Supporting the set-up of industrial
demonstrators in Europe
Position paper
October 2012
This position paper was produced by relevant stakeholders in the domain, under the
aegis of FutuRIS, but does not necessarily express FutuRIS’s point of view.
The stakeholders met in two working groups on 15 May and 13 September 2012 to
design public policy proposals aimed at modifying or transforming the regulatory
and financial conditions of public-private joint investment in industrial
demonstrators, with the purpose of supporting the set-up of such industrial
demonstrators in Europe.
SUPPORTING THE SET-UP OF INDUSTRIAL DEMONSTRATORS IN EUROPE
The authors
This document was devised by two working groups organized by FutuRIS on 15th May and 13th
September 2012 at the ANRT offices in Paris. The working groups comprised respectively 20 and
14 French managers from industrial companies – operators of industrial, energy or transport
infrastructures, suppliers of industrial equipment; public bodies that finance industrial
innovation; insurance companies; public research bodies working on industrial processes, energy
or transportation systems, or their components; associations active in Research, Development
and Innovation (RDI) issues and trade unions. The main industries involved were represented:
energy, environment, microelectronics, transport, process engineering, aerospace, food, and
chemicals.
The signatories are the following1:
-
Bernard Blez, Deputy Director of Research & Innovation, GDF-SUEZ (1)
Louis-Joseph Brossollet, Director of Industrial Partnerships and Public Policy Support,
IRSTEA (1)
Camille Burel, Manager for Innovation Affairs, ROQUETTE (2)
Gilles Casanova, Director of European Programmes, STMICROELECTRONICS (1, 2)
Denis Cieutat, Director of Demonstration Projects Group, AIR LIQUIDE (1)
Marc David, Director of Investments at ALIAD, AIR LIQUIDE (2)
Olivier Debande, Economist, EUROPEAN INVESTMENT BANK (2)
Etienne Décossin, Team Leader, New production and thermochemical industries, EDF (2)
Marianne Faucheux, Innovation Platforms Project Manager, Innovation Research
Universities department, CDC (1, 2)
François Giger, Strategy Project Manager, DPIT, EDF (1)
Jean-Paul Karsenty, analyst, VIVAGORA (personal participation as an observer) (1, 2)
Jean-François Lafaye, Innovation Expertise Department, OSEO (personal participation as
an observer) (1)
Régis Le Bars, Head of Renewable Energy Programmes and Demonstrator Fund IA,
ADEME (personal participation) (1)
Yvon Le Henaff, Managing Director, ARD‐SOLIANCE (1, 2)
Stéphane Lecomte, Budget and financial control department, IFPEN (2)
Jean-Bernard Leleu, Deputy Managing Director, ROQUETTE (1)
Xavier Longaygue, Project manager, Science department, IFPEN (1)
Isabelle Martin, Confederal Secretary responsible for industrial and research Policy,
CFDT (1)
Sylvain Paineau, RD and development partnerships, SCHNIEDER ELECTRIC (2)
Jean Perrot, Director of institutional affairs, Research & Technology, EADS France (1)
Alexis Rostand, Department of economic and international affairs, FFSA (2)
Christophe Rupp Dahlem, Director of biobased chemistry innovation programmes,
ROQUETTE
Stéphane Spalacci, Risk management, FFSA (2)
Antoine Vincent, Competitiveness cluster department, OSEO (as an observer) (2)
Jean-Luc Ygnace, Research engineer, IFFSTAR (1)
Four participants at the meeting on 15 May 2012 and one participant at the meeting on 13
September 2012 requested to remain anonymous.
The present document was produced by the FutuRIS team (Catherine Raffour, Pierre Bitard,
Laurent Zibell) based on the written conclusions of the working groups, and was validated by
each of them for its respective contribution.
1 The figure (1) after a name indicates participation at the meeting of 15 May 2012, the figure (2) indicates participation at the
meeting of 13 September.
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SUPPORTING THE SET-UP OF INDUSTRIAL DEMONSTRATORS IN EUROPE
Working method
The working group at the meeting on 15 May 2012 centred on the regulatory conditions of publicprivate joint investment in industrial demonstrators; the group on 13 September 2012 considered
how the associated specific risks should be borne, shared and remunerated, under the hypothesis
that long-term funding capacities exist. The two working groups followed the same method.
