Innovation or Stagnation?

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Adam Barber
November 30, 2011
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This content is from our archive. Some formatting or links may be broken.
Innovation or Stagnation?

Wally Lafferty, former Vestas vice-president for technology R&D in the Americas

Wally Lafferty



The offshore wind industry is receiving boosts from the government, in hopes of helping companies bring down the cost of energy. The UK government this month announced two funds totaling £30 million, for innovations in the offshore wind sector. In September, the US Department of Energy announced $43 million for research grants in offshore wind. But are these the kind of boosts that the industry really needs? Here’s what happens when the government offers subsidies for R&D.

First, the government receives intellectual property in exchange for their subsidy. So, companies will provide their less-competitive ideas to the government, and withhold their best ideas to preserve their own intellectual capital. As you can imagine, then, government subsidized projects will typically only make incremental improvements to existing technologies. Truly innovative ideas will need a different source of funding to make it to the market.

Second, the government typically requires matching funds from the company, partnership with a public university or non-profit organization, and often, active sponsorship from strong political resources who want the company to create jobs in their district. These activities dilute the effectiveness of the subsidy by requiring the company to put valuable resources to work on non-competitive projects in the public domain. This makes it less likely that sufficient company resources will remain available to pursue the success of their most innovative ideas. This is not an effective way to push truly innovative solutions into the market.

An alternative way to fund R&D is to rely on private financial institutions. Unfortunately, our industry’s current financial model makes it extremely difficult to bring innovation to the market. Banks, venture capitalists, and financial lenders have all become more risk-averse in the past several years, due to uncertainty in the banking sector. They have become very sophisticated in their tools and methods for assessing financial, legal, operational, and strategic risks. If the combination of the risks is considered high, then funding is denied.

It is said that failure is the mother of invention, so innovation is a very risky business. Many experts agree that a high project success rate indicates that the investor has not taken enough risk to maximize his portfolio performance. The return on investment of a good success story can be staggering; however, our financial model today insists on slow, stable progress with incremental steps based on well-proven technology. This approach will protect investors from risk, but will not bring the technical revolution necessary to make a significant dent in the cost of energy.

So, if true innovation isn’t enabled by government subsidies or by risk-averse bankers, then what is the best model for supporting innovation? First, financial institutions need to be more aggressive in taking “big sensible risks.” They have to stop believing that every project they invest in has to succeed – as long as they know how to make plenty of profit on the ideas that do succeed. The idea is not for lenders to be reckless with their resources – but they can partner with R&D to help companies drive disruptive innovation throughout the entire process.

To be successful, lenders must be committed from the cradle all the way into the market. They must provide investment funds in small steps toward radical improvements, supporting each step to the next milestone. Lenders must partner with R&D to transparently help assess and manage risks. The banker must commit to provide funding all the way to initial production projects that deploy the new innovative technology. Stopping short of this will doom the project to an early demise.

Rather than play it safe with the least-competitive ideas, or incremental improvements, offshore wind innovation can benefit from a funding model that embraces risk, yet mitigates it with a full lifecycle partnership, and small steps toward large-impact innovation.

Written by Wally Lafferty, former Vice President and Managing Director for Vestas Wind Systems, responsible for Technology R&D in North America. He is a member of Offshore Wind Professionals and a contributor to the Wind Power Expert Network. Wally also writes a blog, A Sustainability Minute.




Wally Lafferty, former Vestas vice-president for technology R&D in the Americas

Wally Lafferty



The offshore wind industry is receiving boosts from the government, in hopes of helping companies bring down the cost of energy. The UK government this month announced two funds totaling £30 million, for innovations in the offshore wind sector. In September, the US Department of Energy announced $43 million for research grants in offshore wind. But are these the kind of boosts that the industry really needs? Here’s what happens when the government offers subsidies for R&D.

First, the government receives intellectual property in exchange for their subsidy. So, companies will provide their less-competitive ideas to the government, and withhold their best ideas to preserve their own intellectual capital. As you can imagine, then, government subsidized projects will typically only make incremental improvements to existing technologies. Truly innovative ideas will need a different source of funding to make it to the market.

