Creating Markets for Energy Innovations Case Studies on Policy Design and Impact Dissertation Synopsis

The urgency of the world’s environmental challenges has led governments around the globe to rethink the role of government in the innovation process. In addition to direct public spending on energy technology research, development and demonstration, many countries now subsidize the large-scale deployment of innovative energy technologies through so-called ‘deployment policies’. Examples include feed-in tariffs for renewable electricity, mandates for the blending of biofuels and investment subsidies for electric vehicles. Deployment policies can be expensive ways to mitigate the current environmental footprint of the energy system, but proponents justify them as ‘learning investments’ which will pay off in the long term as they stimulate innovation, bring down cost and enhance the performance of clean energy technologies for future generations. The debate on the validity of this claim is controversial and politicized, in part because the discussion often lumps together very different technologies and paints a simplified picture of the complex process of system transformation. This thesis presents six essays to advance this debate, three on the nature of the innovation process in different energy technologies and three on the design and governance of deployment policy instruments. Collectively, these essays make three distinct contributions. First, this thesis introduces a novel methodology to study the evolution of technology. A combination of patent content analysis and citation-network analysis, the method developed in this thesis allows to quantitatively study the focus of research activity in a sector over time and across geographies. In the future, this methodology will allow to study a number of under-researched phenomena in the evolution of technology, including (i) the relationship between the focus of research activity and competitive advantage; (ii) the division of labor in research and development between countries and regions in global value chains; (iii) the impact of public policy on shifts in the focus of research activities. Second, this thesis introduces the explicit consideration of differences in the innovation process between energy technologies into the analysis of deployment policies. It shows that the model of the technology life-cycle that is implicitly assumed in much of the current debate on deployment policies applies to mass-produced energy technologies, but does not adequately describe innovation in complex infrastructure technologies in the energy sector. This is important because different models of the lifecycle imply different roles for deployment – and thus deployment policies – in the evolution of technology. It means that the conceptual underpinnings of the debate on deployment policies do not apply to a significant share of the energy technology space, and calls for the explicit consideration of technological characteristics in decisions on deployment policy support for energy technologies, in particular the size, duration and geographical scope of support. It also allows us to reconcile conflicting evidence on the impact of deployment policies in the literature. These findings are based on three case studies in the first three essays of the thesis: (1) an analysis of the focus of inventive activity over time in wind turbine technology in 1973-2009, using a novel methodology that integrates expert assessment of patent data with patent-citation network analysis; (2) a comparison of technology life-cycles in wind turbine technology and solar PV technology in 1970-2009, using the same methodology; and (3) a techno-economic model of the impact of local and global learning on the cost of renewable energy deployment in Thailand in 2013-2021. Third, this thesis’ results emphasize the need to consider the complex political dynamics of sociotechnical transformations in the debate on energy innovation policies in general and deployment policies in particular. In most technology policy analyses, policy decisions are seen as essentially exogenous to the technological change the intervention aims to induce. In practice, this means that the possibility of changes to public policy in response to induced technological change is not part of the analysis, nor is the ability of affected actors to foresee or respond to such changes. Essay 4 demonstrates that this may not adequately reflect political reality. The essay presents a qualitative analysis of the evolution of Germany’s public policy support for solar power in 2000-2012. The essay demonstrates that deployment policy instruments can become at least in part endogenous to the transformation they were designed to induce, because they trigger unforeseen changes in the sociotechnical system, and develops a model to account for these dynamics. The findings have two important implications. First, because investors in innovative energy technologies are aware of the possibility of policy changes, the effect of deployment policies on innovation will depend, at least in part, on the political system and its ability to learn and respond. Second, the ability of a policy to induce desired technological outcomes will depend as much on the design of the policy itself as on the state of the socio-technical system. Policy designs and lessons learned can therefore not always be transferred between jurisdictions – e.g., the fact that Germany may no longer need costly feed-in tariffs to attract investment in photovoltaics does not mean this policy is not the most cost-efficient option to attract investment in other jurisdictions. The last two essays explore these two implications in more detail. Essay 5 reviews and analyzes the proposals for internationally supported feed-in tariffs for renewable energy in developing countries, and discusses how to minimize the risk premium demanded by investors due to the policy risk induced by the prospect of unforeseen cost developments. Essay 6 explores the implications of the German experience with deployment policies for solar power in the context of the newly introduced feed-in tariff for renewable electricity in Japan.