Report on the enhancement of resources of smart specialisation
This is the introductory part of the sector-specific reports of smart specialisation. The document covers the overview of the smart specialisation process up to now, and the explanations/backgrounds for the selection of growth areas and domains. In addition to this the structure of this report and other growth area reports is described, starting from the objectives and indicators of the sector to the methods for identifying the necessary activities.
In these reports you will find the descriptions of the three sub-sectors of the enhancement of resources according to the above-mentioned structure. These sub-sectors are knowledge-based construction, materials technology and biotechnology (white and green, see the definition in the sub-chapter and the annexes connected with it). The sub-sectors were selected from among the possible areas of enhancement of resources, thought to be the fields where it is possible to achieve the greatest growth of added value in the co-operation between the Estonian enterprises and science. The reports on resources of smart specialisation describe the objectives of the sector (i.e. how to do it), the obstacles/shortcomings (i.e. the most important problems) and also the possible and necessary future activities.
Thus the enhancement of resources report is divided into the following sub-reports:
Knowledge-based construction report
The introductory document of smart specialisation reports can be found here. This document describes the process of smart specialisation up to now, and gives reasons for the selection of growth areas and domains. Additionally, it contains an overview of the structure of sector-specific reports – the objectives and indicators of the sectors, measures of smart specialisation, and the methods for identifying the necessary activities.
The following analysis will explain which economic sectors of the knowledge-based construction growth area could be the most promising from the point of view of increasing the added value of the economy and which sectors could be prioritised. It also proposes measures that could increase the added value more that others.
The construction sector plays an important role in the Estonian economy. In 2012, the construction sector accounted for 7.4% of GDP and 9.4% of total employment. However, the added value of the construction sector is less than half of the EU average per worker (15). The construction sector is badly fragmented, there is no shared vision for the future, and the current legislation fails to promote the application of new methods of co-operation and ICT tools. Those involved in the sector hold on to traditional contracting methods and forms of contract, and the planning, design and construction processes take place in an atmosphere of constant urgency.
The energy consumption of buildings in Estonia is much higher compared to the European average, consuming half (50%) of the country's total energy output. On the other hand, the construction sector will be facing major changes in Estonia as well as throughout Europe in the coming years. As a result of the increasingly stricter energy consumption requirements, from 2019 the public sector buildings, and from 2021 all new buildings that are granted a building permit, as well as all buildings that are to undergo major renovations will need to meet the near zero-energy requirements. This in turn means that every building constructed or renovated must include equipment that generates renewable energy in order to balance the building's energy consumption. On the other hand, the establishing of near zero-energy requirements will facilitate the transfer from using fossil fuels for heating to using renewables, mainly biomass, which in Estonia generally means wood chips, pellets or firewood.
If we take 1.5% per year as the renewal rate of buildings, it can be presumed that nearly 10 GWh of produced electric energy is added annually. This amount is relatively small in comparison to the annual energy consumption in Estonia (nearly 8 TWh) and forms only 0.12% of it, but grows each year at the same rate. This amount of energy will probably be generated by PV-panels, which means that production fluctuates on a daily and annual basis, cumulating mainly during the summer months.
This in turn will lead to a need for managing the electricity grid in a different way than it has been done up to now. Smart grids, that are capable of integrating different dispersed electricity producers and co-ordinate them according to the necessity have to be constructed. With smart grids, it will also be possible to involve consumers into the co-ordination letting them to switch off the grids according to their needs or if the load on them is too big. Such development of virtual power plants will make it possible to optimise the use of resources both in the physical and financial sense.
The “think tanks” dealing with the use of renewable energy agree that due to the characteristic features of renewable energy sources, one of which is much lower energy density in comparison to fossil fuels, it will be necessary to reduce energy consumption and significantly increase the efficiency of energy consumption before transferring to renewable energy sources. It is a fact that half of the energy consumed is used up within buildings, therefore, it is clear that these buildings constitute the greatest potential for energy saving and increasing efficiency.
Reduction of energy consumption is a process that has two aspects. On one hand, it means reducing the heating expenses in existing buildings by additional insulation and modernisation of technological systems. On the other hand, the reduction of energy consumption in new buildings means a completely new approach to the whole lifespan of buildings. Besides reducing the traditional operative energy (heating, cooling, light), it is aimed to reduce the energy consumption during the whole lifespan of the building. The possibilities for reducing the lifespan energy are as follows:
- Use of materials containing less embodied energy;
- More detailed planning of buildings by using new technologies, such as building information modelling (BIM);
- Reduction of waste in construction by making use of more economical technologies for organising work – lean construction, IPD (integrated project delivery), etc;
- Increasing the use of prefabrication in building construction.
According to research1, the rate of waste in construction activities is 57%, while in prefabrication it is only 12%. Each percent of reduced waste and increased productivity will mean 20 million euros of increased added value for Estonia.
More efficient and effective production requires the smooth co-operation of all parties, which in turn requires more detailed design and planning of work. This will be achieved through the implementation of information models of construction, from spatial planning to the maintaining of construction. Making use of such new technologies will naturally require thorough additional training of the specialists using these technologies.
Another way for reducing the energy requirement in buildings is to use materials with low embodied energy in their construction. In Estonia, the main building material is wood, and it is hard to find a material with such a comparably low embodied energy as this. Naturally wood is a great source of renewable energy when biomass that is no longer required, is used for heating. However, it must be stressed that wood is the main construction material for Estonian wooden houses industry.
Estonia has earned a good reputation in the construction of wooden houses, being the largest exporter of wooden houses in Europe. The volume of export in 2013 was 202.4 million euros. However, more can be done in this area. The measures to develop the export of Estonian wooden houses:
- Increase in volume;
- Development of technology;
- Increase in added value.
Focusing only on a limited number of larger markets can be considered a risk in the export of wooden houses. More opportunities can be found in developing energy efficient solutions, and making use of the development of timber composite materials, like CLT (cross laminated timber), that would enable the building of wooden multi-storey apartment houses and office buildings.
Construction of wooden houses has also a domestic potential. The wider use of wood enables a larger saving of imported energy, which is currently being used for producing energy-intensive materials. Several European countries have implemented a construction policy that prefers wood. Ireland has been especially successful in this area. It would be possible to increase the percentage of private dwellings in Estonia from 51% to 75%, and the percentage of apartment houses from 5% to 30% in wooden construction. The existence of some kind of a showpiece city district or something similar would be excellent for promoting wooden construction.
Export-ready energy efficient factory-made (pre-fabricated) dwelling house that is integrated with renewable energy equipment and accompanied by maintenance readiness based on BIM-technology is the flagship Estonian knowledge-based construction. On the basis of EstCube and Student Formula, it can be said that for developing the energy saving technologies and for growing specialists the participation of the Estonian team in the competition of energy-efficient houses Solar Decathlon is the best opportunity. The initiative of the Smart House competence centre to have such a competition in Estonia in 2018 should be supported and it could be a part of the construction of the showpiece city district.
1.1 General data on the sector
1.1.1 Overview of the global trends in construction
Construction as a part of the economy has existed in all economic formations in history. In this sense, it is a universal area of activity and sector of economy. Construction as a global and universal activity depends on various local circumstances, from the social formation to the availability of materials. Construction as a universal field of activity has also been used as an indicator as to the health of the economy.
The general prevailing trend in European countries with a developed free market economy and climate that is similar to ours is to increase energy efficiency during the entire life of buildings, from planning and design through construction and use to the utilisation of the building at the end of its life. In Europe, buildings produce nearly 36% of all emitted greenhouse gases, but the renewal rate of buildings is extremely low, staying at 1–2% per year (Eurostat). In the whole world, the construction sector is regarded as a traditional or low technology sector where innovativeness or rapid development are not really expected. According to Diekmann et al. (2004), in comparison to factory production, nearly five times more resources are wasted in the construction sector, the added value is around six times smaller and support activities are needed nearly 1.3 times more. Thus the potential for reducing waste and the increase in productivity can be considered significantly greater in the construction sector.
The main technological innovations in global modern construction are digitalisation of construction through BIM (Building Information Modelling) applications, automation of construction processes with the help of lean construction, increasing of IPD (Integrated Project Delivery) and the availability of prefabricated products, and general preference for less energy intensive materials (like wood) and technologies. They also include 3D printing, but in our circumstances these technologies will most probably not be implemented during the next ten years because it requires the use of totally new materials that would have both load bearing, and excellent insulation properties.
Construction of the houses that correspond to the near zero-energy requirements can also be regarded as an important technological innovation. It is not a specific technology, but rather the implementation of existing technologies in a new way that creates new quality to a building.
1.1.2 General overvew of the estonian construction sector
The construction sector plays a major role in the Estonian economy. In 2012, the construction sector accounted for 7.4% of GDP and 9.4% of total employment. The energy consumption of buildings in Estonia is significantly higher than the European average, accounting for up to half (50%) of the country's total energy output. Nowadays people spend nearly 90% of their lifetime in buildings (Hänninen et al. 2005: 252; Seppänen, O.; Seppänen, M. 1998: 11), and for the rest of the time, they are also closely connected with constructed objects, like, for example, roads (structures) and recreational training tracks (complex facilities). Thus the additional added value, additional functionality or a saved non-functional move, that seem unimportant in the case of a single object, are of defining importance in absolute values for the whole population.
In addition to influencing the economy, the construction sector, together with the spheres of architecture and maintenance, shapes the whole built-up environment. Decisions regarding the built-up environment concern the economic potential of a country, its tourism and export potential, and the welfare of every citizen. Built-up environment is a support environment that is necessary for the functioning of the state, and the operating costs of the state are connected with it. Efficient managing of the primary sector, or the real estate environment of the state, enables a reduction in state expenses and in this way increases spending in areas of higher added value.
In Estonia, the added value of construction sector per worker is half that of the EU average (respectively, 25,200 and 53,100 euros per worker in 2012), and one of the main reasons for that is, without doubt, the insufficient innovativeness of the sector. The extremely poor level of qualifications in the Estonian construction sector has to be pointed out as another reason for the low added value. 49.4% of the workers employed in construction were professionally trained in 2012. By 2014, the percentage of professionally trained workers had fallen to 41.5%1. The fall in the number of professionally trained workers causes some concern, taking into account that the construction of buildings corresponding to modern standards requires a better prepared workforce than construction using traditional methods.
Construction of wooden houses is the niche market with the greatest potential in the knowledge-based construction of Estonia. Industrial production of wooden houses is an important branch of the economy where more than 140 enterprises operate. The annual sales turnover of the sector is nearly 250 million euros, which is mostly for export. According to the Business Register, only 16% of enterprises give 80% of the sales turnover of the sector, which means that it is a relatively concentrated business and the enterprises are strong in their field. This fact is an important precondition in the context of increasing the RD expenses of the private sector, taking into account that larger enterprises are capable of investing more in the research and development activities.
Considering the emphasis on different components of value chain, the enterprises of Estonian wooden house producers have very different approaches. One of the largest producers, Kodumaja Grupp, has concentrated on production, using the help of its partners for designing and marketing. As the enterprise produces nearly 100% for export, most of its partners are companies established in target countries. Acting this way has proved successful for Kodumaja. Nordic Houses KT, that evolved out of Kodutare OÜ, has taken a completely different path. Together with the architecture bureau TEMPT, they have developed a conceptually new type of wooden container house2 that is marketed in Norway. Nordic Houses KT uses subcontractors in its production process.
We have managed to enter the market of the Nordic Countries thanks to the relatively low price of our wooden houses. Whilst the price of a prefabricated house in Sweden is nearly 3600 dollars per tonne, the price of the Estonian house is only 2700 dollars per tonne. In the Norwegian market the price level of the Estonian producers competes with that of the Latvian, Lithuanian, Polish and Chinese producers. In the future, there should be greater co-operation between the domestic producers, making better use of the experience of the enterprises who have managed to put their trade mark into foreign markets. In addition to that, the activities of the Estonian Wooden Houses Cluster in promoting the trade mark Estonian Wooden Houses in Scandinavia and Germany. Such activity deserves the cluster measure support in the future.
In 2013, the wooden house producer Kodumaja AS with a turnover of 40.7 million euros was among the Top 100 Estonian enterprises. It is predicted that the turnover of this year will be 55 million euros. Kodumaja AS is currently taking part in the construction of the highest wooden house in the world in Stavanger, Norway.
Palmako AS, with the turnover of 37.6 mln euros in 2013; Harmet, with the turnover of 22 mln euros in 2013; Matek, with the turnover of 7 mln euros in 2013; EstNor, with the turnover of 3.6 mln euros in 2013; Timbeko, with the turnover of 5.2 mln euros in 2013; Seve Ehitus, with the turnover of 8 mln euros in 2013, are also among the biggest wooden house producers in Estonia.
1.1.3 The position of knowledge-based construction in the value chain
The construction sector is largely dependent on local circumstances, mainly on climate and the availability of building materials and other resources. Naturally, construction also depends on the established traditions and the influence of the society. Construction as a sphere of activity has pointedly been in the central, low added value part of the value chain. As a part that seemingly produces no value, the activities connected with the design, planning and maintenance of buildings have been undeservedly underestimated. This also applies to the introduction of new materials and new construction methods. However, these activities produce greater added value than straight-forward construction itself.
The objective of smart specialisation in knowledge-based construction is the moving of construction activity towards both ends of Stan Shih curve. In the movement towards the beginning of the curve or value chain, this means the introduction of the near zero-energy building concept into ordinary construction activities and the developing of construction solutions pertaining to this concept. Taking into consideration that in some years the near zero-energy requirements will take effect everywhere in Europe, including in the main export markets of the Estonian wooden houses exporters, the developing of conceptually new and technologically new solutions has a direct commercial impact. At the same time, it is also possible to commercialise the developed solutions themselves.
Shifting as much volume of work as possible into the design and planning stage and the reducing of construction work in the terms of traditional site work will also increase added value. By making designing precision work with the help of BIM and increasing the detail of preparatory activities, it is possible to reduce the excessive spending of nearly all resources in the construction and use stage.
Moving towards the end of the curve shows the supplying of houses provided with control engineering and renewable energy equipment, and also cluster-based marketing and establishing of our own brands.
1.2 The role of education and rdi in construction
Construction is traditionally a conservative sector. Greater changes in construction traditions have been caused by the changes in external circumstances and requirements. The buildings of each period reflect the social structure and technical level of development of that period. Up to date, modern requirements to construction reflect the times we live in. These requirements can be summarised as follows: sustainable use of resources, while living conditions improve or remain the same; adoption of the near zero-energy standard and, proceeding from it, the use of renewable energy integrated with the buildings. This brings along the technological development of the construction sector in the directions that make the consumption of resources more effective. They are the following:
Digitalisation of the construction process and the maintenance of buildings;
Automation of the construction process;
Making use of less energy intensive materials (wood in the Estonian context);
Renewable energy applications.