Second, the government typically requires matching funds from the company, partnership with a public university or non-profit organization, and often, active sponsorship from strong political resources who want the company to create jobs in their district. These activities dilute the effectiveness of the subsidy by requiring the company to put valuable resources to work on non-competitive projects in the public domain. This makes it less likely that sufficient company resources will remain available to pursue the success of their most innovative ideas. This is not an effective way to push truly innovative solutions into the market.

An alternative way to fund R&D is to rely on private financial institutions. Unfortunately, our industry’s current financial model makes it extremely difficult to bring innovation to the market. Banks, venture capitalists, and financial lenders have all become more risk-averse in the past several years, due to uncertainty in the banking sector. They have become very sophisticated in their tools and methods for assessing financial, legal, operational, and strategic risks. If the combination of the risks is considered high, then funding is denied.

It is said that failure is the mother of invention, so innovation is a very risky business. Many experts agree that a high project success rate indicates that the investor has not taken enough risk to maximize his portfolio performance. The return on investment of a good success story can be staggering; however, our financial model today insists on slow, stable progress with incremental steps based on well-proven technology. This approach will protect investors from risk, but will not bring the technical revolution necessary to make a significant dent in the cost of energy.

So, if true innovation isn’t enabled by government subsidies or by risk-averse bankers, then what is the best model for supporting innovation? First, financial institutions need to be more aggressive in taking “big sensible risks.” They have to stop believing that every project they invest in has to succeed – as long as they know how to make plenty of profit on the ideas that do succeed. The idea is not for lenders to be reckless with their resources – but they can partner with R&D to help companies drive disruptive innovation throughout the entire process.

To be successful, lenders must be committed from the cradle all the way into the market. They must provide investment funds in small steps toward radical improvements, supporting each step to the next milestone. Lenders must partner with R&D to transparently help assess and manage risks. The banker must commit to provide funding all the way to initial production projects that deploy the new innovative technology. Stopping short of this will doom the project to an early demise.

Rather than play it safe with the least-competitive ideas, or incremental improvements, offshore wind innovation can benefit from a funding model that embraces risk, yet mitigates it with a full lifecycle partnership, and small steps toward large-impact innovation.

Written by Wally Lafferty, former Vice President and Managing Director for Vestas Wind Systems, responsible for Technology R&D in North America. He is a member of Offshore Wind Professionals and a contributor to the Wind Power Expert Network. Wally also writes a blog, A Sustainability Minute.




Wally Lafferty, former Vestas vice-president for technology R&D in the Americas

Wally Lafferty



The offshore wind industry is receiving boosts from the government, in hopes of helping companies bring down the cost of energy. The UK government this month announced two funds totaling £30 million, for innovations in the offshore wind sector. In September, the US Department of Energy announced $43 million for research grants in offshore wind. But are these the kind of boosts that the industry really needs? Here’s what happens when the government offers subsidies for R&D.

First, the government receives intellectual property in exchange for their subsidy. So, companies will provide their less-competitive ideas to the government, and withhold their best ideas to preserve their own intellectual capital. As you can imagine, then, government subsidized projects will typically only make incremental improvements to existing technologies. Truly innovative ideas will need a different source of funding to make it to the market.

Second, the government typically requires matching funds from the company, partnership with a public university or non-profit organization, and often, active sponsorship from strong political resources who want the company to create jobs in their district. These activities dilute the effectiveness of the subsidy by requiring the company to put valuable resources to work on non-competitive projects in the public domain. This makes it less likely that sufficient company resources will remain available to pursue the success of their most innovative ideas. This is not an effective way to push truly innovative solutions into the market.

An alternative way to fund R&D is to rely on private financial institutions. Unfortunately, our industry’s current financial model makes it extremely difficult to bring innovation to the market. Banks, venture capitalists, and financial lenders have all become more risk-averse in the past several years, due to uncertainty in the banking sector. They have become very sophisticated in their tools and methods for assessing financial, legal, operational, and strategic risks. If the combination of the risks is considered high, then funding is denied.