During the first part of the meeting, they identified the main challenges in the form of a response
to a set of questions reproduced below. In the second part of the meeting, they formulated the
recommendations for action that they had considered of highest priority during the previous
analytical work.
A brief written version of the conclusions and recommendations received explicit and positive
consensus approval from each working group at the end of its meeting. The present document is
an expanded, more complete version of the recommendations and of their justification, and has
also been approved by each of the working groups.
At the meeting on 15 May 2012, the members of the working group started by expressing their
points of view on the justification of joint public-private investment in industrial demonstrators,
then went on to identify the concrete difficulties that they face in their projects. They thus
provided a collective response to the following questions:
Based on your experience, in which cases does public/private joint investment in industrial
demonstrators appear justified? Why?
What are the main problems you have faced regarding public/private joint investment in
industrial demonstrators?
What do you think should be improved or changed in the regulatory or institutional
environment through public action or concerted stakeholder action to support pertinent,
justifiable public/private joint investment in industrial demonstrators?
At the meeting on 13 September 2012, the working group members began by identifying the
specific risks facing industrial demonstrators that create an obstacle to their funding. They then
went on to suggest mechanisms for bearing, sharing and remunerating risk and modifications to
the institutional and regulatory environment that would be desirable to support the development
of industrial demonstrators in Europe. They thus collectively answered to the following questions:
Based on your experience, what risks, specific to industrial demonstrators, hinder their
funding? Which of those risks do you believe require public action, concerted stakeholder
action (PPP) or risk management by the industrial operator itself in order to be overcome?
What mechanisms do you suggest to overcome each of these risks? Which mechanisms do you
consider to be the most efficient?
What improvements/modifications do you think should be made to the regulatory or
institutional environment to implement these mechanisms for sharing and remunerating risks
specific to industrial demonstrators and thus support their set up in Europe?
At both meetings, the working group’s approach was to contribute to the public debate on the
current revision of the European framework of state aid for Research, Development and
Innovation (RDI) and on European policies to support industrial development. Participants
expressed their choices and preferences with deliberate openness. The groups are aware of the
difficulties of implementing these recommendations, and attempted to identify the most
significant of these difficulties. They are also conscious of the vigorous political and ideological
controversy that these recommendations are likely to elicit. However, it hopes that with its open
and frank approach it is sincerely playing out its role as a stakeholder and as a vector of
transformation in the polity.
This document is freely available to all interested individuals and organizations under the
intellectual property conditions stipulated in the paragraph on the last page.
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Why should we act?
Give European territories an advantage in cost and beyond-cost (qualitative)
competitiveness
The presence of industrial demonstrators on French and European soil is an asset for our
international competitiveness and helps our economies in the transition towards sustainability.
Industrial demonstrators, which provide full-scale proof of earlier research work, are the seed
from which skills and expertise grow, and a focal point for logistical flows, to be replicated in the
next stages of mass production. By starting the learning curve of a new process very early on,
industrial demonstrators bring the territory that hosts them a cumulative advantage in cost and
beyond-cost (process reliability, quality of finished product) competitiveness, thus generating
long-term economic activity and jobs. Moreover, many of these demonstrators are the first units
of manufacturing processes or networks that limit resources usage (energy, raw materials, waste).
They are the forerunners of production systems in a sustainable society.
By providing effective support to complex, costly demonstrators involving technical,
economic and societal risks
These industrial demonstrators are complex objects that mobilize considerable financial
resources. They involve technical and economic risk (especially when it comes to process yields or
to bootstrapping self-reinforcing positive feedback loops in networks), uncertain profit outlooks
and societal risk (particularly acceptability). This risk remains high even when the purely
technical maturity of the process or network is advanced (the levels of technological maturity
considered are between Technology Readiness Levels (TRL) 5 and 72.
And taking account of policies existing in countries competing with the European Union
Their set-up in Europe may justify different types of public intervention with various risk-sharing
combinations and financial payback expectations: subsidies, tax credits, loans, bank guarantees,
soft loans, reimbursable advance loans, shareholding in joint public-private companies. These
types of public intervention measures and tax advantages exist in countries that compete with the
European Union (United States of America, Brazil, China, Malaysia, Australia, etc.). The
European Union has established a strict framework of conditions under which Member States are
allowed to help companies located on their territory perform Research, Development, and
Innovation (RDI) tasks3, with the often justified aim of ensuring fair competition conditions
inside the Single Market. In addition, EU structural funds can be used to support demonstrators
only under regulated conditions4.
