Renewable energy in european regions

Renewable energy in European regions Yoram Krozer Centre for Studies on Technology and Sustainable Development CSTM, University Twente/Sustainable Innovations Academy, Iepenplein 44, 10

Renewable energy in European regions

Yoram Krozer

Centre for Studies on Technology and Sustainable Development (CSTM), University Twente/Sustainable Innovations Academy, Iepenplein 44, 1091JR Amsterdam, The Netherlands E-mail: krozer@xs4all.nl

Abstract: The regional dynamics of energy innovation, in particular the shift

from fossil fuels to renewable energy in the EU, is discussed within the framework of neo-Schumpeterian theory The EU’s 4.2% average annual growth in renewable energy production in the last decade has been accompanied by diverging performances among the EU countries Regional performances within a country also vary The periphery regions seem to underperform, as is shown for five regions in Denmark, Germany, Netherlands, Sweden and the UK Cases of innovation networks in five forerunning regions,

in Austria, Germany, Spain and the Netherlands, suggest that the development

of renewable energy emerges from social innovations aimed at regional development, and it is driven by those change agents that can pull together national and regional policy instruments for project implementation Based on

an assessment of a province in the Netherlands, it is concluded that this development leads to the socially beneficial scaling up of renewable energy, albeit requiring capital at low interest rates

Keywords: innovation; renewable energy; costs; benefits; regions; investment;

policy

Reference to this paper should be made as follows: Krozer, Y (2012)

‘Renewable energy in European regions’, Int J Innovation and Regional

Development, Vol 4, No 1, pp.44–59

Biographical notes: Yoram Krozer is a Senior Researcher at the University

Twente and Honorary Fellow of the University of Melbourne He studied Biology, Economics and Business Administration at University Utrecht and received his PhD from the Groningen University His professional carrier covers business and non-governmental organisations, as well as consultancy to industrial, logistic, retail, tourism businesses, and to policymakers on all levels

This work addresses innovations in water, energy, land-use and environment for sustainable development The results are reflected in tangible, realised, products and services, as well as in more than 50 scientific publications and a

book Innovations and the Environment He is the co-founder of the Institute for

Applied Environmental Economics (TME), and the Cartesius Institute, Institute for Sustainable Innovations of the Netherlands Technical Universities Through membership of governing bodies and non-governmental organisations he links theory with practises

1 Introduction

Regional dynamics in the energy field in the European Union of 27 countries (EU) is discussed The dynamics is due to the shift from fossil fuels (i.e., coal, oil, gas and nuclear) to renewable energy, based on biomass and waste, hydro, solar and wind In the paper, this shift is conceptualised as a spur to innovation in an energy structure that embraces many new producers and users

An innovation is perceived here in the Schumpeter (1989, 1939, p.59) sense of ‘doing things differently’, which means new uses of technologies, which can be products, services, methods, tools, designs and images, to attain a benefit An innovation process evolves from a ‘bright idea’ of an inventor to implementation by users The process is driven by entrepreneurs who anticipate profits from investment in technology development but who are uncertain if research and development will provide technology that can be demonstrated, manufactured and sold to users, who have to take the risk in buying something new The benefit to users of innovations can be lower input costs and higher quality outputs (Drucker, 1985; Helpman, 2004) Renewable energy is a

‘disruptive’ innovation, in the terms of Christensen (2000), in that it substitutes for a dominant technological system

From the users’ perspective, higher grade outputs in energy products are the result of valorising energy product functionalities, for example processing coal to electricity and electricity storage in batteries Energy use becomes less costly through higher hydrogen

to carbon ratios per unit mass or volume, a process known as decarbonisation This provides products with higher power densities, which are cleaner and which reduce climate impacts as a positive side-effect (Ausubel, 2000; Hoffert et al., 2002) However, such highly valorised and decarbonised energy products are often very costly to produce

Similar arguments hold for renewable energy There are high grade outputs from renewable energy, such as providing a backstop on prices during periods of high oil prices, lower production costs due to diversification, back-up for energy supplies during demand peaks, stand-alone product functionalities for housing, transport and tourism (National Renewable Energy Laboratory, 1997; Sawin and Moomaw, 2009) However, the benefits of the high grade outputs are highly uncertain because they are divided among many users in the product chain, and such distributed benefits along a chain (and

in time) are difficult for individual producers to accrue (Krozer, 2008) Contrary to the shared benefits, the costs of renewable energy outputs are concentrated in the hands of energy producers, such as power companies The involved costs in the EU are considered higher than the cost of energy from fossil fuels (EU, 2008), and the required supportive policy instruments, such as the German feed-in fees, are considered costly (Walz and Schleich, 2009) Note, however, EU fossil fuel producers receive more subsidies than renewable energy producers (EEA, 2004) Renewable energy, therefore, can be utilised but it is difficult to expand given the tangible costs and uncertain benefits Finding the innovation spur that would expand renewable energy use, despite limited financial and human resources, is the major challenge facing energy business and policy in the coming decades (Steger et al., 2005)

