Pilot Production in Key Enabling Technologies - The Multi Key ...

Pilot Production in Key Enabling Technologies Crossing the Valley of Death and boosting the industrial deployment of Key Enabling Technologies in Europe

Internal Market Industry, Entrepreneurship and SMEs

Pilot production in Key Enabling Technologies

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Disclaimer

Imprint

Neither the European Commission nor any person acting on behalf of the Commission is responsible for the use which might be made of the following information. The views expressed are those of the authors and do not necessarily reflect those of the European Commission. Nothing in this brochure implies or expresses a warranty of any kind. Results should be used only as guidelines as part of an overall strategy.

This brochure has been prepared by the Netherlands Organisation for Applied Scientific Research TNO on behalf of the European Commission, DG GROW—Directorate General for Internal Market, Industry, Entrepreneurship and SMEs. It is a publication under the service contract "Multi-KETs Pilot Lines" (www.mkpl.eu). The project started in 2012 and was completed in 2015.

© European Communities, 2015. Reproduction is authorised provided the source is acknowledged.

Project conducted by

In close cooperation with

Netherlands Organisation for Applied Scientific Research TNO, Fraunhofer-Gesellschaft ISI, Commissariat à l'énergie atomique et aux énergies alternatives (CEA), Cambridge University Technical Services ltd., VTT, Fundación TECNALIA Research & Innovation, Technology Foundation Partners, JOANNEUM Research, D’Appolonia S.p.A, Strauss & Partners, Spark Legal Network and Consultancy ltd., Noblestreet

Acreo Swedish ICT AB (Norrköping, Sweden), Bio Base Europe Pilot Plant (Ghent, Belgium), Infineon IFAT (Villach, Austria), Sofradir (VeureyVoroize, France)

Acknowledgements We are grateful for the support, fruitful discussions and contributions of the project steering committee, consisting of Gavino Murgia (EC-DG GROW), Luuk Borg (EC-DG Connect), Heico Frima (ECDG RTD), Dr. Paul Mijlemans (Umicore), Prof. Mike Wale (Oclaro), Prof. Terry Wilkins (Leeds University), Prof. Paolo Matteazzi (Nanofutures), Dr. Andreas Wild (ECSEL), Dr. Manfred Kircher (CLIB 2021), Dr. José Carlos Caldeira (Manufuture, EFFRA). We gratefully acknowledge the contributions of over 1,000 experts from industry, research and policy who actively contributed in interviews, expert workshops and conferences and the online survey.

Cover photo: ACREO


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Contents FOREWORD

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INTRODUCTION

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THE MULTI-KETS PILOT LINES PROJECT: CONTENT AND OBJECTIVES

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CASE: BIO BASE EUROPE PILOT PLANT

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WHAT IS A PILOT LINE? WHAT IS PILOT PRODUCTION?

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KETS-BASED PRODUCTS AND MULTI-KETS

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ECONOMIC RISK, CORE TO THE VALLEY OF DEATH

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BARRIER 1: FINDING FINANCIAL CAPITAL

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BARRIER 2: TO MARKET OR NOT TO MARKET: THAT IS THE QUESTION

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BARRIER 3: PILOT PRODUCTION NEEDS FERTILE SOIL

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BARRIER 4: NO PILOT PRODUCTION WITHOUT HUMAN RESOURCES

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THE POLICY CONTEXT

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WHAT COUNTRIES DO

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PILOT PRODUCTION REQUIRES A SHARED COMMITMENT

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SHARED FACILITIES FOR PILOT PRODUCTION

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FIVE POLICY STRATEGIES FOR CROSSING THE VALLEY OF DEATH

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POLICY ACTIONS

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Foreword We have come a long way since the Commission identified in 2009 six Key Enabling Technologies (KETs) crucial for the industrial transformation of Europe and for triggering innovation in processes, products and services. Today, we have much more information on why and how KETs, together with digital technologies, can become the strategic building blocks for new and innovative industrial value chains: we are doing our best to make this a reality.

Antti Peltomäki

Deputy DirectorGeneral

DG Internal Market, Industry, Entrepreneurship and SMEs European Commission

The following brochure summarises the results of a project looking into ways, in which public authorities can best stimulate KETs pilot production. This is of great importance since the European Union (EU) programme for research and innovation, Horizon 2020, has dedicated more than EUR 6 billion to innovation activities for KETs—a significant investment, which, when properly invested, will translate into more innovative KETs-based products and services, leading to new market opportunities for European enterprises and enhanced manufacturing capacity. This is key to spurring growth, creating jobs and delivering smart solutions to such challenges as aging, scarce natural resources, and sustainable mobility. Close-to-market innovation and pilot production in particular, is essential. As the "scale-up" stage needed to cross the “Valley of Death”, it allows enterprises to test and demonstrate innovative solutions and gather information about the performance and behaviour of a future product and production line. This turns laboratory prototypes into products ready for commercial production. Pilot production is a vital link, which needs to be supported otherwise promising innovations may fail to get off the ground. The final report of the High Level Group on KETs published in June 2015 calls for an EU strategy to support pilot production, with key roles for Member States and regions. KETs can boost the economic performance of lagging regions, enhance regional GDP, and mitigate the competitive divide across regions in Europe. KETs are equally crucial to maintaining the industrial and technological leadership of more advanced regions.

