Emergent Markets: Space and Satellites

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Space and Satellites

Introduction

This is one of the 16 market profiles produced as part of the Economic Market’s foresight study commissioned by the North East LEP. It provides an overview of the future growth prospects for the Space and Satelites market globally, a summary of the enterprise base serving the market in the North East and relevant regional assets, and an analysis of how the continued convergence of global trends will affect future market development.

These markets were selected as those most likely to present opportunities for future regional growth in the North East LEP. This was done based on a trends analysis conducted by Frost and Sullivan, which identified 37 high impact trends driving continued change and growth in these markets globally. A shortlist of markets from this trends analysis was then cross-referenced against the current North East position by Cambridge Econometrics. This analysis identified the most significant opportunities for the North East LEP.

Each of these profiles also uses findings from the Data City platform to quantify the number of firms serving the Space and Satelites market in the North East. This platform links companies house data to companies’ websites and uses the website text and machine learning to classify firms into Real Time Industrial Classification Codes, which can allow analysis of markets often too emergent to be precisely measured in SIC codes. The data from this platform has been triangulated against ONS data to consider a variety of perspectives on the market.

More detail about the methodology can be found here for the 16 market profiles.

Description and global outlook

Space and Satellite technology is a diverse sector, with a multitude of commercial, industrial and military applications, and generally consists of the research, design, manufacture, operation and maintenance of aircraft and spacecraft (including satellites). The Space Industry currently employs approximately 42,000 people in the UK, and generates £14.8 billion in GVA with productivity rates three times the national average.

Definitions of the ‘space industry’ used in HM Government publications is defined to include all organisations that are engaged in any space-related activity to some degree. It comprises both:

commercial organisations (i.e. businesses, companies, firms) that earn revenue from the manufacture, launch and operation of satellites/spacecraft, and from utilisation of the signals and data supplied by satellites/spacecraft to develop value-added applications; and
non-commercial organisations (e.g. universities, research institutes) that secure funding to contribute space-specific research and expertise throughout the industry supply chain, often in partnership with commercial organisations.

A ‘space-related activity’ is defined to be any one (or more) of the following activities:

Space Manufacturing: Design and/or manufacture of space equipment and subsystems
Space Operations: Launch and/or operation of satellites and/or spacecraft
Space Applications: Applications of satellite signals and data
Ancillary Services: Specialised support services

A wide range of non-space activities (including consumer, industrial, and public sector) are supported by satellite services – termed ‘users’. ‘Space’ is therefore designated as a critical element of the UK’s national infrastructure. Many commercial users would experience severe disruption if satellites were to be de-activated.

Another definition in use is to split Space activities into the Upstream Space Subsector (comprising the design and/or manufacture of space equipment and subsystems, and operations) and the Downstream Space Subsector (space infrastructure operations and “down-to-earth” products and services that directly relay satellite data and signals to operate and function).

Global market

According to Deloitte, as funding continues to increase and costs decline, the space industry is likely to experience increased opportunities, primarily in satellite broadband internet access. In 2020, space investments remained strong at $25.6 billion, and Space launch services are expected to record strong growth in 2021, with the market forecast to grow more than 15.7 % year-on-year. More than 60% of space-related economic activity comes from commercial goods and services.

Over the long term, costs will likely continue to decline, with companies in the space ecosystem focused on reaching critical mass. For example, there are over 1,000 Starlink satellites launched into orbit by SpaceX, and the company aims to deploy 4,425 satellites in orbit by 2024 as its launch costs decline, driven by reusable rockets and mass production of satellites. Launch costs for a satellite have already declined from $200 million in the past decade to nearly $60 million currently and have the potential to fall further to as low as $5 million.

Satellite technology enabling Earth observation and imaging services constitutes a small, but very important part of the global space economy, providing a wide spectrum of applications in different fields; the largest revenue growth occurred in defence, intelligence and in the sectors of energy and natural resources.

UK market

The UK has enjoyed globally acknowledged leadership in small spacecraft and instrumentation (payloads) for decades. Recent years have also seen an expansion of activities in downstream applications recognising that this is the largest part of the broader space economy.

The income of the UK Space Industry was estimated at £14.8 billion in 2018. Income has been measured, rather than sales, because the industry includes universities and research institutions.

The upstream (manufacturing and sending objects into space) grew strongly to £2.4 billion, though the downstream (use of data and telecommunications and use of technology and data) dominates at £12.4 billion. Space Applications is the largest segment with 69% of income, of which 48% is Direct-to-Home (DTH) broadcasting (Satellite TV) This is followed by Space Operations (15%), Space Manufacturing (13%) and Ancillary Services (3%).

