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ECEEE 2003 SUMMER STUDY – TIME TO TURN DOWN ENERGY DEMAND
631
Creating markets for efficient technologies
by establishment of strategic
niche markets
Clas-Otto Wene
OECD/IEA, Paris, France
clas-otto.wene@iea.org
Hans Nilsson
Grubbensringen 11
112 69 Stockholm, Sweden
nosslinh@telia.com
Keywords
technology deployment, strategic niche markets, learning
process, Policy Triangulation, market development
Abstract
Creation of markets for more efficient technologies requires
careful targeting of actors that have an interest in driving the
process further. Such will both reduce the resources needed
and make use of the actors self-interest for development and
thus uphold the learning process. This is done by identifica-
tion of strategic niche markets (SNM) where those suppliers
and users, that have the biggest interest and benefit of the
change will act. Both the identification and the develop-
ment is a dynamic process that is better designed and oper-
ated by use of a triangulation method introduced by the IEA
in its recent work.
Introduction
In spite of all good work and all attempts to harvest the huge
technical and economic potential for energy efficiency im-
provements globally the energy use is still rising and the po-
tential is still in the same order as decades ago. Does this
signify a failure or a normal state of development?
In policy making and policy design the ruling concept is
still to attack Barriers, though Market Transformation and
R&D policies are sometimes mentioned and tested. There
is evidence that a more fruitful concept is to combine these
three views and develop more complex and enduring De-
ployment Programmes. One finding of this work is that en-
ergy-efficiency programs are highly contextual and cannot
easily be transferred among countries and/or sectors; none-
theless, there are common success factors, and measures
that have these characteristics can be repeated or trans-
ferred. Truly successful programs have been developed over
a long period, combine several policy issues (i.e. are coher-
ent), use feedback mechanisms to reflect on their results
(i.e. capture the learning effects), and are demand driven
which releases the force of aggregated purchasing volumes.
This paper will make use of the IEA developed Policy
Triangulation and apply it especially on Energy Efficiency
cases to investigate how policy making and design can be
improved and have bigger impact in the future. The paper
will make use of the material gathered for the IEA but also
add more recent material and analysis made for Norwegian
cases.
A good intention is just not enough
Society has always a wish to cure the limitations of the mar-
ket. In the area of energy efficiency the awareness that the
sum of individual decisions are not always leading to the op-
timal energy system has led to several attempts to correct
the market misallocation.
1
In many cases society has been
prepared to either pay for, or reallocate, investments that
cover the difference between the individual willingness to
pay and the real cost. Thus there have been numerous pro-
grammes for resource acquisition fostered. The real cost of
1. The world misallocation is deliberately used since it is not a market failure in the strict sense of the word.
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the product is however not known outside the producer and
supplier. The level of compensation is thus not possible to
calculate. Even if the compensation method would have
been correct it would have been very costly for the society
to “buy” the resources needed and also easy to show that
this use of resources would create unfair distribution.
2
A second order of programmes have been created to foster
deployment of better technologies and seems mostly based
on the knowledge that there is a vast potential for cost effi-
cient improvements that is hampered by slow up-take on
the market. Thus if users could be better informed and act,
in accordance with his own best interest, optimality would
be achieved. The individual is however not acting from an
energy perspective alone. He could regard other aspects of
the product (positive and negative) or have high transaction-
costs. Thus he does not act as the “economic man” on ener-
gy. Both profitable investments opportunities and high sub-
sidy (compensations) are foregone.
This latter view has spurred many “Deployment Pro-
grammes” where focus has been more or less accentuated on
users perspective and on the perspective of those stakehold-
ers that influence the users in their choices.
The traditional view revisited
The traditional view of the policy makers is mostly concen-
trated on the characteristics of technologies themselves. We
will here take the perspective of how the proposed technol-
ogy look in the eyes of the stakeholders that are supposed to
move it further. Such a perspective does not have to mean
that the technology per se is new but is perceived to be so
from the stakeholder and especially so in relation to his al-
ternatives. The cases will be picked from a recent work at
the IEA and from a follow up of this made in Norway.
3
Only
those technologies that relate to energy efficiency and to re-
newable energy sources have been picked here.