Under the European Structural and Investment Funds (ESIF) in particular, around EUR 100 billion is available over 2014-2020 for innovation, including KETs pilot production, up to first production, which should translate into concrete regional investment projects. More cross-border cooperation between public authorities should also lead to more joint, coordinated investment in pilot production. Many technology infrastructures can already deliver quality services to small and mediumsized enterprises (SMEs) for pilot production, but most are located in only a few Member States. This is why it is crucial to facilitate panEuropean access to these services. To this end, the Commission launched in September 2015 a new web tool, which allows SMEs to find technology services anywhere in Europe (for each KET and each type of service provided).* There are several projects either up and running or in the pipeline, which aim to find the best ways of getting technology infrastructures to work together to help meet the needs of SMEs across Europe. We are fully aware that pilot production, especially in KETs, requires large investments, both initially and beyond the pilot stage, and we are doing our utmost to stimulate such investment. For example, the Commission supports the preparation of "important projects of common European interest" (IPCEIs), to encourage pooling of resources between the EU, Member States, regions and industry to help invest in ambitious, innovative industrial projects. Such projects could also benefit from the European Fund for Strategic Investments, and the Commission will ensure that regulatory barriers to their successful implementation are removed. I hope that this brochure will help you understand the importance of KETs pilot production and why it is crucial to help businesses cross the Valley of Death, as well as inspiring policymakers to effectively support KETs-related pilot production. I hope you enjoy reading it! __________________

*https://ec.europa.eu/growth/toolsdatabases/ketsobservatory/kets-ti-inventory/map. Photo: Collective Commons, Blue Fibre by Wysz.


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Introduction

Technology is crucial to maintaining or building industrial leadership. Most governments support research and development (R&D) in key enabling and industrial technologies. In Europe, as in other world regions, the translation of R&D results into new products and services is suboptimal, and so also are its impacts on growth, jobs and societal benefits. This is mainly due to barriers preventing innovations from crossing the “Valley of Death”. Close-to-market R&D such as pilot production and demonstration is found at the heart of the Valley of Death, where both costs and risks are very high.

Key Enabling Technologies (KETs)... “...are knowledge intensive and associated with high R&D intensity, rapid innovation cycles, high capital expenditure and highly-skilled employment. They enable process, goods and service innovation throughout the economy and are of systemic relevance. They are multidisciplinary, cutting across many technology areas with a trend towards convergence and integration. KETs can assist technology leaders in other fields to capitalize on their research efforts” COM 512 final (2009).

The six KETs Nanotechnologies (NT), Photonics (PHOT), Industrial Biotechnology (IB), Advanced Materials (AM), Micro- and Nano-Electronics (MN-E), Advanced Manufacturing Technologies (AMT) More and more governments give priority to ensuring that technological inventions lead to actual economic and societal benefits; however, many inventions never reach the market and thus the societal and economic impact of scarce public resources is suboptimal. The so-called Valley of Death needs to be crossed, which corresponds to the research, development and innovation (R&D&I) activities required to transform a laboratory prototype into a product ready for full-scale production and commercialisation. The Valley of Death is characterized by both high costs and high risks.

B ased on the work of the High Level Group on Key Enabling Technologies in 2010, the European Commission shifted its attention to this issue of close-to-market R&D&I. A focus on pilot production and demonstration was seen as essential to enable Europe to keep its global leadership in strategic industrial sectors. This emphasis on support to pilot production is combined with the observation by the European Commission in 2009 that six key enabling technologies have high impact on industrial competitiveness and are crucial to solving societal challenges such as aging, scarce energy and natural resources, and sustainable mobility.

“To come back to a position where it effectively competes, Europe has to engage massive political, financial and industrial efforts towards the development of Key Enabling Technologies (KETs). This should include a rebalancing of public R&D&I funding towards close to market activities, assessing the real impact of public R&D funding on the European economy” Final Report of the High Level Group on KETs, June 2015

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The Multi-KETs Pilot Lines Project: Content and Objectives The overall objective of the Multi-KETs Pilot Lines project (mKPL) was to “establish a common understanding of the concept of pilot lines deploying multiple Key Enabling Technologies, their role in strengthening the innovation capacity of the European industry, and how these can be supported by EU policy”. The final report of the project provides national, regional and policymakers in the European Union (EU) with an in-depth background and makes recommendations to policymakers on how to support pilot production activities that combine at least two Key Enabling Technologies ("multi-KETs"). Beginning in 2012, the first phase of the multiKETs Pilot Lines project (mKPL) focused on existing policies in other countries to better understand multi-KETs and pilot lines, plants and pilot production activities. It included an international analysis and benchmark on policies and business approaches on multiKETs and pilot production initiatives. A survey among almost 650 international experts was also carried out, as well as several workshops.

In the second phase of the project a more in-depth assessment was carried out by looking at four organisations that were engaged in multi-KETs pilot production activities. The findings were translated into actions by better understanding the barriers in the Valley of Death and identifying the options of governments to address these barriers. The results were disseminated during workshops and a final conference.

A vast participation of experts During the project, interaction and learning with experts from industry, research and policy was considered crucial. Over 1,000 experts actively contributed to the content of this report. Over 200 experts were interviewed and about 50 experts participated during four expert workshops. Over 150 different experts joined the discussions during two conferences. A Steering Committee evaluated the (intermediary) results. Almost 650 experts participated in an online survey. From the consortium partners, over 40 experts were directly involved in the research and during four case studies, some 80 experts provided information on concrete pilot production activities.

The project objectives included 1. the creation of a shared view on multi-KETs and pilot lines 2. an international assessment and benchmark of 21 countries on multiKETs and pilot production policies 3. case studies on actual pilot lines and plants and a demonstration to the broader audience on multi-KETs and, finally 4. a proposed policy roadmap to support the long term agenda on multiKETs and pilot production Further background information can be found at www.mkpl.eu/results.


