chiara fratini - phil johnstone - paula kivimaa - institutional change and industrial policy in...

S C I E N C E P O L I C Y R E S E A R C H U N I T

Chiara Fratini, Phil Johnstone, Paula Kivimaa

Institutional change and industrial policy in energy disruption:

The illustrative case of Denmark

http://www.smartenergytransition.fi/en/front-page/

1. Background to Work package 3

2. Conceptual development at the interface of disruptive innovation,

institutions and industrial policy literatures

3. Initial findings from empirical case of Denmark.

Introduction


Prof. Andy Stirling

Dr. Paula Kivimaa

(Work Package leader)

Dr. Karoline Rogge

Dr. Phil Johnstone

Prof. Eeva Primmer

Dr. Chiara Fratini

WP3 RESEARCHERS

Which role do institutional factors and industrial policy play in (the) energy

(technology) disruption?

RQ1: What constitutes an energy disruption? How is energy disruption

characterised by actors in the system?

RQ2: What is (or: has been) the role of institutional factors – both as enablers and

barriers – for energy disruption and how have institutional problems been handled

(and by whom)?

RQ3: What is (or: has been) the role of industrial policy in supporting and/or

hindering energy disruption and which new industrial policies have emerged to

handle energy technology disruption?

Case studies: Denmark, Germany & UK (conducted in 2016 - 2017)

Conceptual framework – analysis of Finland (late 2017 – 2019)

Background to WP3

• Based on business oriented literature (Clayton M. Christensen)

• but related themes within innovation theory/ economics (most notably Schumpeter’s ‘creative destruction’)

• Rare – because of ‘routines’ (Nelson & Winter 1982), and ‘path

dependency’ in technological systems.

• Fundamental changes in technology AND/OR business models

(Christensen & Raynor 2003)

Disruptive innovation – concept

• ‘Clean energy disruption’ (Seba 2014) • new technologies including wind and solar change the energy business models,

because “after you build a solar rooftop installation, the marginal cost of each additional unit of energy drops essentially to zero because the sun and the wind are free.”

• Has progressed even faster than Seba predicted in 2014

• The concept still remains elusive (Nagy et al, 2016). • Many differing technologies have been cited as being ‘disruptive’ (e.g wind, solar,

but also ‘fracking’ & small nuclear).

• Not usually understood on a systemic level but usually focusses on individual firms.

• Same technology sometimes disruptive, other times not – context of application

• Not just technologies but also business models

• Our interest: how a range of stakeholders from a variety of perspectives

understand ‘disruption’ in the broader energy system• Not restrictively pre-defining what constitutes disruptive innovations.

Disruptive innovation in energy

Institutional theory

The institutional contexts in which disruptive technologies evolve differ

markedly in various ways

Formal and ‘informal’ rules. Cognitive, Normative, Regulative.

degree of public vs private ownership, degree of market intervention,

independence of regulators, which can have profound influence on the

direction a particular energy trajectory takes.

Divergence in institutional outcomes is less explored in sustainability

transitions (Lockwood et al 2016), in terms of the relationship between what

institutional characteristics generate differing approaches to energy policy

between national contexts.

Institutional theory & industrial policy

Industrial policy

The Industrial policies of the three case study countries differ considerably, yet

industrial policy has not been a focal point of enquiry for sustainability

transitions.

Pegels et al (2014) define ‘green industrial policy’ as “government intervention

o hasten the restructuring of the economy towards environmental

sustainability”.

Examples: 1) subsidies in their many forms—from production subsidy to lower

interest rates; protection from imports; (2) direct public participation; (3) public

procurement rules (e.g., “domestic sourcing” requirements); (4) targeted public

investments, for example in infrastructure; and (5) cluster policies and other

forms of innovation policies

Institutional theory & industrial policy

• 2020 goal: 50% electricity

production by wind

• 2035 goal: CO2 neutrality of

electricity and heat

• 2050 goal: CO2 neutrality of

the whole energy system

Danish Power Mix (2015) and present goals

The Danish Energy Disruption Map

Disruptive technological transformations:

• Energy Saving Regulations

• District Heating by CHP

• Wind technologies

Historical Phases

1. Thriving for Energy Security (1970s)

2. Facing out Nuclear (1980s)

3. Off-shore Wind (1990s)

4. COP15 and Climate policies (2000s)

5. Electricity prices and fluctuating production (Today)

The Danish Green Energy Disruption

Institutional Context

• 1970 oil crises and embargo by Saudi

Arabia

• Users and municipally owned companies

The First National Energy Plan (1976)

• Reducing oil dependency to improve

supply security (coal and nuclear)

• Supporting domestic energy sources

• Promote energy savings (building

regulations, cogeneration)

• Establish a national heat plan by district

Institutional dynamics

• Emerging Wind entrepreneurship

• Informed and informative Anti-nuclear

movement

• The Alternative Energy Plan (NGOs, civil

society, scientists)

• Gas in the North Sea (DONG legacy)

• Oil power plants translated into coal

Industrial policies

• Energy saving interventions created a

platform for R&D on energy efficiency

technologies (windows, isolating material,

pumps etc.)