Not (yet) competitive technologies
These are mostly such that cannot be argued to be profitable
for the user unless under very specific conditions or because
they have additional high values except those that show up
on the energy bill. The following three tables summarises
case studies in the Technology Deployment study made at
the IEA (OECD/IEA 2003 & Nilsson & Wene 2002) and
identifies the actors in the projects and their relationships.
4
These will be used to illustrate the Triangulation method
and the opportunities to identify strategic niche markets.
In this selection we find three cases related to solar and
PV-technologies (Solar optimised buildings (Germany),
The PV-covenant (Netherlands) and PV Power Generation
Systems (Japan)). In all of them the government have de-
clared special interest and specific goals to develop industri-
al know-how and capacity. Those goals are also very clearly
outlined and stated, thus indicating that there is a strong po-
litical will and willingness to stimulate the development.
The cases from Netherlands and Japan are explicitly driving
towards a reduction of costs and a broad involvement of
those stakeholders that could form a future business base.
The German case is more focused on the systems research
component and to get a feedback for learning among crucial
categories that have impact on design of systems.
There are two cases (HF-electronic ballasts (Sweden and
Sub-CFL (United States)) related to lighting where the ex-
plicit government participation was less distinct than with
the solar-cases but more driven by user-oriented interest
conveyed via government administrations or with these as
catalysts. Both have been successful in trigging business in-
terest from the demand side primarily as “carrots” by aggre-
gating demand for the supply side to satisfy.
The two heat-pump cases (from Norway and Sweden) are
very different. In the Norwegian case there was a strong gov-
ernment will to subsidise a market development that was
then countered by some strong market actors opposing the
change. The Swedish case is rather the reverse. The govern-
ment administration acted catalyst and brought market sup-
ply and demand side together for the solution. Again the
aggregation of demand was a carrot for the supply side to
make a step change in performance of their products both in
technical and economical terms.
These programmes show that there are some issues that
are not taken into consideration by the broad market espe-
cially with early introduction. General subsidising is hence
of little importance since the possible users and producers
are primarily acting from economic stimulation. The most
important thing seems to be targeting of pioneering stake-
holders, identification of them and of their reasons for act-
ing. Since so few are prepared to act at this stage the more
important it is to get a feedback of their experiences.
The specific problem with the requirement for cost-
efficiency is that it depends on the perspective, which could
be:
•
Static, and only regard present costs and prices.
•
Dynamic, and take into account the development of
technology that is inherent in the fact that it is produced
in larger volumes and subject to learning on the market.
These dynamics of learning reduce both prices and costs.
•
Holistic, and also take into account that a new (different)
product has different performance that should be calcu-
lated as well.
In far to many cases the policies stop with the static perspec-
tive on cost-efficiency and thus locks in the society in an old
technology paradigm.
2. The discussion about free riders as well as free drivers have been extensive.
3. ”Creating Markets for Energy Technologies”, OECD/IEA, Paris, 2003. and “Best Practices in Technology Deployment Policies”, Hans Nilsson and Clas-Otto Wene, IEA
Secretariat. Proceedings from ACEEE Energy Efficiency in Buildings Conference 2002.
4. The cases are numbered according to the sources in the OECD/IEA Publication and in the Norwegian background material.
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Case Actors and relations
9. Solar optimised buildings (Germany). Pilot
projects with a total primary energy demand for
heating, cooling and lighting below 100 kWh/(m
2
a) incl.
space heating demand of less than 40 kWh/(m
2
a).
Target will be achieved by integration of solar (passive
and active) approaches, advanced HVAC techniques
and innovative thermal insulation measures.
An experts group was set up to develop and design SolarBau’s basic
concept. The group consisted of representatives from:
y university research
y private research
y architects and engineers
y ministry and project management organisation
The focus on office buildings; implied strategies based on passive cooling
and advanced daylighting measures.
10. The PV-Covenant (Netherlands)
Aim: “To direct and guide the initial market introduction
of PV-systems in the built environment.” The target is
to realise 7,7 MWp of cumulative grid connected solar
PV in the built environment in the year 2000
.
