Innovation Dynamics in the European and US American Electricity Supply Industry

Jens Weinmann Christoph Burger 10 September 2012 12th IAEE Conference, Venice

9/18/2012 Innovation dynamics in the European and US American electricity supply industry 1

Innovation dynamics in the European and US American electricity supply industry: Agenda

Research on innovation and R&D in the electricity supply industry Industrial and public R&D expenditures after liberalization in the USA and European countries Institutional setting in the USA: the Eletric Power Research Insitute (EPRI) Analysis of our sample of European and US American utilities

► Input variable: R&D expenditures ► Output variable 1: Environmental sustainability ► Output variable 2: Financial performance ► Output variable 3: Employee productivity Discussion of results

Research on innovation and R&D in the electricity supply industry: A need to reorient post-liberalization technology policy?

JAMASB, T. & POLLITT, M. (2008), Liberalisation and R&D in network industries: The case of the electricity industry. Research Policy − explore the likely causes of the decline in R&D spending in the electricity sector − R&D productivity and innovative outputs in utilities and equipment suppliers appear to have improved

STERLACCHINI, A. (2010), Energy R&D in private and state-owned utilities: an analysis of the major world electric companies − specific policy interventions are needed, especially to guarantee an adequate amount of long-term R&D

performed by private companies

JAMASB, T. & POLLITT, M. G. (2011), Electricity sector liberalisation and innovation: An analysis of the UK's patenting activities. Research Policy − patents in non-nuclear and renewable technologies have increased in the post-liberalization period − a lasting decline in R&D will in the longer run reduce technological progress and innovation in the sector

BURGER, C. & WEINMANN, J. (2012), ESMT Innovation Index 2010 – Electricity Supply Industry − Substantial increase in innovation activities among major European utilities since 2007

9/18/2012 2 Innovation dynamics in the European and US American electricity supply industry

Industrial R&D expenditures in Europe and the USA experienced a significant decline after liberalization

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Industrial R&D expenditures: Electricity, gas and water supply

Source: OECD ANBERD (2012) Innovation dynamics in the European and US American electricity supply industry

In the USA, industrial research activities are bundled in the Electric Power Research Institute, while Europe does not have a comparable institution

Chauncey Starr, 1st president of EPRI

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EPRI’s members represent more than 90% of the electricity generated and delivered in the USA, participation of non-US utilities and companies extends to 40 countries

Research budget is around US-$ 300m per year

Source: Starr (1973)

Innovation dynamics in the European and US American electricity supply industry

Our dataset covers 15 European and 17 US American electricity generating companies

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Europe USA Annual generation in TWh (2010) Annual generation in TWh (2010)

μEurope=165 TWh/a μUSA=109 TWh/a

Innovation dynamics in the European and US American electricity supply industry

European electricity companies invest significantly more in R&D than their US counterparts

9/18/2012 6 Innovation dynamics in the European and US American electricity supply industry

European companies US American companies

Notes: • x-values on a logarithmic scale • US estimates based on FERC Form 1 reports μEurope=€105m μUSA=€8m

Source: Own investigations (2012)

Climate performance and share of new renewables as indicators of environmental innovation

9/18/2012 7 Innovation dynamics in the European and US American electricity supply industry

European companies US American companies

Note: x-values on a logarithmic scale

μEurope=5,9%

μUSA=1,6%

≈

Source: Own investigations (2012)

Process innovation (I): In financial productivity European incumbents outperform US utilities

9/18/2012 8 Innovation dynamics in the European and US American electricity supply industry

European companies US American companies

Note: x-values on a logarithmic scale

Source: Own investigations (2012)

Process innovation (II): In employee productivity, US utilities have a significant lead

9/18/2012 9 Innovation dynamics in the European and US American electricity supply industry

European companies US American companies

Note: x-values on a logarithmic scale μEurope=165 TWh μUSA=108 TWh

Source: Own investigations (2012)

Findings and open questions

European utilities spend significantly more money on R&D than their US American counterparts

Mixed results in terms of output:

Given the substantially lower aggregate research expenses of US investor-owned utilities, they perform astonishingly well within the analyzed set of indicators Role of public R&D expenditures?

Unclear whether the EPRI’s central budget allocation is and will be efficient, esp. when decentralized research gains importance (at the expense of e.g. nuclear)

9/18/2012 10 Innovation dynamics in the European and US American electricity supply industry

• Environmental performance • Employee productivity

Europe

• Financial performance Europe USA

– Stricter regulation? – Renewables in-house?

– Natural gas business? – Consumer stickiness?

– Less SOE-legacy? – Less diversified? – Optimal size?

Thank you for your attention!

Industrial R&D expenditures in Europe and the USA are dwarfed by public money spent on energy innovation

9/18/2012 esmt-Vorlage 12

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*including ENERGY EFFICIENCY, FOSSIL FUELS, RENEWABLE ENERGY SOURCES, NUCLEAR, HYDROGEN AND FUEL CELLS, OTHER POWER AND STORAGE TECHNOLOGIES, and OTHER CROSS-CUTTING TECHS/RESEARCH

Industrial R&D expenditures: Electricity, gas and water supply

Public R&D expenditures: Energy*