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A successful Financing Scheme for Eco Innovation: the example of Finland

01/08/2008

Jukka Noponen is the Executive Director of the Environmental programme for Sitra, the Finnish Innovation Fund. He explains what makes Finland's financing scheme so successful.

  • Could you summarize the objectives Sitra innovation fund and briefly describe how it operates?

Sitra, is an independent public foundation under the supervision of the Finnish Parliament. Through its activities, Sitra aims to promote the economic prosperity and the future success of Finland. Sitra’s aim is to be a respected partner in building a knowledgeable and innovative society.

Sitra’s operations focus on five programmes, each of which consists of various projects and measures: Health Care, Food and Nutrition, Environment, Russia and India. The programmes use a wide array of methods, including research and education, innovative projects, business development, venture-capital investments and other corporate funding.

Sitra’s operations are funded with endowment capital and returns from capital investments. Its environment programme invests in the share capital of innovative cleantech companies.

  • Could you give some recent examples of eco technologies successfully developed and marketed in Finland thanks to public financing schemes?

Case 1: Winwind. Development of a new wind turbine concept

In the late 1990s, the wind industry began to grow and alongside smaller investors, major utilities also started to develop an interest in wind power. However, in the eyes of a few entrepreneurs the technology of the 1990s didn’t fulfil utility class reliability requirements. The entrepreneurs wanted to develop the world’s first utility class wind turbines and therefore founded a company, Winwind Oy (WWD) in 2001.

Development of a new wind turbine concept started as a project. At this stage the project received R&D funding from Tekes, the Finnish Funding Agency for Technology and Innovation, for the development of a 1 MW turbine.

Over the last 6 years, WWD has received R&D funding from Tekes for a total of 4 projects. In addition to the afore-mentioned project, funding was received for the development of a 3 MW turbine, further development of a 1 MW turbine as well as development of an international business model. The funding has taken the form of an R&D grant, which in this case means that Tekes has covered 35%-45% of the agreed project costs. Tekes reimburses the agreed cost monthly against an invoice. The latest Tekes project that started in 2006 is different from the previous ones, since it also covers the development of a business model for the internationalisation of WWD. This is valuable as international business development is as vital, challenging, risky and resource-consuming as technology development. This support also facilitates the building of vital international references.

In addition to R&D grants, the company has received an Environmental Loan from Finnvera. This instrument is available for investment into environmentally-friendly projects at a lower interest rate than the market standard, depending on the environmental benefits produced.

In clean energy infrastructure references are vital. The Finnish government provides investment subsidies for investors investing in renewable energy production. The subsidy, that is up to 40% of the investment cost, is preferably directed towards projects incorporating new technology. Therefore, customers in Finland have been eligible for this support and this has allowed the company to supply an installed base of 17 MW of references in Finland. The worldwide installed base is 50MW.

As the company matures the need for support also changes. As the company grows more international it would benefit if investment support for demonstration facilities could be extended to facilities to be built outside Finland.

“It is fair to say that Winwind’s ground-breaking technology, now on the verge of an international breakthrough, would not have been developed without the support of the Finnish innovation system”

Case 2: Condens. Development of the Novel fixed-bed gasifier

Another interesting example is development of the Novel fixed-bed gasifier, which converts biomass, waste fuel and peat into a purified combustible gas. The gas produced by the gasifier is used to fire boilers and engines, as well as for dryers and industrial furnaces.

Behind the gasifier innovation is Dr. Ilkka Haavisto, who founded the company Condens to develop the innovation in the late 1980s. The initial, most important, steps were taken in close co-operation with VTT, the Technical Research Centre of Finland. In the beginning, Condens' only available resource was Mr. Haavisto himself.

“Marketing of the Novel fixed-bed gasifier has now started in several countries. There are still different financial challenges to overcome, but the innovation is on the market”

After a start-up research phase, R&D cooperation continued with Tekes. The third step, which started in 1998, was an industrial project in partnership with the research partner VTT and with European Union funding. The first pilot plant was built and several innovations were patented. The product, a gasifier, was ready to market in 2000. The first large-scale demonstration plant was finalised in 2005 and electricity production started for a reference client. This major step on to the market was an almost overwhelming challenge for a small SME. Risk credit for the company and potential clients finally brought major players together and the first reference was successfully finalised.

  • What are the specificities of Finland's financing for eco innovation that makes it so efficient?

We have many early stage technology companies with innovative solutions. Along with our major corporations, they easily find co-operation with Tekes, which is the main public funding organisation for research and development in Finland. Co-operation between companies, research institutes like VTT and universities is effective. (See below the Finnish financing map).

“Marketing of the Novel fixed-bed gasifier has now started in several countries. There are still different financial challenges to overcome, but the innovation is on the market”

However, there are still areas which need development. We have to put more efforts into foresight, technology verification, green procurement and marketing in general. Strengthening market pull is an important way of improving opportunities.

  • What are the benefits of public funding for eco innovation, compared to private financing?

Private financers are more interested in products and services, that are in the commercialisation stage. Public financiers´ early involvement is natural. They can take higher risks, they have power to promote new solutions, to foster environmental policies, and create market push and pull.

“Public funding has actually responded on demand”

  • Which product development steps most need public funding?

Small and medium sized companies need public funding in most phases. I think our innovation system gives the best support in the early phases. Finnish companies now need more marketing know-how and resources. Another bottleneck is the financing of reference plants. Technology development companies have difficulties selling the first project. The client usually wants to see the first operational plant before purchasing. 

  • How could Finland's experience be disseminated to other EU countries and to the EU itself?

“Sitra is testing a risk instrument for financing a first plant”.

The Eco innovation forum is a good initiative after the ETAP process. A Forum helps share best practice and provide workshops to open bottlenecks. Well-organised meetings with policy makers, entrepreneurs and financiers provide interesting opportunities.

"Well-organised meetings with policy makers, entrepreneurs and financiers would provide interesting opportunities."

Contact: Jukka Noponen

jukka.noponen@sitra.fi

For more information:

Sitra: http://www.sitra.fi/en/Programmes/environment/environment.htm

Case 1: http://www.winwind.fi/english/etusivu.php

Case 2: http://www.condens.fi/eng/introduction.html