It is said that failure is the mother of invention, so innovation is a very risky business. Many experts agree that a high project success rate indicates that the investor has not taken enough risk to maximize his portfolio performance. The return on investment of a good success story can be staggering; however, our financial model today insists on slow, stable progress with incremental steps based on well-proven technology. This approach will protect investors from risk, but will not bring the technical revolution necessary to make a significant dent in the cost of energy.

So, if true innovation isn’t enabled by government subsidies or by risk-averse bankers, then what is the best model for supporting innovation? First, financial institutions need to be more aggressive in taking “big sensible risks.” They have to stop believing that every project they invest in has to succeed – as long as they know how to make plenty of profit on the ideas that do succeed. The idea is not for lenders to be reckless with their resources – but they can partner with R&D to help companies drive disruptive innovation throughout the entire process.

To be successful, lenders must be committed from the cradle all the way into the market. They must provide investment funds in small steps toward radical improvements, supporting each step to the next milestone. Lenders must partner with R&D to transparently help assess and manage risks. The banker must commit to provide funding all the way to initial production projects that deploy the new innovative technology. Stopping short of this will doom the project to an early demise.

Rather than play it safe with the least-competitive ideas, or incremental improvements, offshore wind innovation can benefit from a funding model that embraces risk, yet mitigates it with a full lifecycle partnership, and small steps toward large-impact innovation.

Written by Wally Lafferty, former Vice President and Managing Director for Vestas Wind Systems, responsible for Technology R&D in North America. He is a member of Offshore Wind Professionals and a contributor to the Wind Power Expert Network. Wally also writes a blog, A Sustainability Minute.




Wally Lafferty, former Vestas vice-president for technology R&D in the Americas

Wally Lafferty



The offshore wind industry is receiving boosts from the government, in hopes of helping companies bring down the cost of energy. The UK government this month announced two funds totaling £30 million, for innovations in the offshore wind sector. In September, the US Department of Energy announced $43 million for research grants in offshore wind. But are these the kind of boosts that the industry really needs? Here’s what happens when the government offers subsidies for R&D.

First, the government receives intellectual property in exchange for their subsidy. So, companies will provide their less-competitive ideas to the government, and withhold their best ideas to preserve their own intellectual capital. As you can imagine, then, government subsidized projects will typically only make incremental improvements to existing technologies. Truly innovative ideas will need a different source of funding to make it to the market.

Second, the government typically requires matching funds from the company, partnership with a public university or non-profit organization, and often, active sponsorship from strong political resources who want the company to create jobs in their district. These activities dilute the effectiveness of the subsidy by requiring the company to put valuable resources to work on non-competitive projects in the public domain. This makes it less likely that sufficient company resources will remain available to pursue the success of their most innovative ideas. This is not an effective way to push truly innovative solutions into the market.

An alternative way to fund R&D is to rely on private financial institutions. Unfortunately, our industry’s current financial model makes it extremely difficult to bring innovation to the market. Banks, venture capitalists, and financial lenders have all become more risk-averse in the past several years, due to uncertainty in the banking sector. They have become very sophisticated in their tools and methods for assessing financial, legal, operational, and strategic risks. If the combination of the risks is considered high, then funding is denied.

It is said that failure is the mother of invention, so innovation is a very risky business. Many experts agree that a high project success rate indicates that the investor has not taken enough risk to maximize his portfolio performance. The return on investment of a good success story can be staggering; however, our financial model today insists on slow, stable progress with incremental steps based on well-proven technology. This approach will protect investors from risk, but will not bring the technical revolution necessary to make a significant dent in the cost of energy.

So, if true innovation isn’t enabled by government subsidies or by risk-averse bankers, then what is the best model for supporting innovation? First, financial institutions need to be more aggressive in taking “big sensible risks.” They have to stop believing that every project they invest in has to succeed – as long as they know how to make plenty of profit on the ideas that do succeed. The idea is not for lenders to be reckless with their resources – but they can partner with R&D to help companies drive disruptive innovation throughout the entire process.