Myriant Technologies: first industrial plant for biobased succinic acid set up in the United
States
With its experience in process engineering, fermentation and plant-operating processes, Myriant
Technology was able to validate the cost-competitiveness and performance of a new platform for
producing biobased succinic acid. Following pilot tests in Europe, Mexico and the United States, in
December 2009, Myriant chose to build its succinic acid factory at Lake Providence in Louisiana, for
which it received a 50-million dollar subsidy from the American Department of Energy. The Lake
2 TRL levels were initially developed by the US space agency NASA. A version by the European Space Agency is available here:
http://sci.esa.int/science-e/www/area/index.cfm?fareaid=1
3 Community framework for state aid for research and development and innovation, Commission communication 2006/C
323/01.
4 Regulation 1083/2006 on the European Regional Development Fund, the European Social Fund and the Cohesion Fund
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Providence Port commission also committed 10 million dollars to the project in addition to the 13 million
dollars it cost to equip the site. (Source: www.myriant.com)
Faced with the increasing significance of the above-mentioned competitiveness and sustainability
issues, these frameworks could deserve modification. This revision is currently under discussion
in the European Union5. The following recommendations aim at contributing to the debate.
Recommendations
The recommendations made by the working groups are based on a common set of justifications
that focus on aligning competition conditions with third countries. They are made of three
mutually-supporting measures:
1. Relaxing the framework on state aid for RDTI, by authorizing public contribution to the
investment and operation of industrial demonstrators in two specific cases: (a) congruence with
the European Union’s strategic objectives, (b) world-wide first market launch of an innovating
technology.
2. Creating a European Agency for Industrial Innovation, with the mission of coordinating and
then of directly providing existing public support to industrial demonstrators, and additionally to
provide the support made lawful by the above-mentioned measure.
3. Creating an industrial demonstrator guarantee fund likely to mobilize private funding in this
direction.
We start by presenting the common justification base, followed by the recommendations
themselves. We conclude by setting out the implementation difficulties anticipated by the
working groups and the directions that could benefit from further investigation.
A common justifications base: aligning competition
conditions with third countries
Take into account competition conditions with manufacturers established in third
countries
The main justification behind public contributions to the set-up of industrial demonstrators in
Europe is to match competition conditions with manufacturers established in third countries, on
other continents. Such a measure exists in the current version of the framework of state aid for
5 Modernization of the EU policy on State Aid Modernization, Commission Communication COM (2012) 209 final of 8 May
2012, which should lead to revised legislative texts before end 2013, with consultation of a working draft of the revised
regulation scheduled for the 2nd half of 2012.
http://ec.europa.eu/competition/consultations/2012_stateaid_rdi/index_en.html
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RDI, in its “Matching clause6” at paragraph §5.1.7, but according to information obtained by the
working group members, it has never been applied, mainly due to the perceived risks of
retaliation from the third countries involved. However, recent proposals made by the Internal
Market and Trade DGs regarding reciprocal access to third countries’ public markets7 imply that
the Commission’s negotiation position with them is changing, moving away from its previous
attitude, which has at times been described as “naïve” (in the very words of Commissioner
Barnier).
Act fast to safeguard the presence of European manufacturers on the markets
A crucial issue is clearly the competition from third countries and manufacturers in innovative or
emerging markets that give a strong “first mover advantage”. It is therefore important that the
implementation of procedures be fast enough for European manufacturers to be the first to
deploy their technology at industrial production scale, which is the only one relevant to win
markets.
Brazil’s investments to maintain its leadership in biofuels
- In 2009, the Brazilian state company Petrobras announced it would be investing US$ 2.8 billion in
biofuels
- In 2010, the Brazilian innovation agency FINEP and the Brazilian development bank (BNDES)
announced loans of US$ 18-20 billion in the industries of sugar cane waste and bioethanol
- In 2011, 90% of RD and demonstration projects for bioenergy and chemicals were funded by BNDES
(PAISS)
- In Europe, EIB loans covering all renewable energy sources totalled 6 billion euro in 2010 and 5.5 billion
euro in 2011.
