supporting clean energy rd&d: grants for all?

Supporting clean energy RD&D:

Grants for all?

Jean-Michel Glachant Director Florence School of Regulation

European University Institute (Florence, Italy)

www.florence-school.eu

Symposium “R&D on Energy”

We talked today about

• The need for public support – Environmental externality not adequately priced

– Innovation externalities and spillover effects

– Often high capital investments paired with substantial economic, technological and regulatory uncertainties

• The effectiveness of public support – Patenting as a proxy for innovation

BUT: Is public money also spent efficiently?

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Supporting clean energy RD&D Billions of €

• We do not talk about peanuts:

In 2010: EU + national

+ corporate RD&D investments

= >5bn €

• … and we talk about these billions of € in times of austerity

Tight fiscal constraints on national budgets

Countries are reconsidering what their tax payers can afford in terms of low-carbon energy technology support

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Source: SETIS


US Department of Energy: Hydrogen technology prize

• $ 1 million prize

• Competition opened in 2010

• Clearly specified technical criteria for advancements in materials for H2 storage – Who will be the first?

European Investment Fund: Equity investments

• European Investment Fund provides risk finance to SMEs via intermediaries

• E.g.: 2008 investment into Capricorn Cleantech Fund, which in turn invests into €4-6 mn projects

Supporting clean energy RD&D Grants for all? Some alternatives:

Investment tax credits

• US ‘Storage Technology of Renewable and Green Energy Act’ (issued in 2009) extends investment tax credits to electricity storage

EIB: Low-interest loans

• Awarded, for instance, to Energias de Portugal for upgrading pumped hydro plants


Innovation projects differ!

• Technology itself Consumption- or production-oriented? …

• Level of maturity Basic research? Development? Demonstration? …

• Type of innovation Incremental innovation? Radical innovation?

• Typical innovating entity Single brain in the garage? Large company? Regulated entity? …

• Capital intensity

• … 5


Supporting clean energy RD&D Grants being the most expensive type of instrument

Public loans/ loan guarantees

Public equity

Technology

prizes

Benefits

related to inv.

Grants and

contracts

Subsidies

Increasing public costs


Supporting clean energy RD&D Check alternatives!

Public loans/ loan guarantees

Public equity

Prizes Benefits

related to inv.

Grants and

contracts

Subsidies

Increasing public costs

Relevant e.g. if

illiquid capital

market

For mainly lower-

cost innovation

with well

quantifiable

market prospects

For larger

innovating

entities with

proven financial

capability

For risky, but

potentially highly

profitable

innovation

For investments

of modest size

For small- to

medium-sized

innovating

entities

For early low-

cost innovation

For near-to-

market

incremental

innovation

Typically larger

innovator or

regulated firms

If all other

instruments

would fail

Grants should be an

instrument of last resort


Supporting clean energy RD&D + smart design of public support

Encourage efficiency while not discouraging private sector participation

Use competition for funds whenever possible

Public funding should be output-driven whenever suitable with engagement of private innovators

– High project costs can require the provision of funds upfront

– Projects with high probability of failure might require support unconditional to performance

Co-funding creates incentives on the innovator’s side to carry out its function efficiently

Institutions set up to allocate funds need to be lean and flexible enough to avoid institutional inertia and lock-in

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www.florence-school.eu 9

Thank you for your attention Email contact: [email protected]

Follow me on Twitter: @JMGlachant Read the Journal I am chief-editor of: EEEP “Economics of Energy & Environmental Policy”

My web site: http://www.florence-school.eu

supporting clean energy rd&d: grants for all?

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