BIM or Building Information Modelling is the synonym for digitalisation of the construction sector and a precondition for its robotisation. Essentially it is a breakthrough in construction activities. The use of BIM is the most widespread in North America. Between 2007 and 2012, the use of BIM applications by construction companies increased from 28% to 71%3. There are more BIM users among construction companies than among architecture and design companies, 74% and 70% respectively4. Overview of global trends: see Annex 1.
According to the estimation of the leading producers of wooden houses, under normal circumstances the sector grows by 10–15% a year, which is really noteworthy. In the opinion of the entrepreneurs of the sector, the main issues that have to be developed are:
The use of wood instead of concrete constructions and buildings;
Development activities connected with the construction of apartment houses of wooden elements;
Developing and making use of new composite materials.
Overview of some export markets in Europe, see Annex 2.
1.2.2 Situation in Estonia
Research and development in the context of knowledge-based construction is rather modest in Estonia. There are competence centres at institutions of higher education and universities:
The Chair of Structural Engineering and the Chair of Building Physics and Energy Efficiency at the Department of Structural Design of the Faculty of Civil Engineering, at the Tallinn University of Technology, deal with research in the field of energy efficient buildings.
Institute of Technology at the University of Tartu hosts the Energy Efficient Building Core Facility that deals mainly with the promotion and certification of the type of buildings provided with the Passivhaus Institut trademark.
Faculty of Construction of TTK University of Applied Sciences has founded a BIM CAVE laboratory that is able to visualise and teach BIM applications and lean construction.
Smart House Competence Centre is being built in Rakvere; it will be a regional centre of innovation partnership concentrating on building automation and smart house solutions.
In addition to educational institutions, Estonia has “Mudelprojekteerimise üldjuhendid 2012” („General Guidelines on Building Information Modelling 2012) that are based on the Finnish materials5 translated within the framework of the COBIM project. The guidelines are a good starting point for adopting the BIM technology, but need specifications that take into account specific needs.
The agencies mentioned in the list deal mainly with training and specific projects, and very little with research and development work is ordered by companies.
Developing and implementation of solutions connected with using renewable energy have an important role in increasing the competitiveness of Estonia for the following reasons:
The use of domestic fuels instead of imported ones has a strong positive influence on the Estonian economy (see also http://www.energiatalgud.ee/index.php?title=ENMAK:Stsenaariumid);
Obviously the irreversible shift from the energy system that is based on centralised power generation to a more consumer-centred energy system will bring along many technological problems; Estonia and its enterprises will have an advantage here, thanks to the smallness of their system;
The requirement to conform to the near zero-energy standards, which will apply to all new buildings from 2021, has globally brought about considerable research work in this field, with the aim of making near zero-energy buildings cost effective. Implementation of the near zero-energy concept necessarily means the application of energy solutions based on renewable resources.
Estonian research and development activities connected with renewable energy have so far been rather un-systemised, mainly because the companies active in this field are relatively small. In recent years the situation has changed, and the companies contribute, and are continuously ready to contribute, to developing and making use of new products and technologies. Tallinn University of Technology in co-operation with Harju Elekter is working on electricity storing substations, Estonian Renewable Energy Association in co-operation with Elering and Ericsson is developing the first virtual power station in the Nordic Countries. The Paldiski Industrial Park, which is being currently developed, aims to be the best development centre of renewable energy technologies in Northern Europe.
1.3 Strengths, weaknesses, competition advantages
From the point of view of knowledge-based construction, Estonia has the advantage of the existence of good research bases in Tartu and Tallinn. The Institute of Technology at the University of Tartu hosts the Energy Efficient Building Core Facility headed by Tõnu Mauring. On the initiative of Professor Jarek Kurnitski, the near zero-energy research group, the members of which are also professors Targo Kalamees and Heinrich Voll, has been founded at the Faculty of Civil Engineering at Tallinn University of Technology.
BIM and lean construction laboratory which is led by Aivars Alt, is developed at the TTK University of Applied Sciences under the name of BIM CAVE.
In addition to research, Estonia has an important production base for the construction of wooden houses. Estonia is the greatest exporter of wooden houses in Europe, with the annual capacity of more than 200 million. Wood is the best material for the construction of near zero-energy buildings, especially when the energy consumption of the whole lifespan of the building is taken into account instead of only the energy necessary for operating.
In connection with the renovation loans and subsidies offered by KredEx, which have made possible the renovation of a significant number of apartment houses, it has been possible to collect information on the results of large scale renovation and make assumptions on the effectiveness and feasibility of different renovation methods.
Shortage of an educated workforce can be considered the greatest weakness of the Estonian knowledge-based construction industry. According to the research6 conducted within the framework of the BuildEst project at Tallinn University of Technology, 41.5% of the workers in Estonian construction companies were professionally trained in 2014. In 2012, the percentage of such workers was 49.4%. These results show that, Estonia comes in last place in Europe. The number of engineers dealing with the development of technology is also very small, only 11 persons. This weakness shows a alarmingly large gap between research and putting its achievements into practice. For the same reasons, the use of IT-technologies in construction in Estonia is also low.
Estonia’s opportunities in knowledge-based construction come from its strengths and weaknesses. There are possibilities to use the existing research potential and experience in the production of energy-efficient wooden houses and renovation of apartment buildings, and at the same time develop the ID-capability that is expressed in the use of BIM-technologies and the implementation of the IPD- method.
In new construction, the opportunity is in developing multi-storey wooden houses that would be energy-efficient and use mainly domestic raw materials.
The possibility of a global economic crisis is naturally a universal threat. Mitigation of environmental requirements, which may result from the failure of international contracts, is also a threat to knowledge-based construction.
The insolvency of potential customers and the significantly faster economic development of neighbouring countries that could bring along the emigration of a qualified workforce are more local threats. A real threat is also the inability to train a sufficient number of workers with necessary skills, which may lead to the construction of near zero-energy buildings with defects, and thus discredit the idea of the energy efficiency of buildings.
2 Objectives and indicators of the sector
|Objective by 2021||Indicator||Objective of the indicator 2021
|Main objective:Increase in the competitiveness of the construction sector||Added value per worker||35 thousand euros per worker
|Developing the market of smart construction solutions||Number of near zero-energy buildings||2021 – 100% mandatory; interim target 2017 – state and LG 100%
|Greater use of wood in construction||The material of the main constructions of the buildings with building permit is wood, percentage of houses that have received the building permit||apartment houses – 30%
small residential buildings – 75%
|Greater digitalisation of working processes||Percentage of digital administration during the whole lifespan||20% completely digital
The indicators and objectives shown in the table are aggregate by their nature – they sum up and generalise different facets of the development of the sector in smart specialisation domains.
The near zero-energy standard will come into force with regard to public buildings in 2019, and with regard to all other buildings in 2021. In order to achieve a technological lead in this sphere, we should voluntarily impose this standard by 2017. This would enable the export of the know-how we have acquired. In 2014, the share of granted building permits with “A” label, which corresponds to near zero-energy, is 5.7% of all residential and office buildings.
The granting of building permits to buildings with mainly wooden construction shows the efficiency of using Estonian vernacular construction material as a resource. The percentage of apartment houses with wooden constructions also shows the spread in the use of such new products that are suitable for construction like various composite materials, e.g. CLT (cross laminated timber), and the acceptance by the authorities that wood as a material can be used in the load bearing structures of multi-storey apartment houses. The share of building permits granted to wooden small residential buildings should increase from the present 20% to 75%, and in the case of apartment houses, from the present 5.7% to 30%.
Greater digitalisation of working processes is connected with the automation of construction, and is an urgent precondition for that. Automation of construction in its turn is a precondition for the significant reduction of waste of resources in construction. The reduction of waste of resources and more rational use of them are important also in the use of buildings. Digitalisation of construction during the whole life of the building is necessary also for the latter process. Taking into account the speed of digitalisation in the countries that actively deal with it, the Estonian construction sector should also be able to use BIM-solutions through from the design to the administration of the building by at least 20% in the case of new and thoroughly renovated constructions.
Digitalisation of construction is unthinkable without the specialised training of the people working in construction. Thus the level of complete digitalisation also indirectly indicates the general specialised training of the work force active in the sector, which is only 41.5% according to the poll of 2014.
3 Growth area and the explanation of the selection of domains
The reasons for low added value in the construction sector are multi-faceted. The construction sector is largely fragmented, there is no shared vision for the future, and current legislation fails to promote the application of the possibilities of new co-operation methods like IPD (Integrated Project Delivery) and ICT. Those involved in the sector hold on to traditional contracting methods and forms of contract, and planning, design and construction take place in an atmosphere of constant urgency. The peculiarities of the construction sector are contract-based activity, great price pressure due to competition, and the smallness of enterprises and their insufficient co-operation. The background system and specifications described here have helped create certain typical problems, and the development needs of the sector necessary for improving the situation are highlighted.
On the other hand, the requirement that will soon come into force, according to which all houses that are to be constructed, or undergo renovation, must meet the near zero-energy standard, and the prospect to start calculating both energy and financial expenses of buildings, on the basis of their whole life, have posed a serious challenge to traditional construction and the need to make changes. Purely from the point of view of construction physics, the construction of near zero-energy houses and relevant renovation require more responsible work than has been done by following the existing practice. In a building with small energy use, both the building shell and all technological systems operate together effectively. It means that the deficiencies of one component cannot be compensated by adding dimensions to another, at least not without non-proportional expenses.
Such exact construction requires very good planning and the possibility for detailed supervision and quality control in the whole construction process and also during the use of buildings. In order to achieve such a situation, wide implementation of ICT solutions is inevitable. BIM-applications, which are becoming universally standardised by their distribution and are growing into the second literacy skill of construction workers, should be considered especially important.
Massive application of BIM together with the principles of lean construction enables a saving of all resources in construction – money, energy and working time. In principle, one and the same application works from the conceptual idea, designing and construction of the building up to its use, maintenance and also utilisation.
Due to the complexity of near zero-energy buildings, they cannot be constructed as strictly defined stages of subcontracting, but have to be completed with the co-operation of all participants. The party who orders the construction, the designer, constructor and the future user of the building have to take part in this co-operation. Only then it is possible to achieve the result that satisfies everyone.
Keeping in mind the possibility that in the near future, the resources spent on a building will have to be calculated on the basis of life span, it is important to consider the embodied energy of building materials. In Estonia, there is a vernacular low energy value construction material in the form of wood, and we have much experience in using it – Estonia is the biggest exporter of wooden houses in Europe. The potential for the construction of wooden houses has not been utilised so far. To a large extent, this has also been caused by the traditionally conservative nature of construction and market preferences, which can mainly be explained by social psychological and not rational arguments.
The precondition for establishing a near zero-energy standard, is that a part of the energy needed in a building is produced in that building, or its immediate surroundings. When the energy produced in such a way is not needed in the building, it is reasonable to send it to other users. This mainly concerns the PV-panels, wind turbines, and electric energy. Such developments raise new challenges connected with the rational use of electric energy to the constructors and administrators of power networks. Generally the times of the production and consumption of electric energy coincide. This means that the amount of electricity that is produced also has to be used. Thus the implementation of near zero-energy standard poses a problem that is connected with adapting electricity networks to the storage and distribution of renewable energy.
From the point of view of smart specialisation, the following issues are especially important in the sphere of knowledge-based construction:
Construction of wooden houses – conceptual planning of near zero-energy buildings, introduction of new composite materials, marketing and shaping of brand. Estonia is the biggest exporter of wooden houses in Europe and has earned a reputation in this field. A wooden house, as a low energy value building , has the potential of becoming one of the landmarks of the new century, keeping in mind also multi-storey buildings and office blocks. For using all potential opportunities, extensive development activities both in the innovative use of material and also design are needed.
Digitalisation and automation of construction – BIM and lean building, increase of prefabrication, IPD, etc. Digitalisation and automation of construction are the preconditions for the construction of energy-efficient buildings with high-technology solutions, where it is necessary to ensure the planned low energy consumption during the use of the building, but also to avoid the waste of materials and resources during the construction of the buildings.
Renewable energy solutions, including:
Local and central technologies for production and storage of renewable energy (battery storage, power to gas, etc.), managing of consumption, and effective co-production of heat and electricity.
Development of energy (incl. gas, electricity, heat and transport fuel) transmission infrastructures (incl. covering of peak demand, keeping of frequency, etc.)
Development of renewable energy solutions is necessary in order to ensure the objectives of energy saving and reducing the consumption of fossil fuels raised at several levels and supported by various guidelines.
3.2 Necessity of monitoring
Of the domains of smart specialisation mentioned in the previous section, digitalisation and automation of construction constitute the application of existing technologies more extensively than it has been done so far. All other domains of specialisation are connected with the expected development in the economy and social sphere. Normally with development, the trends that seem to have possibilities have no need to be viable or current at a later stage. That is why it is necessary to observe the chosen trends of specialisation, to compare them with prevailing global trends that have long-term development perspectives, and make the necessary corrections. Technology develops fast today, and thus new possibilities for global specialisation that cannot always be foreseen, may emerge in Estonia.
4 Sector-specific barriers and activities
The problems of the construction sector summed up in the context of this report:
Activities of knowledge-based construction by objectives of the sector
Public procurements (and often also private procurements) are conducted on the basis of stages and do not support the integrated drafting and implementing of cost-effective, energy saving life span solutions that take into account the customer’s/owner’s values and functionality;
Customer’s (in the public sector and often also in the private sector) failure in preparing the initial task, in procurements and low capability to implement new ICT solutions;
The sector has not agreed on a common integrated data model in regard to the life span of a building;
Capability of the construction sector in research, development and innovation is small; co-operation between enterprises is insufficient in this field;
Knowledge and skills of the members of project teams do not support the introduction of new methods, technologies and concepts;
Low productivity and significantly large wastage prevailing in the sector;
Development of smart grids is hindered by the outdated legislation in regard to data protection, standardisation and defining the role and functions of different parties.
4.1 Objective: developing the market of smart construction solutions
4.1.1 Barrier: capability of the state as a smart customer
All new buildings and buildings that undergo major renovation have to meet the near zero-energy requirements from 2021, and pursuant to the EU Energy Efficiency Directive, this requirement will apply to public sector buildings from the beginning of 2019. Unfortunately construction is an inert activity and the solutions that correspond to new requirements will be applied only when it is essential.
Activity: establish proactively near zero-energy requirements for new and substantially renovated buildings used or owned by the state institutions from 2017.
This would give an experience of massive transition to near zero-energy in 2–4 years and test potential bottlenecks in different stages of construction, like organisation of work, impact of weather on the quality of work, level of professional qualification of workers, exactness of draft documentation, etc.
Target group: State and local government agencies
S3 measures: policies related to demand, Enterprise Estonia development programme
Barrier: lack of instruction materials on the use of new construction technologies
Construction of near zero-energy buildings requires specific knowledge and skills. Therefore, it is necessary to have a detailed set of rules, or instruction information, on the construction process. Probably such instruction information exists in the countries where near zero-energy and low energy construction has been practiced for some time, thus it may be possible to translate a relevant instruction of some foreign country and adapt it to the conditions in Estonia.