The PV-Covenant was signed by 15 parties: ECN, R&S (later Shell Solar
Energy), Ministry of Economic Affairs, Energy Distribution Companies and
their branch organisation, project developers (building industry), and
Novem. In the course of 1998 and 1999, 13 more parties co-signed the
Covenant, (also municipalities).
12. Lighting (Sweden). HF electronic ballasts replace
the traditional mains-frequency iron-cored choke
ballasts in fluorescent lights. Fittings with HF ballasts
can result in savings of 20-25%, with a 20% longer life.
Savings of up to 70% can be expected if HF is
combined with other lighting improvements such as
new luminaire designs and control.
14 manufacturers had their products tested for compliance. The “Light
Corridors project” disseminated targeted informational material. Incentive
agreements where created in which property owners got a subsidy of
Euro 0.2 per kWh saved in the first year. To get this subsidy, the
programme requirements of 10 and 5 W/sqm installed had to be met.
72% continued to adhere to the programme requirements.
8. PV Power Generation Systems, Japan. Target is
to install PV capacity of 5 000 MW by 2010. The target
of the Deployment Program is the establishment of a
new PV market and demonstration of system
endurance.
The New Energy Foundation carries out subsidy programs for residences,
while NEDO conducts various model projects and field test programs for
industries and local governments. Solar cell manufacturers and housing
manufacturers have organized an Association for public relations and
dissemination in cooperation with the government.
17. Sub-CFL (U.S). Designed to speed the market
introduction of a new generation of smaller, brighter,
and less expensive compact fluorescent lamps (CFLs),
intending to overcome the barriers that CFLs often do
not fit into normal lighting fixtures.
The long-term goal was to expand the market for CFLs
by inducing manufacturers to develop and sell the new
CFLs.
The main actors involved in the implementation of this program were:
y Private multi-family housing owners and operators
y Multi-family housing trade associations
y Consortium for Energy Efficiency (CEE)
y Northwest Energy Efficiency Alliance (NEEA)
y Retailers
y CFL manufacturers
y Utilities
21. Energy PLUS (EC). A pan-European procurement
project for refrigerator-freezers (Austria, Finland,
France, Germany, Italy, the Netherlands, Norway,
Portugal Sweden, and the U.K)
Due to the important role of retailers the “buyer group” included retailers,
institutional buyers (such as housing companies and holiday resorts), and
supporters (such as national and regional energy agencies, and
environmental NGOs who in their daily work inform about and push for
energy efficient products).
13. Heat Pumps (Sweden). Target: An energy-efficient
heat-pump (COP > 3) with payback for installation < 7
years and for pump module < 3 y. The heating energy
savings from the heat pump > 8MWh/year. Other
requirements:
y Refrigerant free from CFC
y Simple monitoring, maintenance and service
y Low noise level
Technology procurement with the objective to encourage the
development of reliable, cheaper and improved heat pumps for detached
houses. The purchaser group consisted of a mixture of potential buyers,
which also included members from the other Nordic countries. In addition
to helping to draft the performance specification, the purchaser group
guaranteed purchase of at least 2 000 units of the winning model.
B. Heat Pump Technology Norway
In 92-93, there were substantial subsidies for heat
pump installations. In these two years, subsidies
exceeded 500 MNOK per year. In the years before and
after, subsides never exceeded 100 MNOK per year.
Some 20 000 Heat-pumps has been installed.
The R&D groups in Heat Pump technology have been able to make heat
pump technology as the central energy saving technology in Norwegian
policy documents and in public debate.
Other actors, especially from the strong utility sector have been negative.
Locally, HP have been dependent on “enthusiast” builders, often backed
by actors in the R&D groups. There are signs, however, that the use of
environmentally friendly heating/cooling solutions for office blocks is
picking up momentum.
The local “push” has not been helped by cost-benefit issues. Thus, any
device used in the end-user energy supply has to show positive cost-
benefit, without regard to advantages in terms of e.g. environment or
indoor climate.
Table 1: Cases that deals with not (yet) competitive technologies.
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Competitive, but less known/tested
technologies
These technologies could mostly be justified from a simple
calculation of economic yields when investment, energy
cost and operations/maintenance are summed together, and
if the investment is calculated on the true life time of the
product. They still are held back since in many of these cas-
es the user is either uninformed, risk averse or has not the
authority within the company to make far-reaching invest-
ments.