Case: Bio Base Europe Pilot Plant

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Joining forces to build state-of-the-art research and training facilities to speed up economic growth, innovation and sustainable development, Flanders and the Netherlands have established Bio Base Europe. The Bio Base Europe Pilot Plant (BBEPP), located in Gent, Belgium, was one of the mKPL demonstrators. BBEPP offers technological infrastructure and expertise to customers that have a prototype of a bio-based product but not yet a clear idea of how to commercially produce it. It helps identify the raw materials, assesses the optimal production process and even helps find possible investors. Expensive equipment can be shared and BBEPP has highly skilled experts to help its customers cross the Valley of Death. After its start in 2012, BBEPP has been involved in 12 public R&D projects and has helped over 40 companies via private projects, of which 26% are start-ups, 45% are SMEs and 29% are large enterprises.. directly into BBEPP facilities, which enabled direct testing. The first project tested fermentation of CO to an alcohol, which took less than a year. Industrial production at 200,000 liters is being studied now. The second project involves testing fermentation of CO2 to a short-chain fatty acid and is currently at the lab stage.

Photo: BBEPP

A major multi-national company in the steel sector did two scale-up projects with BBEPP to transform its industrial effluent gases (CO, H2 and CO2) into valuable chemicals through fermentation using micro-organisms. One of the company sites is located very close to BBEPP, so a pipeline passing the BBEPP facilities could be used to facilitate this process. A new pipe was connected to this pipeline

See http://www.euronews.com/2013/11/15/kets-transforming-innovation-into-competitive-product.

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What is a pilot line? What is pilot production?

Initially, the definition of pilot production focused on pilot lines, which are the physical infrastructure and equipment needed to produce small series of pre-commercial products. The project showed that pilot production is not only about the equipment needed to develop new products (the pilot line), but also about activities such as market analysis and engineering to optimise the production process. These other activities were found crucial to crossing the Valley of Death. During pilot production, the internal organisation of the company is also adapted, as well as its relationships with external partners along the value chain. All this is key to preparing for new business development. The project confirmed that pilot production is at the heart of crossing the Valley of Death. The international analysis of 21 countries showed that all over the world attention is increasingly paid to how governments can support pilot production. In addition to finding investors for the large investments needed for setting up the pilot line or plant, integrating and aligning all the different pilot production activities are key to eventually achieving commercialisation and full-scale production.

Pilot production is about scaling up an invention from the laboratory into pre-commercial production. Although the development of a manufacturing-oriented pilot line remains at the core of pilot production, crossing the Valley of Death through pilot production requires much more. It is also about engaging with customers to get their feedback on the future product, identifying how the organisation must be adjusted for this new business, understanding better what the characteristics of the market are, and coordinating with suppliers and other partners in the value chain. It is about tweaking the product to a format that can be manufactured and sold.


A holistic approach Pilot lines are the technological equipment needed to produce commercial products, like chips and electronic components. In industrial biotech and advanced materials, they are often called “pilot plants”. Because of these differences in terminology and given that the Valley of Death is not only about physical equipment, the term “pilot production” is seen as more adequate. It is more neutral and holistic and includes all the problems encountered during the scale-up of prototypes to low-rate precommercial manufacturing.

To define and demarcate pilot production... ...the project showed that the most practical way is to use a set of activities, including •

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R&D to validate both technology/component/ subsystem development in a laboratory environment and “transferability” to the level of pilot manufacturing A pre-commercial pilot manufacturing system operated by one or more industries including external bodies like SMEs and research organisations

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The first small series of pre-commercial products and prototypes for testing and validation of the manufacturing process (including cost efficiency) and by customers Adjustment of product design based on pre-commercial manufacturing Creation of market relationships giving lead customers access to new technologies, preparing for full commercialisation Business development with investors Preparation of internal and external organisations for full manufacturing, including development of a value chain

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KETs-based products and multi-KETs

The six Key Enabling Technologies identified by the European Commission in 2009 are deemed crucial for industrial competitiveness and for solving the grand societal challenges addressed by the European Research and Innovation programme, Horizon 2020. But KETs are only the first step in an evolutionary process from the development of a technology to its integration into a final KETs-based product. “Multi-KETs” means combining at least two KETs in a way that value is created above and beyond the mere combination of the individual technologies. Multi-KETs R&D leads to new inspiring avenues of innovation and is already a reality. KETs are technologies and are just the first step in the innovation process towards applications in new products and services. The ultimate aim of the KETs strategy is not the development of KETs, nor even of KETs-based components, but of KETs-based products that are marketable and

bring societal and economic benefits. An effective policy strategy should therefore not be limited to supporting technological development and pilot production, but should also ensure that society ultimately benefits from the results of (multi-)KETs development.

International view on KETs An important finding from the project is that the term “Key Enabling Technologies” is not often used. But the notion that some specific technologies are fundamental drivers for our economy and crucial to solving our societal challenges is well accepted. The six KETs areas are often mentioned, but specific attention is also often given to information and communications technologies (ICT) and software.


One of the activities of the mKPL project was a online survey. It was done in 2013 among 650 international experts from industry, research and government, many of them involved in KETsrelated pilot production projects. The survey showed that there were intrinsic linkages between individual KETs. For example, the survey showed that micro- and nano-electronics, photonics and nano-technologies already overlap (in most cases photonic projects also address micro- and nanoelectronics and nano-technology).

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So, some individual KETs are already multiKETs. The most positive correlations were observed for micro- and nano-electronics and photonics, nanotechnologies and advanced materials, and advanced materials and advanced manufacturing. Correlations between the other KETs were less significant.

The mKPL survey showed that more than 55% of pilot production projects address two or more KETs, and about 30% address three or more. MultiKET pilot production is a reality.

Electric cars are a perfect example of a product requiring the integration and combination of several KETs

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Economic risk, core to the Valley of Death

During pilot production, high investments are needed to generate information on the performance and behaviour of the future products and production lines, and to get a better understanding of the market. This is necessary for estimating the expected profits from new products (based on expected production costs and sales). In other words, high investments must be made before uncertainties are reduced, which means the investment and the reduction of uncertainty are out of sync, leading to high economic risks for private investors and enterprises.