Activity: Preparation of specific instruction materials or the adaptation of existing materials from another country.
Target group: Design and construction enterprises, specialised educational institutions, professional associations
S3 measures: policies related to demand, professional grants, applied research
4.1.3 Barrier: low level of professional qualification in the construction sector
One of the greatest problems of the Estonian construction sector, which causes many smaller problems, is the low level of professional qualification (see 1.1.2 “General Overview of the Estonian Construction Sector”). Raising this level is the first precondition for increasing competitiveness. Professional training is also necessary in connection with the introduction of new technologies and construction methods.
It may be useful to prepare the professional standards for both skilled workers and engineering-technical staff engaged in the construction of low and near zero-energy buildings, and to apply business diagnostic measures to enterprises ensuring their readiness for the construction process with relation to new requirements.
Activity: Preparation of a professional standard of near zero-energy construction both for skilled workers and engineering-technical staff
Target group: Construction sector enterprises
S3 measures: Professional grants, Enterprise Estonia development programme
4.1.4 Barrier: adapting micro-production of electricity to general energy network
Proceeding from the specifics of near zero-energy buildings (low energy building where part of the required energy is produced in the building or its immediate surroundings), it may be presumed that the contribution of micro-production of energy into the total sum of energy consumed will increase and reach 10% by 2021. Besides that, the equipment for producing energy from other renewable sources will be used, which generally has a non-continuous production regime. In addition to that, new kinds of consumers, like virtual power stations, energy cooperatives, etc., are expected to arrive on the electricity market. The co-operation of such new market operators requires the development of the so called smart grids. The issue of smart grids has been discussed in the Energy Market Development Plan 2030 (ENMAK 2030+).
Activity: Preparing the structure of renewable energy sources that is optimal for Estonia.
Target group: Energy enterprises, institutions of research and education
S3 measures: CCT, applied research, professional grants, demand side policies
4.1.5 Barrier: insufficient co-operation between research and business
Typically, various joint projects of research institutions, universities and companies, like Formula Student or Robotex, have an important role in the introduction of new technologies. Solar Decathlon is such a forum in knowledge-based construction. This competition combines modern construction, nature friendly materials, renewable energy and informatics. The participants are usually university teams supported by the top technology companies in this field.
The initiative of the Smart House Competence Centre to compete for organising Solar Decathlon 2018 in Estonia should be supported in every way. If universities are interested, involvement in previous and subsequent competitions, which are held during even years and promote the direct implementation of the achievements of science, deserves to be supported. Without doubt participation in Solar Decathlon is a valuable sales argument for the Estonian Wooden Houses Cluster.
Activity: participation in international competitions of energy-efficient construction (like Solar Decathlon)
Target group: universities, institutions of higher education, research institutions, high technology companies
S3 measures: CCT, applied research, professional grants
4.2 Wider use of wood in construction
4.2.1 Barrier: existing legislation does not allow construction of multi-storey wooden buildings
Countries where the climate is similar to that of Estonia are aware that wood is one of the most energy efficient construction materials for these conditions, and it is now used also for the construction of multi-storey residential houses. At the moment, AS Kodumaja is participating in the construction of a 13-storey apartment block in Trondheim, Norway. Estonian legislation on fire safety does not allow the construction of such buildings.
Activity: Review the construction regulations and norms regarding wood, especially in regard to the fire safety of buildings, in order to enable the construction of multi-storey apartment blocks made from wood.
Target group: Ministry of the Interior, MEAC
S3 measures: Policies related to demand
4.2.2 Barrier: lack of modern wooden structures solutions
The more wood that is processed, the greater the added value of wooden buildings is. Regarding the wooden houses, the spatial constructions of composite elements have the highest level of processing. Drafting of such solutions could be the objective of developing of technologies and the object of applied research. Considering the specifics of wooden construction, there is a need for material-specific instruction information manuals for both designers and builders. Such instruction manuals should contain advice on modern wood composite materials, like CLT. Paradoxically, Arvo Veski’s handbook of wooden construction (“Puitehituse käsiraamat”) from 1940 (sic!) is still widely used and highly regarded.
Activity: Preparation of instruction materials on wooden construction, taking into account the using of high-technology composite materials.
Target group: MEAC, Ministry of the Interior, universities, institutions of higher education
S3 measures: applied research, professional grants
Greater digitalisation of working processes
4.3.1 Barrier: low readiness of engineers to use modern information technology
For the implementation of exact construction solutions, it is necessary to have exact planning, including the perfect matching of different parts of the draft, which in turn requires the skill to read a digital three-dimensional draft for all engineers coming into contact with construction and later also for workers.
Activity: To enhance BIM training both in primary and further training, making it an integral part of the “engineer’s literacy”.
Target group: MEAC, universities, institutions of higher education, professional associations
S3 measures: professional grants, policies related to demand
4.3.2 Barrier: lack of official format of digital construction documentation
The definition of digitalisation and automation of construction requires the existence of a data model (BIM, Building Information Modelling). By now the instruction for such information modelling COBIM 2012 has been translated from Finnish in co-operation with State Real Estate Ltd, MEAC, TUT and ET INFO. Giving an official status to the instruction would enable using it in all state and private construction procurements and further use of buildings, which would open the possibility to calculate the resource efficiency of buildings, on the basis of life span.
Activity: Giving an official status to the Building Information Modelling
Target group: MEAC, State Real Estate Ltd
S3 measures: policies related to demand
Focus Groups were held in June and September.
Members of the FG of knowledge-based construction
- MEAC Construction Department
- Estonian Woodhouse Association and Estonian Wooden Houses Cluster
- Kodumaja Group
- TTK University of Applied Sciences Faculty of Construction
- Tartu Regional Energy Agency
- Tallinn Energy Agency
- Estonian Forest and Wood Industries Association
- Estonian Energy Saving Association
- Estonian University of Life Sciences Institute of Forestry and Rural Engineering
- Estonian University of Life Sciences Institute of Technology
- Estonian Development Fund Energetics and Green Economy Department
- Estonian Association of Architectural and Consulting Engineering Companies
- Estonian Renewable Energy Association
See the annexes of the report here (PDF) >
Materials Technology Report
In terms of resource enhancement in the field of materials technology, the focus is on two different aspects of development:
materials technology in the manufacturing industry;
enhancement of oil shale as a natural resource.
Materials technology and, more generally, the growth areas connected with it (ICT, biotechnology) are one of the main driving forces in shaping industry and different sectors of economy. The increasingly rapid and more extensive integration of these technologies into industrial processes (industry 4.0, automation, additive manufacturing, sensorics, power industry, etc.) helps achieve more general long-term targets that are related to more effective use of energy and resources, including limiting the consumption of fossil fuels (energy production, transport, etc.), wider use of renewable resources (in energy production, construction, transport and other areas), overall energy efficiency and autonomy, the use of raw materials, and environmental safety, etc.
Acknowledging general global trends, and taking into account the possible application areas of materials technology, it may be said that this sector offers development potential in all branches of industry that are important for Estonia. From the point of view of the R&D trends of the materials technology research and business environment in Estonia, greater impact on the growth of added value may be expected in the processing industry. The processing industry in Estonia is mainly directed at export (70% of production) and is closely connected with the traditionally strong markets (EU, Scandinavia). These markets have a great demand for products with high materials technology content; therefore, success is directly connected with consistent development and innovating of products/services. Universities and technology development centres of Estonia form the basis for competitive competence for the application of different surface coating technologies and nanotechnology materials. Although the fields of application of these technologies are very extensive, Estonia has the potential to use the existing R&D for the development of new narrower niche products/services, or renewal of the existing products both inside the sector and beyond it (ICT, biotechnology). In certain cases it may be possible to cover the whole value chain, or the major part of it inside Estonia (e.g. R&D of nanomaterials/-coatings → rare earth metals → permanent magnets/magnetic materials → electric engines → global markets).
Today, the biggest obstacle is the lack of common interests and consistency in product development of the RDI activities of Estonian companies and universities. On one hand, it is connected with the profile of the enterprises in Estonia (mostly SMEs – no capital for development activities, larger enterprises do not have any interest or need), and on the other hand, with the capability of technology transfer (scalability of technologies, lab → industry) in RDI institutions. In order to intensify co-operation and achieve greater economic impact, it is necessary to considerably increase the extent of development activities of companies and give them a closer connection with the research activities conducted in R&D institutions. The state has an important role and opportunity to direct the R&D activities with a more detailed coordination of financing. For a more successful launching of technology transfer, proportionally more state measures should be directed from fundamental science to product development activities, as development activities consume more time and capital. Besides the already existing enterprises, the emergence of new innovative companies (start-up, spin-offtype) should be supported. Taking into account the capital intensive nature of this sector and the rapid change of markets due to globalisation, it is vital to involve the investments of both existing and new enterprises in product development or increasing of production volumes. At national level, it is important to create a relevant support system and implement it.
Besides insufficient R&D and investment capability in the business sector, the spread of new materials technologies is directly connected to the lack of specialists with the necessary experience and/or little know-how of Estonian enterprises. Thus, it is necessary to develop competence centres that would help companies stay in touch with global development trends in their specialised activities in research and development. Creating similar synergy in the education sector is equally important in order to ensure and retain competent and diverse specialists for the companies. Keeping in mind the present situation, it is necessary to increase and stimulate the involvement of high-level R&D workers in business, and to support participation in global specialised forums (fairs, seminars, conferences) and organise training, information days, seminars, etc. that would facilitate a quicker and more efficient way of using these new technologies.
One of the sub-sectors of enhancement of resources is the using of oils shale as one of the main natural resources of the state. In the context of smart specialisation, we should keep in mind the support of improved technologies in manufacturing products of higher added value (shale oil, products of chemical industry, construction materials, etc.) and in the maximum use of the value chain of oil shale and the R&D closely related to it. The oil shale sector is of national importance, and therefore it has to be viewed separately from the materials technology (nano- and surface coating technologies). Bringing about greater changes in this sector and the decisions necessary for development activities are not so much restricted by smart specialisation measures but actually linked to the strategic decisions of the state.
Oil shale as an alternative resource to oil and gas is in focus everywhere in the world, and Estonia’s potential is first of all in its extensive experience and competence in the use of various technologies that can be exported to new markets today (e.g. to Jordan). At the same time the development of this sector is connected to the progress of competing technologies, and the climate policies and environment requirements of the EU that, bearing in mind their future strategies, favour the renewable technologies. Here the state has the possibility to balance the sustainability of a necessary branch of industry by creating a favourable and stable environment for investments and further development activities.
An important problem of the oil shale sector is the ageing of the engineering and technical staff and the insufficient number of young specialists, which will result in the shortage of labour in the near future. In addition to that, the Oil Shale Competence Centre is an example that it prefers to concentrate on servicing the existing enterprises than on the R&D of new products/technologies.
1.1 General data on the sector
Global trends of materials technology are characterised and influenced by the demands and general tendencies of different (industrial) sectors, that are forced to look for new solutions in the form of high-technology solutions.7 As materials technology is by its nature an inter-disciplinary sector, global development inside this sector means integration with the tendencies of other sectors (e.g. ICT, biotechnologies, medicine) sooner than independent progress. One of the most important corner stones of the next industrial revolution will be an even greater blurring of boundaries between different sectors and faster innovation, commercialisation and production due to the global markets.
Larger implementation of the “bottom-up” manufacturing concept in nanotechnology, surface coating technologies and also in the industry more widely, will be the greatest challenge in the materials technology sector generally. Sustainable use of raw materials and energy, and the environmental requirements that are constantly becoming stricter are some of the main motivators for making use of high technology materials and materials technologies in the whole industrial sector. Additionally, manufacturing technology together with the mutual flexible management of industrial fixtures and communication and the decision-making ability of systems (industry 4.08) will begin to reshape the whole industrial sector. As well as changes in the principles of production, the raw materials sector also has to react because new technologies require different solutions (Figure 19).
The European Commission has called materials technology, including nanotechnology, one of the key technologies of the future, and the development of this sector is characterised by increasing production volumes and faster commercialisation of new (nano)materials/-technologies. It is predicted that the global marketing volume of nanotechnology products will be nearly 3 trillion USD by 2020.10 Increasing marketing volumes and rising growth trends in regard to new technologies and types of materials can be noted in the whole sector, including the sub-sectors of the S3 nanotechnology materials domains: nanocomposites – 18% annual growth rate according to research11; nanofibres – annual growth rate of products based on nanofibres is 30%12. Carbon nanotubes (CNT) – very wide use (plastics, composites, electronics, energy, etc.), predicted market volume 1.49 billion dollars by 2018. The significant increase in volume is connected with the growth of demand from the electronics sector.13 Nanotechnologies in power industry – the market potential of nanotechnology applications connected with the sphere of energy is 15 billion USD (11.4% a/a).14 In power industry generally, the use of different technologies in symbiosis (e.g. wind turbines + fuel elements to compensate due to fluctuations caused by the energy production of the wind turbine) is becoming increasingly important.
Surface coating technologies and especially thin laminates have a great potential in micro and nanoelectronics, fields of sensorics and multi-functional surface applications (see Annex). Based on present trends he predicted market value may reach to15 billion dollars by 2016.15
The greatest challenge to the global metal industry and allied industries is to reduce the degradation of the quality of materials and product characteristics caused by corrosion. According to estimates, corrosion has an impact on 3–3.5% of the GDP of developed countries. Corrosion prevention measures will bring an annual saving of 20–25%.16 In this sector there is a need and demand for high technology surface coating materials, which will create an excellent opportunity for co-operation between R&D and metal industry enterprises.
Oil shale as an alternative resource to oil and gas is studied all over the world. Oil shale resources are very large and their energy potential is comparable to the oil resources that are in use today. At the global level, many countries (USA, Brazil, Germany, China, Australia, Jordan, etc.) are interested in the use of oil shale. Bearing in mind the possible opportunities in these markets, Estonia has a good potential for the export of existing R&D and technological competences and international co-operation.
1.1.1 Overview of the Estonian sector
Although today new materials are used in different sectors, from food industry to ICT, the main and most important field of application of materials technology is the processing industry. Nearly 115,000 persons that form nearly 19% of the overall employment, work in the enterprises connected to the processing industry of Estonia. On the basis of added value, the role of industry sector in the economy is similar to the EU average (approx. 15%). At the same time, the percentage of persons employed in it in Estonia is one of the highest among the countries of the EU (about one fifth), which indicates that other countries are able to create more added value with the same number of workers.17
The processing industry sector mostly consists of small and medium size enterprises, and their focus is to mainly subcontract their activities. The production of traditional natural and a few artificial materials (timber, components of construction materials, agricultural products, metal products, plastic materials) with relatively small added value and innovation dominates in the production of materials. There is almost no high-tech and innovative materials manufacturing industry (e.g. carbon nanotubes, nano and carbon structures, synthesis of extra pure component materials for electronics industry, etc.) in the sector. The activities of the sector can generally be characterised by relatively low added value and the achieving of a price ceiling.
