Written evidence submitted by Rolls-Royce (CGE0039)

Executive Summary

• There is an opportunity for the UK Government to revisit existing approaches to supporting strategic technology development in the UK, which would help the UK meet clean emissions reductions targets and be welcomed by Rolls-Royce.
• Technologies are currently being developed within the Rolls-Royce Group that would benefit from such Government action through the Industrial Strategy, upcoming Aerospace Sector Deal and the Clean Growth and Future of Mobility Grand Challenges.
• Examples of these technologies include:

-         Aerospace Engine Electrification is urgently required to support a clean solution to the expected six times increase in global air passenger numbers by 2050, compared to a tripling of GDP. With regional aviation costs already 40% lower than high speed rail, increased convenience and flexibility will lead to disruptive shifts away from ground-based transport. The global opportunities are massive, particularly in areas with limited rail infrastructure such as India, China and the USA. Personal air transport will radically change with emerging technology, with aviation about to go through the biggest revolution since the dawn of the jet age. The challenge is how to complete this in a ‘clean’ manner. To mitigate the environmental impact of this growth, industry with the ACARE[1] organisation has set ambitious goals for fuel efficiency, NOx and noise. A systems approach and electrification are the critical enabling technologies along with improvements to gas turbine jet engines to achieving these goals, including the development of all-electric and hybrid turbo-electric propulsion. The UK is the 2nd largest aerospace industry in the world with £35 billion turnover, £30 billion of exports and employing 123,000 people[2]. It is well placed to lead this technological revolution. However the complexity of requiring changes to the airspace management and regulations, the ground support infrastructures, the air vehicles coupled with the need to change public perception means like the shift to electric cars governments must take a lead to support industry.

-         Nuclear Small Modular Reactors (SMRs) offer a convincing alternative to the uncertainties of large nuclear new build in the UK. For a relatively small investment outlay, SMRs avoid the complex challenges associated with nuclear mega-projects but require early investment in de-risking disruptive technologies - many years ahead of when industry can invest without support. Government research and development (R&D) investment is required to help develop game-changing new technologies so that UK industry can overcome the existing market failure of securing sufficient private financing to commercialise the power station design; bringing certainty to design, construction and operations, which in turn enables lower cost financing.

Introduction

Rolls-Royce is one of the world’s leading industrial technology companies. We provide power solutions for our customers that combine three elements: advanced technologies; system solutions; and system life. These are delivered as part of a virtuous cycle which begins with the development of innovative and cutting-edge technologies.

We are providing evidence to the House of Commons - Science and Technology Committee as the direction and growth of future technologies in our business will continue to help countries around the world drive towards meeting clean growth emission reduction targets, whilst specifically accelerating the shift to low carbon transport and delivering clean, smart, flexible power.

Specific technologies being developed within our Group would benefit from Government action, and show particular promise to help meet emissions targets and support the UK economy. These technologies include aerospace engine electrification and SMRs.

Carbon Budgets and Emission Reductions

1. A portfolio approach should be taken by the UK Government with respect to developing new technologies compared to deploying existing technologies, in order to meet carbon budgets and reduce emissions - combining lower-risk near-term options, with riskier longer-term investments. A full lifecycle approach should always be taken, with independent peer review of the lifetime development costs, management of the associated risks, and governance of the delivery schedule, all essential components of successful programme execution.

1.1  Aerospace Engine Electrification: Accelerating the shift to low carbon transport.

The journey to electrification in aviation is an important part of the journey to clean growth in aviation. It is one part of the wider activities on low emissions gas turbine propulsion, studies on alternative fuels and the wider design for the environment activities. However it is constrained by the fact that currently the energy density of batteries is a few percent of the energy density of aviation fuel. Countries like Norway are setting the bar with the intent to have short-haul aircraft entirely electric by 2040, but this still gives the need for clean hybrid solutions for longer flights out to beyond 2040. Market analysis by the Aerospace Technology Institute (ATI), considers introduction of hybrid electric single aisle aircraft to be possible around 2035, hybrid electric wide bodies in circa 2043 and all electric short regional aircraft (fewer than 20 passengers) could be introduced by 2025. This analysis suggests that the total global market value of hybrid and all electric aircraft between 2018 and 2050 to be approximately $6 trillion, and the UK market opportunity value (if the UK invests in these technologies) could be an estimated $700 billion during this period.