We find two cases (Biomass District Heating (Austria) and
Renewable Energy Deployment Initiative (Canada)) relat-
ed to more extensive use of renewable energy. The Austrian
bio-mass district heating have shown the importance of get-
ting coherence between sectors and sector policies, whereas
the Canadian only combines the energy and the climate per-
spective. Both of them seem however to have identified lo-
cal determined actors as the champions of change.
The other three cases are dealing with advocating top of
the line, and often new, technologies to very fragmented
markets. Two of them (Best Practice (UK) and Oslo Enök
(Norway)) are dealing with a broad range of technologies.
The organisation to get the impact is however segmented to
be able to targeted areas separately. The third (Heat Recov-
ery (Netherlands)) is working with one technology only and
is thus a bit easier to handle from an organisational point of
Case Actors and relations
11. Heat Recovery (Netherlands)
Mechanical Ventilation with Heat Recovery (MVHR)
will play a major role in energy-efficiency concepts for
houses, complying with the required Energy
Performance Coefficient.
In 1996 the Foundation for High efficiency ventilation was established,
with the Dutch Ventilation Industry to promote a good and healthy indoor
environment as well as energy efficiency by the use of balanced
ventilation with heat recovery. Beside six industrial parties also Novem,
the Installers Branch Organisation, Gasunie and the educational institute
for installers are members of the Foundation.
1. Biomass-District-Heating, Austria
Small scale district heating plants that use wood chips,
industrial wood waste or straw as fuel. About 2/3 of all
plants have a power of less than 1 500 kW.
Plants usually have between 500 and 4 000 inhabitants and are of
predominantly rural character.
Local promoters of the project both develop and operate the system in co-
operation with e.g. agricultural chamber, the state energy agency, the
consultant or a person in the state-government.
3. Renewable Energy Deployment Initiative (REDI),
Canada aimed at stimulating demand for reliable, cost-
effective renewable energy systems for space and
water heating and cooling by use of: i) solar ventilation
air heating, ii) solar hot water, iii) high-efficiency/low-
emissions biomass combustion, and iv) ground-source
heat pumps.
REDI focuses primarily on buildings in the industrial,
commercial and institutional sectors.
Participants include the renewable energy industry and their customers.
Customers include three distinct groups involved in the procurement
decision:
y engineers, architects and energy service companies (who specify or
recommend the type of systems to be used);
y building contractors and construction trades (who install the
systems); and,
y building managers and owners (who make the final procurement
decision).
The Strategy identified the supply industry – manufacturers, distributors
and installers – as the main stakeholder to deploy renewable energy
systems.
15. Best Practice (UK). The Programme is designed to
help organisations cut energy bills by 10-20%, by
providing the independent advice and assistance
needed to persuade them to use cost-effective
technologies and management techniques. Covers
management techniques, including training, as well as
technologies.
Sector approach, with sector managers responsible for particular areas,
such as chemicals, non-ferrous metals, housing and schools. On the
technology side, sector managers work with equipment manufacturers
and users to generate, collate and disseminate authoritative, information
to relevant parties.
D. Oslo ENÖK. A Programme to stop growth in the
city energy use was adopted by the municipality
government in Oslo 1982. A fund of approximately 10
M Euro per year was created (less than 0.1
Eurocents/kWh) and should grow to a revolving fund of
some 100 M Euro in ten years. This should fund
subsidies and loans for energy efficiency
improvements in all building categories in Oslo,
comprising:
y Training of maintenance staff
y Evaluations
y Education
y Campaigns
y R&D and pilot projects
Energy advisors make analysis and give advice to consumers. Contracted
and authorised consultants in the areas building, ventilation, electricity
etc.
Contractors where used in the same fashion but concern over free-
ridership and neutrality reduced the use of this service. The operational
responsibility was transferred from the city utility to the city 1996 when
deregulation took place. Experiences from the training of advisors were:
y Crosscutting experience was very low before the training
y Energy use was not an issue for building and electricity consultants
y Energy issues was more important for consultants in the area of
indoor climate
y Most active related to household were building consultants
y Consultants in the area of electricity and contractors were totally
inactive even after training
y To many it was important to be a certified energy efficiency advisor
y All consultants complained over low profit for work beyond what was
free for the user and paid by the fund
Table 2: Cases that deals with competitive, but less known/tested technologies.