Development of applications on the basis of the use of new and innovative materials (nanostructures, renewable energy materials, nano- and micro-fibres, etc.) is dominant in the R&D activities related to the application of materials. Less attention is paid to traditional materials (developing wood and the raw materials of construction materials, etc.), although there are exceptions (e.g. attempts to make use of the waste from oil shale production, research on using bio-mass in power industry, etc.). The activities characterised as exceptions are targeted at innovative companies (Skeleton Technologies OÜ, AS Elcogen, Crystalsol OÜ, etc.).
There are a few examples of rapidly developing sectors with high potential, for example in the application of composite materials (renewable energy equipment, water crafts, drone technologies, tools), but relevant activities are characterised by a weak connection with the R&D activities, and therefore the volume and effectiveness of development activities does not correspond to the potential of the sector. The main obstacle to the application of the above-mentioned innovative materials, is the scaling from lab level to the level of prototypes and production, the financing of which the enterprises often cannot afford.
Enterprises operating in Estonia
In 2013, there were nearly 6,000 enterprises in the whole processing industry. 200 of them had at least 100 employees, and half of the employees of the industrial sector were employed by these companies. In 2013, the total sales revenue of processing industry enterprises remained at the level of nearly 10 billion euros. In the branches of the processing industry, that are important for materials technology, there are a few enterprises (see Annex 1) that are able to produce high added value. The added value created by very many successful SMEs or large companies is between 20,000 and 30,000 euros per worker, although there are also product and technology development enterprises that are capable of producing added value of more than 50,000 to 70,000 euros per worker. On the basis of the implementation of materials technology, the enterprises can be grouped as follows:
Enterprises developing materials technology whose products or services are based on the technology they are developing. Generally these enterprises have the knowledge and competence within the company, and they fully co-operate in R&D, both domestically and abroad. They are mainly dealing with the commercialisation of R&D and exclusively focused on the global market. The most important enterprises here are Skeleton Technologies OÜ – super-condensators; AS Elcogen – fuel elements; Crystalsol OÜ – PV solar panels; Visitret Displays – energy efficient screen technology; Clifton AS – GaAs power electronics; specialised spin-offs.
Enterprises in the processing industry using materials technology. They are already using the existing technologies/materials for product innovation or the production of materially changed product. R&D is mainly targeted at optimisation of main activity/products (productivity, effectiveness of use, energy use, new properties, etc.).18
The importance to export in the processing industry as a whole is increasing, and since 2009 the volume of export has constantly grown, reaching to nearly 7 billion euros in 2013. The Estonian processing industry is exporting about 70% of its products, therefore, knowledge of foreign markets and reacting to the changes of markets is very important in that sector. From the point of view of materials technology, the biggest exporters are the equipment, wood, chemical, metal, and rubber and plastics industries, forming nearly 60% of the total export volume.
Considering the size of the sector, the variety of the export countries of different branches of industry is rather large, but the neighbouring countries Finland and Sweden still form an important part of it. Most (60%) of the foreign investments made to the processing industry of Estonia also come from these countries.
Considering global technology trends, the technological and product development capability of processing industry enterprises is rather modest. However, the global growth trends are quite similar to the growth predictions of the Estonian companies in the relevant sectors. Figure 3 shows the predictions of the partner companies of the Estonian Nanotechnology Competence Centre for 2013 on the sales potential of the products and services related to the development activities conducted within the framework of the ENCC.
The four largest companies in the oil shale sector are: Eesti Energia AS (EE), Viru Keemia Grupp (VKG), Kiviõli Keemiatööstuse OÜ (KKT) and ja AS Kunda Nordic Tsement (KNT). Each company has branches in mining (extraction limits respectively 75%, 14%, 10%, 1%; altogether 20 million tons per year19), power and heat production, and the first three have also branches in shale oil production (Eesti Energia Õlitööstus AS, VKG Oil AS, Kiviõli Keemiatööstuse OÜ20). In recent years, the sector has shifted towards greater processing of oil shale (more complex value chains are used, see Annex) and the capacity for shale oil production has been increased (EE Enefit 280; VKG 2 Petroter retorts, the third will be completed in 2015). At the moment VKG is the largest oil shale processing company in Estonia (fuel oils added to ship fuel, bitumen for road construction, coke for electrodes, fine chemistry for pharmacies and cosmetics industry, admixtures for polymers, etc.). The greatest part (85%) of the shale oil production of the whole sector is exported to Belgium (40%), Netherlands (20%) and Sweden (18%).21
1.2 The role of education and rdi in the sector
It can be said, as a generalisation, that the USA, Germany and Japan are leaders in the sphere of materials technology in implementing innovations and by the range of R&D. In recent years, South Korea and China have also developed very rapidly. In these countries the whole support structure is well established, from academic capability, ambitious enterprises that use technology, highly qualified work force and an efficient risk capital market that enables to successfully implement research intensive R&D and business technology transfers (see Annex).
The role of R&D in the development and implementation of materials technology
In 2011, the total RDI expenses of Estonia amounted to 2.37% of GDP. The average of the euro area countries (17) was 2.12%, and present indications show that the countries that make the largest investments to R&D were the following: Germany 2.89%, Denmark 2.98%, Austria 2.77%22.
In Estonia, the R&D activities of materials technology are mainly conducted at the University of Tartu, Tallinn University of Technology and, to a certain extent, also at the National Institute of Chemical Physics and Biophysics. The research groups at the University of Tartu specialise in nanotechnology and research into surface coating. Tallinn University of Technology specialise mainly in research activities related to energy, surface coatings, mechanics, mechatronics and oil shale chemistry. Part of the activities of the National Institute of Chemical Physics and Biophysics are also targeted at the research and development of new energy materials. The above-mentioned institutions have close connections with both Estonian and international companies and R&D (see Annex). Their main international partners are in the EU and the neighbouring countries (Finland, Sweden) and the co-operation between different research institutions has become well established over the years. Besides co-operation projects, there are also connections with both international (Science Link,23 Technet_nano24) and domestic co-operation networks (NAMUR25) to unify and increase the capability of the regional R&D competences and infrastructure.
Taking a broader view of the processing industry shows that two technology development centres have been established with the help of the EU resources in order to improve the co-operation of enterprises and researchers in the sphere of materials technology:
Estonian Nanotechnology Competence Centre (ENCC, founded in 2004; 13 partners);
Innovative Manufacturing Engineering Systems Competence Centre (IMECC, founded in 2009; 18 partners).
ENCC deals directly with the RDI activities of nanotechnologies and surface coating materials, but IMECC is focused more on engineering and automation of industry. Due to the activities of IMECC, they have close co-operation with the ICT sector. On the materials science side, the greatest common ground is in the development and implementation of additive manufacturing or 3D printing technology. During the period from 2007 to 2013, ENCC and IMECC accounted for nearly 20% of the total financing of the technology development centres measures of Enterprise Estonia (8 technology development centres were financed).
Besides technology development centres, there is one inter disciplinary centre of excellence, “High-Technology Materials for Sustainable Development” (the period from 01.01.2011 to 31.12.2015, budget 6% of the total financing of the centres of excellence amounting to 46.5 million euros) that deals with the computer design, synthesis, characterisation and implementation of new materials in order to solve the problems of sustainable high-performance power industry. The centre of excellence has four research groups: energy generation and storage devices (University of Tartu), super-acids and –bases (University of Tartu), coatings and sensors (University of Tartu), solar cells (Tallinn University of Technology).26 In comparison, biotechnology has five and ICT has two centres of excellence, and the distribution of the budget is respectively 49% and 19% of the total financing of centres of excellence. 27
Additionally, the infrastructure and equipment of research institutions has been improved in recent years in order to be an even more competitive partner to business and international co-operation projects. The following is an overview of more important financings (2007–2013):
Renewal of the infrastructure of the University of Tartu and Tallinn University of Technology to the amount of 49.4 million euros;
Supporting of research infrastructure of national importance (national co-operation network NAMUR with the participation of the University of Tartu and Tallinn University of Technology) 4.9 million euros;
Research internationalisation programme to the amount of 4.7 million euros;
Supporting the acquisition of science equipment for R&D institutions to the amount of 7 million euros.
During the same period, Enterprise Estonia has financed the fundamental projects of materials technology R&D aimed at enterprises (12 projects to the amount of 4.6 million euros), preliminary research (25 projects to the amount of 416,377 euros) and research and development centres (to the amount of 11 million euros). The materials technology programme (financed by Archimedes Foundation through ERDF) gave an immense impetus to the development of materials science and technology in R&D institutions as well as to the development of the co-operation of enterprises and R&D. 19 materials technology projects were financed by this programme, to the amount of 9.3 million euros. Altogether 40 companies participated in the projects. 28
In Estonia, materials science and technology are taught at the University of Tartu and Tallinn University of Technology. They both have materials science and technology study programmes at all levels . Furthermore, a joint international study programme “Materials and Processes of Sustainable Energetics” has been created in co-operation with the University of Tartu and Tallinn University of Technology. In conjunction with other things, the programme is targeted at the involvement of foreign students. In order to improve studies, a joint graduate school of the University of Tartu and Tallinn University of Technology “Functional Materials and Technologies” has been founded. A, masters' degree programme of Tallinn University of Technology „Materials Technology” has been developed, and nanotechnology modules for the University of Tartu masters' degree programme in physics have been created. In co-operation with the ENCC, PhD degrees in materials technology have been secured at the University of Tartu since 2011. 11 theses have been defended by today. At the same time the theses of several graduates of doctoral studies in physics and chemistry have been closely connected with materials science and/or technology.
Despite these positive results the interest in the materials science programme has dropped in recent years. For example, in 2012 there were 20 students and 16 places in the materials science programme of the University of Tartu (i.e., there was competition), but eight students were admitted to 20 places in 2014. Considering the high drop-out rate (about 40% during the first year), the strengthening of technology intensive enterprises by a work force with a doctor’s degree is extremely problematic.
The role of R&D in the enrichment of oil shale
One of the tasks of R&D is to develop products with added value for the enrichment of oil shale. Much attention has been paid to studying the possibilities of motor fuel production by refinement. Another important issue has been, and is, the enrichment of the by-products of shale oil production, the use of ashes and semi-coking gas29. The R&D and training related to oil shale are, at the moment, concentrated at Virumaa College, Departments of Thermal Engineering and Mining of Tallinn University of Technology, and the Oil Shale Competence Centre (OSCC). At Virumaa College, one professional higher education study programme and one master level programme are directly connected with oil shale chemistry. At the Department of Mining of Tallinn University of Technology, nine doctor’s theses on oil shale have been defended since 1996 (the last in 2011), and the Department participates in various researches and projects.30 Main fields of research are the analysis of the natural resource and preparing development programmes for its optimal use; development of the technology of sustainable mining and planning of possible solutions; the use of mined areas and assessment of economic, environmental and social impacts; use of mines that have filled with water and the processing of mining residues and waste.31
OSCC is essentially the research and development centre of the sector (budget 16% of the whole funding of competence centres of Enterprise Estonia), and provides lab and IP services and, among other things, also business incubator services, which at the moment are used by one company (Hydrogenatio R&D OÜ).32
1.3 Strengths, weaknesses, competition advantages
This chapter describes the SWOT analysis of the materials technology sector and gives an overview of the main factors.33
The most important strengths of Estonia are the RDI infrastructure that serves as a pre-condition for supporting innovation, and the acceptance of new solutions by enterprises. Depending on the field, it has the necessary R&D specialists, research and development potential and experience for using and introducing new solutions. Besides the research and development potential, Estonia also has the capability of large and medium-sized enterprises for and the interest of public sector in investments in innovation.
The most important weaknesses and obstacles concern the labour force and the R&D potential of enterprises. To a certain extent, this is caused by being unaware of new technologies and little readiness for co-operation inside the sector and/or with other sectors. The small capacity and interest of R&D institutions in making the applied research necessary for enterprises and insufficient funding for product development continue to be problems. Due to the profile of enterprises (SME), it is hard to attract additional capital in innovation and development activities, and the situation is made worse by the financial sector’s disinterest in supporting the development of new production technologies. Therefore, the development activities of enterprises and R&D in some production sectors are short-termed and episodic.
The opportunities for Estonia are related to the implementation of sector-specific R&D through new (materials) technologies/solutions or the export of existing R&D results/experience. The processing industry is mainly concerned with exports and very closely connected with traditionally strong markets (EU, Scandinavia). These export markets need products with innovative materials technology, thus the wider and more diversified implementation of materials technology helps increase the general competitiveness of enterprises in export market. By implementing new technologies, it is possible to move in the value chain towards the production of products with higher added value, and to make the maximisation of value chain considerably more effective in the country. Assessing the need for labour resources in the sector, there is causative possibility to develop natural sciences, materials technology and technological education.
The main threat is preserving the comfort zone of enterprises and R&D institutions, i.e. the enterprises continue to concentrate on short-term problems and long-term readiness for innovation decreases; the R&D institutions deal only with the research topics that are of interest to them and the focus shifts to fundamental studies, even more reducing co-operation possibilities and the demand of enterprises for R&D. From the point of view of the processing industry and other sectors of industry, the threat is in the exhausting of existing export markets and the inability to reposition or find alternative markets for new innovative products/technologies, i.e. the export markets that exist today do not necessarily have to do that in the future. Another great threat is the diminishing of the increase in highly qualified workforce, because the motivation system for young specialists and students does not support adequately the university studies and learning engineering-technological specialities, graduating successfully and acquiring higher level qualification (Master’s or Doctoral level degree). As a result of that, the volume and quality of research in R&D institutions decreases because competition is gradually weakening and there are not enough motivated researchers.
2 Objectives and indicators of the sector
2.1 Development and implementation of high technology materials technologies
The processing industry is an important sector of the Estonian economy and it has a great potential. Its different sectors have the capability to develop materials technologies in co-operation with R&D enterprises. The main objectives in the use of new materials and technologies are the significant increase in the effectiveness and added value of industry, more effective and sustainable use of resources and the reduction of its impact on the environment.
Indicator No. 1 – Increase of the competitiveness of processing industry
The added value of the processing industry per worker is at present close to the Estonian average (23,000 euros). The objective is to increase the added value to 41,500 euros per worker per year which corresponds to the objective set by the paper “Estonian Entrepreneurship Growth Strategy 2014–2020” to reach the level of 80% of European average by 2020.34
Sub-objectives supporting the main objective:
Indicator No. 2 – process and product innovation of processing industry enterprises
The result of intensive implementation of new materials technologies in the processing industry is the increase in the share of new or materially changed products in sales revenues. The objective is to increase the share of new or materially changed products in sales revenues by 10–15% in different sectors. The CIS research conducted by the Eurostat does not reflect the statistics of enterprises with less than 10 employees. Therefore, it is necessary to conduct a new research of enterprises to determine the starting level of the indicator, and the research has to be repeated every two years for monitoring.
