Value Networks and the Renewable Energy Industry: Part 1 in a Series

By Patrick DeCourcy

(Ed. Note: This post is an excerpt from a recent paper entitled 'Value Networks and the Renewable Energy Industry: Mapping a Pathway Towards Enhanced Technology Diffusion' which explores some of the challenges facing the renewable energy industry as it moves to become a greater part of the US energy infrastructure. This is Part 1 in a series we will be posting over the next few days.)

Introduction

In 2008 President Obama made a bold declaration regarding the future of renewable energy:

“We’ll create 5 million new, high-wage jobs by investing in the renewable sources of energy that will eliminate the oil we currently import from the Middle East in 10 years…”  [1]

This promise is quite ambitious given the current diffusion of renewable energy in the United States.  Fossil fuel generated energy represented over 85% of the total energy consumption in the United States in 2007, with renewable energy sources representing a mere 6%. [2]  However, all is not bleak for renewable energy, both entrant and established firms in this sector have begun to craft a powerful value network which aims to disrupt the current dominance of fossil fuel based energy companies.  For President Obama’s promise to have any hope of succeeding, this value network needs to provide the means for the technology to diffuse further beyond the innovators and early adopters phase and into the early majority (terminology from Rogers Model of Technology Diffusion) [3].

This paper will analyze the value network of renewable energy firms and identify the weaknesses of the current value network relying on lessons from Clayton Christiansen in The Innovator’s Dilemma and other sources with a focus on removing obstacles to the further diffusion of renewable technologies.

Technology Development Lessons

There is ample evidence that there is a developing discontinuity between fossil fuel based energy and renewable energy.  Discontinuities develop in technology when there is a newer technology with a new vision and way of thinking about serving the same market demands of an older technology which has been sustained for some time and is now diminishing in its returns. 

Looking at technology S-curves can add further detail to these discontinuities and can indicate the competitive forces which have caused the discontinuity.  When renewable energy technologies are compared to carbon based sources of energy, there is a clear diminishing return of the current widespread fossil fuel based energy which can be juxtaposed against the rapid development phase present in renewable energy technologies.


There is ample evidence that carbon based sources of energy are reaching their inherent limits and are beginning to experience diminishing returns.  Much of this is based on the fact that carbon based energy sources are essentially finite at their core level.  The rapidly developing global economy - especially in countries such as China and India, with their large populations and burgeoning middle class subsets – have increased stress on supplies of global fossil fuel based energy. 

For example, using crude oil as a case study, the demand has increased to the point where sources leading the International Energy agency (IEA) have already postulated that Earth has already hit peak oil – which is the point in time when the maximum rate of global crude oil extraction is reached (this is a measure of effort on an S-curve), after which the rate of production will steadily decline over time [4],[5].

The same study by the IEA estimates that the same scenario will ultimately be true for coal and natural gas.  This makes it clear that business innovators have a unique opportunity now to develop new technologies in the renewable energy sector and that there is a significant need for this technology in the global energy market.  The challenge is to manage the renewable energy technologies in a manner in which the entrant and innovative firms can absorb market share from the fossil fuel based global energy giants – which are some of the richest companies in the world including BP, ExxonMobil, ConocoPhillips, Halliburton, etc. 

One way to utilize technology management tools in order to introduce and diffuse a disruptive technology throughout an extremely competitive market is to craft a unique value network which specifically supports the disruptive technology and adds new sources of value which the existing value network does not contain.       
 

Continue reading here.

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[1] Hamill, Meg. "The Obama Promise: Five Million New Green Jobs – Red, Green, and Blue." Red, Green, and Blue. 14 Oct. 2008. Web. 05 Dec. 2010.

[2] Schilling, Melissa A., and Melissa Esmundo. "Technology S-Curves in Renewable Energy Alternatives: Analysis and Implications for Industry and Government." Energy Policy 37 (2009): 1767-781. Print.
[3] Ledley, Fred. "Technology Life Cycles." MG646 - Management of Technology. Bentley University, Waltham, MA. Sept. 2010. Lecture.
[4] "Demand and Supply in the Post-peak Oil World | News." Eco-business.com. 25 Nov. 2010. Web. 11 Dec. 2010.
[5] "Peak Oil." Wikipedia, the Free Encyclopedia. Web. 11 Dec. 2010. .