Across all activities, Broadcasting dominates (51% of total income) followed by Communications (19%), Position, Navigation and Timing (12%), Defence (which has grown to 8%), and Earth Observation (3%)

Space Manufacturing was the engine for growth (27% growth per annum), contributing three quarters of the overall change in total income. This was followed by Ancillary Services (7% p.a.) and Space Operations (2% p.a.). The Space Applications segment saw no growth (0% p.a.) in aggregate, with a decrease in DTH broadcasting income concealing growth of Other (non-DTH) space applications (3% p.a.): satellite data (e.g. EO) processors (35% p.a.), satellite applications (32% p.a.), mobile satellite communications (27% p.a.) and location-based signal services (20% p.a.)

Research shows the UK Space Sector has built, over the past 20 years, one of the most innovative, highly skilled sectors in the UK economy. UKspace (the industry trade association) has estimated that they UK Space Sector could increase its global market share to £30 billion by 2030.

Capital flows and FDI

Historically, European knowledge networks and funding routes associated with ESA budgets and projects have provided a rich seam of capital for UK institutions. As a result of Brexit, many of these, including EGNOS and Galileo, have now been excluded from participation by UK firms. This creates both a risk and an opportunity for UK firms with specialist offerings.

Broader export potential exists to other nations undertaking space development programmes, and the competitive playing fueld has been levelled signficantly for regional participants. Funding conditions for the UK Space Agency in a post-brexit, post-covid environment may be volatile, and policy around the UK’s partnerships and knowledge sharing treaties, as well as any strategic export controls for space-related IP, may have major impacts on the strength and growth potential for the UK market as a whole.

Private capital availability for space related technology in the UK remains comapratively low as a headline figure. However, peripheral investments in data, digital communications and electronics is growing quickly.

North East presence and capabilities

Regional overview

The ‘Size and Health of the UK Space Industry’ report published in June 2021 revealed the number of people employed in the space sector in the North East is up 12% to over 1,000. The report highlighted that the number of space organisations in the region is up 50% from 34 to 51, with income from the North East’s space sector totalling £88 million.

North East Space Hub Feasibility Study, 2020

The recent Bryce Report (North East Space Hub Feasibility Study, 2020) suggested that the North East has regional capabilities for Satellite manufacturing in Tier 3 Assembly and Tier 4 Components and parts, with some capability supporting Tier 2 subsystems; and for Launch manufacturing capability in Tier 3 assembly.

The report concluded that there were 45 companies in the North East operating in the Space industry, with 5 innovation centres closely aligned to the industry, 19 clean rooms, and capability clustered around 5 main locations. Firms identified include Quest UAV, NORSS, Ultramap, Reece Innovation, Spincraft ETG, Satcom Global, Satstream Media, Isocom, IKON Science, and Geospatial Research.

The North East Centre of Excellence in Satellite Applications

The North East Centre of Excellence in Satellite Applications, based at UKSPA member North East Technology Park (NETPark) in Sedgefield, has played an important role in the growth of the region’s space sector. It champions space opportunities within the region, and connects businesses to bring new expertise into the sector.

Business Durham, the business support service of Durham County Council, has led the North East Satellite Applications Centre of Excellence since April 2014, engaging with over 670 organisations, establishing links between 277 business and universities, and helping companies secure £9.2M worth of funding.

The centre, which is supported by the Satellite Applications Catapult and UK Space Agency, is focused on using satellite applications to create a safer world, addressing challenges including sustainable living and climate change, security of supply chains and resilience in infrastructure and assets.

STEM skills in the North East

North East LEP area has a strong and diverse university sector, with over 85,000 students studying at four universities: Durham University; Newcastle University; Northumbria University and University of Sunderland. In 2018/19 there were 31,475 enrolments in the four universities in the North East LEP area.

It has been a priority of the North East LEP to increase the enrolment in STEM qualifications.Overall, the change in total graduates between 2014/15 and 2018/19 and who studied a STEM related subject has been roughly in line with the UK average at around 10%. However, some subjects have experienced a much faster increase in graduates, most notably in computer science, where the number of graduates increased by over 40% in the space of four academic years, compared to 19% in the UK as a whole.

According to the North East LEP local skills report, 3.5% of employment in the area was in digital occupations, comprising 42,700 people - a smaller proportion than England as a whole (4.4%). However employment in these occupations has grown faster in the North East LEP area between 2015 and 2020 than nationally (Growth of 24% in the North East LEP area compared to 18% nationally). Notable occupations at the three digit level that grew faster than England excluding London between 2015 and 2020 were Information Technology and Telecommunications Professionals (grew by 39% in the North East compared to 19% in England excluding London) and Research and development managers (140% growth vs 27%)

Digital Catapult North East Tees Valley

Delivered by Sunderland Software City, Digital Catapult North East Tees Valley (NETV) supports businesses from across the region to encourage the growth and adoption of advanced digital technologies. Key business and industry networks include SunderlandSoftwareCity, Digital City, Digital Union, Dynamo, VRTGO Labs/Proto Lab, and Thinking Digital.