Indicator No. 3 – increase in the number of enterprises participating in materials technology R&D
In order to increase the competitiveness of the industrial sector, it is important to increase the number of enterprises dealing with R&D and to encourage the emergence of new innovative enterprises. Research of enterprises has to be conducted to determine the starting level, so that there would be a reference value of adequate exactness. The relevant projects of Enterprise Estonia and Archimedes can be taken into account as the first reference.35
Indicator No. 4 – percentage of the R&D expenses of processing industry
New and complicated materials technologies require close co-operation with R&D institutions, the activeness of which in the processing industry is minimal. The objective is to double the R&D expensed of processing industry by 2020 in comparison to the level of 2014.
2.2 Wider use of oil shale in the chemical industry
The indicator of the effectiveness of the development activities of smart specialisation in the enrichment of oil shale is the effective use and mining of oil shale.
Indicator No. 5 – effectiveness of the mining of oil shale
Since 2010, most of the oil shale has been obtained by underground mining (approx. 60% in 2013), in which, depending on conditions, the mining loss may be up to 35%.36 The loss is caused by the pillars left to prevent subsidence, and one of the main preconditions for making oil shale mining more effective is reducing the loss created by underground mining. The objective is to decrease by 2020 the losses incurred in underground mining by 30%.
Indicator No. 6 – increasing the importance of oil shale chemistry research
Increasing the share of applied research in all areas of oil shale research will develop the technologies of more effective and environment friendly use of oil shale, and improve the co-operation between the private sector, government agencies and universities. The objective is to raise the applied research expenses to 50% by 2020.
Explanation of the selection of growth area and domains
The trans-sector principles of the selection of domains have been indicated in the general part of the reports.
As a result of the analyses, the following fields were selected to be the domains of the enhancement of resources growth area of smart specialisation:
Oil shale in chemical industry;
Implementation of nanotechnologies in new materials;
Implementation of surface coating technologies.
The domains were selected for the following reasons.
Use of oil shale
Oil shale is globally a natural resource with great energy potential, and Estonia has long traditions of producing electricity, oil and gas from oil shale. Thanks to the development of technologies, there are many more opportunities for a larger enrichment of oil shale. VKG has developed the production of phenols, resins and methylresorcins, and (fine) oil shale chemistry has a great potential. Products with greater added value can be produced from the oil and by products (coking gas, ashes) produced from oil shale. The use of mine wastage has yet to be finalised.
There are several technologies for producing shale oil from oil shale, but depending on the difference of the rock in each deposit, these technologies cannot be used in the same way everywhere. Estonia, with its partners from Russia and Germany, has been constantly improving the pyrolysis (semi-coking) technologies. At the same time it is also possible to use hydrogenation technologies for producing oil from oil shale. The aim of versatile expertise and experience is to export the know-how as it has been successfully carried out in Jordan where a power station working on the basis of oil shale will be constructed.
Oil shale is used in Estonia for the following purposes: production of electricity and heat – 11.08 million tons of trade oil shale; production of shale oil – 5.9 million tons of trade oil shale. Besides that, Auvere Thermal Power Station, which will consume 2.44 million tons of oil shale per year, and one Petroter retort consuming 1.0 million tons of trade oil shale per year are being constructed, and Enefit 280 retort consuming 1.9 million tons of oil shale per year is being modified. In total, 22.32 million tons of trade oil shale will be needed to fulfil maximum capacities in the coming years.
Oil shale was selected as a growth area domain because of the low added value of oil shale which accompanies the technologies presently used. At the same time oil shale is the most widely used natural resource of Estonia.
Application of materials technologies (nano- and coating technologies) in new materials
In 2011, a thorough overview of the Estonian materials science and technologies and their industrial applications “Feasibility Study for an Estonian Materials Technology Programme”37 was prepared with the help of Finnish scientists and consultants. Kauhanen et al. (2011) to describe the nature and maturity of the development of the Estonian materials science (see Figure 4). The research shows that all important stages of production chain are covered in the sector, and it has been possible to move on from R&D fundamental research to near-market products, which now have been accepted or will soon be accepted in foreign markets (e.g. Skeleton Technologies OÜ, AS Elcogen, Crystalsol OÜ).
The sectors with greater potential, high and nanotechnology materials (solar elements, nanomaterials, earth metals, fuel elements), oil shale technologies, and surface coating materials and technologies are described in this part of the analysis. Materials technology is also very closely connected with other priority S3 growth areas, such as ICT and biotechnologies. Besides that, the European Commission has highlighted nano- and materials technologies as key enabling technologies.38
As there are many sectors that are connected with materials technology, and most of them have great importance or potential to the development of the Estonian economy, it is unreasonable to give preference to any of the fields (except the ones related to oil shale). The processing industry is the main sphere of implementation of materials technology that has the greatest economic potential for Estonia (see Annex 4).
Taking into account the development of technology in the world, the capability and development plans of the Estonian R&D institutions and the potential of the sectors of industry, the following focus domains have been selected for materials technology development (see Annex 4):
Implementation of nanotechnologies in new materials;
Implementation of surface coating technologies for manufacturing functional surfaces.
Considering the distribution and capabilities of Estonian materials technology R&D (see Figure 4), narrower sectors for specialisation can be brought out. The potential technologies and spheres for the implementation of high technology materials technologies that are to be developed are the following:
Implementation of nanotechnologies in new materials:
nanostructured carbon materials;
micro- and nanofibres;
rare earth metals;
energy technology materials.
Implementation of surface coating technologies for manufacturing functional surfaces:
corrosion resistant coatings;
anti-wear coating technologies;
multi functional surface coatings, including biotechnological coatings (anti-bacterial, bio-compatible, etc.).
Nano- and materials technologies give an excellent possibility for creating new start-up/spin-offtype enterprises. Presumably new SMEs are established in a wide range of sectors, which creates the possibilities for inter disciplinary co-operation with e.g. ICT and biotechnologies sector. Making use of new materials and technologies helps to gain a competitive advantage in rapidly developing growth areas with great potential, which in combination with ICT solutions will establish good pre- conditions for the emergence of economic sectors with international scope.
4 Sector-specific barriers and activities
Business and development activities in the processing industry and oil shale sector require large investments. Generally, both the workforce (requires specific competence and skills, continuous training/retraining due to the development of technologies, scientific degree) and the access to specific equipment /technologies and/or know-how are expensive. The development of new products or services takes a long time (in comparison to ICT) and development is capital intensive (certification processes, infrastructure and fixtures, development staff, IP, etc.).
Sector barriers summarise the most important barriers hindering the achievement of the objectives of the sector on the basis of the main problems of the sector. The activities (S3 measures) are meant for overcoming the barriers and/or realising the potentials of the sector. The activities (measures) can be divided into two: S3 measures39 and measures of wider scope. S3 measures are described in more detail in the general part of the reports.
4.1 Encouraging the devlopment of high technology materials, prferably in different domains
Barrier: TT and capability of product development
The lack of co-operation and common ground of RDI activities between universities and enterprises has been the main obstacle of the product development and RDI activities of Estonian enterprises. The reasons for that are the lack (and/or management) of resources of enterprises and universities (including the functional activity space of universities that contributes to co-operation), and the short-term and episodic horizon of the RDI activities of enterprises. There is no pilot production capacity for primary testing of new technologies (the so-called proof of concept) that would enable to scale technologies from laboratory level to the development of semi-industrial solutions.
In comparison to the base research activities of universities, the enterprises have insufficient availability of capital and capability of involvement for product development, which is especially problematic for new starting enterprises (e.g. innovative SMEs, start-ups/spin-offs, etc.). There is a great need for early and growth phase capital that could be used for financing the preparation of the global growth of an enterprise.
There is still a great shortage of qualified (know-how and high technology experience) specialists who would have the adequate expertise for implementing new technologies for enterprise.
TARGET GROUP: R&D institutions and enterprises developing materials technologies, new start-ups/spin-offs
HELPS ACHIEVE THE OBJECTIVE: development of high-tech materials/technologies
To develop semi-industrial lab base for pilot production and technology transfer activities, and to ensure access to research infrastructure for the private sector;
To create a motivation model for universities for involving more local enterprises in R&D projects; to increase the capacity of development activities conducted in private enterprises and to connect it more closely with research conducted in R&D institutions;
To support start-up-/spin-off-type of enterprises in rapidly developing sectors connecting different domains;
to increase the awareness of SMEs and spin-offs for the involvement of risk capital (SuE) and the implementation of business models/projects (EAF Founders Institute);
to increase the awareness of SMEs and spin-offs for the involvement of risk capital (SuE) and the implementation of business models/projects (EAF Founders Institute);
co-finance foundations through boosting by the state;
to adapt state supports by considering the specifics of the sector, and to encourage the involvement of foreign capital together with the state capital;
To improve study programmes:
to improve engineering-technical study programmes by adding (materials) technology subjects;
to create an international study programme based on materials technology and involve more foreign students.
* Feasibility Study for the Estonian Materials Technology Programme grant programmes for students/teams for connecting entrepreneurship and traineeship at different levels of study at an early stage.
S3 MEASURES: applied research, RDI, Start-up Estonia (SUE), university grants
MEASURES: innovation shares
4.2 Increasing the use of materials technologies in the processing industry
Development and implementation of new materials technologies in the processing industry is largely influenced by the profile of the enterprise and the general trends of subcontracting in the sector. In the case of international companies the main obstacle is not having any development units in Estonia, which is usually a strategic decision of the parent company. In the companies with an Estonian background, the lack of competent workforce (managers, specialists, etc.) and the necessary know-how and capital for more intensive use of new (materials) technologies is of greater importance. Due to a lack of technology awareness, the co-operation of enterprises with other stakeholders is limited and episodic.
TARGET GROUP: processing industry and R&D institutions
HELPS ACHIEVE the added value, R&D capacity and new products OBJECTIVES of the processing industry:
Developing competence centres that would help enterprises to be in touch with the global development trends in the research and development activities of the relevant sector and the capability of the relevant sphere in Estonia on the basis of CCTs/centres of excellence;
Improving of the materials technology advisory measures for SMEs and medium-size and large enterprises (involvement of consultants);
Involving CCTs in the organisation of technology training, information days, seminars, etc. targeted at enterprises;
Supporting the participation of the R&D staff of enterprises in the global forums of the sector (fairs, seminars, conferences) that would contribute to the rapid and effective implementation of new technologies;
Implementing the possibilities of materials technology industrial doctorate (doctorial studies in co-operation with enterprises) more widely;
Initiating training and retraining programmes that would increase the internal activeness of enterprises for introducing new technologies and innovation for the middle-level specialists, technologists and engineers working in enterprises;
Supporting of SMEs in the implementation of new and materials technologies.
S3 MEASURES: CCT, applied research, university grants, demand side policies
MEASURES: MEAC development programme, innovation shares
4.3 Increasing the effectiveness of oil shale resource consumption and mining
Barrier: limited capability for R&D and ensuring increase
For the processing of oil shale into products with higher added value and more extensive refinement of the raw material, it is necessary to diversify the research development activities of innovative products/technologies and to increase the conducting of base and applied research.
The ageing of engineering staff and the shortage in the number of young specialists constitute an important obstacle for the sector. There is a lack of higher level specialists in this sector which, in addition to hindering the increase in the number of university lecturers and research workers, also prevents highly qualified persons from going to work in enterprises to lead production development. The popularity of engineering specialities is falling and there are few graduates with engineering education in the specialities necessary for the sector.
TARGET GROUP: R&D institutions and oil shale sector enterprises
HELPS ACHIEVE THE OBJECTIVE: improvement of the resource consumption of oil shale and oil shale chemistry R&D
Biotechnology is a horizontal technology that comprises different fields, such as biological, environmental, natural, technical and health sciences, and which, like information and communication technologies (ICT), is used horizontally in various spheres of application from the health system to bioeconomy.
During the last 5–10 years bio-technologies, especially system biology, have undergone significant development: increase in capability and price reductions of DNA sequencing, and of DNA synthesis, development of high throughput methods (genomics, proteomics, metabolomics and other omics methods), a considerable increase of big data and modelling capability and the emergence of synthetic biology during the last five years. All these capabilities are also represented in Estonia at scientific level.
The increase of population, an ageing population, increase in the demand for food and clean water, and consistent increase of energy consumption are the global trends that influence the implementation of biotechnology. The importance of green and white biotechnology is increasing compared to red biotechnology. When contributing to education, research and business, it is important to understand that new fields of implementation, discoveries and products/services emerge from the synergy of different sectors and competences.
The main challenges of biotechnology are the following:
- Increasing the population’s disability-free life expectancy – an indicator that integrates the quality of medicine, food, etc.;
- Replacement of fossil fuels with renewable, biomass-based fuels;
- Producing in a more effective and environment friendly way, using products with improved qualities (chemical, textile and food industries, etc.) and promoting a sustainable bio-economy.
Estonia’s chance to influence various spheres of biotechnology are relatively small and require simultaneous coincidence of several favourable factors because the sectors are very capital intensive and it is necessary to have access to different parts of the value chain. The existence of all sub-components of biotechnology value chain in the small Estonian market can be realistically expected only in the food sector and in the implementation of a sustainable bio-economy. In other sectors, such as pharmaceutical industry, chemical industry, medicine or other sectors of the economy, Estonia has the potential of contributing to various global value chains with the production of components, inputs and some successful niche products. Thus it is necessary to create updated study programmes in order to ensure sufficient human capital, and to target the business activities by creating preconditions, and integrated implementation of technologies in growth areas:
- To create integrated study programmes and teams in study process and research activities;
- To create a favourable landscape and eco-system for integrating research and enterprises and building bridges;
- To establish motivating measures for product development of enterprises in different stages and to find answers to involve foreign and private capital in enterprises at the earliest stage;
- To keep in mind that financing of research and the strategic sectors of the state should proceed from common strategy from the standpoint of the integrity of value chain.
Red biotechnology, especially the pharmaceutical industry, is the most investment-intensive. In this sector, Estonia has the potential to introduce new scalable treatment techniques with high added value together with the export of services (import of patients) in the medicine system. It is necessary to create the conditions and criteria for that, in order to get references also in Estonia and to integrate innovative services into the medicine system (regenerative medicine; military, tele-, nuclear medicine; new methods of prognostics and diagnostics that use molecular diagnostics, etc.) in synergy with e-health services. No sector should be given preference in development, but domestic support of the co-financing possibilities of funds available from international financing, and encouraging the involvement of private capital in the implementation and export of scalable services and products could be the criteria. Regarding red biotechnology, the strength of the research base is a significant positive feature in Estonia, but so far there has been little capability for turning that expertise into entrepreneurship or its commercialision. Changing that should be the main objective of biotechnology within the framework of smart specialisation.
In the sectors of green and white biotechnology, the keyword is encouraging technology transfer in the economy. Here, the existence of the necessary raw material as a natural resource in Estonia is of critical importance, and it may become the main limiting factor in planning export products (for example, producing energy based on green biomass for export). Estonia’s role is to participate in producing the components of the value chain as a developer of the quality of processes and optimal solutions, to develop new solutions as an experimental lab and to take part in achieving credibility in introducing new technologies. For that, the technological basis has to be used optimally, and scaling factories for this transition from research to entrepreneurship have to be developed.