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view. All of them seem to draw quite a bit on the effect that
clear signals from the society, and their participating institu-
tions, serves as a bugle call to act!
Typically branch-institutions chose to engage themselves.
The concepts are designed for a broad up-take and are most-
ly business oriented though seed-money is used from vari-
ous funds. Also in these cases however there is sometimes a
reluctance from stakeholders to make energy an issue in
their daily activities.
Competitive mass technologies
Common sense and knowledge would say that there is not
any need for support to something that is so clearly a good
(profitable) thing to do. Yet there are quite a few pro-
grammes designed to ensure that dissemination is not ham-
pered by a business-as-usual thinking.
Three of these cases (Motor challenge (U.S.), Industrial
assessment (U.S.) and Energy efficiency check (Norway))
are targeting the specific situation of individuals. The main
characteristic of the participating “customers” is that energy
is either not on their agenda or, if it is, they have difficulties
to deal with it. Such could depend on lack of knowledge as
well as on lack of time to deal with issues that are a bit far off
from their competence and capacity. All these cases are rath-
er traditional in that they are trying to make up for gaps in
the demand side reception either generally or of certain
technologies.
Thermoprofit (Austria) is a bit more exclusive and devel-
ops new partnerships to give credibility to the ESCO-busi-
ness locally. Though the project certainly is targeting
technologies related to buildings and their climate proper-
ties the object is to create a confidence for partners that can
provide the services and the result for inexperienced user.
The Danish labelling is unique in its approach to cover all
end-users with its instrument. In a way it is fair to say that it
is an efficiency check, just as the Norwegian case above, but
it is mandatory and do not expect to release immediate re-
sponse from the user. On the contrary one of the results is
that response come later but is almost certain. The explana-
tion is that when people have bought the house they lack re-
sources to also change the energy performance but that they
will do so later in conjunction with other maintenance of the
building.
In all these cases handling is more formalised or the for-
malisation is the trick.
Case Actors and relations
20. Motor Challenge (US). Careful matching of the
elements of a plant system – motors, controls,
couplings, and process machinery- to the work to be
performed yield more savings than upgrading the
individual components. Over 71 percent of total
potential savings came from systems-level measures
such as improving the configuration and control
schemes in pump, fan, and compressor systems.
Partnerships with key industrial trade associations; the American Water
Works Association, Compressed Air & Gas Institute, Electrical Apparatus
Service Association, Hydraulic Institute, Technical Association of the Pulp
& Paper Industries (TAPPI), Consortium for Energy Efficiency, and
several regional utility groups. These partnerships enabled the program
to develop a very broad reach to industry with a modest level of support.
2. Thermoprofit (Austria) is a “trade mark“ for total
service packages to reduce energy consumed. It
contains the key elements of Third Party Financing
and Energy Performance Contracting. It also includes
models in which the ESCO optimises energy use on
the basis of either an energy saving guarantee or a
performance-based fee.
The Graz Energy Agency is in charge of evaluation and of preparing the
certification of enterprises as Thermoprofit partners. For an enterprise to
be certified as a Thermoprofit partner it must fulfil certain conditions and
observe certain quality standards. Certified enterprises are entitled to use
the quality label.
6. Labelling (Denmark). Mandatory scheme for all
small buildings traded. The major target is to give
information to the buyers on the energy consumption
and their possibilities to save energy and water.
The seller of a house has to order and pay for the energy labelling. Low
rating of the building and if the energy plan includes many proposals can
reduce the price of the building.
The specific rules for the energy audit, the calculation and the proposals
etc. are given in the Energy Consultants Handbook. The quality of the
labelling is inspected in a special quality control system.
19. Industrial assessment (US). An information
dissemination program through energy audits carried
out by university students The Industrial Assessment
Centers program enables eligible small and
medium-sized manufacturers to have comprehensive
industrial assessments performed at no cost to the
manufacturer.
The key elements of the IAC program’s are:
1. well-trained participating universities;
2. mentor/protégé relationship among students;
3. small team size (8 - 10 students);
4. real world hands-on approach to teaching;
5. positive attitude of students to their industry hosts;
6. practical solutions with proven payback (nothing exotic) to real
problems.
