Paper to be presented at the DRUID Academy 2012

on

January 19-21 at

University of Cambridge /The Moeller Centre

Policy driven innovation - the role of energy saving obligations for energy

distributors in DenmarkTobias Møller Ruby

Technical University of DenmarkManagement Engineering

trby@man.dtu.dk

AbstractThrough the case of the energy saving obligations for energy companies in Denmark and the theory of technologicalinnovation systems this paper aims at providing an increased understanding of indirect policy-driven innovation withinenergy efficient technology.The preliminary findings show that energy saving obligations has influence on both the structural components and thefunctions of the innovation system. Specifically the functions of Market formation, Resource mobilization andDevelopment of external economies appear to have increased activity because of the obligations and they are generallyincreasing the commercialization of new energy efficient technology.

Keywords; energy policy, innovation, energy technology, utilisation of technology.

Jelcodes:O33,O38

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POLICYDRIVENINNOVATION–THEROLEOFENERGYSAVINGOBLIGATIONSFORENERGYDISTRIBUTORSINDENMARK

Conferencepaper(preliminarywork1)

DRUIDAcademyConference2012

19th–21stofJanuary,2012Cambridge,UK

TobiasMøllerRuby,Ph.D.student,cand.polyt.TechnicalUniversityofDenmark–ManagementEngineering

SectionforInnovationSystemsandForesightMail:trby@man.dtu.dk

EnrolledOctober2011–finishingSeptember2014

Introduction

There is to some extent global consensus on the importance of energy savings as a part ofsolving the current issues concerning energy, environment and the economy. TheInternational Energy Agency estimates the global potential of energy efficiency policy toapproximately 17% of current annual worldwide energy consumption in 2030,making it acrucialpartofenergypolicyandenvironmentalgoals(IEA,2011a).Denmarkhasalongtraditionofsavingenergygoingbacktotheoilcrisisinthe1970’sandthecountry’sdependencyon importingenergy.Earlier studieshavealso shown that theareaofenergy efficient technologies in Denmark is a highly innovative field. As new productintroductions andnewbusiness activities appearmore frequently than inmanyother areas(Borupetal.,2009).However,what the innovationdynamicsspecificallyconsist inandhowcompetitiveness is actually created in the field is a largely unanalysed question on manypoints.Theobjectiveofthispaperistoanalysetheinnovationdynamicsinthefield,departingempirically from the recently renewed policy efforts within energy saving obligations forenergydistributorsandnet‐companiesinDenmark(electricity,heat,gasandoilcompanies–hereafterenergycompanies).Thispaperwill investigate the linkbetweenenergypolicyand the innovationwithinenergyefficient technology by applying the theoretical framework of technological innovationsystems(Bergeketal.,2008)tothecaseofenergysavingobligationsforenergycompaniesinDenmarkand.The institutional background for the energy saving obligations was founded in the basicunderstanding that there are cheap and available energy savings everywhere but no one isinitiating the process of implementing new technology to achieve these energy savings(Sorrell,2004;PalmandThollander,2010).ThiswasthereasoningbehindtheactionsoftheDanishGovernmentandtheDanishEnergyAgencywhentheyinlate2005negotiatedwiththeorganisations representing Danish energy industry. In 2006 an agreement was made andformulatedas:Theenergycompaniesmustaffordconcreteefforts,whichassistthecompletionofenergysavingsatend‐users.Onlyenergysavings,whichhadnotoccurredwithoutthecompany’seffort, are valid. The efforts can for instance be through consulting, professional assistance,financialsupportoracombinationofthese.ThefinancingofthesesavingsismadethroughataxoneachsavedkWhthatisputtowardstheconsumers2andwhich for the electricity and gas companies is set to a fixed price. For theothercompaniesthetaxisregulatedthroughmarketbenchmarksensuringthatnocompanyiscreatingoverly expensive savings.This creates amarket for energy savingswhere themostcost‐effectivesavings,inanyareaandusinganytechnology,ispreferred.

1Pleasedonotcitewithouttheauthorspermission!2Thesavingsrequiredforeachenergycompanyisdeterminedbasedontheirrecentyearlyenergysupply

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Sincetheagreementwasmadeithasoncebeenrevisedandtodaytheenergycompaniesareresponsibleforcreatingenergysavingsof6.1PJ/year,whichisaverysubstantialpartofthetotal10.3PJ/yearsavingsgoalinDenmark(DanishEnergyAgency,2011).ThecurrentDanishgovernment plans to further extend the energy saving obligations and increase the yearlygoalsasapartoftheforthcomingenergyagreement(DanishGovernment,2011).Theseconditionscreatean interestingcase inwhichenergyandenvironmentalpolicyhasadistinct influenceon the innovation, commercializationandmarket formationwithinenergyefficienttechnology.Thiswillbetheresearchfocusofthispaper.