Stellium Data Centres

The North East LEP area also has a rapidly developing data centre and connectivity role. Stellium Data Centres is the UK’s only cable landing station for the new North Sea Connect cable and the UK’s newest Internet Exchange Point. Can transfer data at 30 terabits per second. The Stellium campus comprises 12 IT halls within three separate data centres of Tier 3 standard.

Analysis of GVA and employment by SIC sectors

The tables below summarise the findings from socio-economic data and economic forecasts, presenting headline from the two most relevant standard industrial classification sectors: Other Transport Equipment Manufacturing and IT Services

Other Transport Equipment Manufacturing in the North East is less productive than the UK average for all industries, and employs 1,900. The sector has declined in jobs and GVA over the past 38 years. Future projections indicate continued job decline, but with GVA growth.

The IT Services industry employs 24,400 in the North East, with a similar share of regional employment to nationally. The sector is highly productive, and has experienced a steep increase in employment and GVA. The outlook is forecast for a further increase in jobs and GVA growth.

Other transport equipment manufacturing

IT services

The Data City findings

The Data City provides company data based on an AI-driven taxonomy search of terms and content on company websites. This is then connected to companies house data for each company – and allows an aggregate analysis for new industry and market definitions. The data captures the number of business branches in the North East LEP area.

The Data City platform suggests there were 9 active firms in the satellite earth observation market in June 2022, about 4% of the total firms in this market operating in the UK.

Local Authority location quotients

The Data City also suggests that the North East LEP is a centre for firms in this market. Four of the seven local authorities in the North East LEP had a positive location quotient, and Gateshead and North Tyneside had very strong location quotients. Three of the North East LEP local authorities were in the top 50 local authorities in terms of their location quotients.

Connections with other regions

The data from the Data City suggest that 66% of firms registered in the North East LEP operating in this market had locations outside of the wider North East region. This compares to 34% of firms nationally that have location in more than one NUTS region. Outside of the North East the most common region for firms to have an additional location in was the East of England; the North East had stronger connections to this region than the rest of the country.

North East LEP clusters

Space and satellites firms are distributed across the North East LEP area, but as expected from the location quotients there is a particular concentration of firms in Gateshead.

Sector crossover

One of the innovative features of the Data City methodology is that it allows firms to be classified in multiple sectors. The platform does so through real time industry classifications (RTICs), which are constantly evolving classifications generated by an AI from companies’ websites. Firms can be classified under multiple RTICs at any one time.

This means the data can be used to demonstrate interdependencies where sectors overlap. As may have been expected, there is a strong degree of overlap in this sector with the space economy, electronics manufacturing, and advanced manufacturing. The North East appears to have stronger cross over with electronics manufacturing and telecommunications nationally, however it should be noted that there is a small number of firms in these sectors which means these results should be interpreted with caution.

Subsectors

The Data City methodology also includes individual subsectors within the RTIC taxonomy which allows detailed analysis of the North East LEP’s focus within space and satellites. The most common subsectors for North East LEP based firms to operate in are electronics manufacturing in communications, and engineering and software within the space economy. Compared to nationally, the North East sectors has a particular focus on electronics manufacturing in communications, space economy engineering, the ground segment of the space economy.

Regional prospects

A critical part of this study is to shortlist which emergent markets represent “hot prospects” for the North East economy in the future. Using the findings from the study, and the assessment framework below – Satellite Technology is rated as a market with -

emergent status in the North East
international scope in terms of firm activities and ownership
Significant presence of firms operating across space and satellites, 4.0% of all firms in this market (although still a small number of firms overall)

Existing regional specialisms

Moderate: average LQ, low employment and film presence.

Fims

Moderate: 1-3 major firms and/or start-ups and SME presence.

Value chain cluster

Low: small number of SMEs.

Innovation/technology

Moderate scale of R&D activity, with national leadership

Skills and human capital

Complementary: associated and foundational skills with infrastructure and provision.

Local institutions

Related: can be adapted.

Local assets

Relevant minor assets: of regional significance

Click here to download the assessment framework.

Strategic commentary

As discussed above the cost of space and related technology is falling over time, meaning that there will be opportunities for future growth and scale in this market. The market also has a complex web of dependencies and enabled markets, which will shape the prospects for growth in the North East.

These technologies are strong enablers of markets such as autonomous vehicles, smart logistics and the internet of things, with immersive technologies also classed as significantly enabled by space and satellites. If the North East is to seek to grow these markets, it needs to be aware of the importance of satellites for their effective operations.

This strategic positioning growth in the space and satellite technology market can be approached from two ends of the value chain, from raw academic horsepower and R&D capability to advanced manufacturing, product integration and commercialisation. The North East currently demonstrates an emerging capability at a mid-point in this continuum, with specific focus around the integration of telecommunications and digital systems into satellite platforms. To continue to develop this capability the North East will need to also strengthen its capability in the core dependences of this market across software development, robotics and data analytics.