E. Energy Efficiency Check (EEC) is targeted at
households in existing buildings. The programme is
aimed at giving the end user a more concrete relation
to his/her own use of energy compared to a norm. The
EEC also gives advice about areas for implementing
measures.
The EEC consists of a form with a number of simple questions about the
building in relation to energy use. The questionnaire is filled in by the
customer who then receives a letter where the specific building’s energy
consumption is compared to preferred numbers for how much energy a
household of this type should use. The letter also includes the estimated
energy saving potential of the building and a recommendation of specific
EE measures.
Table 3: Cases that deals with competitive mass technologies.
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The champions of market development
Ta r geting the audience for measures requires knowledge
about customer/user attitudes. It seems as if the classifica-
tion of the cases above according to their present standing
on the market corresponds somewhat to the way that the
diffusion process is described in literature and is summa-
rised in Table 4 below. The diffusion curve describes the
market reactions, the up-take, of innovative products and
services and especially enables a structured view on the in-
dividual attitudes and how those guide the response and the
need for marketing and development of product (Rogers
1995 and Moore 1991). When new technologies are first
brought to the market they are attractive primarily to enthu-
siasts. As they gradually gains ground it appeals also to other
sorts of people who may be more interested in the function
than in the technology per se. Marketing as well as deploy-
ment programmes must take this into account in order to
use resources correctly.
But this view on dissemination only relates to the mind-
set of the buyers and not the producers or for that matter
other actors involved in moving goods (creating value) in the
distribution. To find the champions we must position them
and understand their roles in niches on the market. Their is-
sues are:
1. Alternative technologies available (competing technolo-
gies),
2. Attitude to use new technologies (as described above),
3. Available resources to spend (and what could they
expect will happen after their spending).
Issue 1 has been dealt with in the presentation of cases
above and issue 2 indicated by reference to the diffusion
process. For issue 3 we will look on the way and effects of
market learning, which is best done by studying the learning
curve, see Figure 1.
The learning curve shows the rate of cost-reduction by
volume growth (Learning Rate) that is normally in the area
of 15-20% by each doubling of the accumulated volume of a
technology (OECD/IEA 2000).
5
This is a factor that has
been deliberately exploited in several of the cases such as
those that deals with large scale market introduction of Pho-
tovoltaic, pushing them towards affordability.
If we confront this “behaviour” of the challenging new
technology with that of the incumbent old one and further
look at the willingness to pay from different actors (depend-
ing on the alternatives they face) we will get an instrument
to describe niche markets more in detail. We will then find
that there are certain stages in the technology development
and diffusion there are different entities that will drive the
change. We want to know their features better to address
them for assistance in making energy efficiency a more wide
spread alternative. We need to know who are those that will
make the “investments in learning”.
When the technology is young (with low volume) it can
neither compete with the incumbent nor find any user
whose alternative is so bad that there is a willingness to pay
for it on rational grounds. The learning investments to drive
the process further will have to come from government re-
sources and to some extent from companies in their own re-
search. Later the challenger will be able to exploit the
existence of niche markets where customers for instance do
not have access to the incumbent technology and hence will
5. This curve is regressive in a linear scale but is often used in a double logarithmic where it looks linear.
Adopter type Characteristic attitude Role and size Technology
Appeal
Innovators,
enthusiasts
Venturesome; Enjoys the risk of being on the cutting edge;
Demands technology.
Not yet
competitive.
Early adopters,
visionaries
Respectable; Integrated in the main-stream of social
system; Project oriented; Risk takers; Willing to experiment;
Self-sufficient; Horizontally connected and acts as their
peers.
Drivers of the technology
market. Want more technology
and better performance.
(16%)
Competitive but
less known.
THE CHASM (where marketing and distribution must radically change)
Early majority,
pragmatists
Deliberate; Process oriented; Risk Averse; Want proven
applications; May need significant support; Vertically
connected and acts as their superiors.
Late majority,
conservatives
Sceptical; Does not like change in general. Changes under
“pressure” from the majority.
Followers on the market. Want
solutions and convenience.
(68%)
Mass market.