Anoutlineofcoincidingliterature

Thebriefoverviewofexistingresearchwillconsistofthreepartsthatallrelatetothesubjectmatterapproachedinthispaper.Itwillnotfunctionasathoroughreviewoftheliteraturebutmoreas anoverview that enables the identificationof apossible research contribution.Thefirstpartdealswiththelinkbetweenenergyefficiencypolicyandthedevelopmentanduseofenergy efficient products, mainly bound in national and international energy and climatepolicy.Thesecondpartdealswithpolicyandinnovationinabroadersensespecificallylinkedwithnationalinnovationpolicyandpolicyeffortsinwhereinnovationisthemainobjective.The third part concerns thosewhich investigate the greater link between energy efficiencypolicyand innovation,makingit theoneclosest tothe investigationattempted inthispaper.Themain difference from the first two to the third is that itmerges theway it investigatesinnovationinfluencednotbyinnovationpolicybutbyenergyandclimatepolicy.Withinthethreepartstherewillbegivenabriefoverviewofthecommonunderstandingsinthe present literature and there will be made distinctions between. It will however notfunctionasacompleteorsystematicoverviewoftheliterature.

PartI–Energyefficiencypolicy,acceptanceanduse

An extensive amount of literature investigates and researches into why energy efficienttechnologyisnotutilisedandacceptedtoahigherextentaswellasdescribinghowpolicycanand should influence the process. Most would agree that both the environmental andeconomical benefits are there, but the products have not seen the success anticipated(Vermeulen andHovens, 2006). This inadvertently relates to the commercialisation,marketdynamicsandinnovationwithinenergyefficienttechnology(Balachandraetal.,2010).Muchresearchhasgoneintoidentifyingthebarriersandthedriversforthisincreasedlackofcommercialisation for energy efficient products. There is made a clear distinction betweenhome users or consumers (Shove, 1999) and the adaption of energy efficient solutions inindustry(RohdinandThollander,2006;PalmandThollander,2010).Thispartoftheliteraturefocusesonthedescriptiveelementsofexplainingwhyproductsarenotusedaswellasprovidesomeprescriptivepolicyelementsto tryand increasetheuseoftheseproducts.Muchrelatedtothispartoftheliterature,butwithadifferentapproach,focusandoutcome,istheAmericaneconomicresearchonenergyefficiencypolicy.AfewAmericanresearchershavedoneextensiveworkwithintheareaofenergyefficiencygaps,diffusionoftechnologyandtheconceptofreboundeffects(Jaffeetal.,1993;JaffeandStavins,1994;Newelletal.,1999;Poppet al., 2010). These researchers put forward similar questions as others (Kounetas andTsekouras, 2010) as to whether more efficient products just make users consume moreenergy.Theseclassiceconomicassumptionsofuserswillnotbeusedinthispaperasitisnotseentobeexplanatoryforpresentpractices.

PartII–Innovationpolicy

The second part is the area in literature concerning research and innovation policy. Theoccurrenceofinnovationpolicyasapartofnationalpolicyisincreasingaswellasitsattentionwithinresearch.MuchliteratureintheareaoriginatesfromJosephSchumpeter’sevolutionary

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economic thought later used in the innovation systems theory from the late 1980s and theearly 1990s (Freeman, 1987; Lundvall, 1992; Nelson, 1993) while its application inpolicymaking came through theOECD in the1990s (OECD,1997). Inpresent time, researchand innovation policy (Smits et al., 2010) is closely linked to science, technology andinnovationpolicyinbothpolicymakingandresearch.Theinnovationpolicyresearchconsistsprimarilyofquantitativeeconomicstudieswhichaimshowtheaffectsofpolicyandtypicallyusedintheoreticalworkandnormativepapersaimedatbothresearchersandpolicymakers.

PartIII–Energyefficiencypolicy,technologicaldevelopmentandinnovation

The thirdand lastpartof literaturerelevant in thispaper isattempting tocover theareaofenvironmental policy or energy efficiency policy and its influence on technologicaldevelopmentandinnovation,whichiscloselyrelatedtotheaimofthispaper.Heretheaimisto investigate the influence of energy and climate policy on innovation, thus it not beingspecificpoliciesthatareaimedtoinduceinnovation.AsdescribedbyRenningsandRammeristhe influence on firm competiveness rather ambiguous because it in one way limits andburdens them but in another way provides induced support for compliable products(Rennings and Rammer, 2011). This summarises much of the present literature as mostindentify a positive relation between competitive inducing regulation, such as buildingregulations(Noailly,2011),andtechnologicaldevelopmentandinnovation.ThesedohowevernotdescribethedynamicsoftheserelationsoraccountforspecificconditionsasforexamplewiththeenergysavingobligationsinDenmark.Othershavehoweverputnecessaryattentiontowardstheareaoflearninginrelationtotechnologicaldevelopmentandpolicy(KissandNeij,2011).TheexampleoftheSwedishwindowindustryisusedtohighlighthowdifferenttypesoflearning must be supported through policy to facilitate technical change and knowledgecreationovertime.

