Energy and social innovation (WP7)

Background
Energy is a vital resource for our economies. The production and distribution in most of the European countries is traditionally controlled by major (sometimes state owned) companies and public policy. The interests of these parties converge in such a manner that they leave little room for end users, civilians and smaller actors (communes, companies) to play an active role. The means to control the energy supply and delivery in a centralised way are quite great. Not only do these major companies control a large part of the energy delivery chain, they also have the means to lock out new entrants by means of local, national and even European legislation. The main thrust in national public policies and innovation policies is oriented at liberalisation of the energy market, at the level of producers (e.g. dissociation or “unbundling” of ownership of electricity networks from the energy suppliers) and at the level of the end users (freedom to choose suppliers). Public policy is oriented at protecting the consumer by intense regulation of networks, which may be in private or public ownership, by regulation of consumer contracts.

Social problems
An important discussion about the future of energy is oriented at issue of sustainability (see also WP6). The main issues are rising levels of greenhouse gas emissions, too low energy conservation, too little sustainable production, too little engagement of consumers and SME’s in the energy production in general. European policy is fully oriented at sustainability. The “20-20-20” targets aim at three key objectives for 2020: a 20% reduction in EU greenhouse gas emissions from 1990 levels; raising the share of EU energy consumption produced from renewable resources to 20%; a 20% improvement in the EU’s energy efficiency. The EU is also offering to increase its emissions reduction to 30% by 2020 if other major economies in the developed and developing world commit to undertake their fair share of a global emissions reduction effort. The climate and energy package comprises four pieces of complementary legislation which are intended to deliver on the 20-20-20 targets: reform of the EU Emissions Trading System (EU ETS); national targets for non-EU ETS emissions; national renewable energy targets; carbon capture and storage.

Existing innovation models, social innovation
But even within this tightly regulated and controlled domain, we can see that consumers, communities and SME’s try to develop their own solutions to fit the goals of a sustainable energy future. In Europe, not only players in the energy sector but also farmers and private homeowners fund wind and solar energy projects. In the  Netherlands, for example, we can see a rise of distributed energy, small local producers and communes (nearly 600 pilots) that plan to organise local energy communities, in order to organise energy savings, local production and demand side management. Local governments may also participate in these communities. Still, customer engagement, social preferences towards direct energy consumption, perceived extra uncertainty in investments in renewable energy, social acceptance of behavioural innovations –including gender aspects- that aim to promote energy efficiency and conservation on the consumer side remain as challenges (Mimmi & Ecer, 2010). Thus, the energy issue contains several dimensions interesting for SI-DRIVE: bottom-up action, sustainable futures, and different models. Local initiatives are flowering, but up-scaling seems difficult.

The figure below shows the way the value chains differ between the traditional approach and the bottom-up approach.
The new ‘bottom-up’ value chain appears difficult to effectuate. A lot of local, national and European regulations impede this development. Moreover, it requires new roles of consumers and other users of energy and the incumbents, and the possibility for new parties to enter the market and to take up new activities. Also, the new approaches are full of contradictions and unintended consequences: for example, in the German situation, an average of a three person household pays an extra 185 euro (5,5 cents per kWh) on a yearly basis for renewable energy. Consumers who act as energy supplier via solar panels enjoy a fixed “Feed-in Tariff” with no relationship
with the actual value of energy. So, production and demand are not related to one another. This can lead to unintended situations in which on certain days an oversupply of energy is available (i.e. a warm sunny day) and consumption is insufficient and does not adapt to supply. In Bulgaria, innovation in the green energy sector has also been harmed by recent legislation regarding feed-in tariffs. Bulgarian legislation had introduced a guaranteed price for ‘green energy’ (i.e. from solar photovoltaic plants and wind generation plants) on which the decision for many investments was based. Because of fears of overburdening the energy grid, local regulators decided to allow for lower tariffs. This change would however bankrupt a lot of experiments.

The challenge for (European) public policy is to find ways to stimulate such social innovation in the different countries. The development of alternative pricing mechanisms might help to balance supply and demand in the best fashion. There is a great need to stimulate local initiatives in new technology development, new business models, services, demand response systems and pricing. Such innovations have the potential to improve energy supply security in Europe by proliferating sources of supply. Then, the question for European and national policies is to find a level playing field for major energy suppliers and local initiatives, without losing grip on the societal goals.