evidence from rd&d spending for renewable energy sources in the eu

8/14/2019 Evidence from RD&D spending for renewable energy sources in the EU

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Evidence from RD&D spending for renewableenergy sources in the EU

Mario Ragwitz a, *, Apollonia Miola b,1

a

Fraunhofer Institute for Systems and Innovation Research, Breslauer Strasse 48, 76139 Karlsruhe, Germanyb IEFE, Universita ` Commerciale Luigi Bocconi, Viale Filippetti 9, 20122 Milano, Italy

Received 22 October 2004; accepted 23 November 2004Available online 29 January 2005

Abstract

This paper aims at giving a critical picture of the expenditures in research, development anddemonstration (RD&D) for renewable energy sources (RES) in the EU-15 Member States. Byproviding this objective a number of performance indicators are proposed, evaluated and discussed.

RD&D performance is measured in terms of RD&D intensity, e.g. spending per unit of GDP, as wellas with regard to RD&D output such as the number of patents in the different sectors of technology.

The evaluation of the funds spent can help the rationalisation of the efforts made to supportrenewable energy RD&D and facilitate the joint investments in RD&D activities. This perspective isessential for facing the increasing competition that the EU industry meets in the international marketsforRES. Theknowledgeandrationalisation of theRD&D spending in research activities is thestartingpoint for a common approach to strengthen the EU industry in this eld of expected strong growth.q 2005 Elsevier Ltd. All rights reserved.

Keywords: R&D expenditure; Innovation system; Research policy

1. Introduction

The key issues for increasing the use of renewable energy actually relate to makingthese technologies cost-competitive and integrating them into the existing system.

0960-1481/$ - see front matter q 2005 Elsevier Ltd. All rights reserved.doi:10.1016/j.renene.2004.12.001

Renewable Energy 30 (2005) 16351647

www.elsevier.com/locate/renene

* Corresponding author. Tel.: C 49 721 6809 157; fax: C 49 721 6809 272.E-mail addresses: [email protected] (M. Ragwitz), [email protected]

(A. Miola).1

Tel.: C 39 2 5836 3808; fax: C 39 2 5836 3890.
http://www.elsevier.com/locate/renenehttp://www.elsevier.com/locate/renene


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In absolute gures, the renewable business sector is still small. It is at least partiallya high-tech sector with emerging technologies depending on the results of research,development and demonstration (RD&D). The RD&D effort in the eld of RES inaccordance with national and European policies on energy, and EU Framework programmes have made available considerable funding allocated for developing REStechnologies. Complementary national RD&D programmes exist, with emphasis ondifferent RES topics, according to national resources and preferences. The future successof renewable energy technologies can only be assured if efforts in research, developmentand demonstration are maintained or strengthened for the next years with emphasis on animproved co-ordination of different programmes.

Todays most promising RES technologies with regard to future potential are based onsolar energy, biomass, wind, hydro power and geothermal energy.

Photovoltaic solar energy conversion is the most expensive form of renewable energyat present but exhibits the highest learning rates. It holds the largest long-term potential,and can be easily integrated into existing electricity systems. Many national andinternational research programmes in photovoltaic technology set out goals to achieve acertain cost and efciency target within a certain time. The research is focused onmaterials development, production technologies and integration into buildings.

For biomass, the priority is the development of integrated approaches from sustainablebiomass procurement to fuel production and use. Further needs for R&D exist in the entirechain of biomass use, from the resource production, supply, upgrading to a fuel, thestorage of the fuel, the feeding system to the conversion reactor and the energy recoveryfor heat and/or electricity. With regard to the conversion systems, thermochemicalprocesses like combustion, gasication and pyrolysis as well as biological processes likefermentation and anaerobic digestion will have to be further developed.