1.2  Investments in hybrid and all electric technologies will also position the UK to address more electric opportunities on next generation updates of conventional aircraft, valued at $3 trillion through to 2050 with a UK opportunity of around $126 billion. Overall value for just the systems community in the UK on electrical systems technologies could be over $150 billion between 2018 and 2050.

1.3  The acceleration of the change to cleaner aviation requires a portfolio approach to the numerous systems and technologies which together can dramatically reduce emissions. The Amy Johnson – Advancing Mobility Through Flight Industrial Strategy Challenge Fund bid is the best example of how a whole of aviation can support revolutionary change. Government support for this challenge along with the backing of key aerospace businesses could allow the acceleration towards even cleaner aviation and the achievement of ACARE targets. This would be supported by new entrants to aviation, local airfields, National Air Traffic Services (NATS) and the Civil Aviation Authority (CAA) looking at safe airspace challenges, and the UK National Aerospace Research Consortium (UK ARC) of Universities leveraging world leading research. It could be seen as the next natural steps on from the UK Government support to the Rolls-Royce- Airbus E-Fan X hybrid electric demonstrator and the Faraday battery challenge (£246m). The Faraday challenge is a good example of cross-industry collaboration with an initial focus on automotive that can be followed by aerospace building on the foundations with additional supported investment making the technology suitable for flight. If technology developments can be accelerated in 2019 it is believed that a UK hosted end to end demonstration can be started in 2020 and expanded to prove more of the critical technologies and interdependencies in the period up to 2025. This would position the UK as a world leader, with the potential to unlock a share of over $675 billion to 2050 through demonstration of electrically enabled aviation systems incorporating low environmental impact, increasingly autonomous air vehicles and airspace management, transforming connectivity, boosting UK exports and productivity and enriching lives through higher mobility.

1.4  Nuclear Small Modular Reactors (SMRs): Delivering clean, smart, flexible power. Since 2007, the UK Government has recognised the important role that nuclear has to play within its energy policy. This ongoing commitment to nuclear has led to multi-billion pound investments in the UK’s planned nuclear plants from overseas Governments and companies. But it is a huge task, and in order to successfully deliver large new build reactors, there are significant hurdles to overcome – financing new large plants is expensive; few organisations are willing to take on such constriction risks and there is low confidence that these projects can be delivered on time. As a result, our reliance on overseas technology and costly foreign investment has resulted in the UK nuclear industry becoming fragmented. It has limited the available opportunities for the UK to create its own intellectual property and invest in 21st century capability. Yet this will be vital to reduce the cost of generating future electricity and to create value through the development of new products, services and technologies for both our home and international export markets.

1.5  There is another way, which is related to developing new SMR nuclear technologies as opposed to deploying existing technologies. Rolls-Royce has a global pedigree of more than 50-years in the nuclear industry and is leading a consortium of companies in the UK’s largest-ever nuclear engineering collaboration - developing a SMR power station[3] that employs a modular concept and can be installed and commissioned quickly on-site because it will be factory built and tested. It will be a new way to generate electricity that will be available to the world, with the first plant operational by the early 2030s. Rolls-Royce is prepared to invest in this programme, if matched by Government support. The development of a UK industry SMR power station will help transform the UK’s nuclear sector, elevating it to a global leading position and driving significant growth by providing up to 40,000 jobs and a £52 billion boost to the UK economy by 2050[4], as well as catalysing inward investment in regions across the UK. Such a development builds upon commitments in the Nuclear Sector Deal[5], which target a 30% reduction in the cost of new build projects and a globally competitive supply chain, as SMRs will help nuclear energy become an investible proposition; driving down the cost of nuclear generated electricity by 60% by 2035.

