute no-brainer.
Dr Hollinshead: The other point to make is that it will not be an on/off switch; it will be a transition over time. All I can try to do to give you confidence is say that we are thinking actively about that transition and what it means. Also, if we did not use the gas network just for natural gas, what else might we use it for? Like I said, biogas—something else.
Gregory Barker: There is certainly nothing that this Parliament or this Government can do to bind not just the next Parliament but Parliaments many decades down the road.
Q238 Graham Stringer: I understand that argument, but that is what targets try to do. Just two or three other areas. Can you tell us what—
Gregory Barker: No, with respect, targets are not trying to bind Parliaments. What we are primarily trying to do is set direction of travel. That is what we are trying to do.
Graham Stringer: It is legally binding until the Climate Change Act is repealed. They are legally binding like all laws.
Gregory Barker: No, but in terms of their implementation, we are not trying to prescribe how those targets will be implemented.
Q239 Graham Stringer: All right. I was just trying to get out the implication. Can you tell us what your plans are to boost investor confidence in the UK innovation sector over the period we are talking about?
Gregory Barker: The completion of our electricity market reforms sends a very clear signal about the intent of the UK. That is a key achievement of this coalition and this Parliament, and I was very glad about the strong cross-party support that there was for the Third Reading of the Bill. Innovation funding is also key to achieving renewable energy targets, carbon reduction targets and also fuelling the wider innovation economy. Our investment of up to £181 million over the current spending review period will directly leverage, we estimate, two to three times that amount in private sector investment. As I said earlier, we are supporting over 150 companies, including 60-plus SMEs. We know from the over-subscription for the funds that DECC runs that there is considerable investor appetite in the UK innovation economy. We think those measures of a strong regulatory framework and supportive strategic funding are having an important impact.
Q240 Graham Stringer: Some of our witnesses have told us that the long-term signals are not good enough at the present time. Do you think there is any way you can improve those signals?
Gregory Barker: Some of your investors have said that?
Graham Stringer: No, I do not have any investors; some of the witnesses. I am sorry if I said the wrong word. That is some of the evidence that we have had.
Gregory Barker: I am sure you could always tweak to improve. I am not saying that everything that we have in place is perfect. If you compare what we now have in place in the United Kingdom to comparable economies in Europe, we have more certain investor framework than Germany, for example. We now have not only the architecture for our reformed electricity markets but also, with the levy control framework funded through to 2020, we have the financing for low carbon deployment as well as the architecture in place. I do not think there are any other countries in Europe that could compete with that.
Q241 Graham Stringer: Two specific questions, if I may. Fusion seems to have dropped out of the array for investment. Has it, and is there a particular reason for it?
Dr Hollinshead: Fusion is funded by the Research Councils.
Q242 Graham Stringer: So DECC is not doing that?
Dr Hollinshead: Basically it is funded as part of the LCICG. I do not have to fund everything. DECC’s agenda is mainly addressed to two things. One is a big European project, a kind of Manhattan Project, if you like, that is being funded out in Europe. The second is funding from the Research Councils for work in the UK. They are doing the funding for fusion. It is not that I am not interested, but they are already doing it.
Q243 Graham Stringer: No, that explains it completely. The Committee heard some very interesting evidence when we were doing our inquiry on carbon capture in Sheffield from Professor John Allan of NET Power. Have you met him? Can you tell us about your assessment of his product?
Dr Hollinshead: I can’t really talk about assessments of projects because that gets a bit political, but I can tell you that we are talking to NET Power, amongst 13 other people we are looking to talk to, about innovative CCS projects. We certainly think that NET Power is a project that has potential to reduce the cost of CCS. We do talk to them, absolutely.
Graham Stringer: Thank you.
Chair: Good. Does that conclude the business? Is there anything else you wanted to say to us? Thank you very much indeed for coming and we look forward to seeing you next Wednesday.
Oral evidence: IPCC 5th Assessment Review, HC 907 46