Category:Heidelberg:ITRE III

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Accelerating ICT innovation: with SMEs and startups shaping energy transition and innovation how can the EU support its economy to get to the forefront of managing a successful energy transformation?

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In the last few decades technology has been becoming more and more accessible, now making its way into the hands of Small and medium-sized Enterprises (SME), startups, and eventually consumers. It is a field in which self-taught innovation and small-scale developments have often brought about significant changes in the industry. this is becoming even more frequent now, with a great boom in the number of startups, and unicorns, as well as further digitalisation among smaller businesses. Furthermore, as the world bank has stated, SMEs and startups are critical to spurring economic growth and are the backbone of many economies.

Companies such as Apple, Google, and Microsoft, which were originally startups, are now some of the largest companies in the world, and one can see other companies such as Uber and Airbnb following in the same path. With such companies, providing innovation and digitalisation across Europe, the EU has now put into place a number of bodies to aid in investment for new SMEs and startups, with the aim of furthering the technological revolution.

SMEs and startups are also a leading light in the fields of innovation and sustainable and eco-friendly technology, with a number of enterprises exploring new ways of harnessing natural power as a result of new technology being more readily available in the digital era. This has led to increased accessibility for consumers to sustainable technology as well as for governments, and has also made research more accessible and less-centralised in fields such as those of ecological energy innovation.

Background

Since the widespread electrification in the early 20th Century, electrical technology has seen a continuous upward trend in the functions it has been able to carry out or aid. Technology has now moved into being portable, wearable, and even artificially intelligent. This boom in commercial electronics has also allowed for the developments to be applied to other fields such as the ecological sector, with startups such as Powerhouse now providing commercial solar energy, and Tesla providing sustainable transport. There are even new developments in the areas of nuclear fusion and hydroelectric power, and in Europe startups and SMEs of this kind have access to a number of investment programs. These startups are now forging a new path in the sustainable energy industry and in research of this industry. With new innovations being worked on constantly in these areas, especially in Europe, the European Union has begun to discuss shoring up this industry to a greater extent and also providing funds and investment for it. The EU is currently a frontrunner in the green energy sector, however, a lack of funding for SMEs could result in it falling behind.

Relevance to Europe

Europe, as with the rest of the world, is facing a number of problems related to climate and the environment, including climate change, stratospheric ozone depletion, acidification, and many more. The world bank has said there needs to be complete decarbonisation by the year 2100 if the world is to avoid drastic and irreversible change in the environment. Across the EU renewable energy accounts for only 16.7% of energy consumption, of course this varies between each member state but if there is to be complete decarbonisation there clearly needs to be a serious change in the way Europe consumes its energy, as most Member States are fossil fuel reliant. This is further articulated by the fact that a number of Member States exceeded their 2010 pollutant limits, and are likely to miss their 2020 emission limits too.

The distance by individual EU Member States from achieving the 2020 emission targets.

Despite the clear need for a change in this area a number of companies such as Volkswagen have continued to exceed limits, over the heads of national governments and the European Union. This came to a head last year with scandals involving these companies, and whilst the EU tried to crack down on these offenders it is unable to fully stop over-polluting by large corporations.

Part of the solution for these issues could be more diversification in green energy and green technology in these sectors in order to move countries and companies away from overreaching in terms of what they are able to do with energy and oil dependency in the state that it currently is. This could also be accompanied by greater investment in the infrastructure required for green energy in Member States. Therefore can the EU provide greater access to knowledge and funding for SMEs and startups to further development and innovation?

Key Conflicts

Larger Companies

One of the major conflicts, and one that the EU has insufficiently address so far, is the issue of larger energy corporations such as Shell and BP having considerable influence. For example, one of the major issues with the European Commission and Parliament legislating on this issue is that lobbyists in Brussels (of which there are up to 30,000) are often paid to represent these companies: for example, BP is the UK’s biggest lobbyist in Brussels. This often means that such corporations are able to affect legislation far better than small ones due to their greater influence, such as SMEs and startups. Therefore it is of utmost importance to establish a way in which this issue can be solved without the interference of larger non-sustainable energy companies in the legislative process.

Larger companies are also often unwilling to invest in the smaller energy companies and are also reluctant to endorse them in order to aid movement towards sustainable energy. In certain cases the new technologies are parts of industries SMEs could find profit in through investment. While there has been a small amount of investment from these companies it has not led to a meaningful change in the way that Member States create energy, as is clear from the energy usage patterns of Member States, which are still mainly fossil fuel-reliant.

Share of energy from renewable sources in Member States.

Accessibility to Sustainable Technology

Another issue with making sustainable technology more accessible to the consumer and to businesses is the lack of easily digestible information available. Often new developments in energy are a result of complex science, which is at first very hard for certain parties to grasp, whereas wind and solar energy, which are both now established forms of sustainable energy are more familiar to consumers and therefore more likely to be appealing when investing in sustainable energy, especially energy possibilities that are a result of SME innovation. As part of Horizon 2020 the European Union has recognised the need for consumers needing to be at the heart of the energy discussion and therefore need to be further engaged. There also arguably needs to be more discussion between Member States and other European countries regarding knowledge sharing in the area of sustainable energy. This was discussed in the G20 action plan, but as of yet the EU has not legislated on this.

