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Stimulating innovation in renewable energy technologies: reflections on the German experience

by Karoline Rogge and Florian Kern

Amber Rudd, the UK’s Secretary of State for Energy and Climate Change, in last week’s speech on a new direction for UK energy policy, had a welcome section on the importance of innovation. However, it was also slightly inconsistent. Rudd said that we need to develop cheap and green technologies and that it is the government’s role to be an ‘enabler’. She also outlined the importance of creating new jobs in low carbon sectors such as offshore wind. So far so good. However, she also suggested that ‘Energy research and development has been neglected in recent years in favour of the mass deployment of all renewable technologies’. Juxtaposing innovation/R&D on the one hand and deployment on the other is not particularly helpful as research shows that a credible political commitment to deployment is key for stimulating companies’ investment in innovation and bringing down costs. In addition, phasing out competing established technologies – like the coal phase out Rudd also announced – could also become a key stimulus for investment in low-carbon innovation, as recent research from Germany shows.

Given the current energy policy debate in the UK, what can we learn from past experience of Germany when it comes to decarbonizing its electricity system, promoting innovation, enabling export opportunities and creating economic development and jobs? According to the findings of the GRETCHEN project funded by the German Ministry of Education and Research and led by Dr Karoline Rogge, Lecturer and Senior Research Fellow at the Sussex Energy Group at SPRU and Fraunhofer ISI, three key answers emerge:

  1. Consistent instrument mix: The promotion of renewable energies or other green technologies requires a well orchestrated, technology-specific combination of different instruments which stimulate knowledge development in green technologies (so called technology push), create demand for green solutions (so called demand pull) and assist the transition of the overarching system (through so called systemic instruments). In the German case, this aligned approach is exemplified by the combination of guaranteed feed-in tariffs provided through the Renewable Energy Sources Act (EEG), increasing levels of public R&D funding for renewable energies and the provision of a skilled labor force. Interestingly for the UK, German innovators viewed support through the demand pull instrument EEG as more important for their innovation expenditures than public R&D support. They were also skeptical of shifting public support from demand pull to technology push measures, as was suggested by Rudd. In addition to the existence of a consistent instrument mix, the agreed nuclear phase-out by 2022 was considered the most important policy measure stimulating the future deployment of renewable energies. Together, this instrument mix signals attractive green markets which in turn stimulates companies’ investment in green innovation. The existing innovation studies literature supports this point and shows that the focus on government simply as an ‘enabler’ might not be sufficient to achieve a speedy transition towards a low carbon economy.
  1. Firm political will: German companies further emphasized that the strong cross-party commitment to the German Energiewende is an essential driver for their green innovation activities. This finding underlines the importance of a clear political vision and unambiguous political signals for the promotion of green innovation. In the UK context Rudd rightly points to the Climate Change Act as demonstrating this long-term political will, but the medium-term future is more uncertain given the debates about the fourth and fifth carbon budget and recent changes to renewable energy support and energy efficiency policy. The GRETCHEN project showed in the case of Germany that long-term targets by themselves are not a sufficient signal but that both the instruments in place as well as political debates drive companies’ perceptions of the governments’ political will regarding green change. This is exemplified by recent debates in Germany about the future of the EEG and subsequent changes which have created some uncertainty among investors. Partly as a result of this perceived loss in policy mix credibility, the high innovation expenditures of German manufacturers have decreased in recent years and the dynamic growth of patent applications has slowed down, too. For the UK this implies that current changes in its energy policy, such as the roll back of support for renewable energies and energy efficiency, may strongly undermine the credibility of the long-term targets specified in the Climate Change Act, and thus pose a serious threat to low-carbon innovation.
  2. Focus on the benefits of green change: However, it is exactly this green technological change and resulting export opportunities which GRETCHEN project partner GWS has shown to have positive net macroeconomic effects in terms of growth and jobs. Therefore, political debates should place greater emphasis on how the low carbon energy transitions can strengthen the economy and prosperity, as was the case in Germany. Rudd points to the importance of creating new industries and jobs also in the UK. However, for this to materialize the policy mix should recognize the economic advantages of continued expansion of renewable energies for which clear medium- and long-term market prospects are needed. In addition, benefits do not only arise on a national level, but also globally. As a matter of fact, the global expansion of renewable energies is important for climate policy, because it reduces the carbon intensity of global production chains and lowers technology costs through economies of scale and learning effects. As a result it enables countries developing their electricity supply to access renewable energies more cost-effectively. Therefore, policies supporting the development and deployment of renewable power generation technologies represent a major stepping stone for reaching an ambitious global agreement at the upcoming Climate Conference in Paris. In turn, such an agreement sends strong signals for an attractive global market for low-carbon technologies, thus further driving green change. Therefore if Rudd wants the UK to be a champion for example in developing an offshore wind or carbon capture and storage industry, this should not be just seen in a UK context but as a contribution the UK can make to solving the global problem of climate change beyond reducing emissions at home. This should be part of the answer to Rudd’s question ‘What is the UK’s role in that global decarbonisation?’. In short, the German experience shows that green innovation is clearly key for decarbonising the electricity system, but focusing on government simply being an enabler and focussing too strongly on short-term cost reductions may not do the trick. And it may mean that the UK is missing out on benefits arising from stimulating such green innovation.

Interested in finding out more? Then take a look at the GRETCHEN report “Green change: renewable energies, policy mix and innovation” which Karoline and her project team from Fraunhofer ISI, GWS Osnabrück and University of Jena just published based on research funded by the German Federal Ministry of Education and Research (BMBF) as part of its funding priority “Economics of Climate Change” under the ref. no. Econ-C-026. Karoline and Florian are also currently involved in a project looking at policy mixes aimed at stimulating the emergence and diffusion of low energy innovations in the UK as part of the UK RC-funded Centre on Innovation and Energy Demand (CIED).