In similar way, it is unrealistic to contribute to planning for large volumes of exports in the food sector (the potential of raw materials is a barrier in the context of large markets, such as China, etc.), but to find high quality niche products and markets alongside consumption in the domestic market. In the food industry, it is important to consider the components of the value chain as a whole, and see that they are represented in Estonia, which would ensure maximum growth of added value in the sector. Thus the export of raw materials in unprocessed form is not an economically sustainable solution for Estonia. It is important for the state to support enterprises by:
- encouraging trans-value chain synergetic horizontal level co-operation (e.g. cooperative forms of property) in the enterprises of the value chain;
- encouraging the development of R&D intensive products and exploring new markets/clients;
- contributing to trans-sector branding and marketing of Estonia’s high quality and natural raw materials on the global market.
1.1 General data on the sector
The continuing population increase41 and the deepening of the unequal division of clean water and food are irreversible trends in the global context. In the context of developed countries, an ageing population and increased disability-free life expectancy are critical challenges. In biotechnology, the importance of green and white biotechnology is considerably increasing in comparison to red biotechnology. The borders between the different colours of biotechnology are becoming more and more conditional, because, for example, the photosynthesis mechanisms of plants and cell factories of molecular biology are increasingly used in the production of medicines. Thanks to the integration of the modelling capabilities of molecular biology, engineering sciences and big data and the advent of new biology, clear borders between colours have changed. See different distributions of colours and their connections in Annex 1 of the Report.
In recent years, trends in biology have been influenced by a different view of natural sciences: convergence or new biology that relies on the research results achieved during decades and where innovation emerges at the meeting point of different sectors.42 This in turn brings a new way of thinking to biotechnology, and therefore the sectors of biotechnology are strongly intertwined.
Figure 1. Shaping of convergence on the basis of the earlier breakthroughs of natural sciences. Science is becoming more interdisciplinary, new solutions emerge as a result of uniting earlier inventions with synergy of competences.
The main challenges of biotechnology:
Increase disability-free life expectancy through medicine, diet, etc.; indicator that integrates quality;
Replacing the use of fossil fuels with renewable, biomass-based fuels;
Producing in a more effective and environment friendly way, developing products with improved qualities (chemical, textile and food industries, etc.).
Besides specific requirements and complicated patent strategies, another important peculiarity of the biotechnology sector in comparison with, for example, the ICT sector, is the great intensity of R&D, capital and time. In order to progress from the level of an idea to the industrial level, the biotechnology enterprises have to confront the hazards of dealing with new ideas that do not have a working business model.
In biotechnology, scaling is very capital intensive. In different stages of production, it is necessary to make investments first in the R&D activity and product development stage (from 50,000 to 500,000 euros), and then in launching the production, where the sums amount to millions (risk capital 1–10 million) and to hundreds of millions of euros, depending on the sector.
Red biotechnology (according to traditional categorisation) forms 60% of the whole biotechnology sector which in 2012 increased in total volume by 9% and reached 304 billion USD44. Approaching of R&D activities to biomedicine issues continues the trend of changes of recent years. The co-operation between industry and academy for the joint use of resources and experts is increasing and academic partners are more and more often used to implement projects of private companies45. Co-development activities are important for the industry, because often the scaling of processes that have been conducted in a small scale within the academy proves to be complicated if it has not been taken into account in the early stage of the development. Although technological knowledge is concentrated mainly in the academy, researchers lack business and regulative knowledge, as well as the knowledge needed to carry out clinical experiments.
During the last decade, health care expenditure in the OECD countries has increased annually by 4% which constitutes 9% of GDP46. The reason for this is a rapidly ageing population and new methods that enable to make more exact, but also more expensive procedures. The most important keywords are prevention of chronic diseases and increasing prices of medicines. The use of pharmacogenetics and biomarker-based tests changes the possibilities for diagnosing and curing of diseases – biomarker-based tests give the doctors information about the stage of the disease, doses of and reaction to medicines, and toxic influences. Identification of biomarkers in the early stage of diseases has an immense preventive potential, because it helps to avoid the disease becoming chronic. Currently it is possible to cure many deadly and serious diseases and medicines help to increase substantially the human life expectancy. Diabetes, cancer, chronic respiratory diseases and dementia are very burdensome diseases from the social-economic standpoint. It is thought that costs due to dementia amount to 604 billion USD per year (1% of the GDP of the world). Keeping in mind the ageing population, this figure is expected to double by 2030, and increase three times by 2050.47 The development of medicines has also changed because industry is trying to find the cure for more and more complicated diseases (cancer, asthma, diabetes), facing often undefined biological targets which causes failures of new medicines at the clinical stages.
The main factors governing green biotechnology come from the environment48. Increasing demand for food produced in an environmentally friendly way, the need for countries to reduce the emission of greenhouse gases now, and in the future, also the increasing cost of fossil fuels associated with biotechnological solutions. OECD has called climate change and CO2 emission the greatest challenge to society. It is predicted that by 2030, 50% more food, 45% more energy and 30% more water will be consumed in the world. By 2050, even 70% more food will be needed.49 Increased demand puts old models at risk and the leading economies of the world will start using bio-based methods for finding solutions (e.g. OECD strategy “Bioeconomy to 2030“)50. Biotechnology will make a considerable contribution to bioecenomy through natural resources, such as forests, plants, cattle, fish and other marine products. Green biotechnology mainly focuses on genetically modified crops in order to noticeably increase the properties of food and make the raw material more resistant to environmental factors. Industrial solutions of the bio-based economy51 (white biotechnology) cover the production of chemicals, enzymes and plastic, neutralisation of environment pollution, biosensors and fuels. Biotechnology can be viewed more widely as a base technology to several fields of application52. At present biotechnological solutions help to produce bio-gas, ethanol and diesel from biomass. Platform technologies that help to produce large amounts of raw materials that can be used for further synthesis of products from different types of biomass will form the basis of bioeconomy in the near future. For example, it is possible to produce sucrose from grasses, and sucrose can be further processed into isoprene (car tyre industry), different types of biofuels (diesels, airplane fuels) and even medicines to combat malaria (artemisinin).
Europe has been one of the leaders of the global chemical industry, but the increasing pressure from the Asian chemical industry is forcing the old world to look towards biotechnology in order to preserve competitiveness and create jobs and economic growth. It has been found that each new job in the US chemical industry will create 7.5 jobs in other sectors of economy.53 Development of biofuels has created 240,000 jobs in the USA and one million jobs in Brazil. OECD predicts that by 2030 industrial biotechnology will be the sector that creates the largest added value in biotechnology54.
Together with white biotechnology, synthetic biotechnology also has a positive impact on our health and environment55. Both are based on cell factories that provide sustainable and environment friendly alternatives to the chemical industry and products of oil shale chemistry. Bioreactors based on eukaryotic cells already now produce a large range of compounds, such as precursors of biopolymers, vitamins, antibiotics and therapeutic proteins for the cure of diseases5657. Cell factories based on the cells of yeast and mammals are the main trend setters of a sustainable bio-based economy. Cell factories are extremely attractive solutions that use renewable carbon sources causing little pollution and produce biocompatible and biodegradable products.
Biotechnology is a very expensive sector and Estonia does not have the capacity or capability to compare itself with the economies and biotechnology sectors of large countries in the global value chain. Estonia has to learn from the success stories and successful solutions of other transitional or smaller counties. The value chain of a bio-based economy is one of the possibilities for Estonia58.
See a more detailed overview of global trends and useful examples and recommendations of pioneering regions in Annexes 2 and 3 of this report – Pioneering regions and global trends in biotechnology.
1.1.1 Overview of Estonian sector
The Estonian biotechnology sector is a young (mainly starting enterprises), small (by turnover and export) and developing (mostly SMEs). In 2010–2013, the Estonian biotechnology programme was initiated to support this sector. The MEAC is still working on assessing its results. A long-term integrated biotechnology programme is necessary for the country, and the past experiences gained from this programme should be taken into account. The following should be kept in mind for the programme:
Management and activities for achieving these aims have to be proportional to the means, i.e. the programme needs a competent team and its own budget;
The purposes, expectations and activities of the programme have to be realistic, long-term and transparent, and in direct correlation with the financial means;
The programme has to be cross-ministerial, as it largely concerns five ministries and needs the relevant authority for its actions, i.e. outside the area of government of ministries;
In building up the programme, the recommendations of this report for shaping the ecosystem, creating pre conditions for start-up enterprises and integrating them with the technology transfer action plan, and replacing subsidy-based financing with enhancing capital involvement (incl. objectives, indicators and measures).
One of the great differences from the programmes in Finland and other countries is that private capital has not been involved in biotechnology. There is also no co-operation between the state and the sector that would help attract foreign financing to the sector (for example, the good results that Hungary has achieved through the JEREMIE59 programme).
At present the biotechnology sector in Estonia can be characterised as a sector that is still growing and looking for implementation in enterprises. In the more successful countries of this sector, biotechnology programmes have been implemented for decades (in Estonia, the first national plan on biotechnology was launched in 2010). Considering the huge research programme of the Estonian biotechnology sector, it may be expected, on the basis of the experience of other countries- That investments into people and research will start to influence enterprises only after decades of constant and extensive investing,
As the potential of the sector is only partially realised by now, Estonia’s role in the value chain has not become established yet. Several activities in the biotechnology sector remain at the level of base research and do not yet reach the (foreign) market in the nearest future. Ideally, Estonia should position itself in biotechnology as the performer of R&D activities and also the creator of its products. If we look at the Stan Shih Smiling Curve (see the general part of the report) that became known in the ICT sector, it can be seen that a great added value is hidden both in R&D activities and in bringing its own products to the market (especially if a specific brand, etc. is created).60
The experience of Finland shows that values were successfully created both in successful enterprises, and enterprises that have terminated their activities. The development of the knowledge of the workers, business and science relationships that were formed, and the implementation of new methods and work processes must be seen more widely61. In Finland it was hoped that there will be rapid success in the sector, new study programmes were contributed to, and large investments were made by, both private and public sector, but it was obvious that the sector is very resource intensive, and like in many OECD countries, the initial enthusiasm in Finland faded. The long-term view is that human capital is considered the greatest resource for biotechnology in Finland.
The Estonian biotechnology sector is small: according to the Estonian Classification of Economic Activities (EMTAK) code, there are nearly 300 employees in 60–70 enterprises. The added value created by the sector has risen from 3 million to 12.3 million euros (15 million, when CCTs are taken into account), and its share in the business sector has increased from 0.05% to 0.12% (to 0.15%, when CCTs are taken into account), forming a very small part of the total economy (besides business sector, total economy also includes the government sector).
The development of the Estonian biotechnology sector62 in 2005–2012 has been faster than the average development of the business sector, the added value per worker has stayed higher than the Estonian average and the number of workers has increased faster than the general increase of employment (although it has slowed down somewhat in recent years). At the same time it is important to note that all this has taken place in the environment of large state subsidies, which distorts the picture of the independent competitiveness of the sector.
Most of the enterprises try to deal with red biotechnology because great sums of money move in this area. But as the sector is still taking shape and is in its infancy, it is not easy to assess its development patterns. However, the flexibility of the sector in looking for different fields of activity has been remarkable. The Estonian sector is closely connected with the academy and largely depends on subsidies. The sector is greatly influenced by the policies of the state (the influence of programmes and subsidies). For a more detailed analysis, see Annex 4of the Report (MEAC data and the analysis of Centar calculations) and read Lauri’s (2014) comparison with the biotechnology sector of Finland, which has already been referred to.
The Estonian biotechnology sector has no special role in the context of the global value chain. Although Estonia has a strong base research in biotechnology, no breakthrough into the economy has taken place. The greater part of the value chain is located outside Estonia, which in turn makes the functioning of the whole sector harder. On the one hand, the Estonian enterprises have to make expenses for being able to sell in foreign markets and getting to know the customers there. On the other hand, it is necessary to always have partners of international level in the production context. The main activities are producing sub-components of global chains or looking for possible partners and markets. In any case, the food sector, enterprises emerging from bioeconomy, as well as biomedicine sector enterprises should focus also on export markets.
In biotechnology, the potential markets are the countries of Europe, Asia and America. In the food industry, the distance is determined by the preservation time of the goods. In medical tourism, it is possible to focus first on near neighbours – Russia, Latvia, Lithuania and the Nordic Countries.63
In Estonia the biotechnology sector can develop through considerable interoperability by the state, where the state is an important customer and where the researchers can provide innovative solutions based on modern technology to the problems in the environment, economy, health care, agriculture, etc. The existing potential should also be targeted at bioeconomy.
The food sector forms a relatively large part of the Estonian economy (according to Statistics Estonia, the added value produced in the food industry formed 2.5% in current prices from 2005–2013), thus its role in the country’s economy is huge. A total of 13,200 people work in the food industry (nearly 2% of all employed). In 2005 the added value produced in the food industry formed 2.3% of the total added value and the number of workers was 19,800. Although the share in added value has not significantly increased (it has actually decreased because in 2009 the added value of the food industry in current prices formed 3.3% and in 2013 only 2.4%), the added value in current prices has grown 64% from 2005 to 2013. The reason for this is, on the one hand, the rapid growth in the rest of the economy, and on the other hand, these numbers have been influenced by the change in the economic structure as a result of the global crisis.
The Estonian food sector has historical traditions (Estonian butter, crops, etc.), but in the globalising world the competition with the neighbouring countries is constantly becoming more intensive. Estonia has possibilities on the domestic market (to introduce typical Estonian food products to the people) and also on the foreign market in finding possibilities of refined export to food.
On the basis of import data (see Annex 5), Estonia does not depend on food imported from foreign countries and in the strategic sense this is important. But naturally there are aspects for shaping food policy if we look at the export data and the added value data at the same time. The export of unprocessed raw materials for food should be reduced, and it should be processed before being exported. According to Statistics Estonia, the export of milk and fresh cream (not concentrated, produced without sugar and sweeteners, exported, in tons) formed 27.6% of the export of dairy products in 2013, 23.6% in 2012 and 15.7% in 2011 (respectively, 213,000, 170,000 and 109,000 tons were exported). Thus, the export of raw material for dairy industry is increasing.
In the global context, the amount of arable land available is limited, keeping in mind the constant growth in the population of the world and increasing demand for food and clean water. Thus, it can be predicted that together with the increase in demand food prices will also increase in the world. In this context, the world is looking for solutions for increasing yields, finding ways of making food crops more weather resistant, etc. Therefore, the European policy regarding GMO has no perspective for competing on the global market. In that sector, Estonia also has an important role to play.
In the context of Estonia, it is important that we are able to ensure a secure food supply for our people, and at the same time it is important to focus on export markets of products with high added value. Considering the potential of the arable land in Estonia, it is also possible to increase the production of raw materials for food to a certain extent, but a policy that emphasises quality is more important.