Recommendation 1- Public contribution to
investment and operations
This recommendation was made by the working group of 15 May 2012 and reflects the views of
this group only.
Renew measures for public/private joint investment in industrial demonstrators
The means considered for the public part of joint investment/joint funding in industrial
demonstrators include the following changes compared to the current legislative framework:
6 “In order to address actual or potential direct or indirect distortions of international trade, higher intensities than generally
permissible under this section may be authorized if — directly or indirectly — competitors located outside the Community have
received (in the last three years) or are going to receive, aid of an equivalent intensity for similar projects, programmes,
research, development or technology. However, where distortions of international trade are likely to occur after more than three
years, given the particular nature of the sector in question, the reference period may be extended accordingly.”
7 “Proposal for a Regulation of the European Parliament and of the Council on the access of third-country goods and services to
the Union’s internal market in public procurement and procedures supporting negotiations on access of Union goods and
services to the public procurement markets of third countries”, COM (2012) 124 final, 21 March 2012.
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Suppression of prior notification of public aid, replaced by an a posteriori control by the
Competition DG;
Public participation in the investment to be synchronised with actual cash flows, going beyond
the current aid supporting amortisation costs only. The base on which the intensity of state aid
is to be calculated is the gross amount of investment. Any turnover generated by the industrial
demonstrator is not subtracted a posteriori from the base from which the intensity of public
contribution is calculated;
Public support to the profitability of the initial stages of operation.
Combine national, regional and European aid
Public participation in investment would preferably be a combination of aid from the state, from
the region and from the European Commission, and of structural EU funds supporting the
development of less advanced regions (European Regional Development Fund – ERDF, European
Social Fund – ESF). Thus, these structural funds would be redirected from their traditional target
(public infrastructure works, mostly for transport) towards directly productive investment.
For capital and operational expenditures
Public support would be made more effective by integrating (1) subsidies and reimbursable
advance loans for the public support to capital expenses (Capex), (2) tax credits per unit of
volume produced8 for the public support to operational expenses (Opex) and, when this is
applicable, (3) a European preference for the public procurement of goods produced by these
innovative manufacturing units or networks. The rates of subsidies and reimbursable loans could
increase according to how much the demonstrator is re-used, i.e. the more the demonstrator is
replicated on site (through increased capacities), the higher the rate of public participation. If a
demonstrator is replicated in a place different from its initial set-up, or more generally outside the
European Union, the loans would have to be reimbursed, according to a rate depending upon the
number of units sold over a period of time defined and agreed upon beforehand.
Tax credit on renewable chemicals in the United States
The Renewable Chemical Tax Parity Act of 2012 grants a credit of $ 0.15 per pound of qualifying
renewable chemical, with a limit of $25 million per taxpayer per year. The tax credit remains in effect for
five years or until it reaches a cap of $500 million.
Distinct project selection criteria
Recommendation 1a - Support technologies that are in
line with the EU strategic objectives of competitiveness
and sustainability
Recommendation 1a restricts public joint investment to those industrial demonstrators whose
purpose is in line with the European Union’s Europe 2020 strategy: (1) industrial competitiveness
or (2) transition towards sustainability.
8 Similar to “Production Tax Credit” in the United States of America.
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Demonstrators of innovating processes presumed to be in line with the objective of industrial
competitiveness come under the designation of either Key Enabling Technologies - KET9 or
respond to the Lead Market Initiatives – LMI10. Those presumed to fit in with the objective of
transition towards sustainability contribute to achieving the goals of the “climate and energy
package” adopted in December 2008 (i.e. reducing greenhouse gas emissions by 20%, improving
energy efficiency by 20% and achieving a 20% share of renewable energies by 2020)11.
The project selection criteria are in line with those recommended by the “High-level Group on
Key Enabling Technologies” in its report of June 2011, Annex 6.
