How do LCD innovation differ: specificities of low carbon technologies and energy systems

1. How do LCD innovation differ: specificities of low carbon technologies and energy systems • Globelics Seminar: Learning, Innovation and Low Carbon Development, Copenhagen, April 4-5, 2013 Rainer Walz Fraunhofer Institute for System and Innovation Research ISI Karlsruhe, Germany

2. Content • Techno-economic specificities of energy and low carbon technologies • forms of co-evolution • high importance of regulation • structure of actors and ownership, and political economy • The “energy efficiency paradox” and low speed of adapting routines

3. Low carbontechnologies • low carbon energy supply • renewable energy • carbon capture and storage (CCS) • energy efficiency • buildings and appliances • cross cutting and process specific industrial technologies • Transportation and mobility • low carbon vehicles and fuels • modal shift towards rail and ships • material efficiency • recycling • material efficient products and processes energysystems

4. Techno-economic characteristics • high(er) capital intensity • energy supply and related infrastructure • energy efficient technologies compared to low efficient technologies • high asset durability • energy supply and related infrastructure • buildings, some industrial technologies • Consequences • high path dependency, because of limited opportunity for re-investment • capital availability a critical factor specificinvestment power stations: 1000 € /kWforcoal power plant 3000 €/kW wind turbine forcomparison: installedcapacity Germany =170 GW, China =1000 GW assetdurabilitycoalfired power stations: 40-50 a

5. beginning: many different concepts, until dominant design emerges consolidation, economies of scale, incremental innovations co-evolution: institutions are adapted, path dependency increases lower innovation dynamics, competition with new technological paradigm technological trajectory this kind of co-evolution not specific for LCD

6. low carbon innovation specific co-evolution between ecological system and technological system changing norms and values on landscape level interaction with technologies (e.g. emissions, environmental effects) technological co-evolution due to systemness of electricity supply: niche and regime must co-evolve niche requires electricity grid, which has to be adapted meeting demand requires mixture of existing capacity and growing niche of renewables systemness very high for fluctuating renewable supply Co-evolution in a multi-level perspective

7. Triple Regulatory Challenge • 1st regulatory challenge (not LCD specific): government policies with regard to R&D • 2nd regulatory challenge: dealing with environmental externality • rationale for LCD are lower external costs • without environmental policy only limited demand • specificity: speed and direction of innovation depends on governmental policy • 3rd regulatory challenge • grid based infrastructure forms monopolistic bottleneck • access and adaptation of grid key for renewables • regulation of public utilities key for renewables and energy efficiency (pricing, smart grids) • different regulatory arenas must be integrated to enhance innovation

8. Structureofactorsandpoliticaleconomy • Public utilities • regulated • in some countries publicly owned => impact on innovation behaviour? • other fossil fuel suppliers • large companies, some multinationals • some publicly owned • companies active in low carbon innovation • first movers very often newcomers, SME • followers sometimes spin-offs from larger companies • importance of NGOs, community groups for LCD • political economy of global warming: intertemporal and global externality! powerful actors, verywell integratedinto power structure actorslessintegratedintoestablished power structure

9. Areas most affected by climate change Different constellationsofconflict: Reduction of agriculturaloutput Main areaseffected degradation of waterresources increase in flooding migration Page 9

10. Innovation system of low carbon technologies

11. Energy Efficiency Paradox • high path dependency and lock in into fossil fuel supply good explanation for problems for renewables • energy efficiency • can be better adapted to existing system, • is, by and large, even more economical than some forms of renewables, • but seems to be much less dynamic than renewables • explanation based on perception of incentives • information asymmetries, energy not visible part of product • more emphasis on purchase price than on total cost of ownership • explanations with slow changing routines • routines which are not tested every day are slower to be changed • routines which are not part of key business are slower to be changed • uncertainty reduces speed of change in routines • energy issues are not part of key business, have to be decided on very often on a irregular basis, and are shaped by historic experience of ups and downs of prices

12. Summaryandconclusions • energy is a basic need, huge pressure to fulfill demand • techno-economic specificities and co-evolution support high path dependency => is carbon lock in less strong in the South? Opportunity for leapfrogging? • regulation a key factor • integration of regulatory arenas, long-term policy commitment • involvement of many actors • intertemporal and global externality problem => new mission oriented approach beyond traditional “man to the moon” projects => need for new international cooperation schemes • political economy skewed in favor of fossil fuel incumbents => need that winners link up with NGOs • how does specific structure of actors affect innovation dynamics=> we need innovation studies of public dominated sectors • energy efficiency not main business of enterprises, or key product features=> need to study innovation process of such products • What are the economic opportunities for different countries=> connect to research on first mover early follower research

13. Thank you very much for your attention Address further questions to: Rainer Walz rainer.walz@isi.fraunhofer.de

14. Negative power price spikes • Intertemporal marginal generating costs • increasing or decreasing capacity from existing power plant increases costs • inflexible demand: opportunity costs of taking off line (start-up costs, loss of revenue in subsequent time periods) • negative electricity prices can be profitable for inflexible supply • high supply from renewables plus low demand make negative power spikes more likely 14

15. Technological advantage traditional supply

16. supply curve for energy efficiency

17. spread in industrial energy intensity

18. specific energy consumption for steel production

19. Cost share of industrial energy consum-ption in value added of manufacturing

20. Technology characteristic eco-innovations • Eco-innova-tions are medium-high tech tech-nologies • Dynamics differs between fields • above average patent dyna-mics for some fields