Agricultural land forms about one fifth of the area of Estonia, and together with forests, they form one of the most important renewable natural resources. According to the World Bank data, Estonia holds the 18th place in the world in arable land per person (0.476 ha). But first of all it is important to concentrate on the regions that are our close neighbours and our closest partners in the trade of foodstuffs and energy. When we look at our nearest neighbours, at the Scandinavian countries and other Baltic Sea countries, then the resources of arable land in Estonia is considerably smaller than that of Lithuania or Russia (another issue is whether the resources of Russia that in places stretches 9,000 km from us can be considered a local resource). On the other hand, the resource of arable land per person exceeds the average indicators of the European Union and the world, by more than two times. See table in Annex 5 of the Report.
Estonian Development Fund has analysed the use of agricultural land in Estonia and studied the relationships between the use of land and the sale of products from agricultural enterprises. The results of the research show that the use of agricultural land for food production is uneven. Nearly 90% of agricultural products are produced on the basis of 60% of the agricultural land resource in use. Besides the uneven production, it is also possible to increase the area of agricultural lands by 10% at the expense of the lands that are unused at present. Considering the extent of under exploitation (altogether nearly half of the relevant land resource), the resources of agricultural land is not a limiting factor in food production. The production of foodstuffs is limited mainly by market demand.
Taking into account that the raw materials base of Estonia is limited in the terms of the volumes of the global market, it is more reasonable to focus on the production of raw materials and products with high added value and strict quality requirements. At the same time it will give an important added value to our economy: more focus on technologies, including automation of production (Taking into account the decrease of the working age population and population in rural areas), and export turnover that will be achieved with the help of added value through higher salaries and prices.
The result of R&D activities is usually the introduction of a new product or service with higher added value, through which, first of all, the foreign demand should grow in the relevant sectors. Domestic demand is limited and it is necessary to conquer new markets in order to develop enterprises. The share of R&D in the Estonian food sector is extremely low, especially in comparison to developed countries (see Annex 5 of the Report).
The percentage of the added value of the food industry in the added value produced in the whole country is decreasing in most of the countries, and the main reason for this is the increase of added value in other sectors and the modest increase of products with greater added value in the food sector. This can be seen from the small R&D activity, focusing on customers of higher added value products (e.g. production of premium milk powder), automation of enterprises and concentration (co-operation of producers and processers in value chain). Considering the low salaries of the sector, greater changes are necessary to escape from that trap (see figures in Annex 5).
Thus, the large farms of Estonia should not think of exporting raw materials, but of processing it to produce high-quality powders, special foods and concentrates. Larger farms have an advantage over small farmers namely in the production of high-quality milk, because it is easier/simpler for them to control the quality of production.
Considering the long payback period of R&D expenses, having of international relations and contacts, knowing of foreign markets and contacts to enter these markets, it is clear, support measures and policies of the state are also necessary for finding new markets. If Estonia could process the 27% (2013) of the exported milk sector raw material into high quality products, like powders, before exporting, it could considerably increase the added value in the sector.
Regarding the food sector, it is important to note that it is necessary to proceed from the effectiveness of resources and processing of by products (wastewater and other biological waste) of the main production at each stage of production. In the case of the food industry, this is a totally unused potential that should be separately highlighted. By products into energy or main raw materials for chemical industry, and developing circular bioeconemy and resource effectiveness through that – the planned bioecenomy programme of the state should cover such an integrated approach in each stage of value chain.
One of the main problems of food sector (like other sectors) is horizontal co-operation. As project based activities and institutional approach prevail in Estonia, there is little interaction between people in many areas of work and business for example, the entrepreneurs cannot find technologists and researchers, and are not aware of the advantages of modern technologies, and the researchers are not motivated to find practical outlets for their research. It is necessary to have a long-term integrated strategy that would build the necessary bridges and support the shaping of an ecosystem.
The impact of agricultural subsidies on the added value of food industry should be assessed separately. Does it stimulate added value or not? As the subsidising of farming in Estonia has not yet reached the same level as elsewhere in the EU, then maybe Estonia could have a potential here, to invest first of all in the products with high added value, and have a greater impact on economy. It is of critical importance how we are able to enter foreign markets and if we are able to cooperate to conquer the new markets inside the sector. Each sector (milk, fish, meat, etc.) has to be approached in a specific way (clients, requirements and markets are different) but following the same principles (enhancement of whole chain, horizontal co-operation, technological transfer, long-term planning, etc.).
The role of education and R&D in biotechnology
The biotechnology sector is characterised by the overwhelming importance of research and development activities which go hand in hand with a high failure rate. However, it has to be kept in mind that R&D is accompanied by a positive non-economic outcome, such as contacts and knowledge that may be transferred to successful enterprises.
International excellence of research, which has been the objective of the funding of research in Estonia during the last two decades, has helped keep and raise that level, and has created strong research groups6465 and certain critical human capital in sectors connected with biology. International excellence of research as financing criterion has been rather unsuitable for initiating development projects emerging from enterprises. There have been few such biotechnology enterprises who themselves finance research and development activities to a great extent, so that the proportion of this financing cannot be compared to the contribution from the state. Involvement of risk capital is very rare, loan possibilities are also weak.
Overview of the targeted financing of the Ministry of Education and Research and the grants of the Estonian Science Foundation in 2005– 201266 shows that in the sphere of natural sciences, the financing of physics, chemistry and chemical technology, earth sciences, process technology, materials science and computer sciences is the largest. In the sphere of bio- and environment sciences, ecology, biosystmatics and biophysiology, biochemistry and research connected with bio- and environmental sciences receive the most financing. Medicine bio- and clinical medicine has the best financing. In that list, there are several sectors that are closely connected with biotechnology.
According to the data of the Estonian Research Information System ETIS, the Research Competence Council and the Estonian Research Council, nearly 45 research groups are active in the sphere of biotechnology in Estonia. Most of them (around 30) are at the University of Tartu (dealing mainly with molecular and cell biology, gene technology and biochemistry research), 12 are at Tallinn University of Technology (specialising in neurobiology, cancer biology base research, gene technology of plants system biology and fermentation technology research); there are also some groups in the University of Life Sciences (2), National Institute for Health Development (1) and National Institute of Chemical Physics and Biophysics(2)67. Generally the R&D activities of Estonian biotechnology focus mainly on base research in biochemistry and molecular biology, and there are few clinical applications. As greater potential of base research is in the sectors of biomedicine, synthetic biology and bioprocessing, the emergence of entrepreneurship can be expected in these sectors, and also in bioeconomy and food sector as a whole.
During the period from 2001 to 2013 the Estonian Research Council allocated 267.3 million euros to research.
As biotechnology belongs under several sectors (except under social sciences), its project basis nature has to be brought out separately (incl. food (0.2%) and compared to ICT (5%)). Thus, we get the following distribution of finances: 26% of the total sum has been allocated to biotechnology.
Centres of excellence connected with biotechnology that have been financed from different sources in 2007–2013 (original data: SA Archimedes and Männik 2014 (R&D background analysis) 68):
National Centre for Translational and Clinical Research, University of Tartu (biomedicine);
Frontiers in Biodiversity Research Centre of Excellence, University of Tartu (bio-based economy);
Estonian Centre of Excellence in Environmental Adaptation ENVIRON, Estonian University of Life Sciences (bio-based economy);
Centre of Excellence in Genomics, Estonian Biocentre, UT Genome Centre (genome research, bioinformatics);
Centre of Excellence in Chemical Biology, University of Tartu, Tallinn University of Technology (biomedicine);
Centre for Integrated Electronic Systems and Biomedical Engineering (CEBE), Tallinn University of Technology (biomedicine, bioinformatics, ICT).
In 2003–2010 Enterprise Estonia has supported biotechnology enterprises through different projects (applied research and product development) with altogether 49 million euros (Enterprise Estonia data).
The purpose of intensifying co-operation between enterprises and researchers should be carried out by technology development centres that have been created with the help of the CCT measure of the EU as of 2014 (all together 8). The following are connected with biotechnology:
Competence Centre of Fermentation and Food Technologies (synthetic biology, bioprocessing, food, bioinformatics);
Bio-Competence Centre of Healthy Dairy Products (food);
Competence Centre for Cancer Research (biomedicine);
Competence Centre on Reproductive Medicine (biomedicine).
Recent analysis69 in the methods of financing Estonian research shows that the expectations on CCTs do not correspond to the logic of financing. As financing is based on the excellence of research like the research activities of universities, it is not possible to expect a different result (the number of publications is measured, not prototype products and product development or the capability to involve private capital).
It is a positive sign that the health, food, environmental and agricultural sectors will increase (e.g. for covering the lab services and other research needed by R&D activities), however, the percentage of employees with an academic degree involved in the industry is very low. Estonia has preconditions for the evolutionary development of the biotechnology business sector, but there is not enough human capital with academic degrees for growth to leap (e.g. for establishing big pharma). Because of that, it is necessary to consider, if, and how much the created preconditions (excellence of research and centres of excellence, as well as CCTs) contribute and could additionally contribute to the development of R&D in business and the economy. Are the infra-investments to research open to all Estonian enterprises for R&D activities, so that their application and use would be maximised? Are research institutions open to product development, to offering their labs and equipment to enterprises, for participation in international projects, etc. – for all that creates these preconditions for the emergence of new enterprises, products, services and jobs and, through it, for the emergence of economic activity? During the next period, the skilled application and use of means invested in the infrastructure and base research, incl. technology transfer and co-operation with the business sector will be of critical importance.
1.3 Strengths, weaknesses, competition advantages in biotechnology sector
As stressed before, biotechnology can be integrated with other fields of application and sectors of the economy, and it is research intensive, i.e. expensive. This in turn helps create products with high added value and to bring the economy from a labour intensive level to a technology intensive level.
In Estonia, the most important advantage of the biotechnology sector is strong research (excellence of research), world-level top researchers and top-level research infrastructure, into which much has been invested in recent years. Thus, there are good preconditions for study, research and applied research and technology transfer. It is important to maintain that level, but there must also be output into the economy as well. The established infrastructure should be used to the maximum extent before it becomes morally outdated.
Thus, the research potential can be used for establishing new enterprises, for exporting our research services by participating in international projects or by attracting international centres to Estonia and creating jobs through research or applied research initiatives.
To sum up, the most important strengths of the sector are the following:
A very strong level of base research in several sectors,7071 remarkable level of research in several sectors;
High level of education obtained from school; a considerable number of people with a higher education have come to the sector recently and they have been hired by universities;
Positive impact of CCTs as mediators of the academy and enterprises;
Estonia’s smallness and flexibility, but sufficient human capital and the existence of natural resources (like forests, biomass) has enabled to develop new approaches, like e-health based services, optimisation of work processes, etc.
Regarding the biotechnology sector, it is important that Estonia has a national biotechnology programme (BTP) for 2010– 2013, and the sector is administered by several ministries and there is no ministry that directly deals with it (MER, MEAC, MSA, MA, ME). Pursuant to the OECD reports and general global trends, biotechnology is a strategically important sector for the state. Taking into account the resource intensiveness of the sector, it is necessary to find a balance between the excessive fragmentation of resources and the “lagging behind” of key developments. Thus, the evaluation of the first period of BTP and drafting follow-up programme are naturally of importance. The evaluation of the first period is planned by the MEAC and is expected shortly.
The important obstacles of the biotechnology sector are mutually interconnected. Estonia’s small size means that the sector and domestic market are relatively small as well and that makes it important to focus on the export market. At the same time, it creates a situation where it is not possible to find co-operation partners at home, and it is necessary to know the international networks and markets/customers. This in turn reduces the possibilities for the emergence of new enterprises, for the transfer from research to business or for finding investors.
For the transfer of bio-technologies to business sector, it is important to strengthen horizontal co-operation between the academy and business and to create a favourable supporting ecosystem. Bridges between different sectors do not exist or are weak. There are a couple of CCTs for connecting business and universities, but there are no clusters. The role of CCTs or competence centres is to introduce technology transfer to enterprises. In the case of incubators-accelerators-foundations, the state can support by boosting the involvement of capital, encourage the implementation of R&D through strategic competitions of the state, e.g. in environment protection and bioeconomy, and also in health care and the food sector. Long-term strategic activities are necessary.
The analysis of the barriers and new possibilities of smart specialisation that draws attention to the obstacles and solutions of S3, compiled by the Development Fund in 2013, also discusses the system failures and other obstacles of the sector in detail.72
To sum up, the most important weaknesses of the biotechnology sector are:
Enterprises are not able to compete with the academy in offering jobs;
Lack of entrepreneurship expertise – there are few business managers and enterprising people with a natural science background;
Lack of great success stories;
Support measures for enterprises who do not take into account the peculiarities of the biotechnology sector;
Social support for new biotechnology ideas is weak;
Often there is no business model, and also no knowledge and initiative for increasing production;
Biotechnology is not integrated into national strategies;
Domestic market is extremely small or absent, foreign markets are far away;
Minimal involvement of private capital;
Large international enterprises are not interested in Estonia. There are no possibilities for the involvement of foreign experts. Lack of international involvement contributes to the isolation of the sector.
To sum up, the possibilities of the biotechnology sector are:
To use the ICT success story and expand it by creating an image of a (bio)technological country, opening up markets and being of interest to investors;
Increase of global biotechnology market because it offers the greatest potential for fighting against such problems as the ageing of the population, growing need for food and fuels (energy), environment pollution; also rapid (more than 10%) growth of developing markets;
More inventions are coming from the academy than are used in enterprises or the technology transfer can gravitate to foreign markets;
Focusing on the beginning stage and small investors who are more interested in starting enterprises or small enterprises with a potential;
Mobile enhancement, like mobile biofactories;
The existing potential should be used now, later the building up of the sector will be expensive;
Flexibility in adapting to global changes;
Niche markets and adapted solutions.
Threats to the sector:
Most of the Estonian biotechnology enterprises are in red biotechnology where the global competition is getting stronger and it is hard to make a breakthrough. Global markets are moving from red biotechnology to white, green and blue;
Movement of people from rural regions to towns;
Latent expertise is harmful for the economy and the society;
Importance of the sector is not understood because there are no serious problems related to resources, environment, energy or clean water;
Strict regulations that are becoming even harsher restrict the development of the sector;
Relative decrease in the finance of research (considering the inflation).
Keeping in mind all that has been said already, it is necessary to make efforts for horizontal co-operation between the sectors and ministries and financing measures – vertically they are not strong enough to implement important changes in the structure of the environment (from service to product, more technology intensive in the longer perspective).
Estonia’s possibility is to realise the research potential in different expertise and create the preconditions for integrated synergy. It is necessary to establish a national strategy for technology transfer as well as for boosting private and foreign capital. The implementation of such a combined model for financing (state, private and foreign capital) and the development of research and product development (research and applied research) for the same purposes could boost and create synergic results in the sector. Such a model would give the researchers the chance to move from science to business and cooperate internationally, and would enable new ideas to enter the economy (for example as the results of spin-offs or start-up programmes).
