Sustainability Innovations in the Electricity Sector

The German electricity market has undergone a large restructuring since the beginning of the 1990s. While the number of transmission network operators and regional operators decreased drastically, the number of local utilities has stayed rather stable. New actors entered the market in generation, services and distribution (e.g. Yellow Strom, “e wie einfach” (E.ON), independent power producers, energy counsels). Increasingly, local utilities today engage in joint companies and horizontal collaboration to arrange for knowledge and technology transfer in electricity generation, in joint portfolio management and energy trade, and in joint companies for grid management (ATKearny 2007b; VDEW 2007; BDEW 2009; ZFK 1/2011, 10th of January). The engagement of local utilities may help to counterbalance the dominance of the market by the oligopolies of the four large national suppliers. Building on their close relation with customers, established knowledge in Combined Heat and Power Generation (CHP), they might enter into new business fields such as service innovations and electricity generation. They might even have the potential to trigger a change of the sector towards distributed generation of electricity and climate friendly technologies (c.f. a recent overview Bontrup and Marquardt 2010: pp. 84–92 and Chaps. 4 and 5; and Leprich 2005).

This article focuses on the innovation potential of energy efficiency services which emerge from the close relationship between municipal utilities and customers. With the liberalisation of the German energy market in 1998, the municipal utilities faced for the first time the challenge of bonding local business customers in an enduring relationship. At the same time and parallel to a discussion about the rise of energy prices and the ecologic consequences of energy generation, the public placed pressure on the utilities to decrease the use of fossil fuels in energy generation. Energy efficiency services such as contracting have a high potential to serve both goals and to ensure the market position of municipal utilities in the German energy market. Municipal utilities may use the opportunity to achieve these goals via the readjustment of their sales activities and the implementation of innovative energy services. Many customers, especially in the business sector, have at the same time to search for ways to reduce their overhead. Especially those customers with a need for electricity and heat or steam have a high potential to intensify the relationship with their local utility in order to build up energy-efficient supply solutions.

Earlier versions of this paper were presented at the DIME Workshop “The Changing Governance of Network Industries”, Naples, 29–30 April 2010, at the 1st DIME Scientific Conference “Knowledge in space and time: economic and policy implications of the knowledge-based economy” in Strasbourg, 7–9 April 2008 and at the 9th IAEE European Energy Conference “Energy Markets and Sustainability in a Larger Europe” in Florence, 10–13 June 2007.

This paper explores the determinants and effects of the shareholding structure in the German electricity sector. The rationale behind it is the role of shareholdings for the increase or blocking of competition in the energy market (Sects. 2 and 3) and their relation to formal interlocking within the municipal sector at a horizontal level. As Bontrup and Marquardt (2010: pp. 92–93, 353) state, it is essential for the creation of a competitive energy market to strengthen alliances of smaller energy generating, mostly municipal utilities, in order to install contestable markets in the up- and downstream business field (also c.f. Frenzel 2007 and Bundeskartellamt 2011a: p. 21, 2011b: pp. 288–291). Contrary to the assessment by the Advisory Antitrust Board (c.f. Monopolkommission 2009: p. 17, art. 67) we hold that alliances and joint companies within the municipal sector such as the acquisition of the Thüga and the STEAG by consortia of local utilities, as well as joint companies in electricity generation such as 8KU, Südweststrom and Trianel (c.f. Bontrup and Marquardt 2010: pp. 84–92 and Sect. 4) will be essential to implement a competitive energy market.

In January 2005, the EU wide emission trading scheme (EU ETS) for large stationary emitters of CO₂ started in its then 25 Member States. The general objective of this novel economic instrument is to help the EU cost-efficiently achieve its Kyoto commitment of reducing its greenhouse gas emissions (GHG) by −8% by 2008–2012 (compared to 1990) and future – possibly more stringent – GHG reduction goals. With a view to the scale of long-term emission reduction requirements, climate protection innovations will have to play a major role. It is therefore of utmost importance to understand how the EU ETS influences activities in these technologies.