An important dimension in such an innovation spur is the regionalisation of energy production and use, that is the localised concentration of renewable energy producers in small units, as an alternative to the mergers seen in fossil-fuel-based production, albeit that these two trends are to an extent interchangeable Many initiatives can be found in databases such as intelligent energy and managenergy, for example biofuels from

agro-waste, small hydropower plants, regional grid networks, residue heat distribution, geothermal energy in housing, wind turbine parks, electric transport and solar-enhanced products From the neo-Schumpeterian perspective, these innovations are due to regional networks that generate spill-over of stakeholders’ know-how through formal and informal interactions, for example the expertise of electricity producers that becomes available for wind energy production This institutional setting, based on localised networks, enables the take-up of risky innovation processes (Cooke and Morgan, 2000; Hospers, 2004;

Praetorius et al., 2009) The questions addressed in this paper are whether renewable energy production tends towards regionalisation and, if so, how to invoke and foster regional initiatives

Answers are based on quantitative changes in EU renewable energy production, as observed in EU statistics (EUROSTAT), and an assessment of regional performances in a few countries (Sections 2 and 3) The qualitative changes discussed are based on experiences in five regions that are considered forerunners in renewable energy (Sections 4 and 5) The effects of renewable energy investment program in Section 6

Conclusions are drawn in Section 7

2 Changing energy profiles in the EU countries

Economies in the EU have become less energy intensive, and energy production is slowly shifting from fossil fuels to renewable energy, which largely supports the change towards energy valorisation and decarbonisation as claimed by scholars However, there are large differences between the countries, as can be seen in the statistical data for 1996–2006 summarised in Appendix 1

Table 1 Energy intensity in the EU: consumption ton oil equivalent (t.o.e.) per € mln GNP

Energy intensity decrease; use in t.o.e./€ mln GNP

EU countries

<3% >3%

>300 Czech, Greece Bulgaria, Estonia, Hungary,

Latvia, Lithuania, Poland, Romania, Slovakia

Energy consumption

2006

<300 Belgium, Denmark, Germany,

Spain, France, Italy, Cyprus, Luxemburg, Malta, Netherlands, Austria, Portugal, Slovenia, Finland, Sweden, UK

Ireland

The changes in energy intensity for individual countries are presented in Table 1 The countries are positioned in quadrants based on the following criteria: energy intensity above or below 300 tonne oil equivalent (t.o.e.) per million euro Gross National Product (GNP) in 2006, and an annual average decrease in energy intensity above or below 3%

during 1996–2006 These criteria are somewhat arbitrary, but set above the EU averages

of 202 t.o.e per million euro GNP and a 1.4% decrease in energy intensity Note that, as

a whole, the EU economy is twice as energy intensive as that of Japan, although the EU energy intensity is decreasing faster, and it is four times less energy intensive than the Chinese economy which is experiencing similar rates of decrease as the EU All ten former communist countries in the EU and also Greece are relatively energy intensive,

but eight of these countries are decreasing their energy intensity at a rate well above 3% a year (up to 6.6% in Estonia) The former ‘Western countries’ in Europe are less energy intensive, but all of them, except Ireland, are only slowly decreasing their energy intensity The EU as a whole valorises its energy use even though the rate is higher in the energy-intensive former communist countries

The energy resource mix in the EU has been changing and there are large differences between countries Table 2 places countries in quadrants based on the increasing or decreasing domestic fossil fuel production and an average growth in renewable energy production above or below 5% a year, a figure somewhat above the EU average The EU has decreased its fossil fuel production by 1.3% a year and increased its renewable energy production by 4.2% a year over the period 1996–2006 Almost all EU countries progressed in terms of decarbonisation Fossil fuel production has grown in only 6 out of

27 countries, but 4 of these have also experienced high growths in renewable energy production Fossil fuel production decreased in 21 countries, although 16 of these also saw only low growths in renewable energy production

Table 2 Changes of fossil fuel and renewable energy production in % annual average growth