Firms often estimate the uncertainty on the outcomes of a pilot production process such that the required investment will not be recovered. Multi-KETs pilot production activities are complex and the assessment of the related economic, technological and financial risks highly uncertain. Results from the project suggest that the costs associated to the innovation process increase dramatically at the pilot production stage (an increase by a factor of five compared to earlier

research stages is not unusual). Uncertainties about outcomes decrease later in the innovation process, after pilot production. Therefore, at the stage of pilot production, expected profits are very much out of sync with required investments. This often leads companies to decide not to invest in pilot production. The sum of all these individual decisions creates the Valley of Death.


Formulating recommendations for policy actions means assessing the barriers that policy can address. So, what are the obstacles that hinder pilot production within the multi-KETs domain? First, the huge investments needed—ranging from EUR 100,000 to over EUR 100 million but typically around EUR 10 million—to cover infrastructure and equipment, as well as R&D&I and market-related activities. The sheer size of investments can be a large barrier to pilot production. Setting up an actual production line/plant can take place only after the piloting phase, requiring up to billions of euro of investments.

Second, the probability that the investment will lead to a profit is hard to assess. It depends not only on the amounts invested, but also on the expected turnover and production costs. What will be the production yield for this new product? What are customer requirements and the actual market size? Are there many competitors? As a result, assessing the expected return on investment of pilot production projects is often not straightforward, and therefore, the economic and financial risks of pilot production are usually perceived as very high by private investors and companies.

This figure illustrates the investments needed for pilot production. In general, the highest investments are needed for projects involving micro- and nanoelectronics. The investment needs for SME initiatives are substantially lower than the average. But 40% to 60% of all initiatives require investments well above EUR 1 million.

The high economic risk of pilot production can be related to four main barriers, which are crucial for policy to address: •

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Access to finance: The cost of pilot lines/plants is high, and external investment is often needed. There is relatively limited capital available and private investors are reluctant to invest due to economic risk. Single investors often cannot individually bear the high risk. Limited market articulation: To lower economic risks, it is crucial to reduce the uncertainty about demand. Having a customer that explicitly places an order will boost pilot production.

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Quality of the industrial ecosystem: Pilot production requires cooperation in the industrial value chain. Suppliers of input materials as well as suppliers of equipment need to synchronize their activities—along with complementary producers and end-users. These relationships are difficult to create. Available human capital: Core to successful pilot production activities are, for example, the technical, managerial, organisational, and marketing skills of personnel. These skills are not always available.

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“In project financing, economic risks are the risks that the project's output will not be saleable at a price that will cover the project's operating and maintenance costs and its debt service requirements” Nasdaq


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Barrier 1: Finding financial capital

The vast investments needed to set-up a pilot line/plant and engage in pilot production are difficult to secure, especially for capital-intensive multi-KETs projects. Funding sources thus need to be combined, including both public and private funding. But this “patchwork of funding sources” is complex, and private investors are reluctant to engage in these risky projects, especially those run by SMEs. usually well supported by public funding, but public resources are often too scarce for costly pilot production activities. The illustration below shows the focus of private funding (blue) and European Commission funding (red) in relation to the innovation process. In the earlier stages of the process, large amounts of private capital are less available and public support is crucial. This also includes pilot production.

Source: mKPL survey.

The issue of Access to finance finds its origin in the high investments needed to build a pilot line/plant plus the related research, development, marketing and operational activities. As shown in the graph above, this investment is mainly made from equity, but public funding and external private investment are also often needed to cover the high amounts required. The availability of private investment for early research and development is limited, and it increases as the uncertainty of the outcome is reduced and return on investment becomes clearer. This usually happens after pilot production. Earlier research and development is

Overall, the availability of financial support for pilot production is limited compared to demand. Some governments still consider that financing pilot production and market-oriented activities is the private sector’s responsibility. In addition, the strings attached to public funding can be troublesome, while the window of opportunity for this type of investment is usually small. To ensure that public money invested in early R&D is not wasted and leads to economic and societal benefits through the commercialisation and production of KETs-based innovations, a more systematic alignment and synchronisation of the public and private funding sources available for pilot production are necessary. If not, pilot production will remain the weak link in the innovation chain.


Barrier 2: To market or not to market: that is the question

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There is broad consensus that robust anticipation of market needs and demand is crucial to crossing the Valley of Death. However, there is a deadlock at the pilot production stage. Customers wait for a product they can test (not a lab prototype but a pre-commercial product very similar to the final one) before committing to any future orders, while manufacturers (and their investors) are reluctant to invest in pilot production before they get orders from lead customers. So coordination of the market is crucial, as is timing and the availability of market information. Market expertise, analysis and development remains the primary responsibility of companies, but helping companies establish market demand can be policy support that is as effective as directly supporting pilot production. The core reason is that customers are reluctant to commit to future orders when a testable product is not present. Also, the manufacturer will often only get funding (from private investors) when the first informal orders are in. This creates a deadlock, which is directly connected to the problem that market information is often not readily available, especially for SMEs. And everything is made even more complicated by the small window of opportunity, which is the consequence of the rapid evolution of markets and the necessarily short time to market to get a firstmover advantage. Establishing bilateral and international cooperation with downstream partners and customers is especially difficult and barely supported by policy.