The European Emissions Trading Scheme (EU ETS) is a central instrument of European climate policy and the first large-scale multi-national greenhouse gas trading programme in the world. It was referred to as the “grand new policy experiment” (Kruger and Pizer 2004). One of the central promises of emissions trading is to provide a price signal on the basis of which companies can calculate whether any shortage of emission allowances should be met with buying more allowances in the trading scheme or with reducing CO₂ emissions. From these micro-rational calculations the most efficient CO₂ abatement at the macro-level will ideally emerge, as emissions will be reduced where the costs for reducing them is lowest – “an epoch-making means of cost-effective control which can solve future global environmental problems” (Svendsen 1999: 232). Emissions trading thus has a potential to trigger sustainable innovations in the sense that companies face incentives to improve their CO₂ performance (Stankeviciute et al. 2008). Still, the EU ETS has been criticised for many short-comings, among others for not providing triggers of innovation decisions in companies due to weak price signals. In a recent study on German companies in the CO₂ market the authors point out that most of the CO₂ reduction measures in Phase I of the EU ETS were only an unintended effect of emissions trading (Detken et al. 2009: 6–7). However, while the price of CO₂ allowances was high in the first year of the EU ETS, some electricity providers mentioned having an incentive to supply electricity from gas-fired plants rather than from more carbon-intensive coal-fired plants (MacKenzie 2009: 169).

Microgeneration, the production of electricity at the level of individual buildings or small local communities, has recently enjoyed increasing attention from politicians and energy analysts. A more decentralized or distributed electricity generation system could contribute to a transition towards a more sustainable energy system. Compared to the traditional electricity system based on fossil fuels and nuclear energy, microgeneration can in many circumstances reduce carbon dioxide (CO₂) emissions when it replaces fossil fuels by renewable fuels, and also by increasing total efficiency through the combined generation of heat and power in small cogeneration units. In addition, generation of power close to the point of use could reduce power transport over long distances and thereby increase the overall efficiency of the electricity system and reliability of power supply. Finally, microgeneration can increase consumers’ choice about their energy provision and potentially improve overall competition (Pehnt et al. 2006).

This paper attempts to explain the broad policy context that has conditioned the rather limited extent of growth in renewable energy and CHP in the UK over the last 20 years. While the paper in this volume by Praetorius, Watson and Sauter concentrates on microgeneration, this paper looks at larger-scale versions of renewables and CHP.

The implementation of new technological fields is a complex, multi-faceted process. At the outset, it is highly uncertain whether a new technology will succeed, how and where it will be applied, which kind of actors will become involved or how business models will look like. These issues, among others, depend on how an emerging technological field becomes connected with organizations as well as institutional structures in established sectors. Technology development will be shaped by institutional structures that prevail in the corresponding sector. Furthermore, actors from this sector are likely to play a particular role in the innovation process. The development path of a novel technology, in other words, may strongly depend on how the technology links up (or not) with existing sectors. In the study of emerging technological fields, a systematic analysis of context structures should therefore be a crucial element. With this article, we will illustrate how such a context analysis can look like and we will empirically demonstrate how developments in adjacent fields can influence an emerging technology. For this kind of analysis, a conceptual basis is needed that accounts for the complexity and non-linear nature of the underlying processes and the possibly large variety of different context developments. Innovation system approaches, and the technological innovation systems (TIS) perspective in particular, have lately received increasing attention for the study of emerging technologies (e.g. Bergek and Jacobsson 2003; Bergek et al. 2008b; Carlsson et al. 2002; Negro et al. 2008; Jacobsson 2008).

Innovation is increasingly being considered crucial to deal effectively with the negative side effects associated with economic growth. Influencing the direction of innovation towards more sustainable paths is high on many political agendas. Issues like global warming, the security of energy supply, local air pollution, and the negative social effects of economic growth have strongly contributed to these insights.