At present, wind energy compared with traditional energy sources is competitive atvery good sites, even without the compensation for the environmental advantages. In thiscontext, the role of R&D concerns developing and evaluating participation models andpolicy instruments, development of new materials for rotor blades and innovative controlalgorithms, tackling the challenges of the large-scale off-shore application of windtechnology, reducing acoustic noise emission, gradually extending or modifying theexisting distribution grid so it can absorb a large amount of electricity generated at a large

number of locations distributed over a large scale.Hydro power holds the largest share of renewable electricity production. Large-scalehydro power is technically mature and its R&D requirements are generally being welltaken care of. In the case of small hydro power, the main technical thrust is to improve thecost-effectiveness of the technology for use on the more common low-head sites.

With regard to geothermal energy, the major efforts in research and development relateto the application of new technologies such as hot-dry-rock techniques for electricityproduction.

Finally, it is widely recognised that technical progress is a necessary, but not sufcientcondition for the large-scale integration of RES.

Non-technical parameters play a major role in the process of their market penetrationand in many cases they are supposed to be the most important barriers for RESdevelopment. They are either of a political and legislative nature or relate to institutional

M. Ragwitz, A. Miola / Renewable Energy 30 (2005) 16351647 1636


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aspects as well as to the limited knowledge about technical, economic, and socialadvantages of RES. With regard to the costs of renewable technologies, existing marketimperfections still limit the establishment of fair competition with conventional systems.Socio-economic research is necessary to overcome these barriers.

2. Measurement of RD&D performance

The aim of this paper is an analytical survey of the expenditures in research,development and demonstration (RD&D) for renewable energy sources (RES) in theEU-15 Member States trough the elaboration of performance indicators to highlight thesuccess factors in this eld.

Before analysing the proposed indicators, it is necessary to emphasise that themeasurement of RD&D performance poses many problems. This can be related to thenature of the RD&D activity: rst, the degree of uncertainty of an RD&D activity is hardlydenable and, thus, measurable only with major difculties; secondly, the ultimate resultof RD&D activity can often be viewed only after years [1,2] . Therefore, measuringtemporal correlations between RD&D spending and the corresponding output is difcult.Traditionally, performance measures of the RD&D function have more frequently beenrelated to RD&D input than output [3].

RD&D spending is an input factor, which should strengthen the economic growthand competitiveness. In this context, the questions arise, whether the RD&D spendingcontributes to the growth and competitiveness 2 of a sector and enlarges the welfare of societies. An analysis of these questions requires an identication of input-outputrelationships between RD&D activities and their results. Typical results can be thenumber of patents in a sector, the turnover of the corresponding industries and theirmarket share. One expects a positive relationship between the resources allocated toRD&D and RD&D output and therefore, the higher RD&D expenses, the moreeffective the output.

The impact of RD&D on business performance can be measured based on measures of protability or market share and implicitly lie on the assumption that there is a relationshipbetween RD&D success and market share or protability without eliminating the effects of other factors.

Some studies [4] propose breaking down the contribution of technology to thecorporation success and identifying those that are the most dependent on the RD&Dperformance. RD&D return (dened as the ratio of the prots to RD&D investment)is viewed as the result of two major factors: RD&D productivity, that is the ratio of technical progress to RD&D investment, and RD&D yield, that is the ratio of protsto technical progress. Although it is a valuable attempt to identify quantitativemeasures of RD&D performance, how to measure the above variables remainshighly fuzzy [1].

2 The competitiveness is a relative concept; RD&D programmes often operate in the pre-competitive area andthe time needed for the application of its results may be long.



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Finally, in the analysis of the RES RD&D performance, the conuence of several trendshave to be considered to understand the choice of amount of investments in the RD&D of the energy sector.

First, low prices for conventional fuels have a direct effect on market interests intechnological advances: new alternatives must compete with established technologies thatprovide cheap energy using conventional fuels. RD&D expenditures are also affected byenergy prices: the energy-technology RD&D budget after reaching in response of the oilshock of the late 1970s and early 1980s, have since declined and stabilized [5,6] . At thesame time the energy sector is also altered by a number of factors: the deregulation andrestructuring of the energy markets; the privatization of the energy sector; the impacts of air pollution and the GHG emissions [7].