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Barrier 3: Pilot production needs fertile soil Pilot production needs a high-quality innovation network. This offers the “fertile soil” in which inventions can grow into successful businesses. Finding partners, establishing trust and creating a long-term, agile innovation ecosystem is difficult and requires public funding. Not only customers, but also other partners in the value chain, such as equipment suppliers, need to get involved in pilot production activities. Only then can R&D results be optimally maximised. The quality of the innovation network is crucial to pilot production; the development of the production system is complicated and requires cooperation along the value chain. This is especially true within the multi-KETs domain, as projects are more complex and can usually not be set up by one partner alone. It is, however, often difficult for companies to find partners and establish trust. In addition, engaging research and technology organisations and universities in these networks is becoming more difficult, as many national governments are reducing their funding for these organisations. Another important point is

involving private investors and educational institutes, which are less common but none-the-less crucial for multi-KETs pilot production. A last point is that initiating and maintaining a long-term dynamic ecosystem is difficult and needs support. Overall, there are many policy interventions available to enhance the quality of the innovation ecosystem, at European, national and regional levels, but cooperation and alignment among these interventions is limited and many are “project based” and lack the longer-term and more continuous approach that enhancing the quality of the ecosystems requires.

This figure shows which partners EU firms regard as most important for their pilot production activities. The customer is seen as a crucial partner, but research and technology organisations, equipment suppliers and universities are also important in the innovation ecosystem.

Source: 2013 mKPL survey.

Infineon as a mKPL Demonstrator Infineon Technologies is a global leader in semiconductors and power chips, continuously innovating to maintain its leading position. Infineon Austria performs manufacturing, R&D and business activities and is a globally leading competence centre for power semiconductors. It set up a pilot line to develop a new manufacturing system for power semiconductors based on larger wafers (300mm), the first complete 300mm power semiconductor processing line in the world. Public funding is used to enhance networking. The pilot production initiative by Infineon was supported by the ENIAC* programme, to involve more than 20 partners in the activities, including SME suppliers, high-tech research institutes and leading European universities, which allowed parallel developments and the bundling of necessary competencies. This did not only reduce technological risks, but financial risks were also shared, and even market risk was positively affected. The Infineon pilot production initiative was selected as one of the mKPL demonstrators. http://www.mkpl.eu/demonstrators/infineon * ENIAC was the tripartite joint undertaking. It brought together the European Commission and Member States with industry and academia in nano-electronics.


Barrier 4: No pilot production without human resources

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There can be no pilot production without experts, especially within the complex domain of (multi-)KETs. The skills necessary are often multi-disciplinary, including non-technological disciplines. However, the availability of people with suitable skills is limited. Policies for innovation and education & training are often not connected and the availability of highly skilled personnel is also hindered by differences between the worlds of pilot production and earlier R&D, as well as between universities versus industry. Human resources are needed both for research and for operating the pilot lines/plants, and it is important to remember the multi-disciplinary character of the skills and expertise needed. This includes not only technology, but also soft skills in organisation, marketing and entrepreneurship (especially for SMEs and start-ups). The availability of personnel trained in technological skills is under pressure, which is even more problematic because

of the rapid development of technologies in multi-KETs. High mobility of personnel and lifelong learning are two issues to be addressed, as well as the limited focus of educational institutions towards industrial and operational skills. Cooperation between educational institutions and industry within multi-KETs pilot production projects should especially be supported.

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The policy context

While KETs are definitely on the radar of many governments around the world, pilot production has only recently attracted the interest of governments. This trend is seen globally, but only a limited number of countries already have systematic support in place for pilot production, despite demonstrated market failures. Without adequate support, there is a risk that innovative solutions to societal challenges will not be deployed and technological developments will be sub-optimally used for job creation and economic growth. Public R&D expenditures will not be used efficiently and Europe will lose opportunities to maintain or (re)gain industrial leadership in strategic sectors. “Private sector industry, universities, and the government need to come together to spark a renaissance in American manufacturing and help our manufacturers develop the cutting-edge tools they need to compete with anyone in the world. With these key investments, we can ensure that the United States remains a nation that ‘invents it here and manufactures it here’ and creates high-quality, good paying jobs for American workers.” Obama, 2011

In the United States (US), attention to pilot production and advanced manufacturing is increasing. The Obama administration has given priority to the further development of US capacity for innovation in advanced manufacturing. After the 2011 report on advanced manufacturing* from the President's Council of Advisors on Science and Technology, Obama announced in early 2012 the creation of a national network for manufacturing innovation, where research and industry would join forces in 15 institutes focused on manufacturing innovation. These institutes concentrate on creating cooperation and offering technological infrastructure and expertise. In early 2013, the first institute had already been set up and Obama had extended the programme to 45 others. Today, five institutes are operational and more are planned. In total, over USD 1 billion has been allocated to these institutes.

The economic risks related to pilot production as well as the investments needed are often too high for private investors and companies, especially SMEs and start-ups. Without public support, the Valley of Death is unlikely to be crossed, and innovative technological solutions to societal challenges such as climate change, aging and environmental pollution will not reach the market. Eventually, society will not benefit from the vast public investments in research and development, nor will the innovation ecosystem and downstream industries benefit from the opportunities presented by new innovative KETs-based components, thus missing the chance to strengthen the EU's industrial base.

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*www.whitehouse.gov/sites/default/files/microsites/ostp/ PCAST/amp20_report_final.pdf.


What countries do

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Business and policy practices concerning pilot production activities in (multi-)KETs were assessed in 21 countries. Business practices are primarily market oriented. The focus is on finance, skills, intellectual property rights and time to market. Limited attention is given to the building of the ecosystem. Policy practices show an emerging focus on pilot production, with a wide variety of instruments. Often special attention is given to SMEs. But a systematic approach towards supporting pilot production within the broader innovation policy is almost always missing. Countries assessed Austria Germany Belgium United Kingdom Brazil Ireland China Italy EC Japan Finland Netherlands France Poland

Portugal Slovenia South Korea Spain Sweden Switzerland USA

As regards policy practices around the world, an emerging focus on support to pilot production was observed during the project, for example with the UK Catapult programme* and the US National Network for Manufacturing Innovation.** The twelfth Chinese five-year plan and the French strategy "La Nouvelle France Industrielle"*** also include a clear emphasis on industrialisation within innovation policy. However, many national innovation policies are constrained by tight public finances. With regard to the policy instruments, direct funding is used in almost all countries, but with limited focus on pilot production. This is also the case for tax instruments and public loans, Shared facilities, offering pilot lines and expertise to multiple customers, are often seen regionally.