Laggards, sceptics Traditional; Point of reference is “the good old days”;
Actively resists innovations.
Could have economic or power
interest from “status quo”.
Table 4: Characteristics for categories of users participating in the dissemination (Nilsson & Wene, 2002).
Price, Cost
Challenging Technology
1
2
Learning Rate; typically
15-20% lower cost with
doubling in volume.
Accumulated
sales volume
Figure 1: Learning Curve.
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637
be prepared to pay for the new one if made available. And
finally the newcomer will be able to compete on its own
merits (in terms of cost) against the old technology and thus
generate profit for its supplier. In this process we can identi-
fy some more details in behaviour of users and producers,
see Figure 2.
Thus we find that when a technology is very new the gov-
ernment (or someone with equal interest) must take some
responsibility for covering of part of
the high cost but also
that there is probably some user that have a high willingness
to pay and could fill in the rest. Later the government could
withdraw and other private resources (users) will take over.
And finally when break even is passed the society as a whole
will harvest the profit. If the dissemination is brought all the
way as the figure shows the first part is a “learning invest-
ment” that yields profit in the end and should therefore be
distinguished from subsidies that are given for other reasons
(OECD/IEA 2000).
TRACING CASES TO THE NICHE WHERE THEY BEGIN
Figure 3 illustrates how a niche market identification can
lead to earlier commercialisation of a technology and that
the bill for learning investments can be split between public
and private sources. The niche market is fairly well seg-
mented and we will now try to outline more in detail who
the “investors” could be that fill in the extra resources need-
ed.
In segment A, the cost of the challenger-technology is still
higher than the willingness to pay in the niche market. A
“subsidy” (=learning investment) can provide the differ-
ence between the actual cost and the price in the niche mar-
ket. The government acts normally by use of R&D agencies
that have as a task to feed back information from the expe-
riences made. They have however to take special care to re-
ally do so towards the categories who could be crucial in a
future market development. The German Solar optimised
buildings case (#9) seems to do so. On the private side the
buyers for such new technologies are not generally interest-
ed in the economy of the product but in the technology it-
self and could thus be both willing to pay quite an amount
and be resilient with shortcomings in the function!
Segment A’ is when the “first mover” company on the
market could envisage that the product will be useful to
launch. Basically because the costs can be capitalised and
gained back in terms of sales, marketing or image.
The only case that is clearly in segment A is the Solar op-
timised buildings (Germany), but there are several in seg-
ment A’, such as the PV-cases, the lighting cases and the
Energy PLUS refrigerators. In all those there have been
from statements from supplying companies that they see a
value in driving early market introductions. Japan’s pro-
gramme on Photovoltaic Power Generation provides an ex-
cellent example of how niche markets are used to share
learning investments between public and private sources.
The Dutch PV programme also shows how suppliers can be
systematically used to aid technology learning.
In segment B, cost is below the willingness-to-pay in the
niche market and no public money is needed to finance
learning investments any more, though it may still be neces-
sary to assist with indirect support (e.g., labelling schemes
and other information devices). The case most clearly in this
segment is the Canadian REDI and maybe also the Dutch
Heat recovery, bust several others seem to be touching the
segment.
In C and D, the market leader may be in the enviable po-
sition of being able both to brand his products for a niche
market that is very profitable (C) and to let one of his lesser
brands to feature a low-price version of the product that
competes with the incumbent technology (D), the early
stages of the dissemination curve up to the chasm (and pos-
sibly crossing), see Table 4.
Creating and exploiting niche markets is an efficient strat-
egy for a deployment programme, both to provide learning
investments from private sources and to stimulate organisa-
tional learning among market actors. For instance, the Euro-
pean Union labelling scheme for cold appliances created a
niche market for highly energy- efficient refrigerators. This
market was exploited by the market leaders. As a result,
technology learning has made this originally very expensive
technology available on the mass market. The two case
studies on lighting, indicate the need to start in small niches
and ensure feedback for learning both to market actors and
to the deployment programmes involved.
Currently one can find large potentials for energy efficien-
cy improvements hidden in situations in which energy use
Figure 2: Learning investments and investors.
Figure 3. Interplay between niche markets and the experience
curve for a technology challenging the incumbent technology in
the market.