3. Analysis of the performance indicators

3.1. Denition of the indicators

In these sections some performance indicators for RES RD&D expenditure in the EU-15Member States are shown. They have been elaborated on the basis of the data collected bythe REDS project [8] through a questionnaire and a database specically designed. REDS(Research & Development Spending: a survey of RD&D spending for renewable energy inthe EU countries) is a research project funded by the European Commission within the fthRTD framework programme.

Predominantly, indicators relating to RD&D input will be shown. Only for the sectorsof wind power and photovoltaics we will analyse the relationship between RD&Dexpenditure on the one hand and corresponding outputs, e.g. patents and turnover of industries, on the other hand. For the other sectors, the results on RD&D output turned outto be statistically insignicant due to the lack of data or to the fact that, for example, thenumber of patents in a specic sector was too low. More specically, the followingindicators have been analysed:

1. RD&D intensity, dened as the ratio of RES RD&D expenditure and: the Gross Domestic Product (GDP); the total governmental budget; the number of capita; the general RD&D budget for energy; the total national RD&D budget.

2. Correlation between governmental and private spending;3. RES RD&D expenditure and human resources involved in RES RD&D;4. RES RD&D expenditure and number of patents in a specic technological sector.

3.2. RD&D intensity

One typical RD&D intensity measure is dened as the percentage of RD&Dexpenditure of Gross Domestic Product (GDP). Other RD&D intensity measures consider



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For Ireland the same conclusion seems valid, still it has to be mentioned that both thebudget for RES RD&D and for energy research are very small.Denmark, the UK and Portugal spend even more than half of their budget for energy

research for the RES. In most other EU countries, the RD&D for RES is funded with2040% of the total energy research budget.

Table 1 shows the budget per inhabitant for RD&D of RES of each country split into thedifferent sectors.

The sector, for which the highest amount per inhabitant is spent of each country isprinted bold;

The country, which assigns the highest budget per inhabitant for RD&D for a specicRES-sector (of all EU-15 countries) is highlighted green.

Comparing the absolute amount of money spent per inhabitant in a specic sector oneobserves large differences. While Denmark, Finland, and Sweden spent more than oneEuro per inhabitant for the RD&D of biomass use and the Netherlands spend more thanone Euro per inhabitant for RD&D of photovoltaics, countries like Spain, France, Irelandand Portugal spend only a few cents per inhabitant for the RD&D in their main sector of renewable energy. RD&D in the eld of wind energy nds the strongest funding per capitain Denmark and the Netherlands.

Besides analysing different RD&D intensities like the per capita expenditures forRD&D, the correlation between the public RD&D spending and related quantities can beassessed. For some quantities such a correlation will naturally exist, e.g. between the

Fig. 2. Ratio of the budget for RD&D of RES to the RD&D budget for the energy sector (blue) and ratio of thebudget for RD&D of RES to the total RD&D budget (red). (For interpretation of the reference to colour in thislegend, the reader is referred to the web version of this article.)



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Table 12001 budget for RD&D for RES per capita and sector for the European Union


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public and the private funding for RD&D since many public funds are directly linked toa certain amount of private contribution. For others such a correlation will be ratherhypothetical as, for example, between the public RD&D funds and the turnover of therespective industries. The latter kind of dependence will be discussed later for individualtechnologies.

The correlation between the governmental and private expenditures for research anddevelopment for renewable energies is shown in Fig. 3. Generally, a positive correlation isfound between public and private funding. Public budgets for RES RD&D attract privateinvestment in RD&D of the same range. Still the gure shows that some countries aremore successful in creating a leverage effect to the private market than others. Generally, itis very difcult to collect reliable data on private funding, therefore data only for selectedcountries are shown.