Research and technology organisations, in particular, are instrumental in supporting pilot production but are often focused on earlier R&D stages (such as the development of laboratory prototypes). Most policies do not cover activities related to market articulation (except in a few cases, such as the iMIND programme§§ in B elgium). A more systematic approach towards innovation, supporting all the links in the innovation chain, is rarely seen. The Irish Technology Transfer Office§§§ is the only example of a systematic national approach to technology transfer in Europe.

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* www.catapult.org.uk. **http://manufacturing.gov/nnmi.html, ***www.economie.gouv.fr/nouvelle-france-industrielle § www.whitehouse.gov/economy/business/startupamerica §§ www.iminds.be/, §§§ www.knowledgetransferireland.com/About_KTI

During the project, in the countries assessed, many policy interventions that are used to support pilot production were identified. The most frequent are listed here.

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Pilot production requires a shared commitment Pilot production requires a shared commitment from all stakeholders. It is close-to-market R&D and mainly industry driven. But pilot production sometimes needs to "get back" to earlier R&D stages and even to fundamental research, so involving research institutions remains necessary. Large enterprises as well as SMEs and start-ups engage in pilot production. Different types of pilot production activities and users require different kinds of policy support. Pilot production activities are close to market, typically focusing on technology readiness levels (TRLs) 5 to 7. Pilot production thus needs to be industry-driven (activities conducted by and/or with companies). B ut it is important to note that pilot production is a highly dynamic process, with feedback loops and multi-technological developments. Sometimes it requires activities at lower TRLs (3 to 4) and even some complementary fundamental research. Research partners, such as research and technology organisations and universities therefore need to be involved..

Pilot There is a consensus that pilot production can cover TRLs 3 to 8, the core activities being at TRLs 5 to 7production, can involve large companies as well as SMEs, and even start-ups. The needs of the industrial partners and the characteristics of pilot production activities will therefore vary, with respect to capital needs and access to finance, multi-disciplinarity, networking and governance. Effective cooperation with universities and research and technology organisations is often a recipe for success.

The approach involving technology readiness levels is often used to communicate the readiness of a single technology. However, multi-KETs pilot production involves several technologies that might still need to be researched, even in the pilot production stage. This is especially true of manufacturing technologies.

What are the roles and needs of the different partners involved in pilot production? Large companies can be drivers for innovation. But government support is needed to ensure their commitment to establishing a dynamic ecosystem. Large companies tend to lead more in pilot production and to be fully engaged and committed to taking a prototype to mass production. B ecause of their broader available expertise and strong position in the innovation network, they usually lead a consortium of partners. But they cannot do it alone. They need to engage with public authorities, regional clusters and other companies in the value chain. Building

mutually beneficial relationships and contributing to a strong “local” community for business will have a multiplier effect on European growth. Strong regional ecosystems can be extended along the value chain, as well as geographically to other regions. This requires more open participation of large companies in pilot production activities, supporting the development of ecosystems and clusters as well. This approach must be balanced, ensuring firm competitiveness while allowing more open strategic partnerships and boosting ecosystems. In general, SMEs need more support than large enterprises because of their limited human and financial capital. There are three


Sofradir as a mKPL Demonstrator Around 2004, the French research and technology organisation CEA LETI started exploratory research on mercury-cadmium-tellurium p/n technology MCT p/n) exclusively funded by government. But even at these very early stages, the Sofradir company (a spin-off from CEA-LETI and today a leading manufacturer of advanced infrared detectors for defence, space, and industrial applications) was occasionally involved in the research activities. Four years later, in 2008, the first activities on the new technology started within Sofradir itself and, just a year later, the first demonstration was possible in a laboratory environment. The real technology-transfer phase started in 2010 with the aim of reaching a production capacity beyond 100 pieces a year. In 2011, Sofradir set up a pilot line to develop a new manufacturing process for infrared detectors using the new MCT p/n technology developed jointly by CEA-LETI and Sofradir, which led to a real improvement in performance. This example shows the importance of the collaboration between industry and research. For a mid-sized, high-tech company like Sofradir innovation is crucial to competitiveness and the collaboration with CEA-LETI is key—for anticipating future market needs as well. This collaboration is formalised by a joint research centre in which 100 highly skilled personnel from both organisations are participating, creating a pipeline for innovation and a validating mechanism for practical application. Both product development and manufacturability are addressed. This approach has enabled the company to grow from some 100 researchers in 1986 to over 750 staff worldwide today.

types of SME involvement in pilot production, requiring three different kinds of policy support. First, SMEs can participate in pilot production within networks dominated by large enterprises, where policies should focus on supporting their network participation. Second, some SMEs can work independently and lead the innovation process, which requires a broader supporting approach, including access to capital, intellectual property rights, and activities related to market assessment and development. Third, start-up companies might need pilot production to take off and scale up, requiring incubation support, from connections with research and technical organisations/universities to access to shared facilities to connections with industry experts and venture capitalists. Universities are an important part of the ecosystem, initiating new inventions, delivering fundamental knowledge and training personnel. Although the relevance of universities to pilot production is not obvious, they do have an important role to play by providing high-tech research and development infrastructures, as well as training of personnel.