To be successful, lenders must be committed from the cradle all the way into the market. They must provide investment funds in small steps toward radical improvements, supporting each step to the next milestone. Lenders must partner with R&D to transparently help assess and manage risks. The banker must commit to provide funding all the way to initial production projects that deploy the new innovative technology. Stopping short of this will doom the project to an early demise.

Rather than play it safe with the least-competitive ideas, or incremental improvements, offshore wind innovation can benefit from a funding model that embraces risk, yet mitigates it with a full lifecycle partnership, and small steps toward large-impact innovation.

Written by Wally Lafferty, former Vice President and Managing Director for Vestas Wind Systems, responsible for Technology R&D in North America. He is a member of Offshore Wind Professionals and a contributor to the Wind Power Expert Network. Wally also writes a blog, A Sustainability Minute.




Wally Lafferty, former Vestas vice-president for technology R&D in the Americas

Wally Lafferty



The offshore wind industry is receiving boosts from the government, in hopes of helping companies bring down the cost of energy. The UK government this month announced two funds totaling £30 million, for innovations in the offshore wind sector. In September, the US Department of Energy announced $43 million for research grants in offshore wind. But are these the kind of boosts that the industry really needs? Here’s what happens when the government offers subsidies for R&D.

First, the government receives intellectual property in exchange for their subsidy. So, companies will provide their less-competitive ideas to the government, and withhold their best ideas to preserve their own intellectual capital. As you can imagine, then, government subsidized projects will typically only make incremental improvements to existing technologies. Truly innovative ideas will need a different source of funding to make it to the market.

Second, the government typically requires matching funds from the company, partnership with a public university or non-profit organization, and often, active sponsorship from strong political resources who want the company to create jobs in their district. These activities dilute the effectiveness of the subsidy by requiring the company to put valuable resources to work on non-competitive projects in the public domain. This makes it less likely that sufficient company resources will remain available to pursue the success of their most innovative ideas. This is not an effective way to push truly innovative solutions into the market.

An alternative way to fund R&D is to rely on private financial institutions. Unfortunately, our industry’s current financial model makes it extremely difficult to bring innovation to the market. Banks, venture capitalists, and financial lenders have all become more risk-averse in the past several years, due to uncertainty in the banking sector. They have become very sophisticated in their tools and methods for assessing financial, legal, operational, and strategic risks. If the combination of the risks is considered high, then funding is denied.

It is said that failure is the mother of invention, so innovation is a very risky business. Many experts agree that a high project success rate indicates that the investor has not taken enough risk to maximize his portfolio performance. The return on investment of a good success story can be staggering; however, our financial model today insists on slow, stable progress with incremental steps based on well-proven technology. This approach will protect investors from risk, but will not bring the technical revolution necessary to make a significant dent in the cost of energy.

So, if true innovation isn’t enabled by government subsidies or by risk-averse bankers, then what is the best model for supporting innovation? First, financial institutions need to be more aggressive in taking “big sensible risks.” They have to stop believing that every project they invest in has to succeed – as long as they know how to make plenty of profit on the ideas that do succeed. The idea is not for lenders to be reckless with their resources – but they can partner with R&D to help companies drive disruptive innovation throughout the entire process.

To be successful, lenders must be committed from the cradle all the way into the market. They must provide investment funds in small steps toward radical improvements, supporting each step to the next milestone. Lenders must partner with R&D to transparently help assess and manage risks. The banker must commit to provide funding all the way to initial production projects that deploy the new innovative technology. Stopping short of this will doom the project to an early demise.

Rather than play it safe with the least-competitive ideas, or incremental improvements, offshore wind innovation can benefit from a funding model that embraces risk, yet mitigates it with a full lifecycle partnership, and small steps toward large-impact innovation.

Written by Wally Lafferty, former Vice President and Managing Director for Vestas Wind Systems, responsible for Technology R&D in North America. He is a member of Offshore Wind Professionals and a contributor to the Wind Power Expert Network. Wally also writes a blog, A Sustainability Minute.




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