1.6  Success for the UK SMR programme will be determined by completion of the third stage of the nuclear design regulatory approval. This will unlock £1.8 billion of follow-on investment in the early 2020s. The resultant new UK industry will be worth £15 billion[6] by 2030 with export potential of over £250 billion by the mid-2030s. First orders for this new power station are anticipated in the mid-2020s.

Government Support Requested

2. In truly free-market conditions, Government support for a “technology neutral” and open competitive approach would widely be accepted by industry. However, areas of clean growth (and energy policy in particular) are not true free market domains. UK energy policy, for a mix of low carbon sources and for energy security, fosters constraints that can lead to a range of markets and mechanisms.

2.1  As such, developing new technologies within these markets, or new technologies that require new markets, necessarily requires a level of Government intervention. At present, this intervention is limited to overarching policy frameworks which have limited definition around the desired strategic outcomes. However, with the welcome introduction of an Industrial Strategy and Clean Growth Strategy there is an opportunity to revisit approaches to strategic technology development in the UK. 

2.2  A goal-based approach, where the Government can set broad goals and challenges that the UK industrial and academic base should aspire to meet is an exciting approach that might be taken. This has recently been seen in engagements such as the Industrial Strategy Challenge Fund (ISCF) and historic competitions on Carbon Capture and Storage (CCS) technology.

2.3  The success of such endeavours should be judged by transparent criteria which, amongst other things, show clear benefit and value for money to the UK taxpayer. These metrics for success can be determined through an inspection of the clean growth and industrial strategies; covering aspects such as place, people, skills, sustainability and economic return.

2.4  Aerospace Engine Electrification: This latest revolution in aviation can be compared to the first two where global events necessitated the UK to stand up and lead from the front. The first two were international conflicts, this third is the flight to prevent a global environmental disaster, the precursors are different but the need for strong UK governmental leadership is the same, and in this case clean growth can also lead to increase in GDP through an increased share of an increasing global market.

2.5  Advanced electrical and gas turbine technologies are critical to future aircraft. Aviation’s demands on safety criticality and weight are far higher than other industries such as automotive and there are further challenges with high voltages at altitude. Disruption across the transportation sectors, including aviation is already happening. New regulations and standards are being defined which the UK must play a role in to shape the Department for Transport’s Aviation Strategy will help to set the direction for Government. Over the next 10 years technology is rapidly advancing on multiple fronts; new market positions and credibility need to be established, ensuring the UK rapidly gains new capabilities for this shift in transport. The rest of the world is accelerating towards this more electric future; large Government backed investments are being made today in the US and China and could result in expertise and products being imported rather than being produced in the UK.

2.6  Electric air vehicle technologies supported by academic research could quickly be brought forward into industry-led electric conventional and vertical take-off and landing aircraft demonstrators. They could be tested in a new urban and regional air traffic management system, including innovation in the ground to air interface (airports, airfields, urban pads etc.). This will support the development of the required regulatory frameworks for a future aviation ecosystem, with electrical and gas turbine technologies relevant to both conventional and novel aircraft designed to meet ACARE 2050 targets. The UK must develop new systems and electrical technologies to protect our current global competitiveness and capture market share in emerging markets.

2.7  The journey to electrification has the added potential to improve UK productivity through manufacturing and efficient services. It will also create high value jobs attracting world class engineering and science professionals. Electrification in aviation is an enabler to new route network options reducing disparity between the regions and enhancing regional growth through improved linkages to enterprises, science parks and cities complementing ground-based transportation.

2.8  Focussed efforts with an Industrial Strategy and examples like potential ICSF funding of the Amy Johnson Challenge will provide the unifying catalyst for UK industry, agencies and academia showcasing the UK and positioning it at the forefront of the impending electrified air transport revolution by 2025; enabling the UK to capture large future export markets. In particular government support:

• Connects national and local government support –integration with transport policy, energy policy, taxation, regions, public engagement
• Enables engagement of government organisations –regulation, security, standards, broader national/ international ATM
• Catalyses industrial investment in high risk longer term technologies
• Provides Infrastructure investment out of scope of industry
• Enables investment at scale, at system of systems level