Their fundamental and applied research feeds into the first steps of the innovation chain, which creates new inventions—and possibly start-ups (in particular via spin-off companies) that should be supported with incubator services provided by universities. Scale-up production is often faced with fundamental technological problems where universities can also help. Research and technology organisations offer technological infrastructure and applied expertise to reduce costs and increase the effectiveness of pilot production. Traditionally positioned between research and industry, research and technology organisations translate science and technology into innovative products and processes at the prototype level. B ut they also play an important role in creating and maintaining the innovation ecosystem. They provide technological infrastructure for pilot production and can also offer expertise, incubator services and training of highly skilled experts. However, more emphasis needs to be given to their incubator services, shared facilities and training of experts for the industry..

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Shared facilities for pilot production The cost of pilot production can be reduced by using shared facilities, which provide technology, infrastructures and equipment, and highly skilled personnel. Often crucial to SMEs, shared facilities also benefit larger companies. They can be run by public entities (such as research and technology organisations and universities) as well as private entities. Shared facilities are about sharing expertise and equipment to reduce costs and have access to specific know-how. In all cases, their long-term sustainability is a challenge and will require long-term public support.

Shared facilities for pilot production combine advanced equipment with trained personnel who have the necessary expertise for undertaking testing, validation and demonstration of manufacturing at a scale that is meaningful to potential customers. They can also deliver preproduction series and other

services like support in finding investors. They are “shared” in the sense that they serve multiple users (as opposed to a facility owned by a company and reserved for its use). In wellestablished industries and for mature technologies, late-stage product development and pilot production can more easily be done within a company. So, shared facilities are best positioned in the context of emerging technologies or industries with common characteristics where a structured manufacturing capability is not yet widely available. Shared facilities are usually created as a result of public financing aimed at stimulating the development of SMEs and/or emerging industries. The governance structure of shared facilities is generally non-profit, but revenues come in part from fees paid by the users (contract-based manufacturing development services). The mission of a shared facility is to provide pre-competitive assistance in pilot production to the broader community of a targeted industry sector.

A multi-business model approach To increase the sustainability and effectiveness of a shared facility, not only should they provide equipment, operating personnel and researchers to develop the production line, but also services like commercial micro-production, testing/validation of products, training of personnel and incubator services. Last but not least, they can play a crucial role in enhancing the innovation ecosystem.


Often started at a regional level to support economic development (with public funding), shared facilities need to find new customers at the national or international level. This can be a challenge because of the lack of awareness of their services beyond regional and national borders, or due to some "market saturation" in Europe when several regions have funded similar facilities without a coordinated approach. To address this, the European Commission recently launched a tool for locating technology infrastructures for KETs anywhere in Europe.*

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Most of the time, public funding covers the initial set up of the facility, but not subsequent needs for renovation and upgrading (which are typically needed after three to five years). As fees paid by users rarely cover costs, the shared facility can become unsustainable, and the initial public investment will eventually be lost.

___________ *See https://ec.europa.eu/growth/toolsdatabases/ketsobservatory/kets-ti-inventory/map.

Accessing know-how and reducing costs are the main reasons for EU firms using shared facilities for their pilot production activities.

Source: mKPL survey.

Acreo PEA as a mKPL Demonstrator Acreo is a Swedish independent non-profit research institute within the area of ICT (Information and Communication Technology). ACREO conducts applied research within the fields of Broadband Technology, Fiber Optics, and Nanoelectronics. Together with the Linköping University, ACREO launched a Printed Electronics Arena (PEA) initiative aimed at speeding up the market introduction of Printed Electronics and Organic Bioelectronics. A key resource of PEA is the Pilot Production Facility, called "PEAManufacturing". It aims at creating the conditions for the commercialisation and exploitation of the R&D in printed electronics and organic bioelectronics conducted at Linköping University and Acreo AB since 1998. PEA-Manufacturing provides enterprises and start-ups with a facility where they can learn how to manufacture printed electronics and organic bioelectronics, test the technology in their own products and start pilot production. Companies can either choose to work independently in a laboratory or in cooperation with the scientists and operators working in the test environment. Expertise is available in areas such as graphic design, physics, chemistry, machine operation and project management. PEA also acts as start-up facilitator for the region and offers training and micro-production to make the start-up viable. Equipment, highly skilled experts and connections to the (regional) research and business ecosystem are all considered crucial, and PEA is financed not only by the Linköping university and VINNOVA, but also by the cities of Norrköping and Katrineholm (and of course by the regional industry).

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Five policy strategies for crossing the Valley of Death

There are five policy strategies for crossing the Valley of Death through pilot production. They focus on addressing the issue of economic risk and the four underlying barriers and are deemed crucial to enhancing Europe's capacity to support pilot production for innovations based on multi-KETs. ❶ Enhance the coordination and alignment of innovation policies between regional, national and European levels and along the innovation chain. Pilot production is one crucial step in a broader innovation chain towards full uptake of technologies. Pilot production feeds on and into other innovation steps, such as R&D. The efficiency and effectiveness of pilot production policies are therefore highly influenced by policy strategies that support these other steps. ❷ Make it easier to combine funding, be it funding from different public instruments (such as regional, national, EU) or public and private financing (to leverage private investment). The sheer size of the investments needed for pilot production can often not be provided by a single source, whether public intervention or a single private investor. A combination of public and private funding is needed, and public policy should give priority to combining sources and creating leverage for private investors.