Renewable energy production

EU countries

<5% >5%

Increase France, Austria Greece, Spain, Italy, Slovakia Fossil fuel

production No

change or decrease

Belgium, Bulgaria, Czech, Denmark, Germany, Estonia, Cyprus, Latvia, Luxemburg, Malta*

Lithuania, Poland, Portugal, Slovenia, Finland, Sweden

Ireland, Hungary, Netherlands, Romania, UK

Note: *No data on renewable energy Overall, EU countries are decreasing the energy intensity of their economies and reducing the carbon content in their energy production The EU as a whole is shifting from fossil fuels to renewable energy but the rate of change varies from country to country

3 Convergence or divergence?

The performances in the various countries could be seen as diverging or converging

Here, the trend is determined by considering the countries’ growth rates for energy intensity, fossil fuel use, renewable energy production and renewable energy resources, over two periods during 1996–2006 The first period is one of low oil prices 1996–2002, the second saw steeply increasing oil prices 2003–2007 (Krozer, 2009)

The yardstick for divergence is the change in the standard deviation of growth The standard deviation for the period of the low oil prices is compared to that for the period of increasing oil prices If the standard deviation is larger than the growth rate, this indicates large differences between the EU countries A higher standard deviation in the second period than in the first means that the differences between countries has increased, which indicates a diverging trend (a smaller standard deviation indicates convergence) The standard deviation is formally expressed as:

( )2 1.

1

,

n i i

SD n− g g

=

where g i−g is the deviation in the growth rate from the mean, and (t 1) 1

t

SD SD

indicates divergence

The annual average growths in energy intensity, fossil fuel use, renewable energy production (and its sources), and the standard deviations of growth are shown in Table 3

In all cases, the standard deviations are much larger than the growth, reflecting large differences in developments within energy production and use between EU countries

Almost all countries have steadily become less energy intensive and, therefore, the standard deviation is low and very similar in both periods Also, almost all countries have decreased their fossil fuel production This decrease has been faster during the period of high oil prices, which can be explained by an increase in imports The differences between countries are large but the trend is one of convergence (the standard deviations are large but decreasing)

Table 3 EU average annual growth and standard deviation of growth among countries

All 27 EU countries are included Growth annual average Standard deviation All data are

percentages 1996–2006 1996–2002 2003–2006 1996–2006 1996–2002 2003–2006

Intensity (t.o.e per million euro GNP)

Fossil fuel primary production

Renewable production total

Biomass and

The growth in renewable energy production in the EU has increased from 2% during the period of low oil prices to 7% during the period of increasing oil prices However, the differences between countries have also increased The trend is thus of divergence within the EU (the standard deviation is large and somewhat larger during the period of high oil prices) There are also differences between the renewable energy resources employed

Hydropower production has decreased in all EU countries Wind energy growth slowed during the period of increasing oil prices Large differences in wind energy remain

between EU countries, although the trend is towards convergence Large and increasing differences, a diverging trend, between the EU countries can however be observed for biomass, geothermal and solar energy

There is a variety of approaches to energy development in the EU and the trend is one

of divergence between EU countries This trend could imply a development towards specialisations in various types of energy production and use Some countries may build business capacities to become a leader in renewable energy, whereas others may follow

This can foster efficient resource allocation, but it also leads to laborious policymaking in the EU

4 Regional performance

The differences between the EU countries could also be reflected in regions within a country in the sense of regional specialisations in renewable energy production One would expect the peripheral regions in a country to provide opportunities for the scattered, small renewable energy units because more and cheaper land and labour are available in the peripheries than in economic centres Unfortunately, there are no EUROSTAT data on regional energy production to investigate this expectation Although

a regional, cross-country comparison is not part of the Energizing Regional Economies (ERE) project supported by the EU INTERREG (http://www.ereproject.eu) it does provide data for energy production and use in Nordjylland (Denmark), Schleswig-Holstein (Germany), Friesland (the Netherlands), Västra Götaland (Sweden) and Aberdeenshire (UK) All these are lowlands with North Sea coasts, and the EU regional policy considers them as peripheries of their respective countries

To test our expectations, the regional output per capita is compared to the country’s overall output per capita The ratio of regional to country output per capita is a measure

of regional performance These ratios are presented in Table 4 The population density (land output) and Gross Regional to GNP (economic output) are determined from EUROSTAT data These two factors characterise the periphery The regional energy data are collected by in-country consultants and, therefore, country to region comparisons, and the cross-country comparison are only indicative because different consultants were involved in collecting the regional data and there may be inconsistencies Low energy intensity indicates a modern economy and high renewable energy use in electricity production is indicative of a demanding energy policy Total renewable energy production and its resource-wise composition indicate specialisations The basic data is contained in Appendix 2 and reproduced with permission of the Province of Friesland

