Drivers of Innovation in and Cell : Supply-Demand and R&D

Madeline Woodruff IEA and Yukiko Fukasaku OECD

1 Overview

Q Drivers of energy technology innovation – Sustained increase in demand – Diversification of sources of supply due to growing security and economic concerns – Fuel switching and development of new due to efficiency and environmental concerns – De-regulation and increasing competition

Q Increasing importance of R&D and technological innovation

Q How the energy innovation system works

Q Focus on fuel cells

2 Part I Supply, Demand, and Investment Trends Role of Fuel Cells in the

3 4 Today’s Energy Reference Word Demand Challenges 6,000 WEO 2002 Oil Q to fuel economic 5,000 growth and mobility Gas 4,000 and 3,000 curbing environmental and climate Nuclear damage from energy use 2,000 Hydro 1,000 Other – “business as usual” energy renewables demand is rising inexorably 0 1970 1980 1990 2000 2010 2020 2030 – greenhouse gas emissions also – stronger policies stabilize OECD emissions only after 2020. Reference Energy-Related CO2 Emissions WEO 2002 Q Access to modern energy for all – 1.6 billion people have no access 45000 to , 80% of them in 40000 World South Asia and sub-Saharan 35000 30000 OECD Africa 25000 Transition 20000 Q Lower costs in deregulated Economies 15000 markets; stresses Developing 10000 Million Tonnes CO2 Tonnes Million Countries 5000 0 1971 1990 2000 2010 2020 2030 5 Renewables Growing Fast, but From a Low Base Growth of Renewables Supply from 1971 to 2000

12% 52.1% 10% 9.4% 32.6%

8% 8.8% 8.4%

6% Geothermal Solar Tide, other 4%

annual growth rate rate growth annual 2.7% 2.1% 2.1% 1.8% 2%

0% TPES Renewables CRW Hydro Other

TPES: total primary CRW: combustible renewables and waste 6 Source: International Energy Agency Meeting the Challenges: What Does it Take?

Q Faster progress in energy Q How? technology development is – more for technology R&D an essential element: and demonstration and underlying – more cost-effective ; identify and fill gaps (as solutions usual) – fostering of public/private partnerships, – capitalize on capital stock and of international collaboration, turnover as it occurs especially for large demonstrations (as – costs depend on not only usual) development and – support and facilitation of technology investment costs but also uptake (as usual, but connection to the extent to which capital R&D and technology learning stock is retired early sometimes missed) – other efforts to foster and facilitate innovation – more specific policy advice to governments

7 What Can Hydrogen Offer? Energy Security A number of IEA member countries have made commitments to accelerate the development of the hydrogen energy economy: H2?

Q Energy security: reduced dependence on imported fuels Environmental Economic (depending on the source) Security Security

Q : potentially near- emissions-free vehicles and distributed generation (carbon sequestration required if fossil- Two main strategies for dealing with based; lower-cost production climate change: essential) • Europe: renewables, energy efficiency • North America: carbon capture and storage Q Investment: some heavy demands promising enormous dividends • Both pursuing hydrogen – from fossil fuels, nuclear energy,

8 Roles for Fuel Cells – Stationary, Distributed Generation Local and system benefits, including storage to back up intermittent renewables TODAY: • niche markets -- telecommunications, back-up systems

TOMORROW: • fuel cells: significant contribution to energy supply expected after 2020 -- primarily stationary applications (WEO 2002) • Competitive fuel cells (distributed generation): expected when -- capital costs fall below $ 1,000 /kWe (~75% reduction) -- efficiencies approach 60% (>50% increase) • N atural gas reforming first -- coal, , electrolysis not expected to be economically feasible before 2030 • /gas turbine combined cycle -- over 70% efficiency? 9 Roles for Fuel Cells

Vehicles: is responsible for over half of world oil demand

Q fuel cells in vehicles expected to become attractive only around 2020 (WEO 2002)

Q by 2030, only a small share of the vehicle fleet; even under alternative (stronger) policies, less than 5% of the OECD fleet

Q difficult to supply substantial quantities of hydrogen for vehicles before 2050 unless carbon sequestration is applied on a large scale -- only fossil fuels could achieve this at reasonable cost

Q any increase in renewable or nuclear electricity before 2050 would probably best be used to reduce emissions in the power sector