The United States attracts KETs
The company Inéos Bio studied the possibility of building a pilot line in Europe to produce biofuels using
waste. However, the difficulty of identifying funding sources and the red tape involved had the effect of
dissuading them from a European site. The pilot line was built in Florida (USA) with over 95% subsidies and
guaranteed loans (2011): 130 million dollars for building the factory, 50 million dollars of subsidies from
the Department of Energy, and 75 million dollars worth of loans guaranteed by the Department of
Agriculture. Source: Cross-sectoral Analysis of the Impact of International Industrial Policy on
Key Enabling Technologies (Danish Technological Institute with Idea Consult, 2011)
Recommendation 1b – Support first industrialisation
Recommendation 1b restricts the benefit of public co-investment to industrial demonstrators that
are the first to implement their technology on the market, on global or European scale, and that
have a positive impact on industrial development. The perspective is twofold:
Long-lasting activity anchored in the territory and its ecosystem. This implies the
reimbursement of public aid in case the demonstrator is dismantled. It also requires the
involvement of public authorities in the demonstrator implementation and in the monitoring
of its public good targets.
In Lestrem (Northern France) – from demonstration factory to production unit
The Dutch company DSM and the starch supplier Roquette developed an industrial demonstration
platform for succinic acid using renewable resources in Lestrem, Northern France. Starting at the end of
2009, the site produced several hundred tons of acid using a glucose fermentation process before
opening a larger production unit in 2011 (L’Usine Nouvelle n°3087).
In November 2010, the Californian company Solazyme, which specializes in bioproducts and renewable
oils (based on algae using biotechnology), and Roquette, which produces starch and starch byproducts, created a joint venture (SRN) combining Roquette’s skills as a global supplier of food
ingredients and Solazyme’s algae-based technology. One year after its creation, Solazyme Roquette
Nutritionals (SRN), specializing in food microalgae-based ingredients, launched the second phase of its
factory’s construction on the Roquette group’s site in Lestrem. (source: Algasud newsletter – 01/2012)
9 Defined in the European Commission report as “High Level Group on Key Enabling Technologies”, Final Report, June 2011
http://ec.europa.eu/enterprise/sectors/ict/key_technologies/kets_high_level_group_en.htm
10 The “Lead Market Initiative” covers six developing markets supported by the joint efforts of the European Commission,
member
states
and
private
firms:
http://ec.europa.eu/enterprise/policies/innovation/policy/lead-marketinitiative/index_en.htm
11 http://ec.europa.eu/clima/policies/package/index_en.htm
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Conquering markets, by giving industrial firms the means to be the first mover on the market,
with a competitive industrial-scale offer. Industrial firms are encouraged to take risks. This
first mover position is likely to ensure the company a long-lasting leadership on the market,
and therefore to boost its industrial activity in Europe, as well as employment.
Celluforce: inauguration of a first factory demonstrating nanocrystalline cellulose (NCC) in
Canada (January 2012)
Celluforce is a joint company combining Domtar Corporation (manufacturer and distributor of
uncoated freesheet paper) and FPInnovations (public, non-profit corporation with a scientific vocation
to support the global competitiveness of the Canadian forestry sector), which was created to produce
nanocrystalline cellulose in the first factory of its kind located in Windsor (Quebec). The Canadian
government is working with the Quebec government to build up this large-scale pilot project. Leadingedge equipment from round the world has been gathered for the first time to commercially produce
NCC. The project represents a total investment of $CA 42.8 M, of which $CA 33.4 comes from federal
government’s participation of $ 23.2 M via Ressources Naturelles Canada and a local government
contribution of $ 10.2 M via the Ministry of Natural Resources and Fauna. (Source: Celluforce.com)
Recommendation 2 - Create a European Agency
for Industrial Innovation
This recommendation was made by the working group of 13 September 2012 and reflects
the views of this group only.
This Agency’s mission would be to act as a one-stop shop at EU scale, centralizing public support
for “major” industrial demonstrator projects of “common European interest12”. The idea would be
to simplify and speed up procedures in a competitive international arena where the time to
market of innovative products and processes is a key competitiveness factor. This feature of
“Common European interest” would be automatically granted to demonstrators that satisfy at
least one of the conditions described in Recommendation 1 above, i.e. (a) congruence with the
European Union’s strategic objectives, (b) world-wide first market launch of an innovating
technology. The agency would have the capacity to support projects with a Europe-wide ambition
and an important social and environmental impact.
The Agency would be created in two stages.
During the first stage, it would provide financial engineering for industrial demonstrators by
mobilizing all public aid available for the project, at regional, national and EU scale, and by
offering technical support for putting together such aid.
During the second stage, it would be allocated a specific budget through the transfer to this single
agency of financial resources devoted to the public support for industrial demonstrators in
Regions, Member States and the EU.
