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Supporting clean energy RD&D: Grants for all?

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FSR Director speaks at the Academic Symposium on “R&D in Energy”, in Barcelona, on 28 January

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Supporting clean energy RD&D: Grants for all?

  1. 1. Supporting clean energy RD&D: Grants for all? Jean-Michel Glachant Director Florence School of Regulation European University Institute (Florence, Italy)
  2. 2. 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? www.florence-school.eu 2
  3. 3. Supporting clean energy RD&D Billions of € • We do not talk about peanuts: In 2010: EU + national + corporate RD&D investments = >5bn € Source: SETIS • … 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 lowcarbon energy technology support www.florence-school.eu 3
  4. 4. Supporting clean energy RD&D Grants for all? Some alternatives: European Investment Fund: Equity investments • E.g.: 2008 investment into Capricorn Cleantech Fund, which in turn invests into €4-6 mn projects • European Investment Fund provides risk finance to SMEs via intermediaries • Investment tax credits US ‘Storage Technology of Renewable and Green Energy Act’ (issued in 2009) extends investment tax credits to electricity storage US Department of Energy: Hydrogen technology prize • EIB: Low-interest loans • Awarded, for instance, to Energias de Portugal for upgrading pumped hydro plants www.florence-school.eu $ 1 million prize • Competition opened in 2010 • Clearly specified technical criteria for advancements in materials for H2 storage – Who will be the first?
  5. 5. 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 • … www.florence-school.eu 5
  6. 6. Supporting clean energy RD&D Grants being the most expensive type of instrument Increasing public costs Public loans/ Public equity Subsidies loan guarantees Technology prizes www.florence-school.eu Benefits related to inv. Grants and contracts
  7. 7. Supporting clean energy RD&D Check alternatives! Increasing public costs Public loans/ Public equity Subsidies loan guarantees Prizes Relevant e.g. if illiquid capital market For mainly lowercost innovation with well quantifiable market prospects For larger innovating entities with proven financial capability www.florence-school.eu For risky, but potentially highly profitable innovation For investments of modest size For small- to medium-sized innovating entities For early lowcost innovation Benefits related to inv. For near-tomarket incremental innovation Grants and contracts If all other instruments would fail Typically larger innovator or regulated firms Grants should be an instrument of last resort
  8. 8. 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 www.florence-school.eu 8
  9. 9. Thank you for your attention Email contact: jean-michel.glachant@eui.eu 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 www.florence-school.eu 9

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