3.3. Technology specic assessment

3.3.1. PhotovoltaicsSince about the middle of the 1990s, a strong increase of the installed capacities of

photovoltaic cells can be observed in many European Union countries with Germanyclearly dominating the market. The average growth rate of the photovoltaic powerproduction reached about 40% annually during the last decade. Major production facilitieshave been established in Germany, Italy, Spain the UK and France. Despite this success it

has to be kept in mind that electricity production costs of photovoltaic installations are stillmuch higher than conventional electricity prices. Therefore, signicant R&D efforts arerequired in the near future in order to bring the costs of photovoltaic technology down

Fig. 3. Correlation of the governmental and non-governmental expenditures for research and development of renewable energies.



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and to reach a self-sustaining growth of this sector. As shown in Table 1 considerabledifferences regarding the amount of money spent for RD&D of photovoltaic technologycan be observed. Leading in the funding per capita are the Netherlands and Germany, in2001 they spent 1.12 and 0.76 V per capita for research and development in thephotovoltaic sector, respectively. In the second group are Denmark, Italy, Sweden and theUK with spending between 0.20 and 0.50 V per capita. Other countries spent considerablyless than 0.20 V per inhabitant, even though some of those countries have large potentialsfor photovoltaic electricity production and have in some cases also establishedphotovoltaic cell production capacities.

The RD&D spending for photovoltaic technology during the period 19962001 isshown in Fig. 4 for the six European countries with the highest spending in absolutegures. A crucial question is how the public RD&D spending correlates to the industrial

production of photovoltaic equipment. Generally, it can be shown that this correlationexists in qualitative terms, however no one to one correspondence can be found betweenthe RD&D and the market share of the different countries. German companies are leadingthe photovoltaic cell production in Europe (as for the RD&D spending) followed by theUK, the Netherlands and France. The level of the Italian industrial cell production was atless than halve of the French value, whereas Spain had the fourth highest value despite thelow RD&D focus in the photovoltaic sector. In all countries except Germany the market isdominated by only one or two companies, whereas in Germany about eight companieswith signicant market share exist.

Off course RD&D is not the only and perhaps not even the major driver for the

establishment of a prospering photovoltaic industry on a country level. RD&D efforts haveto be supplemented by market incentive programmes like investment incentives forprivate costumers or feed-in tariffs as is the case for example in Germany. Furthermore,

Fig. 4. Funding of RD&D of photovoltaic technology in the European countries, which produce photovoltaic cells(for UK no data before 2000 available, for Spain no data for 1996 available).



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the learning system for photovoltaic technology is global and the major fraction of the photovoltaic cells is produced by globally operating companies like BP Solar, ShellSolar or Sharp. Therefore, these companies do not primarily depend on the RD&Dspending in their home countries, but normally operate production lines in countries thatoffer favourable conditions for this technology. In some cases a company from a country Aproduces photovoltaic cells in a country B with relatively low labour costs and sells themajor part of the nal products in a country C, which offers high market incentives, e.g. BPSolar as a British company has production lines in the United States, Australia, Spain, theUK and France and a large market share in Germany. For the reasons given above no directlink between the efforts of a country for RD&D for photovoltaic technology and theestablishment of related industries exists.

Finally, we would like to discuss the number of patents for photovoltaic technology as

compared to the RD&D spending in this sector. In a major part of the economics literaturepatents are generally accepted as one of the most appropriate RD&D performanceindicators. An application for a patent indicates that there has been a production of newknowledge linked to an invention, and more importantly, that this knowledge may havepotential economic returns. As public information, patents are also an important vehicle totransfer of technologicalknowledge. Interpreting this indicator there are some limitations toit that have to be kept in mind: not all the inventions are patented (rms can choose otherstrategies to protect inventions); some sectors have much higher propensity to patent thanothers.

In Fig. 5, we show the number of patents for photovoltaic technologies led at theEuropean Patent Ofce in 2001 as a function of the RD&D spending of the correspondingcountries. It can be seen that countries with high expenditures for RD&D also tend to havea higher number of patent applications. However, due to the generally low number of patents no statistically reliable relation can be obtained.

