Best Practice Report

Index

Public-private collaboration / Spurring innovation and creating markets

2. Spurring innovation and creating markets

This section identifies four key lessons with use of PPC in advancing green innovation and market development:

  1. During the early stages of innovation processes, most of the resource allocation and attention to innovation aspects generally come from public development efforts, while later innovation stages are mainly supported by private development efforts.
  2. In order to avoid a ‘valley of death’ with a halt to the innovation process, the public sector can provide greater certainty through long-term and stable financial support, regulations, price signals, and other mechanisms. These will incentivize businesses to invest in innovative solutions and the private sector can become increasingly engaged in further developing and deploying these solutions.
  3. The public sector can support ‘green’ entrepreneurs through the provision of mentoring and capacity support. It can further provide support for the green transformation of existing industries.
  4. The government can furthermore act as a facilitator and connector of research institutions and actors to enable effective collaboration and optimal research outcomes throughout the innovation process.

Public private collaboration can play a key role in enabling the movement of new ideas and technologies from the lab (R&D) to the market (commercial maturity). Innovators face challenges in each stage when trying to advance their ideas, technologies, or business solutions (BNEF, 2010) and effective PPCs could address these (Jenkins and Mansur, 2011). Industrial innovation processes require a long period of learning, network building, and policy support (Van der Gaast and Begg, 2012), and therefore it is important to note that along the innovation chain, different forms of collaboration may be required.

Public investment is common in early stage of R&D because of well-known market failures in which private investors tend to underinvest as the private benefits of new knowledge are less than the social benefits (Corfee-Morlot et al., 2013). Typically, therefore, during the early stages of innovation processes, most of the resource allocation and attention to innovation aspects come from public efforts, while later innovation stages are mainly supported by private development, often led by forward-thinking businesses and supported by enabling government policy. 

A ‘valley of death’ phase has been identified at the cross-over between public and private efforts, where perceived risks, limited familiarity of the private sector with a technology, or an inefficient enabling environment can prevent a technology scaling up (Van der Gaast and Begg, 2012).

There are two parts to the ‘valley of death’. The first part is in the development of private sector research and innovation. While most large companies are able to invest in R&D, they tend to specialize in incremental rather than radical innovation (with the exception of a few fast-moving industries such as IT and telecommunications). In a mature sector, incumbents tend to favor investment in R&D that serves existing markets and are more reluctant to make large investments in uncertain markets.

The second part of the ‘Valley of Death’ is during early commercialization or deployment, where innovators face challenges in scaling up their products or processes. In this stage, the role of the public sector is to help provide greater certainty through long-term and stable financial support, regulations, price signals, and other mechanisms.

The two parts of the ‘valley of death’ and the appropriate PPC approaches are discussed below. Further discussions on financing innovation and innovation policy are available in Chapter 6: Mobilizing investment and in Chapter 5: Policy design and implementation respectively.
 

Figure 3:
Valley of Death Concept