It would distribute existing aid and that aid made lawful by Recommendation 1 above.
12 Article 107 TFEU, § 3.b
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Recommendation 3 - Create a European
guarantee fund for the risks specific to industrial
demonstrators
This recommendation was made by the working group of 13 September 2012 and reflects the
views of this group only.
This fund’s mission would be to guarantee, totally or partially through private funding sources,
risks that are specific industrial demonstrator, such as:
Technological risk (delay or non-achievement of performance objectives for final products or
for process yield; delay, non-compliance or failure by the supplier of specific components).
Market bootstrapping risk (inability to reach the threshold number of users necessary to trigger
positive feedback and commercial take-off – specifically: for networks)
Regulatory risk (modification of rules establishing a market or a market price, in particular for
the social or environmental externalities that the demonstrator deals with)
Risk of industrial accident (due to exploration of the manufacturing unit’s operating domain
and to the stabilization of procedures)
Environmental risk and risks related to consequences on public health.
However, this fund would not cover ordinary risks linked to constructing an industrial facility,
which should legitimately be borne by the industrial operator itself, its insurer or its banker, in
line with usual corporate structured financing practices:
Delay in the execution of the ordinary stages of construction
Delay or failure of a supplier of standard components
Commercial failure
Fault or negligence in the operation of the demonstrator.
The fund would be initiated by a public endowment, then fuelled and sustained by a fee paid by
industrial operators that had previously benefited from the guarantee. This fee would be
commensurate with the commercial success of the products, processes and networks generated by
the demonstrators previously supported by the guarantee.
The amount of the guarantee would be limited to the sum provided by private financers not
directly involved in the demonstrator’s operations. Such a mechanism would supplement the
Risk-Sharing Financial Facility jointly operated by the European Commission and the European
Investment Bank. Regarding risks that qualify as industrial, health and environmental accidents,
the set-up of a guarantee fund would only be justified to complement those guarantees already
brought by insurance companies in their ordinary activity covering damage and liabilities. This
complement would only be brought to cover some emerging risks, where historical hindsight is
insufficient to precisely quantify the amount of the damage or its statistical frequence.
The selection of projects eligible for guarantee from this fund would follow a subsidiarity
principle in each European Union Member State. For example in France, the criterion could be
the accreditation by a “competitiveness cluster” (“pôle de compétitivité”).
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Anticipated difficulties and open questions
These recommendations present difficulties and issues that the participants in the working
groups are aware of and fully accept.
Compatibility with WTO rules
Concerning Recommendation 1, the first issue regards whether the measures are compatible with
the rules of the World Trade Organization (WTO). This needs to be looked at carefully. The fact
that similar policies exist in many industrial countries of considerable size, apparently without
creating conflicts with their trade partners, could be encouraging.
Regulatory and tax issues
As regards the public support to operational expenses, the questions of compatibility with public
market regulations and with the principle of tax fairness for the set-up of tax credit remain open.
Questions on procedures
On the issue of attributing the feature of being the “first technological mover” on a market
(Recommendation 1b), numerous points still need clarification:
Who would attribute this “first technological mover” label? Using which procedures? On what
level (global, European) would the criterion of novelty be evaluated?
How different does a process have to be from existing processes to be considered as ”novel”,
and therefore likely to come under this scheme? What criteria should be used to evaluate this
degree of novelty?
How could the confidentiality of technical and market data on this new product-market couple
(which is even more crucial in this case of late-stage innovation than in that of public support
to early-stage R&D) be reconciled with the democratic requirement of transparency in
allocating public funds to private projects?
How could a balance be struck between decision speed, which is necessary to ensure the first
mover advantage, and fair procedures?
Governance of funds
Concerning Recommendation 2, aligning then pooling European, national and regional funds
comes up against important questions of governance, such as: (1) organization of decisionmaking, (2) sharing or delegation of power, (3) democratic and parliamentary control.
Large-scale risks
For Recommendation 3, the issue remains open of how to deal with large-scale risks, whose
magnitude is not known beforehand (especially health and environmental risks). It would be
difficult to exclude them from the application field of the guarantee fund: the very value of the
guarantee would be jeopardised. These large-scale risks could come under specific guarantee
schemes covered by a 100% state-owned reinsurance organisation, beyond the proposed mixed
public-private mechanism.
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