Funding Through the EU

A further problem that some startups and SMEs face is that of low investment, and while the European Union have tried to combat this with providing access to funds through the European Investment Bank (EIB), the European Investment Fund (EIF), and the Executive Agency for SMEs (EASME) (among others) some small scale businesses struggle to get off their feet in this area, others struggle to compete with larger companies even after they are well-established. On top of this there is a lack of venture capital (VC) funding to technology startups in Europe both from inside and from outside of the EU. Therefore there perhaps needs to be further encouragement for investment from foreign and European backers in the industry of sustainable energy, especially seeing that a European report recently found that there are significant differences between the access to funding in different Member States.

Oil Reliance

On top of this, those countries which are almost totally reliant on oil are often unwilling to move away from their current methods of energy production, however, a recent surge in interest has raised the profile of this issue. Harnessing this interest could lead to a great amount of change in the willingness of governments to use and invest in the renewable alternatives provided by startups. This could also result in wider usage by the consumer and thereby in more profit for investors and SMES and startups, allowing for more development in the area. However, some countries such as Poland, which are heavily reliant on coal are still reluctant to make this transition.

Overall there are a number of conflicts, which are all difficult for the European Union to legislate on, but are not completely insurmountable.

The European Scope

Investment Bodies

A number of EU bodies give help and funding to SMEs and startups, for example the EIB borrows money on capital markets and lends it on favourable terms to a number of parties, including SMEs and startups through their role as shareholder in the EIF, which provides funding to such enterprises through venture capital and risk finance instruments. Other EIF products include venture capital and micro-financing for SMEs, particularly new and innovative companies, and guarantees for financial institutions, to cover loans to SMEs.

Furthermore, Fusion for Europe (F4E) provides help in the form of grants and procurement contracts for small and medium-sized businesses in the area of research into fusion energy. This is an example of a body set up specifically to provide easier access to development funds in a specific form of sustainable energy – in this case fusion. However, there are few other bodies that provide aid in other forms of energy such as solar, hydroelectric, and geothermal energy, for instance. Another example, however, is the Clean Sky 2 programme, which partners with SMEs involved in aeronautics in order to reduce aircraft emissions by developing innovative technologies to cut CO2 and other greenhouse gases and reduce noise.

Development of SMEs

However, there are other bodies that are more focused on SMEs across Europe rather than in specific areas. For example, the Executive Agency for SMEs (EASME) provides support in allowing innovative SMEs and startups to grow. The agency runs the Horizon 2020 programme, which help SMEs develop innovative ideas into concrete projects with a European and global impact, as well as running the EU Programme for the Competitiveness of SMEs (COSME). The commission has also delegated much of the LIFE programme – the EU’s funding instrument for environmental and climate action – to EASME, providing a clear link between environmental concern and small-scale enterprises.

In addition to this other programmes such as the Eco-Innovation Initiative (EII) and Intelligent Energy-Europe, are also providing information and funding for SMEs in the area of ecological innovation and technology. Therefore one would assume there is a sufficient amount of access to the materials required to grow as an SME in the environmental sector, however, there still doesn’t seem to be enough access to funds from external investors.

Recent Developments and Opportunities

Financing SMEs

In 2016 the EIB put €33.6 Billion into SMEs, providing support for approximately 300,000 enterprises and startups. This has provided access to more funds for a number of SMEs, however, there is no data on how much of this was put directly into sustainable innovation. Perhaps there needs to be more study of this and specific location of funds by the EU and also more specific funds for the environmental sector.

On top of this, the committee on Industry, Technology, and Research (ITRE) in the European Parliament are currently working on a non-legislative enactment (NLE) on the bio-based industry in partnership with the Committee on Regional Development (REGI). This will hopefully provide access to funding and insights for certain SMEs on their work in this sector and may lead to potential for new legislation from the Commission on investment in the bio-based industry.

Discussion of the Issue

In addition the Committee on Budgets (BUDG) have also had a recent public hearing (on 24th may 2017) on SMEs and new financial instruments. This included discussions with the EIB, long-term investors, SMEs, representatives of national governments and promotional institutions in the sector. The conclusion of the meeting was that the situation ‘differs quite considerably between Member States’ with regards to the access to finance of SMEs, this perhaps indicates the aid of bodies such as the EIF, EASME, and the EII (among others) doesn’t provide sufficient aid in finding investment in SMEs and startups. This hearing mainly discussed the role of national banks in aiding governing bodies by easing the reliance on them for investment. The differences between the access to funding between member states perhaps indicates there is a need for further development of a supranational approach, this would perhaps result in greater equality in this area.

Sustainable Energy at Work

It must also be noted that a number of Member States - mainly those in Scandinavia - are some of the most sustainable in the world and have made the transition to sustainable energy very effectively. This is partially due to their access to certain natural resources, however, other nations are lagging far behind, therefore how can the EU help other states to reach the level of sustainability seen in Scandinavia through using the expertise and innovation of SMEs?

Research

Further to this, in the sphere of research, the World Bank – on top of their call for decarbonisation – has released what it sees as the three steps to a decarbonised future. Documents and strategies such as this are being backed up by industry leaders such as Freek Bisschop who is the CEO of Rockstart, a company that supports startups such as Solarcreed and Solarpro, which provide further access and innovation in the field of sustainable and renewable energy. He has said ‘tomorrow’s energy is decentralised, decarbonised, and digital’ a future that can perhaps only be achieved by the innovation of startups and further freedom for the consumer to become involved in sustainable living, renewable energy, and ultimately decarbonisation. Therefore the EU must surely support this and not be afraid to be at the forefront of innovation in this area by allowing those SMEs and startups involved in sustainability to grow.

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