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Targetingtheareaofenergyefficiency

Withregards to theresearchscope,whatcanbeseen in thepresent literature isoneof twothings.Eitherthereisaspecificfocusonasingleenergysavingtechnology(e.g.Noally2011,Building components and regulations)or it is amatter of investigating the effects of energysaving in general (e.g. Jaffe et al. 1993, Rebound effects). The direct link to national andinternational energy efficiency and energy saving policy is not really present in these twodirections and furthermore is there no mention of the range of technologies and productsincludedorhowitmightinfluencethedevelopmentofsuchdifferently.When addressing the area of energy efficiency or more specifically efficient energy use,whether in relation to policy, research funding or new product introductions, theunderstanding differs a great deal. The considerations as to what energy efficiency is, istherefore crucial to determine what is included and what is excluded in the scope of theresearch. Energy efficiency as a concept in itself refers to the basic understanding of ‐ theamountofenergytoprovideagivenservice(heating,lightingetc.).However,whendealingwithenergyefficiencyinapolicyandresearchperspectivethecorrectunderstandingisreallymoreabout efficient use of energy as there is an inherent assumption of reducing energyconsumptionthroughbetterenergyefficiency.Ifweonlylookattheproduct‐level,therearetwomajorworkabledefinitionsrelatingefficientenergyuseandindividualproducts(Jaffeetal.,2004;WorldEnergyCouncil,2011).

a) Anenergyefficientproductisanenergyusingproduct(electricity,heatetc.)whichuseslessenergyinitsuse‐phasethanacomparableproductwiththesamefunctionaloutput–e.g.ahouseholdcirculationpumpwhichutilisesnewcontrolmechanismstolowertheoverallenergyuseinitslife‐cycle

b) Productswhichenableenergyreductionsforotherproductswhilenotusingenergyitself(e.g.insulationandwindows)

These two definitions are valuable when describing product‐level details but they are notsufficientwhenassumingasystemperspectiveorapolicy‐orientedunderstanding.Thereforethefollowingunderstandingisproposedtocaptureabroaderdefinition;

Theconceptofenergyefficiencyreferstoaclassificationofproductsandservices inwhereincreasedenergyefficiency(referringtoeitheraorb)isdesired‐withthemaingoalofachievingenergysavings

Theproposeddefinitiontiesenergyefficiencytogetherwiththemoreactionandgoalorientedenergysaving‐policyasthemainwayofachievingsuch.Theonedoesnotgowithouttheotherandwhatconnectsthemisthepoliticaldesiretoreduceenergyconsumption.Thecompositionofproductsandtechnologieswithinenergysaving‐policyisthereforeverydiverse–generallyrelatedtotheobtainableenergysavingsseenfromatechnologicalandeconomicalperspectiveaswellasdesirablepoliticalfocusareasandnationalinterests.Thetermenergyefficienttechnologyorenergyefficientproductscanbewidelyinterpretedasdescribed above. Below is an overview of the different classifications of energy efficiencyareas, technologies and products from four different sources (Table 1). The sources are theInternationalEnergyAgency(IEA,2011b),researchfundingfromElForskandEUDP,Go’Energi(Go’Energi, 2011) information campaigns and the energy companies self defined consultingareas.Theseclassificationsare therefore indicatorsof the technologyandproduct‐areaswhere thenotion of energy efficiency is applied and where the respective institutions and actors areworking topromoteenergyefficiencyandenergysavings.Thedifferentareasareshapedondifferences inpolitical interestsandobjectives, technological capabilityandoverallpotentialsavings.

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Table1–Energyefficiencyclassifications

Authors ClassificationA IEA(XXX) Cross‐sectoral(Investmentsandnationalstrategies)

Buildings(Buildingcodes,MEPS3,Zero‐energyhousing,Promoterenovations,Windows)

Appliancesandequipment(MEPSforappliancesandequipment,labelling,standbypowerrequirements)

Lighting(Phase‐outincandescentlamps,Non‐residentialbuildinglighting)

Transport(Fuel‐efficienttires,Fueleconomy,Eco‐driving)

Industry(Industryindicators,MEPSforelectricmotors,Energymanagement,EnergyefficiencyinSMEs)

Energyutilities(Utilityend‐useenergyefficiencyschemes)

B Research funding;

ElForsk(2011)EUDP (Energy efficiencyarea,2011)4

Buildings Ventilation Lighting CoolingandHeatpumps Effect‐andcontrolelectronics Processes Behaviour,barriersandagents

Buildings Ventilation Heatingandcooling Lighting Industrialprocesses Energyefficientproducts

C Go’Energi – Campaigns

areas2011

Households(buildings) Publicinstitutions Privatetradeandservice Industryproduction

D Energycompanies,areas

of consulting (overviewfrom elsparesiden.dk20115)

Private Insulation Windows Heat Heatpumps Renewable Financing Energyconsulting

Business

Energyoptimisation(cooling,ventilation) Energyoptimisation(heatingsystems) Newinstallationsandrebuilding Financing

Acrossthedifferentclassificationstherearesomeclearsimilaritiesdespitewhetherapolicyorresearchfundingfocus,indicatingacommon‐understandingontheareaswithintheconceptofenergyefficiency.Thisis,asdescribed,verymuchdependentonthepoliticalattention,thetechnologicaladvancesandthepotentialsavings.

3Minimumenergyperformancerequirements4Interpretedandrewrittentofittableformat5Theenergycompaniesgenerallyexpress that theydoall typesofenergysavings,but inrealityare theirchoicesmainlybased on their expertise, the prices and the possibilities available. E.g. is the district heating companymore likely to doheatingreductionsinsteadofelectricityreductions.

