Value Networks and the Renewable Energy Industry: Part 2 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 2 in a series, Part 1 can be found here.)

Value Networks 

Conceptually, value networks have been defined by Clayton Christensen in two specific ways: [1]

“The context within which a firm identified and responds to customers’ needs, solves problems, procures input, reacts to competitors, and strives for profit”

“The collection of upstream suppliers, downstream channels to market, and ancillary providers that support a common business model within an industry"

Both of these definitions are crucial to the development of a technology and also show that the composition of a value network will greatly influence the diffusion and dvelopment of a new technology. A well crafted value network has been shown to allow for disruptive technological change to be introduced by entrant firms rather than established firms - who have typically remained addicted to the fueling of their sustaining innovations because of their value networks.

This parallels the situation that entrant renewable energy firms face versus the fossil fuel energy giants who have been enriched by the widespread use of carbon based energy sources.  A unique value network will not stop the older giants from using their significant financial advantage to acquire some entrant firms [2], but researchers like Christiansen would predict that they will ultimately fail at their attempts to commercialize a disruptive renewable energy technology due to not being able to pivot their organizational structures to support a different value network. 

The value network of renewable energy firms has begun to take shape.  The state of California identified and articulated a comprehensive value network of a “green economy” and for the purposes of this analysis, the “green economy” value network will serve as a model for the renewable energy value network. [3]  Much of this value network gives entrant renewable energy firms the ability to focus their investments and attention on the linkages between their disruptive technology and their suppliers, end users, and research infrastructure. 

This is the sort of business structure that entrant firms need to have in order to compete for market share against the fossil fuel giants.  My theory is that the primary metrics in value of the renewable energy sector for obtaining further market share and diffusion will be efficiency, willingness-to-pay (from consumers), and mass marketing techniques:

Efficiency:  The efficiency of renewable energies have steadily increased, however, there are still breakthroughs that will have to be made to definitively show that renewable energy can be more efficient than fossil fuels.  For example, modern solar cells can only convert around 40% of sunlight into usable energy and wind power cannot be stored and transporting the wind-based energy over long distances is difficult. [4],[5]  Overcoming these types of inefficiencies will allow the technology to more easily diffuse throughout the early majority.

Willingness-to-pay:  It should be obvious that the cheaper that renewable energy technologies are, the better they will diffuse throughout the economy.  The research in this area indicates that this is true, and that consumers do prefer to use renewable sources of energy, but not to use it if it costs them more. [6]  A useful case study of this phenomenon is playing out in the automobile arena.  Hybrid cars, despite better fuel efficiencies and advanced technological prowess over conventional combustion based cars, have only gained a ~3% market share in the USA, possibly due to a number of factors, one being the roughly $3,000 - $6,000 price over the conventional non-hybrid models. [7]

Mass marketing techniques:  There is ignorance in the consumer class regarding renewable energy technologies and how they can be utilized.  The more that people learn about these technologies, the more they will be able to discover ways that they can aid their lives.  Firms need to reach out to the uninformed consumers and give them a clear and concise message regarding their technologies and the capabilities that they can offer.

Given these critical areas of focus, I have identified several weaknesses in the renewable energy value network, which could inhibit the diffusion of the technology thoughout the mainstream populace. These are as follows: public policy mandates, public policy incentives, and emissions trading and trackings.  

Continue reading here.

[1] Christensen, Clayton M. The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail. Boston, MA: Harvard Business School, 1997. Print.
[2] Kho, Jennifer. "Big Oil Bets on Biofuels | Renewable Energy News Article." Renewable Energy World - Renewable Energy News, Jobs, Events, Companies, and More. 21 July 2009. Web. 05 Dec. 2010. .
[3] USA. California Economic Strategy Panel. Http://www.labor.ca.gov/panel/espcrep.htm. By Doug Henton, John Melville, Tracey Grose, and Gabrielle Maor. State of California, 2008. Web. 2 Dec. 2010. .
[4] Rutherford, Max. "High Efficiency Solar Panels | BiofuelsWatch.com." Biofuels, Renewable Energy & Green | BiofuelsWatch.com. Nov. 2009. Web. 11 Dec. 2010. .
[5] "Lack of Storage and Transfer Capacity Wasting Wind Industry's Energy and Profits." EnergyBoom | the Energy That Powers Change. 17 May 2010. Web. 11 Dec. 2010. .
[6] Scarpa, Riccardo, and Ken Willis. "Willingness-to-pay for Renewable Energy: Primary and Discretionary Choice of British Households' for Micro-generation Technologies." Energy Economics (2009). Print.
[7] "Hybrid Cars: Hybrid Market Share to Top 3 Percent in 2010." Hybrid Cars and Plug-in Vehicles - Hybridcarblog. 15 Dec. 2009. Web. 11 Dec. 2010. .

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