All the regions considered, except Västra Götaland in Sweden, have lower population densities than their country as a whole All the regions also have lower economic output per capita that the country as a whole, except Aberdeenshire in the UK whose output is close to the national average These figures confirm the periphery nature of the regions

The energy intensities of the regional economies vary from the intensive use in Schleswig-Holstein in Germany and Aberdeenshire in the UK to the low energy intensive economy of Västra Götaland in Sweden Renewable energy use for electricity production neatly follows the economic output: the richer the region in the country, the higher the renewable energy use (a high rank correlation between the economic output and the renewable energy share in electricity, R2 = 0.87) It would seem that the politics in the richer regions are more demanding

Table 4 The regional compared to countries’ energy performance: ratio region to country

2 ) 0.5

The per capita renewable energy production in the regions is relatively low compared to the countries as a whole, except for Aberdeenshire in the UK which has twice the national average The main resources used in all the regions are biomass and wind (high rank correlations between total renewable energy production and both biomass (R2 = 0.94) and wind resources (R2 = 0.92) The wind production per capita in all regions except Västra Götaland in Sweden is well-above the countries’ production per capita

However, the traditional agricultural economies of Nordjyl land, Schleswig-Holstein and Friesland produce relatively low biomass energy compared to their host countries as a whole Hydro energy production is low in all regions because of the unsuitable geography None of the regions produce geothermal energy Solar energy production in the regions is relatively low despite, for example, Friesland having the highest solar flux

in the Netherlands

This assessment of five peripheral regions confirms the expectation that there are large energy development differences between regions within a country, in addition to large cross-country differences Renewable energy production is concentrated in regional hubs but this assessment rejects the expectation that these regional renewable energy hubs would be in the peripheral regions where land and labour are cheaper On the contrary, the peripheries underperform in these terms These findings suggest that renewable energy production does not depend on the low costs of land and labour but more on production factors, such as know-how and businesses capacities, which supports the regional neo-Schumpeterian theory on innovation networks This hypothesis, however, needs further empirical verification

Table 5 Characteristics of regional innovation networks in five forerunning regions in the EU

Region Initiators Goal Driving force Instrument Focus

Kainsdorf, Austria group + TU Citizen Regional economy Municipalities association working groups Various in the Biofuel and waste Navarra,

Spain Green Peace party Regional economy public-private Politics,

firms

Feed-in, low region tax Hydro, wind, solar

Emden, Germany energy firm Communal Sustainable business Business (public) Feed-in and local fees geothermal Wind and Freiburg,

Germany Citizen groups and politics Regional economy NGOs and local politics Feed-in and regional fee and biomass Solar, wind Friesland

Netherlands Policy makers, innovators Regional economy Politics, SMEs Various per case Efficiency, wind,

biomass

5 Regional innovation networks

A widespread notion is that innovations occur through entrepreneurial actions under favourable institutional conditions, but the characteristics of such a setting are strongly debated The mainstream theory on the cost advantages for firms of being in an agglomeration is nowadays enriched with theories that pinpoint know-how spill-overs in social networks and capacity-building through the concentration of outstanding human resources These theories are covered in prominent works (such as Malecki, 1991; Scott, 1998; Porter, 2000; Florida, 2002) Building on the results from the previous section on

regional specialisations in renewable energy, renewable developments in a few forerunners are analysed with respect to initiators, goals, driving forces, policy instruments and results This is based on interviews and the work of Weidenaar (2008) on five regions in Austria, Germany, Spain and the Netherlands The analysis is summarised

in Table 5

An initiative started in 2007 in the Kainsdorf community (6,815 hectare, 5,490 inhabitants in the Styria region of Austria) as part of the activities in the region that have been ongoing for several decades It was initiated by a citizens’ group in the region with support from the Technical University of Graz The goal is sustainable regional development, and is promoted as ‘Ökoregion Kaindorf’ The focus is on biomass and waste for transport and households, and the aim are to reduce CO2 emissions by 50% in four years, and 80% in eight years, with accompanying CO2 emission credits The driving force is an association of six communities, structured in working groups, that monitors projects and facilitates information exchange through the internet Policy instruments, if available, are used on a case-by-case basis The results, after one year, included a biofuel-powered electricity and heating plant, a joint venture by two local firms on renewable energy electricity supplies, a biofuel service station, charging points for electric transport and bicycle routes