10 Investments in Developing a Hydrogen Economy

Q Iceland, Singapore, others: Q Others: e.g., Italy, Canada, United committed to introducing hydrogen Kingdom have accelerated and and fuel cell products in the electric expanded their investments. utility and transport sectors Q China: has an organized program Q European Union: recently intended to lead to development of announced a long-term, 2 billion fuel cell vehicles euro R&D program in hydrogen energy, ren. energy Q Private sector: investments in hydrogen energy technology, fuel Q United States: recently cells have grown dramatically over announced a five-year, $ 1.2 billion the past decade (in developed and hydrogen energy technology and developing countries) infrastructure program. Q Q Japan: fuel cell and hydrogen Several developing countries: technology research program has financing for demonstrations of tripled since 1995, reaching over hydrogen fueling stations, fuel cell- $ 200 million in 2002 powered buses

11 Part II Innovation in energy and fuel cell

12 How can innovation influence energy supply and demand?

Q More efficient use of primary energy sources (e.g., combined cycle power generation) Q Increased efficiency in end-use (e.g., electric appliances, lower-consumption cars) Q Harnessing emerging sources of energy (e.g., solar, wind, biomass) Q Developing technologies that address efficiency and environmental concerns (e.g., fuel cells, advanced turbines, advanced exploration and extraction) Q Putting in place infrastructure that can deliver new energy services (e.g, hydrogen)

13 How can innovation in energy technology be stimulated?

Q Assuring well-functioning markets

Q Assuring well-functioning innovation system – Innovation takes place in a system of inter-linked actors, – In both public and private sectors. – Depends on government policies to: • Fund R&D and demonstration including through public-private partnerships, • Supply highly qualified S&T human resources and ensure mobility, • Put in place appropriate framework conditions including regulations, competition policy and intellectual property protection, • Stimulate use of emerging organisational innovations, e.g., industrial clusters and venture capital

14 What are the characteristics of energy technology innovation system?

Q The sector itself is diverse - there is no one characteristic type of innovation system Q Traditionally a large role of the public sector, but the private sector is growing in importance. Q Technology rapidly becoming more diverse and complex (nuclear fusion, renewables) Q Important role of R&D and innovation Q Requires long time horizon for development and commercialisation Q Infrastructure dependent – tendency for technology lock-in.

15 What are the characteristics of fuel cell innovation system?

Q Rapidly growing energy technology sub-sector for stationary, mobile and portable applications,

Q Co-existence of mature and emerging technology -the innovation system is changing fast,

Q Actors include diverse industrial sectors outside the energy sector, firms of differing sizes and specialisation, and diverse scientific disciplines,

Q Many government programmes and research consortia,

Q Further development highly dependent on a well-functioning innovation system.

16 Public and private energy R&D trends

17 Figure 2 IEA Government Energy R&D Budgets, 1974-2001

Conservation

16000 Fossil Fuels 14000 12000 Renewable Energy 10000 8000 6000 4000 Nuclear Fusion

Exchange Rates 2000 0 Power and Storage

4 7 0 3 6 9 2 5 8 1 Other US$ M 2001 Prices illion, and 7 7 8 8 8 8 9 9 9 0 9 9 9 9 9 9 9 9 9 0 1 1 1 1 1 1 1 1 1 2

18 Energy R&D Expenditure in the U.S. (in millions of constant 1995 $)

14,000

12,000

10,000

Public Sector 8,000 Private Sector Total

6,000

4,000

2,000

0

4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 7 7 7 7 8 8 8 8 8 9 9 9 9 9 97 9 9 97 9 9 98 98 9 9 98 98 9 98 9 9 99 9 9 99 99 9 99 99 9 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 19 1 1 1 1 1 1 1 1 1

19 Energy R&D Expenditure in Japan (in millions of constant 1995 PPP $)

8,000

7,000

6,000

Business 5,000 Research institutes Universities 4,000 Total

3,000

2,000

1,000

0 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

20 Private R&D Expenditure of the German Energy Sector (in millions of constant 1995 PPP $)

200

180

160

140

120

100

80

60

40

20

0 1995 1997 1999 2000 2001

21 Challenges in enhancing innovation in energy and fuel cells

Q Sustaining R&D investment levels, in view of the decreasing overall R&D in both public and private sectors,

Q Efficiently channelling R&D funds through public/private partnerships and research consortia,

Q Taking measures to stimulate networking, in view of actors that are dispersed in diverse sectors in the innovation system,

Q Extending the innovation system globally, including non-OECD member economies.

22