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Transportisgenerallynotincludedastheareaoftransportistypicallydealtwiththroughitsownpolicyarea.Itisalsonotcoveredbytheenergysavingobligationsandwillnotbeconsideredfurtherinthispaper.Thereseemstobeafocusintheclassificationsonenergyefficiencyandenergysavingsrelatedtoelectricityandheat.ThesetwoenergyproductswillbethefocusofthepaperexcludingoilandgasasitisgenerallyundesiredintheDanishenergysystemasinothers.Theresearchwill thereforebeconcentratedonthemainareasofBuildings,Heatandcooling,LightingandIndustrialprocesses.

Outliningthecontribution

Withtheoutsetinexistingliterature,thepresentclassificationsintheareaofenergyefficiencyandthechosencase,thecontributionofthepaperisoutlined.Usingaqualitativeapproachanda comprehensive theoretical framework to investigate the dynamics between the multipleactors, institutions and networks in the energy innovation system will provide furtherunderstandingofthelinksbetweenenergypolicy,innovationandcommercialisationofenergyefficienttechnology.This paper aims to answer a series of research questions, exemplified through the case ofenergy saving obligations for energy companies in Denmark. The main question to beansweredis:Towhatextentisenergysavingobligationsforenergyutilitycompaniesinfluencingthe“structuralcomponents”and“functions”oftheinnovationsystem.Elaborating on the knowledge‐development in the system is it relevant to ask:what is theinfluenceofthesespecificpolicy‐measuresonthecreation,diffusionandutilisationofknowledgeintheinnovationsystem.LastlywithregardstotheclassificationTable1:howmightthepolicyhavedifferentimpactswithindifferentsectors–allcoveredbytheclassifications.The contribution will not be a complete overview of the technological innovation systemrelatedtoenergyefficiency,butratherhowthecaseofenergysavingobligationsinfluencetheinnovationsystem,withregardspecificallytothestructuralelementsandthefunctionsofthesystem.

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Methodologyandresearchapproach

Themethodologyadapted in thispaper is thatof innovationsystemstheory.The innovationsystems theoryoriginallycomes fromevolutionaryeconomicsandco‐evolvedasa theory inacademia aswell as a appliedmethodology in policy institutions (e.g. OECD) (Sharif, 2006).The theory beganmainly in the form of the national innovation systems theory (Freeman,1987;Lundvall,1992;Nelson,1993;Edquist,1997)whichinthetrueSchumpeterianthoughtplacedinnovationinthecentreofnationsgrowthandcompetiveness.Asdescribedinthe1997OECDpublicationtitled“NationalInnovationSystems”;Theconceptofnationalinnovationsystemsrestsonthepremisethatunderstandingthelinkagesamongtheactorsinvolvedininnovationiskeytoimprovingtechnologyperformance.Innovationandtechnicalprogressaretheresultofacomplexsetofrelationshipsamongactorsproducing,distributingandapplyingvariouskindsofknowledge.Theinnovativeperformanceofacountrydepends toa largeextentonhow theseactors relate toeachotheraselementsofa collectivesystemofknowledgecreationanduseaswellasthetechnologiestheyuse.(OECD,1997)Thetheoryhaveafterwardsdevelopedinfourmaindirections;National,Regional(Cookeetal.,1997),Sectoral(Malerba,2002)andTechnological(CarlssonandStankiewicz,1991;Hekkertetal.,2007;MarkardandTruffer,2008).Themaindistinctionsbetweenthesetheoriesaretosome extent the different theoretical assumptions about where the systemic notion ofinnovation ismostrelevantandhowsuchunderstandingof thesystemof innovationcanbeframed.In this paper will the focus be on applying the theory of technological innovation systems(TIS).Thereasonsbehindchoosingthisframeworkarefirstlyitsinherentfocusontechnologyand technology development and secondly its applicability through presently availableanalyticalframeworks.TheTISschemeofanalysisaspresentedbyBergeketal.(2008)willbethefocusandmainanalyticalframeworkofthispaper.TheTISschemeofanalysisargues thenecessity toanalyse technological innovationsystemswithregardstotheirfunctionaldynamicsmorespecificallyconsistingofstructuralcomponentsandfunctions(Bergeketal.,2008).Theactors,networksandinstitutionswithintheinnovationsystemmakeup thestructural componentswhile the functionsconsistof sevenactivitiesorconditions that the structural components interact with. The functions are Knowledgedevelopment,Resourcemobilization,Marketformation, Influenceonthedirectionofthesearch,Legitimation,EntrepreneurialexperimentationandDevelopmentofexternaleconomies.Thesestructuralelementsandfunctionsareincorporatedintoasix‐stepapproach,beginningwithdefining theTISandendingupwithkeypolicy issues that shouldoptimize inadequateinnovationsystemperformance.ThestartingpointoftheanalysisisdefiningtheTISwhichisaccordingtoBergeketal.isaboutidentifyingakeytechnologyorknowledge‐domainthatcharacterisesit.Thenexttwostepsaremainly descriptive as they concern with mapping the TIS according to its structuralcomponentsanditsfunctions.ThegainedunderstandingoftheTISisthenusedinthelastfourstepstocreateprescriptiveeffortstoelevatetheperformanceoftheTIS.SeeFigure1belowforthevisualrepresentationoftheschemeofanalysis.