The international co-operation platform of the new biology centre (synthetic biology73), that has been formed on the basis of a similar model (private and foreign capital, researchers and the state), are for example Singapore and Denmark: they are good examples of the so-called Singapore model74 or the Danish centre75, because both are small countries and are based on a skilful business model and research potential. Estonia could have a potential for establishing such a centre in synthetic biology, regenerative medicine, radiopharmacy or genomics.
1.4 Strengths, weaknesses and competition advantages of food sector
Main strengths of the food sector:
Strong and broad production base, certain potential for increasing raw material capacity;
Traditions, strategically important share in domestic market consumption;
Low use of fertilizers, high quality and strong raw material base;
Production and products with high quality and high level.
Weaknesses of the sector:
Low pay of the sector, low AV in export, no products with high AV;
Small automation of industry;
Low export capability (small trade volume, insufficient knowledge about the markets, or the expertise is not available to entrepreneurs);
Insufficient use of R&D in production, research potential is not sufficiently available.
More important opportunities:
Strong R&D potential and researchers (plant and animal breeding, synthetic biology and other biotechnologies, molecular biology, lab services and infrastructure, bioinformatics, etc.);
The population has a relatively high opinion of healthy eating (but is price sensitive);
Local raw material could help produce food for particular nutritional uses;
Export possibilities and markets are not yet sufficiently explored;
Local market still has potential (50–80% consume local products).
Political situation causes loss of markets;
Workforce is becoming more expensive;
Consolidation of trade in domestic markets (brands with especially low price, like own brand labels, are created).
As Estonia has relatively few CCTs and there are no clusters at all in the food sector, the number of related institutions is not significant. The only competence centre is Polli Horticultural Research Centre, and there are also two CCTs: Bio-Competence Centre of Healthy Dairy Products and Competence Centre of Food and Fermentation Technologies. Both are first steps to establishing co-operation between enterprises and research. The Competence Centre of Food and Fermentation Technologies deals with system technologies and bioinformatics in a wider sense, as well as the food sector, but the Bio-Competence Centre of Healthy Dairy Products is relatively specialised. The main task of CCTs is to involve as wide a range of enterprises as possible in the application of the same technologies. In the future, there is scope and former experience for enlargement. The problem is rather in the small awareness of motivation of enterprises, because long- term plans are necessary for R&D developments but there is not sufficient capability to contribute financially in longterm research investments. The role of the University of Life Sciences in the horizontal co-operation end ecosystem as a bridge between enterprises and research is the more important.
It is clear that CCTs are not necessary in all areas and sectors (meat, fish, cereals, etc.), but choice and flexibility are important for covering different needs in a better way – for example, by expanding the role of universities, competence centres or other institutions of learning and research (Olustvere) through technology transfer, co-operation projects, networks (clusters) or the activities of the state. One of the most important trends is still taking shape at the universities in the form of TT, because the universities have considered study and research activities as their main role, i.e., they do not see their role in applied sciences or contributing to the economy of the state through technology transfer and integrating knowledge in the whole society (e.g. by informing the population).
At the moment the attention of the producers is mainly focused on neighbouring markets (Nordic Countries, Russia, Baltic States), mostly because of the limitations of transport and storage life, where generally a maximum distance of 600 km is taken into account. On the one hand, it is possible to find solutions in co-operation with the researchers to improve packaging and storage conditions to increase this distance, but on the other hand it would be more feasible to find niche products, which requires production of products with a higher quality and added value that, may have a global range of export, similar to that of Ireland. This requires a national strategy – occupying of markets by producers separately is not enough. Finding of exotic markets may always depend on favourable close contacts (e.g. in Oman, etc.), but a strategic approach is important from the point of view of the economy of the country. For that, it is necessary to move into the export market and a marketing programme for Estonian food. The Estonian companies are not able to compete with the marketing strategies of other countries or large concerns on their own.
Here it is strategically important that Estonia should develop a common conception for the creation of the country brand of Estonia. Development of the country of origin brand is an alternative, but shaping it on the target markets is more complicated76. The need for developing the country brand of Estonia has been stressed at consultations with focus groups and enterprises, and also on the basis of the opinions of marketing specialists (A.-M. Naarits). Co-operation between different sectors is critical for ensuring synergy and better use of resources. It would be reasonable to thoroughly consider the concept of the new brand, and here not only the brand, but also having a credible and competitive story behind is important (story + quality). It is important that both the MA77 and the MEAC, and also the export sectors (food, wood, etc.), cooperated in the creation of the country brand for export. The experience of other countries shows that having a country brand influences export.
2 Objectives and indicators of the sector
2.1 Biotechnology sector according to the narrower definition (according to the OECD definition)
In the case of biotechnology, Estonia has a strong research base but its success in entrepreneurship has been limited so far. Therefore, it is necessary to make sure that more research activities evolve into businesses, and to create scalable products (to supplement the services part). The support of enterprises would help create more added value in this sector.
Objective of the sector: to establish more enterprises in the biotechnology sector; create new products and services with high added value by combining research expertise with entrepreneurship.
Biotechnology sector is sufficiently small to depend on the market situation of individual enterprises, therefore the aggregate indicators of the sector are also characterised by great volatility – the added value of the whole sector per person may fluctuate yearly by one third. Therefore, predicting the future of this sector is extremely uncertain.
One possible scenario can be found by extrapolating the recent past, i.e. assuming that the number of workers will grow in 2012–2021 at approximately the same rate as it did in 2005–2012, or almost double (this means presuming that the recent slow down of growth was a temporary reaction to the decline in the international economic environment during the economic crisis, and in the future, the growth will continue more slowly than during the period under observation).
This would mean a substantial increase of 8% in the number of workers employed every year. And at the end of this period the number of people employed would increase to 50 persons every year.
In this scenario, added value per worker is by about one third higher than the Estonian average, or it could grow at the same speed as the general labour productivity in Estonia (Figure 7).
Such a scenario would increase the number of workers to 725 by 2021 (outside technology development centres (Figure 20)) and (on the basis of the Ministry of Finance long-term forecast on the increase of productivity and inflation) would allow to predict nearly 52,000 euros added value per worker at current prices (with present prices, nearly 40,000 euros per employee).
The total added value of this sector would thus be 38 million euros and its share in the whole economy would double in line with the expansion of the sector to 0.25%. This is an indication as to whether or not it is possible to commercialise the knowledge of biotechnology.
It is also clear that some success stories, or the failure of a large enterprise, can quickly change this picture.
To summarise: the objective of the biotechnology sector is to create products and services with high added value by combining research expertise with entrepreneurship. The national action plan of technology transfer and the ability to attract international capital are critical preconditions for achieving this.
2.2 Objectives and indicators of the food sector
In 2011 the added value per employee in the food sector was 17,200 euros, accounting for only 77% of the average added value of Estonian enterprises. In 2011 the food sector engaged 12,610 people which made it a relatively large sector where higher added value should be aimed at in each section of the value chain: crop growing and plant breeding, quality of feeding-stuffs and raw materials, animal breeding and monitoring of safety, automation of production and improving of management, development of new products with high AV, the improvement of storage times and packaging, processing of by products, monitoring of markets-customers and marketing, and raising the awareness of the population.
The objective of the food sector as a whole is to increase AV. Estonia has great potential to achieve this. The following factors influence the growth of added value in the food sector and should be taken into account when achieving this objective:
Automation of the food industry and consideration of its present low level of technology use and very low salaries. Greater pressure on salaries will encourage to invest into technology and products with higher R&D intensiveness;
Processing of raw materials for food before exporting it; raw materials with improved quality and products made from them will have a more stable price level for export;
Finding niche products with higher added value to make it possible to find suitable export markets. Considering that the Estonian raw material base is very small in the world market scale, niches should be found for specific products that do not have a large market, e.g. special foods, like baby and gourmet foods, etc., or food that is directed at consumers with special dietary needs (lactose-free food or food enriched with additives, etc.).
Product development is the key issue in all spheres of activity, in order to use more innovations and to bring new products to the market. This would achieve higher added value and set a goal for the sector, so that in 2021 the added value per worker in the sector would be 38,000 euros in nominal prices, which means that when in 2011 the added value of the sector was 23% lower than the Estonian average, then in 2021 it would be only 10%.
To summarise: the objective of the food sector is higher AV, which is achieved through higher AV product development, automation of enterprises and entering new export markets. The objective is to halt the downturn of added value and to increase it, so that it would be 38,000 euros per person in 2021. To achieve this it is necessary to minimise the export of unprocessed raw materials, and to support the production of high-quality raw materials and investments into products with high R&D intensity with the help of agricultural and S3 measures.
To sum up the chapter of indicators, the most important indicators for measuring the objectives in biotechnology and food sectors are the following:
More scalable services and enterprises (biotechnology)
Biotechnology enterprises and added value (incl. salaries, export, jobs), number of new start-ups (SuE statistics);
Percentage of involving private capital in enterprises (percentage of turnover, private capital); in monitoring it is necessary to evaluate the dynamics of the percentage of research, state capital and private capital;
Percentage of the involvement of private capital in research work (dynamics of the volume of contracts with universities, capital of enterprises in euros);
TT programme and action plan (dynamics of the number of spin-offs of universities, participation in CCTs, clusters, competence centres, capacity of cell research, IP, patents);
Product development programme and action plan (number of enterprises that have involved state capital in private investments, dynamics of private investments in euros).
Higher AV in food sector: maximising the processing at each stage of the whole value chain (milk, fish, cereals, meat); more products with higher AV in export markets
To minimise (0–5%) the export of raw materials (e.g. unprocessed milk);
To increase the added value of the food sector by products of higher added value, larger exports, increase in salaries and the automation of industry.
3 Explanation of the selection of growth area and domains
3.1 Selection of domains in biotechnology
The policy research into the possibilities and challenges of smart specialisation in Estonia until 202078 of the research and innovation policy monitoring programme (TIPS) recommends not adopting the popular priority development sectors of major countries. The compilers of this document support a relatively large choice which would take into account existing sectors but would not be against new ideas in order to encourage a bottom-up approach.
The objective of the biotechnology domain is to increase the number of jobs in the sector as much as possible, and to increase the turnover of services/products with high added value and employment in the sector. On the basis of the TIPS report and the fact that the Estonian biotechnology sector is very small, there is a strong argument against highlighting more detailed domains. In biotechnology domains, the most important objective is contributing to activating of the sector79 and to create an environment promoting activeness, where the allocation of finances is decided on the basis of results and contribution.
Biotechnology is divided into four domains that should be given priority development in Estonia:
Biotechnology in medicine (biomedicine);
Food supporting health.
In the case of biotechnology domains, scalable products with high added value or products with potential in export markets are an important criterion.
A detailed description and explanation of the biotechnology domains are in Annex 6.
In the case of food sector domains, all activities of the food supply chain are included that increase the AV of the sector and carry on from the objectives of good quality and healthy food.
The food sector domain comprises the applications of the food industry that aim to preserve and raise the healthy qualities of foodstuffs by biological methods (through the whole food raw material supply chain and processing industry), valuing quality and nutritional value, and using proven lab methods. In this domain, the activities are mainly focused on two objectives:
Maximum processing of food raw materials in Estonia;
Production and sale of export products based on raw materials with higher added value.
The activities that process the medium products (e.g. processing of sheeps' wool) or waste (fuel and heat economy) of the food supply chain are not objects of S3 growth areas, but are certainly important for the national comprehensive bioeconomy development plan.
Sector-specific barriers and activities
OBJECTIVE: More scalable services and enterprises (biotechnology)
SUB-OBJECTIVE: Involve private capital in the sector (at an earlier stage)
SUB-OBJECTIVE: More start-ups in the sector
BARRIERS: In comparison to ICT sector, the biotech sector involves more capital, time and is R&D intensive, therefore the achieving of results takes longer, the interest of private capital to invest at an early stage is low, especially in a small country like Estonia. Most of the customers are outside Estonia and the sums needed for seed capital and scaling are huge. As there is no large biotech industry in Estonia in global terms, the business experience, investors, contacts and partners of the sector have to be found in foreign markets (for more details, see Annex X).
Starting activities for shaping the biotech start-up landscape with the aim of launching new potential start-ups or the so-called personal accelerators in co-operation with universities, public sector and enterprises;
Finding additional risk capital and loan possibilities for the market, preferably through boosting the co-financing of foundations by the state, preferably in co-operation with a Nordic foundation to cover the risk of small markets and competences;
Adapting state subsidies into more motivating capital involvement programmes:
consider the long duration of biotech programmes and there greater need for capital in financing;
replace subsidies by capital subsidies with the change of participation;
appoint fund managers knowing the sector to accompany the capital of enterprises;
encourage involvement of foreign capital together with state capital;
support financing applied research to enterprises with co-financing;
Enable enterprises to apply for applied research proportionally with self-financing;
Supplement study programmes;
with courses in entrepreneurship and project management and technology;
combine possibilities for integrated learning – synergy of molecular biology, chemistry, engineering and bioinformatics – into homogenous study programmes, taking into account the logic of convergence;
Create motivating grant programmes for teams in order to connect entrepreneurship and trainee-ships at an earlier stage in their studies (BA, MA, PhD);
Develop a technology transfer action plan and a suitable model for Estonia for finding outputs from research into business (testBEDs, access to research infrastructure, co-operation programmes for enterprises and research, so called excellent start-ups, planning of state and public sector, incl. local government initiatives for involving researchers in modern problem solving, etc.);
Continue BTP trends of activity, taking into account the recommendations of this report and S3 and to integrate these principles into the bioeconomy action plan;
S3 MEASURES NS: Startup ESTONIA, grants, CCT, clusters, applied research
MEASURES: Development programme, capital funds, innovation shares
OBJECTIVE: Higher AV in food sector
SUB-OBJECTIVE: Maximising of processing in each stage of the value chain (milk, fish, meat, cereals)
SUB-OBJECTIVE: More product with high AV to export markets
BARRIERS: R&D capability, motivation and awareness of the sector are low. The sector is divided between two government ministries, knowledge of foreign customers and markets and marketing skills are poor, experience is still developing, co-operation between producers and processers/marketers is small in the sector, which fragments the sector and prevents competitive prices in export markets, a lack of skills for the long-term planning for the development of high-quality niche products for new markets. Instead, easy money is sought (the sale of unprocessed raw materials).
Enable enterprises to apply for applied research in proportion with self-financing;
Encourage co-operation between enterprises in entering foreign markets with a common country brand, support market research and establish contacts at state level;
Enable access to co-operation on foreign markets through foreign representatives of Estonia;
Support the administrative capacity of enterprises through innovation shares or some other way, so that enterprises would involve more researchers in product development, planning of automation of factories and conducting the research necessary for entering new markets;
Launch the development and marketing of Estonian high quality export product brands similar to the tourism strategy;
Increase awareness of healthy eating among the population and to explain to them the value of high quality local food and the impact of domestic consumption of food on the economy (incl. among the Russian-speaking population);
Establish preconditions for building technology transfer bridges between science and enterprises.
S3 MEASURES: CCT, clusters, demand side policies (DSP)
MEASURES: Innovation shares, development programmes, the Economy Development Plan, brand Estonia