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Central to the EU regional development strategy is the idea that cohesion funding will allow lagging regions to develop their capacity so that they can develop their R&D to levels that can be funded by Framework. Using a European funded (ERDF) NPP project – MicrE as a case study, this paper considers how, through a transnational programme, this might work in practice. MicrE's main aim was to provide a service to develop and promote innovative small-scale renewable energy solutions for rural small and medium-sized enterprises (SMEs) in the northern periphery of Europe. Concentrating on Northern Ireland, this paper provides a micro and macro-level assessment of the key challenges associated with adopting renewable energy technologies by SMEs; and the future development of public policy aimed at developing SME capacity by encouraging knowledge transfer and supporting their R&D efforts. [ABSTRACT FROM AUTHOR]