• Large investments on district heating through

co-generation

• Raising taxes on fossil fuels

Phase 1 - Thriving for Energy Security


• Regionalization of energy planning for

district heating development

• Pro-active anti-nuclear movement

supporting wind and renewables

• Danish Energy Association opposing

wind and supporting nuclear

Policy context

• 1985 Energy Act:

• Nuclear Energy production declared illegal!

• Agreement with el utilities to build 100 MW of wind power energy


• Emergence of local wind

entrepreneurship

• Local owners investments on wind

Industrial policies

• Energy Utilities forced to invest on wind

• Subsidies for CHP, wind, solar

• Stricter regulations on building,

industries and on the use of fossil fuels

• Active engagement of government for

greening the Danish industry

Phase 2 - Phasing out Nuclear


• Increasingly decentralized power

infrastructure

• Municipalities became central actors

• Green industry: source of export income

and job creation

• Energy and Industrial associations to

become increasingly supporting

Policy context

• (1993-2001) – Iconic “Super Minister” of

Environment & Energy (Svend Auken)

• 1998 – EU directives for the liberalization

of energy sector

• 1997 – Kyoto agreement

• Off-shore wind as the way forward: “a

game for the big guys”


• DONG acquired two large utility companies

• Separation of distribution and production

• Proactive and flexible national TSO

(Energinet) building interconnections with

neighboring countries

Industrial policies

• 1998 - Introduction of the PSO (Public

Service Obligation) on electricity prices

• Wind framed as a valuable and strategic

industrial cluster: R&D investments

• Re-dimensioned subsidies for on-shore

wind and solar/ Off-shore wind largely

subsidized

• Vattenfall invited to acquire Danish energy

utilities to avoid DONG monopoly

Phase 3 – Off-shore Wind


• 2009 – DONG stopped constructions of coal

power plants to invest heavily on off-shore

wind – the 85/15 reverse goal

• Vattenfall decided to sell all the fossil fuel

based production in Denmark to invest only

on wind

• Off-shore wind farms project bid for 1/3 of

the traditional price

• Increasing resistance on on-shore wind

Policy context

• 2012 Energy Act:

• 2020 goal: 50% electricity production by wind

• 2035 goal: CO2 neutrality of electricity and heat

• 2050 goal: CO2 neutrality of the whole energy system


• Coal based power plants sold to local

utilities and partly translated into biomass

or gas plants

• Municipalities setting ambitious goals for

CO2 neutrality and freedom from fossil

fuels

Industrial policies

• Wind, Biomass and Biogas as picked

winners

• Coal employees were transitioned to new

roles - the DONG case: 1/3)staying;

1/3)transferred to off-shore wind; 1/3)sold

to companies operating coal power plants

outside Denmark

• On-shore wind farms developers to offer

20% to locals inhabitants

Phase 4 – COP15 and climate policies


Horns

Rev III

400 MW Kriegers

Flak

600 MW


• Decreasing electricity prices

• Fluctuating energy production

• Increased wind power in neighboring

countries (Germany and Sweden)

• Increasing resistance on on-shore wind

• 35% of thermal plants stopped operating

• Municipalities co-creating local strategies

with citizens and local businesses

• General agreement on the Green transition

• Over-capacitated waste incineration plants

Policy context

• Untaxed Biomass

• High electricity taxes

Debated Adaptive Measures

Institutions

• Development of storage facilities (heat

and/or batteries)

• Increasing system flexibility by

interconnections with UK and other

countries

• Facilitating smart energy consumption

• Developing a smart energy system

Policy

• Taxation on Biomass

• Facilitating electrification of heat and

transport

Phase 5- Electricity prices and fluctuating production

• Entrepreneurial associative culture supporting the green

transformation (wind and energy efficiency)

• Empowered local democratic authorities

• Locally owned and non-for-profit heat and power utilities

• District heating by CHP

• Flexible and proactive TSO

• Nord Pool

Key institutional factors

• Energy saving regulations and R&D benefitting green

companies

• Public Service Obligation (PSO) to be reinvested in R&D for

renewables and TSO flexibility

• High taxation on fossil fuels

• Diversified and Dynamic subsidies for wind and other RE

• Separation of energy distribution and production

• Involvement of workers’ unions

Key supporting industrial policies

• A propositive, informed and informative anti-nuclear

movement

• A vision for a fossil-fuels/nuclear free energy future

• Local ownership

• Educational and R&D programs

• Empowered public institutions at different governance level

• Involvement of workers’ unions

• A flexible and proactive TSO

What made the Danish energy disruption?

S C I E N C E P O L I C Y R E S E A R C H U N I TThank you for listening!

Any questions?

The Danish District Heating Disruption

Danish Energy Disruption Track Record

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