Initiatives in Navarra (a Spanish region of 10,421 km2 with about 600,000 inhabitants) started in the late-1980s with the construction of small-scale hydropower plants and studies on wind and solar energy which led to the installation of wind turbines in 1995 By 2000, the Green Peace Party, which was in power, had initiated a renewable energy programme that is implemented through the regional energy company (EHN) with 48% public capital The goal is regional development The driving force is the regional energy company that develops and installs technologies, and takes care of billing, information and so on The main policy instruments are national feed-in fees and regional tax deductions for solar energy of up to 20% of the investment costs As

a result, in 2007, 60% of regional electricity demand was met from renewable (195 MW small-scale hydro, 935 MW wind, 5MW solar electric, 14.5 MW solar thermal and 1.8 MW biofuel) About 40 firms operate in this field, about 5000 employees are involved and it attracts young people to the region

An initiative in Emden (a German city with 51,700 inhabitants) was taken in 1991 when the municipal energy and water operator (Stadtwerke Emden) announced its renewable energy programme This received broad political and social support The company’s goal was to serve the community The initiative was taken because of the management’s awareness of the importance of renewable energy, despite uncertainty about policies since this issue had low political priority at that time The company is still the driving force and the local politicians support the policy The main policy instrument

is the national feed-in tariff system The results as of 2007 were that wind energy produced electricity was fed to almost all households in the city, the local establishment

of the largest wind turbine production plant in Germany, plus studies on communal electricity storage and communal heating from deep (3,000–4,000 metres) geothermal energy sources

Initiatives in Freiburg (a German city with a population of 205,000) started in the late-1980s when social organisations turned from campaigning against nuclear power to supporting renewable energy The goal is to foster the environment for energy conservation and renewable energy Today, the City Council is the driving force through the regional energy supplier (Badenova) which is owned by municipalities The main

instruments are the national feed-in tariff and an investment grant for solar energy funded through a voluntary surcharge on electricity (about 10% of electricity users participate in the regional fund) The results in 2007 were an eco-designed district (Vauban) and a

‘solar village’ (Schlierberg) with 50 energy-producing houses with solar and biomass sources, local solar technology development at the Fraunhofer Institute for Solar Energy Systems and Solar Training Centre, a producer of solar modules (Solar Fabrik with

130 employers) that achieves ‘zero emissions’ through using PV and biomass, solar heating and cooling, passive solar design, and other technologies Renewable energy covers about 10% of the demand of the City

Friesland (a Dutch region with 643,000 inhabitants) was among the first regions in Europe to launch, in the 1980s, use of energy saving lamps at households, a wind energy company, a municipality solar installation and other energy saving tools and renewable energy production These were social initiatives The present policy goal is sustainable regional development and both policymakers and SMEs drive initiatives They receive much social and political support but scaling up of renewable energy projects is not easy because of the small local market and limited finances Hence, several business start-ups have moved out The policy instruments are used on a case-by-case basis The results include many innovations, such as CO2-neutral houses, solar boats for tourism, solar boat races (all of these having won EU awards), gas and biofuel service stations, demonstration of household-scale micro-generators that convert heat into electricity, evaluation of energy production from the saltwater-freshwater barrier

There are several commonalities in these cases Firstly, social initiatives generally create an enabling environment for renewable energy, as in Kainsdorf, Navarra, Freiburg and Friesland, although it was a firm’s corporate social responsibility in Emden Second, the initiatives are taken with supportive policy instruments, although Kainsdorf and Friesland progressed despite having only limited instruments Thirdly, the initiatives aim

at regional development, and implementation embraces a wide range of renewable energy technologies and uses Fourth, the implementation is often driven by a change agent such

as the regional public-private utility in Navarra, public utilities in Emden and Freiburg, and a municipal association in Kainsdorf The lack of an effective change agent explains the laborious process in Friesland

Some regions have indeed become renewable energy hubs To create such a hub, social innovation is essential in the starting phase These forerunners are successful if an effective change-agency is created that pulls together funds, implements projects and develops policy instruments for the dissemination of renewable energy activities A successful process enables new firms to develop and attracts existing ones to the regions, thereby creating a regional renewable energy hub

6 Frisian investment programme

The development of a regional renewable energy hub requires efforts and funds over a long period without any assurance of benefits, and this is unattractive to individual organisations The question is whether appropriate policymaking can foster this development An assessment of the Frisian renewable energy programme throws some light onto this issue

The assessment is made within the framework of the Energy Agreement between the Dutch government and four provinces, including Friesland, signed in 2006 The overall