Juergen Maier looks at the factors driving innovation to build green industries, including the challenges and opportunities for SMEs and supply chains
Let’s start with the question: why Germany trades significantly more with China, India and Japan than the UK does? The answer cannot be a differentiated trade policy as, until recently, we shared the same. It must therefore be much more about the industrial policy and linking the countries global strength in key industrial sectors, to the strong narrative on exportable goods, technology and supportive services. For Germany, that strength over the last three decades has been cars and plant, machinery, and automation equipment (for automotive and other manufacturing industries).
For the UK, that global industrial strength is harder to define. The UK does produce a number of tremendous luxury cars, but few of them are produced at scale for (non-EU) exports. There are strengths in defence, in space technology, in pharma and a few more niche sectors, but none of it at the scale to support the growth in exports required. And that scale required is very significant. If our exports to the EU drop by 20% due to Brexit (which on current data seems reasonable), that means our exports to China would have to rise threefold, or to India by a factor of 10 – and that will not be achievable without significantly more technology created to export. What will that technology be?
The obvious place to focus is the new green technologies that the world needs to achieve net-zero by 2050 and create a massive amount of new ‘green trade’. Most of the technologies required to achieve that are known today, although not all have yet reached the scale or cost position required.
The most mature of the newer renewable technologies is offshore wind, and whilst the UK has the largest offshore wind market in the world, which is a huge success, we unfortunately came to the party late as innovators, and hence most of the high value technology is produced in Germany, Denmark and Spain. It would certainly make sense to set a stronger focus to achieve more local technology creation for exports around the world for this market. Siemens and GE have invested in local blade manufacturing and whilst most of their local production is destined for local demand, this could create opportunities for future export markets and there is significant export opportunity for technologies in next generation wind turbines and services.
So, what is required to ensure we create more local technology for export in areas like offshore wind, the new hydrogen economy, eCar technology and materials for light weighting? There are five key strategic areas that support the achievement of this, and particularly encourage the private sector to invest in the UK, drive R&D, innovation and manufacturing for export.
The UK has the largest offshore wind market in the world
1 Demand creation and incentives to spur on local demand for emerging technolo-gies. This provides confidence that a strong local market is secure from which to generate export business in the future. The UK did this superbly for the offshore wind industry through incentivised market mechanisms that created a hugely attractive local market. We do it less well in other markets; Germany and France have very lucrative scrappage scheme incentives to create demand for electric vehicles. In the UK, the electric vehicle purchase grant was recently reduced from £3000 to £2500, which sets the wrong tone and level of confidence for this market.
2 Scale, particularly regarding innovation programmes. Investors in next generation technologies will look for large-scale local programmes in which they can participate and work with supply chains to bring the cost of their technology down as markets mature. In the UK’s offshore wind example, we haven’t as yet created enough scale in such innovation programmes. There are some good initiatives like the Off-Shore Renewable Catapult, and the Aura Innovation Centre in Hull, but these are not yet scaled enough to create a significant pull for more local technology creation that can lead to exports. Future technologies, like green hydrogen hydrolysers and other equipment, similarly lack the scale of what is happening in other key industrial nations. If this isn’t changed, we will probably end up becoming a net importer for these technologies also, which doesn’t help our export challenge.
3 Regulation. The UK generally does this well, creating regulation to drive the right behaviours for consumers and technology creators. Phasing out petrol and diesel cars by 2030 and a much earlier example of phasing out incandescent light bulbs are very positive examples of this. Recent regulation changes to allow driverless vehicle technology to be tested on our roads is another one.
4 Research, innovation excellence and available skills. The UK generally performs well at this, having tremendous university research excellence in many of the technology areas and, more recently, having created a strong network of Catapults to help technologies to become mature market products and services. The only downside is that the innova-tion programmes are rarely scaled enough, as described in item 2 above. Regarding skills, the UK fairs quite well, especially in higher level academic skills, and whilst it is taking too long, the UK’s technical apprenticeship programmes are growing in strength and popularity.
5 Industrial strategy, long-termism and policy coordination. The technologies required to create the green economy take a long time to bring to market at scale and at the right cost. As such, a long-term strategy needs to exist to balance all of the above and provide confidence to investors that the market will be supported into the long term. For the offshore wind example, this has played out well in the UK market (with the exception of scaled local innovation), but for many others we generally fair badly. We are currently on our third attempt to create a market for carbon capture. An initial £1 billion incentive provided by Government to stimulate this market in 2015, it was scrapped not long after, leaving many would be investors unsettled. Whilst latest plans look optimistic, investors have long memories and will tread cautiously. There are too many stop-start failures like this, like the latest Green Homes Grant scheme that was scrapped after 6 months and the recent announcement to disband the UK’s Industrial Strategy Council will also have decreased confidence.