Handling financial resource mobilisation in technological innovation systems - The case of chinese wind power

Highlights

• Chinese wind power has a track record of rapid and large-scale deployment.

• However, around 2012 the Chinese wind power industry faced a slowdown.

• The article analyse how system dynamics affect mobilisation of financial resources.

• Innovation system external trends also affect mobilisation of financial resources.

Abstract

To mitigate climate change, a rapid and large-scale expansion of sustainable innovations such as renewable energy technologies is crucial. China's track record of wind power development shows both speed and scale that can provide valuable knowledge of how to stimulate and maintain transformation of energy systems. The growth was made possible partly by ample access to financial capital. However, the rapid growth also led to growing pains and made the industry face increasing financial constraints. While these constraints partly relate to structures and trends that are external to the wind power innovation system, they were also a consequence of the particular path taken in Chinese wind power development. The case demonstrates that if a full-fledged industry is to be developed and sustained, a balanced growth is required and all innovation system functions need due attention, sooner or later. Conceptually, the article contributes by further exploring how mobilisation of financial resources affect and is affected by overall system dynamics.

Introduction

To curb climate change a radical transformation of energy systems is required within a few decades, involving a rapid and large-scale growth of industries based on sustainable innovations (IPCC, 2014). The development of wind power in China is an exceptional example of a fast and large-scale development of a novel industry, which can provide vital knowledge of how to stimulate and maintain transformation of energy systems.

The development of wind power in China has taken place in an environment of extraordinary economic expansion as the gross domestic product has increased by about 10% per year for three decades in a row. Only Taiwan and South Korea have previously shown similar growth rates (Eklund, 2012).¹ In parallel, annual primary energy use increased from about 2000 TWh in 1970 to more than 30 000 TWh in 2012. Coal dominates energy supply, covering almost 70% (BP, 2013).² However in the last decade, China has also shown an impressive development of renewable energy. Investment in these technologies increased from 32 billion CNY in 2005 to 410 billion CNY in 2012 and is taking the lead globally (PEW, 2013).³

Wind power production in China increased from negligible levels in the beginning of the 1990s to 100 TWh in 2012, corresponding to almost 20% of the global wind electricity output (BP, 2013). Supportive government policies and the opportunity to transfer technology from abroad are often pointed to as reasons for the success of wind power development in China (see, for example, Liu and Kokko, 2010, Kang et al., 2012, Wang et al., 2012, Lewis, 2013 and Zhang et al. (2013)). However, while still generating only about 1% of electricity supply (BP, 2013), the pace of development showed signs of slowdown around 2010–2012. One reason for this slowdown was financial constraints experienced by turbine manufacturers and utilities that develop wind power projects (Qiao, 2012, GWEC, 2013, Ming et al., 2014).⁴

The aim of this article is to describe the dynamics of the Chinese wind power industry focusing particularly on financial resource mobilisation and the reasons behind the financial constraints turbine manufacturers and utilities met around 2012. The technological innovation systems (TIS) framework is used as theoretical frame. Despite its importance for industrial growth processes, research on resource mobilisation within the TIS framework is still limited (Farla et al., 2012, Karltorp, 2016, Musiolik et al., 2012, Polzin et al., 2016, Surana and Anadon, 2015). Thereby, the article makes a contribution to the literature by discussing the evolution of an innovation system paying particular attention to the role of the resource mobilisation function.