2.9  Nuclear Small Modular Reactors (SMRs):  Financing the development programme for a SMR is challenging. In the pre-licencing stage, any initial industrial partner investment will be by way of engineering, intellectual property, technology, market contribution and possibly money. Sources of partner equity with a willingness to take development and nuclear risk before licencing completion are scarce. Therefore, Government support is required to fill the funding gap. Furthermore, departures from today’s baseline in nuclear power station technology are required to produce a SMR power station design that meets competitive targets. This innovation introduces programme risk that cannot be underpinned on a purely commercial basis. Beneficiaries of the large new build reactor programme are mainly overseas companies underpinned by their own government sponsored technologies being brought to the UK rather than the UK nuclear industry. This position is unsustainable for UK commercial companies where ownership of routes to market is a pre-requisite to generating income for re-investment in future technologies. Recent reviews (e.g. House of Lords reports 2011[7], 2017[8]) have identified the need for significant and focussed investment into nuclear R&D if the UK is to return to the top table of the global nuclear industry.

2.10          The design, development and construction of a SMR power station is a 12-year programme. Achieving a 60% cost reduction requires early investment in de-risking disruptive technologies many years ahead of when industry can invest without support. Our mission is to secure the Government R&D investment to develop game-changing new technologies so that UK industry can overcome the existing market failure of securing sufficient private financing to commercialise the design. In contrast to international competition, the UK industry needs to focus on technology areas (such as digital power station design, advanced modular construction/manufacturing and the transformation of through-life critical asset management) that will bring certainty to design, construction and operations, which in turn enables lower cost financing, producing a compounding effect. Such R&D and innovation is equally applicable to other major infrastructure delivery, bringing quantifiable benefits over the next 20 years as the UK undertakes some significant programmes.

2.11          The SMR market also means that the Government will gain a credible alternative to the current Gen 3 nuclear programme as recommended by the Public Accounts Committee in 2017. However, it will not be possible to take the SMR programme forward absent of Government intervention and, without this support now, the opportunity will be lost to other nations. The UK will remain a ‘buyer’ of nuclear technology that will continue to irreversibly lose capability.

Conclusions

3. Ultimately the goal for the Clean Growth strategy is to deliver “clean growth”. History demonstrates that the market will choose the cheapest source of energy if left to its own devices. Government intervention, through fair and transparent processes - with clearly defined metrics and requirements to deliver UK benefit, can be a means to drive the changes needed in this area.

3.1  By definition, picking the selection metrics will ultimately result in the selection of a sub-set of technologies that can meet these requirements. This is not the Government picking a winner, because private financing for product acquisition or project deployment is a necessary priority. However, Government can (and should) be involved in preparing, supporting and, in appropriate circumstances, investing in technologies that bring clear and obvious benefits to UK plc.

3.2  Aerospace Engine Electrification: Future clean aviation requires an airborne mass transit and services system with electrified/ hybrid air vehicles capable of operating in congested urban environments, inter regional and further, which impacts the environment far less than other transport modes at a cost affordable to the majority of the population. New business approaches will need to be developed to exploit the benefits of this system. Internationally, other governments are working with industry to advance the required systems and electrical technologies and accompanied regulations. Through Government support for the industry and support for R&D for future technology, we can make the most of the opportunity.

3.3  The development of Nuclear Small Modular Reactors is a key pillar of the nuclear sector deal and broader Clean Growth and Industrial Strategies. Over the last three years, a consortium has formed comprising some of the leading UK organisations with an interest in growing the technical, programmatic and commercial capability of the UK nuclear industry. Government funding to enable research and investment into SMRs is required now and will allow the development of technologies to support innovative nuclear power station design, construction and operation methods. These new SMR power stations will need no public subsidy to enable construction. This will provide; a credible and sustainable route to meeting Government targets for CO2 reductions; an energy system mix with reliable, low carbon sources of electricity; and wider productivity improvements to deploy on future public infrastructure programmes.

Declaration of Interests

Rolls-Royce has submitted requests for R&D funding to UK Research & Investment (UKRI) for the technology areas identified in this submission. We await the determination of these requests.

October 2018