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Figure1‐Theschemeofanalysis(Bergeketal.,2008)(AdaptedfromOltanderandPerez,2005)

The scheme of analysis as presented by Bergek et al. enables a systematic approach to theanalysis of technological innovation systems while able to provide an overview of theinnovationsystemseenthroughitsstructuralcomponentsandfunctions.Inthispaperwillthefocus of the analysis be on the descriptive parts of the framework and exclude the policymeasuresastheaimofthepaperistoinvestigatetheinfluenceofpolicyandthesubsequentdynamicsintheinnovationsystem.Theanalysisofaninnovationsystemisverymuchaboutdefiningthesystemanddeterminingwhatisinandwhatisout.Thisisespeciallydifficultinthecaseofenergyefficienttechnologyas it is not a specific technology or knowledge‐domain as intendedwith the TIS scheme ofanalysis.Specialattentionwillbegiventothisinthediscussionofthepaper.

Researchapproach

Somewhatseparatelyfromthemethodologydescribedaboveistheresearchapproach.Inthescheme of analysis presented by Bergek et al. (2008) is the focus on quantitative researchmethods todiscover the structural components and functionsof the innovation system (e.g.bibliometrics). In theresearchpresented inthispaper, is thedatagatheredusingqualitativemethods and constructed as a case study (Yin, 2009) in where the involved actors areinterviewedtoconstruct theempiricaldata.The interviewsaresemi‐structuredallowing fortheconversationtoevolveintounplannedbutrelevantsubjects.The“rollasnowball”method(SocialConstructionofTechnology–e.g.Bijker,1997)hasbeenlooselyappliedtoindentifythenetworks and relationsbetweenactors and institutionsby startingwithone actor and thenevolvingthedatacollectionfromthat.Theselectionanduseofthesemethodsshouldenableamoredescriptiveunderstandingoftheinnovationsystem,capableofdiscoveringthesubtledynamicsatplayinthecase.

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Analysis

The analysis is constructed on preliminary research data,where only a few of the involvedactors and institutions have been investigated. Little company‐level data has been gatheredand theanalysiswill therefore focuson the systemic levelandnotdescribeexactlyhowtheinfluenceisonindividualcompanies.Nonetheless,thepreliminarydataisabletoshowsomeof the overall influences of the energy saving obligations on the innovation system underinvestigation.The analysis will not be a complete descriptive overview of the technological innovationsystem related to energy efficiency, but rather how the case of energy saving obligationsinfluences the structural elements and functions of the innovation system. Based on theschemeofanalysisfromBergeketal.willthefocusoftheanalysisbeonthedescriptiveparts1‐3aandexcludetheprescriptiveparts3b‐6(Figure1).From the preliminary data there are three aspects of interest identified which assist thestructureoftheanalysis.ThesewillbeanalysedseparatelyusingtheTISschemeofanalysistoinvestigate their individual influence on the structural elements and the functions of theoverall innovation system. The first aspect describedwill to some extent provide a generalviewofthesystem,whilethetwosubsequentonesdescribenarrowerfocuspoints.

Increasedsystemactivityandinvolvementofnewactors

Theutilisationofenergysavingtechnologycanhappeninnumerouswaysandfornumerousreasons.Forinstancecanahomeownergetacarpentertoinstallenergyefficientwindowsforaesthetic, economic or practical reasons while a large production company can use aconsulting company to increase energy efficiency in its production and subsequently savemoney.Thecommonfactorsintheseexamplesarethattheend‐userissolelyresponsibleforinitiatingtheprojects.Thisnewsetupinthenetworkismainlychangedbecausenewactorsnowareresponsibleforthe initiation, financingandcompletionofenergysavingprojects ‐ thenewactorsbeing theenergy companies. This changes the activities, the value‐chain and the system setup byincludingtheenergycompaniesasthedrivingforceforachievingenergysavingswithregardstoofferingfinancialsupportandknowledgeofenergysavingsandenergyefficienttechnology.Theinfluenceofthisisapparentonthestructuralelementsoftheinnovationsystemasitaddsnewactors,changesthenetworkbetweenactorsandtoahigherdegreeinterrelatethemwithinstitutions. The energy companies are large and powerful actors, which not only to someextent sets the agenda of energy savings but also defines the relations between actors. Forinstance is the relation between district heating companies and plumbers must moreestablished than between electricity companies and plumbers because of the heatingcompaniesandtheplumberssimilarprofessional‐backgroundandsharedknowledge‐domain.These relations somewhat define the energy efficient technology applied as for instanceheating companies aremore likely to do savingswithin heat than electricity – even thoughtheythemselvesarepaidfordistributingheat.The interaction with institutions of different kinds is also increased as the energy savingobligations isdefinedby theDanishpolicy institutions.This legislativeprocessalso involvesthe industry organisations for energy as well as other interest organisations making theoverallinvolvementofinstitutionsmorepresent.Aclearexemplificationofhowthestructuralelementsareinfluencedbythenewconfigurationis the “2100.nu” project inØsterbro, Copenhagen. Theproject is a formalised energy savingactivity project where the energy company is working together with local interestorganisations, professional installers andworkmen, product suppliers and the technologicalinstitute to facilitate energy savings at the local housing association level. From the energycompany’s point of view this is a way of targeting energy savings at the household‐level