Fig. 5. Number of patents in the photovoltaic sector as a function of the yearly funding of RD&D of photovoltaicsin 2001 by EU countries governments.



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3.3.2. Wind energyUntil 2001, in Germany, Spain and Denmark, wind energy plants with a total capacity

of more than 14.000 MW have been installed. The total installed capacity in thesecountries has almost doubled every two years during the last decade. But also most of theother EU countries and in particular the Netherlands, the United Kingdom, Austria,Sweden, Belgium and Greece show increasing capacities. The growth of wind energy inthese nations is normally stimulated by effective market incentive schemes supplementedby favourable regulatory conditions. Compared to the sector of photovoltaic wind energyis already a rather matured technology. Whereas public RD&D plays a very important rolein the early process of technological development its relevance decreases as the companiesinvolved in turbine design develop their own RandD capabilities.

The per capita spending for RD&D in the sector of wind energy can be observed inTable 1 . Leading in funding are Denmark and the Netherlands spending 1.03 and 0.89 Vper capita for the RD&D of wind energy systems in 2001, respectively. However, thesuccess in terms of industrial production of wind turbines has been very different in bothcountries. Whereas Denmark has established leading industries in the eld of wind turbineengineering no such development took place in the Netherlands. The major differencesbetween the two countries with respect to the innovation system in the eld of wind energyhave been extensively studied, e.g. in [9].

Only in Spain, Germany and Denmark, wind turbines are produced with signicantworld market share. With respect to industrial output, the Danish companies are leading.As can be seen in Fig. 6, Denmark produced in 2001 wind turbines with a total capacity of

3098 MW, considerably more than Germany (2444 MW) and Spain (840 MW).Furthermore, Germany and Spain are mainly active on their home markets, whereasexport markets are of dominating importance for the Danish industry (besides thedomestic off-shore markets).

Even though Denmark assigns a signicant amount of funding to the RD&D of windenergy systems, the ratio of the turnover of the Danish industries to the RD&D spending isby far higher than in the other two countries: Spain and Germany. Each Euro for

Fig. 6. Production and international market share of wind turbines in the leading European countries in 2001.



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the RD&D in 2001 comes along with about 441 V industrial turnover. In Germany, thisratio is 163 and in Spain only 69see Fig. 7. Denmark clearly benets from its pioneeringrole in wind engineering and from the establishment of a strong domestic market for windenergy technology since the beginning of the 1970s. A highly interactive learning andinnovation system has developed in Denmark, which involves especially turbinemanufacturers, research institutes, technology users and turbine owners. Currently,large industrial enterprises such as Vestas are the main drivers for the technical innovationin the eld of wind energy. The present public RD&D spending is only of minor relevancecompared to the activities of the dominant industrial companies in this sector.

The number of patents led in the wind energy sector is generally rather low. Manytechnological developments are characterised by a gradual change like the up-scaling of the turbines rather than major technological breakthroughs (exceptions from this rule arethe change from stall to pitch controlled turbines, the introduction of gearless machines

or the introduction of the variable speed concept). Furthermore, most turbinemanufacturers developed from small and medium size companies at the beginning of the technological development and these companies were not used to international patentactivities. Stronger focus on international patents can only be observed very recently.Comparing the EU Member States with regard to the number of wind energy patents,Germany clearly dominates the scene followed by the Netherlands, Denmark and Spain.

4. Summary and conclusions

RD&D for renewable energy sources constitutes a major share to the total energyrelated RD&D spending in the EU Member States. All EU Member States have recognizedthe importance of the integration of renewable energy sources in the energy sector for

Fig. 7. Turnover of the wind turbine manufacturing industries and industrial production of wind turbines inrelation to the governmental funding of RD&D.



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evidence from rd&d spending for renewable energy sources in the eu

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