4,030 WENE, NILSSON PANEL 4. BUILDING THE BRIDGE FROM LAB TO CUSTOMER
638
ECEEE 2003 SUMMER STUDY – TIME TO TURN DOWN ENERGY DEMAND
appears unimportant to the individual decision maker,
though it aggregates into a large amount of energy used by
all consumers taken together (e.g., energy used for standby
power in computers and other electronic appliances). From
the energy technology perspective, the mass markets in
such cases appear highly fragmented and the need for joint
relearning among market actors is correspondingly large.
The strong need for organisational learning and experi-
mentation favours a niche market approach for deployment
programmes in such instances. The ability to correctly iden-
tify the niche markets is emphasised by the fact that there is
a need for big investments to fuel this learning process that
occurs before the products are profitable compared to the in-
cumbent technologies. It is then extremely important to ad-
dress those entities that could justify their share in the
investment burden. A good example is lighting, where ener-
gy savings come in very small packages, which have to be
bundled together to make a difference from a policy view-
point.
STRATEGIC NICHE MARKET MANAGEMENT
“Specific characteristics of new technologies can add value
that makes potential buyers with special needs ready to pay
extra for energy services produced with them instead of with
incumbent technologies. Examples of characteristics that
may provide the basis for a niche market are low emissions,
modularity and compatibility of a new power source with
electricity load patterns on the grid. The niche markets may
be small relative to the total potential for a technology, but
they can be important from the viewpoint of providing
learning opportunities. Making use of them in deployment
programmes can help both to shorten the time before a new
technology will be viewed as a viable commercial endeavour
and provide a source of business funding for learning invest-
ments. Market leaders often use a niche market in develop-
ing a ‘challenger’ to an existing technology, viewing it as a
stepping stone towards a mass market.”(OECD/IEA 2003)
In the case study analysis referred to a method called tri-
angulation was developed and will not be further explained
here but only indicated by showing how different models
combined reveals components of niche market develop-
ment and instruments to handle those markets, see figure
below.
The triangulation will allow a more careful view on the ac-
tors involved, their own best interests and on the measures
they dispose to drive the process further. This section will
deal with the roles of different actors, which depends on the
position of the technology. It will further deal with the meas-
ures and the combination of measures into programmes.
This latter part dealing with programmes will reflect back on
the more traditional terms used according to the models
(Barrier, R&D+D and Market Transformation). The trian-
gulation gives us three viewpoints that could be applied by:
•
Governments (mostly on national but also on regional
and municipality level),
•
Industry in their capacity as suppliers and inventors,
•
Customers (users) and Distributors to the market.
Conclusion
Dissemination of new technologies to the market still needs
a lot more development of policies and thinking to be really
forceful. The huge potentials that exist can be successfully
exploited but it needs a more careful segmentation of the
markets to identify both technologies, stakeholders and mo-
tives. Such a process has been traced in the analysis of cases
and briefly indicated in this paper. Development would not
only save resources but also disappointments.
There is room for much more innovativeness in design of
policies and measures. The traditional thinking of carrots
(and sticks) is too narrow. To be really forceful the feedback
from trial and errors (and to allow errors) is necessary for the
learning on the market.
References
Nilsson, H. and Wene, C.-O. (2002) ‘Best Practices in Tech-
nology Deployment Policies’, Proceedings of ACEEE
Summer Study on Energy Efficiency in Buildings, Asi-
lomar, California, 18-23 August, 2002, p. 9.267.
Moore, G.A. (1991) Crossing the chasm: Marketing and sell-
ing technology Products to Mainstream Customers,
HCP, New York.
OECD/IEA 2000 Experience Curves for Energy Technolo-
gy Policy, Paris.
OECD/IEA 2003 Creating Markets for Energy Technolo-
gies”, OECD/IEA, Paris.
Rogers, E.M. (1995) Diffusion of Innovations, Free Press,
New York.
R&D-D
Model
Industry Strategy
(R&D funding)
Barrier
Model
Market Framework
(Rules, regulations)
MT
Model
Customer/Distributor
(Understand, Address)
Risk, Cost
Niche Markets
Information,
Marketing
Figure 4: Triangulation. Models applied and their internal relation.