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withouttheresourcesnecessarytoprovideenergyconsultingforeveryindividualhouseholdand overall attempt tomake it easier for end‐users to find the contacts for purchasing andinstallingnewenergyefficientproducts.Thesekindsofnetworkactivitiesareaccordingtotheenergycompanyinvolvednotsomethingtheywouldhavegoneintowithouttheenergysavingobligations.Theactualoutcomeofsuchprojectsisunknown,butitwillundoubtedlyincreaseinteractionbetweenactorsandestablishnewnetworksintheinnovationsystem.Lookingintothefunctionsoftheinnovationsystemwiththeoutsetintheaspectofincreasednetworkactivityandinvolvementofnewactorsitisclearthatmoreorlessallthefunctionsoftheinnovationsystemareinfluenced;

KnowledgedevelopmentTheincreasedinteractioninthesystemandtheintroductionofnewactorsshouldinfluencethe knowledge development in a positive way. The complexity of the relations betweenactors does however seem to limit these interactions. For instance are the energycompanies somewhat afraid of openly and activelyworking togetherwith suppliers andproducersastheybelieveitmightlookasiftheyfavoursomeproductsoverothers.Thisisalso related to the professionalism of the workmen which install the solutions, as theenergy companieswouldn’twant tooverrule their judgement.This general reluctance tointeractlimitsthedevelopmentanddiffusionofknowledge.ResourcemobilizationTheenergycompaniesarethemaindriverwithregardstoresourcesinthesystem,muchrelatedtotheirobligationsofprovidingconsultingandfinancialsupporttofacilitateenergysavings.Theresourcesprovidedbytheenergycompaniesarethereforebothknowledgeofenergyefficientproductsandtheirapplicationaswellasasupportedbusinessmodelsforthefinancingofsolutions.Thesearecrucialelementsforobtainingend‐userapproval.MarketformationThe system facilitates the co‐evolvement of several markets. The energy company isinterestedincreatingamarketforinexpensiveenergysavingswhichinturninfluencethegeneralenergyconsultingmarket.Thesetwothendrawontheoverallmarket forenergyefficient technology and products. The interrelations between these markets are quitecrucialtotheinnovationsystemasitinfluencesthegeneralenergyconsultingpracticeandhowproductdemandoccursonthemarket.InfluenceonthedirectionofsearchThe energy companies are obligated to show initiative on behalf of the end‐users. Thisshapesdifferentenergysavingpracticesbasedontheknowledge‐domainsoftheexpertsinthe energy companies. The practices might also be founded in company strategy,technologicalpossibilitiesorpracticalityandresults inmoredirectionsbeing included inthesystem.Thismakesitdifficulttohaveacoherentandsharablepathforallincludedasthepathwillbedifferentfromactortoactor.LegitimationTheareaofenergyefficiency isquiteaccepted insociety, industryandpublic institutionsbecauseofitscrucialroleinmitigatingclimatechange.Theenergycompaniesdohoweverprovide some added legitimacy to the system as a result of their size, history andinstitutional‐likeform.This influencestheend‐usersreactiontotheiradvicecomparedtoexternalenergyconsulting.DevelopmentofexternaleconomiesMuch related to the co‐evolving markets is the development of external economies alsooccurringinrelationbetweentheenergysavingobligations,theenergyconsultingmarketandthemarketforenergyefficientproducts.Thiscreateslinksbetweenexistingeconomiesandnewonescreatedasaresultoftheenergysavingobligations.

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The function of Entrepreneurial experimentationhas not been mentioned as the describedaspecthaslittleinfluenceonit.Itwillhoweverbethefocusofthenextaspect.

Indicationsofanentrepreneurialgateway

The aspect of the entrepreneurial gateway refers to how new companies producing energyefficientproductscanusetheenergycompaniesasanentranceintothemarket.Normally,theprocessofgainingmarketattentionandoverallroll‐outisquitedifficult,butbyconvincinganenergycompanytouseyourproductsyouimmediatelygainaccesstolargerpotentialmarketwitheasieraccessibility.Thisaspectisnotsoinfluentialonthestructuralleveloftheinnovationsystembutmoretheconsequence of small and new companies having a market entrance through the energycompaniesandtheirprojectsmakingtheinclusionofsmalleractorsmoreprobable.Thefunctionsoftheinnovationsystemarehoweverinfluencedbythisaspectinthefollowingways;

ResourcemobilizationTheresource‐basedactionsoftheenergycompaniesarevitalforthesmallnewcompaniesespeciallyintheirearlystage.InthisrelationitisveryconnectedwithboththefunctionofMarketformation and theDevelopmentofexternaleconomiesas theenergycompaniesaretheirentranceintothemarket.