❸ Enhance the innovation ecosystems in which pilot production is carried out. Support to an isolated pilot production project would not have optimal benefits. It should be part of longer-term ecosystem development, with a long-term innovation strategy. Special attention must also be given to the downstream markets, and customers, particularly lead customers, should be part of the innovation ecosystem. ❹ Support shared facilities for pilot production (open or semi-open technology infrastructures where companies can access the necessary services and equipment). These are crucial to SMEs and start-ups and this is, more generally, an important policy mechanism for reducing the barriers during pilot production. Shared facilities reduce costs by sharing equipment and can offer important expertise and specific services often not available in a single company. They can also play an important role in improving the ecosystem. ❺ Enhance the availability of human capital to support pilot production and overall valorisation of research. The development of the specific multi-disciplinary skills and expertise needed to operate pilot production will support new business developments.


Policy actions

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To cross the Valley of Death in Europe, different government levels (EU, national, regional) need to align their policies and funding instruments. This is about combining efforts and pooling resources, as well as creating a smooth financing chain for innovators (the "relay race" approach). This is not only necessary to gather the vast investments needed, but also to increase the overall effectiveness of policies and funding instruments. Cooperation between the European Commission, Member States and regions is deemed crucial for a successful strategy to support pilot production in Europe.

Europe

The EU programmes regarded as most important for pilot production are Horizon 2020, the European Regional Development Fund and the European Fund for Strategic Investment, as well as the financial support provided by the European Investment Bank.

❶ Coordination and alignment • Set up a European task force on innovation to enhance the coordination and alignment of regional, national and European innovation policies with a specific focus on pilot production. • Align administrative procedures of the different European funding instruments for close-tomarket innovation/pilot production and facilitate their combination (simultaneous or sequential). ❷ Combining funding • Include funding for market assessments for pilot production projects under EU programmes for research and innovation. • Develop risk-assessment tools for investors in pilot production. • Support bilateral supplier/customer pilot production projects to articulate markets (B2B) ❸ Support shared facilities • Set up small funding schemes to support building consortia along the value chain to develop large Horizon 2020 proposals, or use more two-stage evaluation procedures. • Support long-term strategic networks for pilot production. • Further reduce the time to grant in EU programmes for close-to-market research and innovation, particularly for pilot production, because of the short window of opportunity—under Horizon 2020, for example. Further simplify administrative procedures and ensure that necessary changes can be implemented more quickly (to react to actual market and industrial needs). ❹ Enhance the ecosystem • Support feasibility studies for new shared facilities to better assess needs. • Support establishing and maintaining shared facilities and assist them in adopting the multibusiness model approach, using a combination of the Structural Funds and Horizon 2020. • Create an EU coordination mechanism for shared facilities to avoid scattering of resources (leading to non-sustainable shared facilities in the mid-term) and improve the use of existing shared facilities. ❺ Improve the availability of human capital • Raise awareness among policymakers (EU, national, regional) about the importance of pilot production. • Use Marie-Sklodowska-Curie to allow researchers to participate in pilot production activities. • Make it easier for SMEs to engage in pilot production across borders, and expand brokerage activities to help SMEs find research, technology and business partners abroad for their pilot production projects.


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National

Policies on training and education and support to national research infrastructure are deemed most important. Overall, national governments still have a low awareness of pilot production, although they pay more and more attention to (multi-)KETs

❶ Coordination and alignment • Develop a national action plan for pilot production, consistently integrating policies on innovation and education. • Raise the awareness of policymakers in regard to pilot production and provide them with sufficient information and training. ❷ Combining funding • Enhance national funding of research and technology infrastructures (research and technology organisations) to allow them to undertake more pilot production activities. • Participate more in international innovation programmes, with tripartite funding (EU, national, industry) so as to reach a critical mass of investment into large-scale pilot production initiatives. • Co-finance “angel” funds for SME pilot production projects. ❸ Support shared facilities • Support incubator programs complementing pilot production activities, but embed them in national and regional innovation ecosystems. • Stimulate research and technology organisations to take a stronger role as coordinators of innovation ecosystems for pilot production, including incubator services and shared facilities. • Introduce small funding schemes to support consortia building along the value chain. ❹ Enhance the ecosystem • Create innovation vouchers for SMEs to use shared facilities. • Do not treat the support of shared facilities as one-off projects, but provide long-term support. ❺ Improve the availability of human capital • Stimulate technology transfer through research and technology organisations and also enhance their role in training and education. • Stimulate education on production in universities to ensure their multi-disciplinary mindset and readiness to commercialise research.

Regional

Connected to economic development, pilot production has strong regional roots. Regional governments and agencies play a crucial role in initiating innovation ecosystems oriented to pilot production.

❶ Coordination and alignment • Create regional public/private investment funds, but connect them to national and European innovation policies. ❷ Combining funding • Further align concrete regional innovation initiatives on pilot production with national and European opportunities like Horizon 2020 and the structural funds. • Create public/private partnerships in funding for pilot production, including the use of the European Investment Bank and set-up of new venture capital funds. ❸ Support shared facilities • Use regional incubators as innovation hubs to enhance the quality of the regional innovation ecosystem for pilot production. ❹ Enhance the ecosystem • Increase the support for existing shared facilities and engage in the creation of new ones. • Encourage downstream regional SMEs to engage in multi-KETs pilot production activities together with large producers of KETs components ❺ Improve the availability of human capital • Actively connect regional educational institutions to regional shared facilities. • Enhance the use of the opportunities provided by the EU structural funds to connect training and educational activities to innovation initiatives in the region.


Title: Pilot Production in Key Enabling Technologies Linguistic version:

EN

Contact information: For further information and to request copies of this report, please contact: European Commission DG Internal Market, Industry, Entrepreneurship and SMEs Unit F3 - Key Enabling Technologies, Digital Manufacturing and Interoperability Avenue d'Auderghem 45 B-1040 Brussels E-mail: [email protected]

Further background information can be found at www.mkpl.eu/results

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ET-01-15-748-EN-N ISBN 978-92-79-52140-9 doi 10.2873/944439