LegitimationThesolutionsandproducts chosenbyworkmenare typicallywell establishedand testedsolutionswhiletheenergycompaniesmightchosedifferentlyaccordingtotheirdecision‐making. The energy companies are able to create legitimacy surround the use of newproducts by choosing more experimental solutions which then in turn assists the newcompaniesinestablishingthemselves.EntrepreneurialexperimentationThe use of new products in projects provides valuable application knowledge althoughthere isnotadirect linktohownewproductsaredevelopedasaresultof it.TheenergycompaniesarenotespeciallyriskwillingastheyaremostinterestedinthepricepersavedkWh, which somewhat simplifies the additional functionality of new products on themarket.Nonethelessaretheenergycompaniesincreasinglyabletoutilisenewproductsaswaysforthemofstayingcompetitiveinsupplyingenergysavings.

Affectontheadaptionandutilisationoftechnology

Related to the two aspects previously described is the aspect of adaption and utilisation oftechnology,whichdescribeshowtheagendaandknowledge‐domainoftheenergycompaniesdefinetheirenergysavingpracticeandtheutilisationoftechnologyconnectedtoit.Wheretheenergycompaniesfacilitateandcreateenergysavingsistoagreaterextentuptothem,astheyare only expected to do it in a cost‐effective way. This cost‐effectiveness is the maincompetitiveparameterinthesystemasitdefineswhichsolutionsaredesirableandwhicharenot. Table 1 on page 6 shows the diversity of the energy consulting areas supplied by theenergycompanies,whichhighlightstheirbroadapproachtoenergysavingswherethefocusison achieving inexpensive energy savings, regardless of the area (e.g. windows, ventilation,industrialprocessesetc.).Thisbroadandpragmaticapproachtowardsenergysavingsprovidetheenergycompaniestheability to incorporate a broad combination of energy efficient technology in different areas,bothencouragingthemarkettofindnewareaswhilealsoensuringtheadaptionoftechnologyonareaswheretheinitiationandmarketformationisneeded.Anexampleofthemfindingnewareas is for instance within office servers and server parks, which offers great potentialsavingswhilenotbeingspecificallymentionedasapartofthefocusareasshowninTable1.

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The influences of the described aspect on the structural elements of the innovation systemmight not be great. The main difference is as described the introduction of the energycompanies as an actor, which initiates energy savings through the implementation andadaptionofenergyefficienttechnologythatwouldotherwisenothavematerialised.Thisisofcause very much interlinked to the public institutions as the obligations are continuouslynegotiatedwiththem.Theinfluenceonthefunctionsishoweverhighlyrelevant;

KnowledgedevelopmentDevelopmentof applicationknowledge in the relationbetweencompanies, suppliers andtheenergycompaniesoccurs.Theenergycompaniesensuretheuseoftheexistingandnewproducts in a broader way than through traditional market dynamics, enabling but notnecessarily ensuring valuable knowledge development between actors. The reluctance ismainly due to historical and institutional factors, which traditionally force the energycompanies to withdraw from cooperating with other actors on the basis of them being“publicutilitycompanies”.MarketformationResource mobilization, Development of external economies and Market formation allinterrelateintheaspectofadaptionandutilisationoftechnology.TosomeextentisDanishindustryalreadyabletosupplytheenergyefficienttechnologyandproductsnecessary,butthe energy companies help force initiation and ensure that competitive products areutilisedinthemarket.InfluenceonthedirectionofsearchBecauseofthecost‐effectivemarketdynamicscreatedbytheenergysavingobligationsthedirection of the development is not very coherent (as for instance with public researchfunding). The energy companies mostly adapt readily available solutions and do notexplicitly encourage for further developmentwithin specific focus areas. This it to someextent the case although energy companies are increasingly aware of their actions andissuesrelatedtoenergysupplyandenergyuse,whichiswhysomechosetoexplicitlystatetheircompanyvisionsandinterests.

Theadaptionandutilisationoftechnologyismuchaboututilisingexistingknowledge,whichfor instancewasdevelopedearlierbyDanish industryanduniversities, supportedbypublicfundedresearchandinfluencedbypoliciessuchasbuildingregulations.Thisisthecasewithmany products like the energy efficient circulation pump and low‐energy windows, whichhave had great market success although there are still households and industry buildingswhere these products are not incorporated. The energy saving obligations for energycompanieshelpensuregreaterexploitationof thesepresentproductswhilealsodiscoveringnew areas and new approaches to ensure further energy savings through the use of newenergyefficienttechnology–dynamicswhicharecrucialtotheenergytechnologyinnovationsysteminDenmark.

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Discussion

The discussionwill be of a theoretical charactermainly lookingwhether the application oftechnological innovation systems theory is appropriate in an analysis of energy efficienttechnologyandproducts.ApplyingtheTISschemeofanalysisbyBergeketal.(2008)onthepapersparticularcaseleadsto the methodical question of; What limitations are there when applying a technologicalinnovation systems approach to an incoherent set of knowledge‐domains and technology‐domains.Thereasoningbehindapplyingthetheoreticalframeworktothecasepresentedinthepaperisthat of the interconnectedness of the systems and the policies which are targeting energyefficiency. From this point of view the analysiswould be difficultwithout having the broadperspectiveofenergyefficiencyasitisinbetweenthosethatthedynamicsareatplay.The limitations are, I would argue, mainly to do with dissemination and presentation ofanalysis and research results as it adds complexity andpossibly inconsistency to the lineofargument in the qualitative approach. If applying a quantitative approach this might bedifferent.Specific theoretical frameworks better capable of analysing heterogeneous technology areascouldbeneeded.Other researchhas for instanceputmoreemphasis to theTIS functionsofMarket formation and Development of external economies. Dewald and Truffer focus on amarketsegmentswithinthephotovoltaicindustryinGermany(DewaldandTruffer,2011)andpresent a framework for analysing the creation andmaturing ofmarket segments in a TIS.Their paper presents an understanding of TIS market dynamics, which extends on theconventionalunderstandingofacoherentanduniformmarket.The classifications of different energy efficient products cannot necessarily be regarded asmarketsegments,butmoreasapplicationsegmentswithinthebroadareaofenergyefficiency.Thenagain,itisverymuchdefinedbytheapproachtakenbytheactorsandtheperspectiveofthe researcher. Case in point, the energy companies will definitely see it as equal energysavingsmarketwhere they are able to use a variety of different products to create energysavingswhereasthesuppliers,producersandothersmightseeitdifferently.

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Conclusion

Theareaofenergyefficienttechnologyisamuchoverlookedtopicwithininnovationsystemsresearch.Thisdoeshowevernotdiminishtheimportanceofit,asitisacrucialpartoffuturegreendevelopment.Themainreason fornotapproaching theareaofenergyefficiency is itsheterogeneousnature,mixingdifferenttechnology,knowledgedomains,productsandactors.Ononehand,thisismakingitadifficultareatoexemplifyforuseinconceptualresearch,buton the other hand is it great for challenging current theoretical frameworks, in this casetechnologicalinnovationsystems.As the research in this paper is still undergoing no final conclusions can be made. Theempiricalevidenceof thecurrentanalysisandresearch findings is rather limitedandsoarethepresentedresultsmerelypreliminaryindicationsforfurtherinvestigationandvalidation.Further empirical data will therefore be collected with special attention on interactionsbetween energy companies and suppliers of products. This should provide a betterunderstanding of the transformation of energy saving obligation to conventional marketdemandandhowtherelationsarebetweenthem.There will however be some initial conclusions which will work as guidelines for furtherresearch.Itisclearthattheinnovationsystemforenergyefficienttechnologyishighlyinfluencedbytheenergysavingobligationsforenergycompanies.Theobligationsinfluenceallofthestructuralelementsandfunctionsintheinnovationsystem,astheenergycompaniesareintroducedintothesystemasanactorwithnewresources,knowledgeandinterests.Theoverallactivityinthesystemisincreasedasmoreprojectsandworkisinitiatedaswellasmoreactorsbeingactivelyincluded. This increased activity in the system facilitates an increased flow of knowledgebetweenbothexistingandnewactors.Theflowofknowledgeishowevernotaswelldiffusedascouldbeexpectedbecauseofindividualactorsandtheirreservationwithcooperatingwithothers.Themajor influence of the energy saving obligations are on the system functions ofMarketformation, Resource mobilization and Development of external economies as the policymeasures target specifically the problem of energy efficient technology not beingimplemented.Theobligationsarethereforeespeciallyimportantforthecommercializationofnewproductsandtheengagementof largermarketsasitmakessurethatnewknowledgeiscommercialized and put into use (Lundvall, 1992). It also has a distinct influence on thesuccessofnewandsmallcompaniesastheyareabletousethelargeenergycompaniesasagatewaytomarketdeployment.Thesecircumstanceswillaffectthetechnologicaldevelopmentandmarketintroductionofnewproducts in a positive way, however to an unknown extent. Within the system there ishowever reluctance towards a clear and continuous articulation of needs as well ascooperativeactivitiesbetweenactors,whichdefinitelylimitthecreationanddiffusionofnewknowledge.The policymakers attempt to prioritise focus areas in the saving obligations, with mixedresults. The idea is to reward savings done through green long‐term investments such asupgradinghousing insulation.Theseprioritisationshavenotyet shownextensive successastheenergycompaniesare finding largerandcheapersavingselsewhere.Thisunderlines theabilities of the energy companies as they are able to discover savings in areas that areunconventional, enabling both large energy savings as well as creating the need for newtechnologytoenablethesavings.Furtherresearchwilluncoverhowtheobligationsaswellasthe prioritisation of the energy companies’ influence the different technology areas and thedirectionofsearchintheinnovationsystems.Evaluating the energy saving obligations with regards to its effectiveness in inducinginnovationisdifficult.Itisnotadirectinstrumentforencouragingtechnologicaldevelopmentandinnovationasforinstancecanbearguedwithbuildingregulations(Noailly,2011),butitwillatleastinfluencetheinnovationsystemthroughtheaspectshighlightedinthispaper.The

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policyincreasessystemactivity,knowledgesharingandenhancescommercialization,useandadaption of products which is crucial within an area known for its reluctance and itsdifficultieswithgettingnewtechnologysuccessfullyapplied.Theenergyinnovationsystemdescribedinthispaperishoweverdependentontwovariables,namely the political agenda (Danish Government, 2011) and the obtainable energy savings.These twoelementswillcontinue tochange, tosomeextentwithoutpossible influence fromtheactorsinthesystem,butforcingtheactorstoreactandcreatenewwaysofadaption.

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