Disruptive innovation meets industrial policy: insights from energy transitions in Denmark and the UK

The Smart Energy Transition project has examined energy transitions in the United Kingdom (UK), Denmark and Germany from the perspectives of ‘disruption’ and ‘industrial policy’. We here summarise the overall approach and findings for UK and Denmark.

An analytical framework developed in the project identifies key characteristics of disruption and industrial policy. It includes  different dimensions of what disruption means from a ‘system’ viewpoint and ‘varieties’ of industrial policy.

The Smart Energy Transition project examined how actors within the Danish and UK energy systems understand (1) the nature and extent of disruption, (2) links between the energy sector and industrial policy and (3) how energy disruption and industrial policy interact.

Broadly, the following key findings are:

  • In the UK, despite large penetration of renewable energy in the generation mix, the system remains centralised with traditional incumbent actors still retaining the dominant market share. Community ownership constitutes only a small proportion of energy ownership. Significant technological disruption is however, taking place in the UK electricity grid.
  • The UK has had minimal green or any industrial policy in the past 30 years, while policy support for offshore wind and the nuclear industry can be interpreted as implicit industrial policy.
  • In Denmark, the traditional centralised energy system has been disrupted with a shift to a decentralised system, including more demand side management, and greater role for communities and cooperative forms of ownership. The energy transition has been driven by long term-state involvement through capital grants, subsidies, Feed-in-Tariffs, close collaboration between state and industry, and involvement of the trade union movement.
  • In terms of industrial policy, there was evidence of sustained interventions by the Danish state to promote the wind energy industry since the 1980s through a variety of mechanisms, including a long-term vision, a greater focus on skills and jobs benefits and regional clustering activities.

Status and dimensions of energy disruption in the UK and Denmark


Industrial policy in the UK and Denmark

Six propositions on the interplay of disruption and industrial policy

The relation between industrial policy and disruption is complex: the context and timing are crucial.

  • Directed ‘green’ industrial policy can enable disruptive change in the energy sector

The case of Denmark indicates how through subsidizing manufacturing, then subsidizing production, and intervening to form policies requiring the purchasing of wind energy by utilities, amongst many other changes alongside clear long-term policy goals initiated by the Alternative Energy Plan, facilitated energy disruption.

  • Lack of green industrial policy hinders energy disruption

In the UK, there is a sense of a ‘missed opportunity’ around renewables. A lack of long-term vision, lack of support around some renewables and reliance on market-mechanisms rather than coordination was thought to have influenced the slower pace of disruption in the UK

  • Renewing industrial policy can be used to manage already ongoing disruptive change in the energy sector and stabilise a new kind of energy system

In Denmark, examples of the involvement of the trade unions and seemingly greater emphasis on job creation through renewables stood out, as well as the reskilling of coal workers when divestment from coal infrastructure was taking place. There is evidence of close collaboration in both countries between the state and the offshore wind sector. In Denmark this includes state funded wind test parks and export platforms; in the UK coordination functions such as the offshore wind forum and local content requirements have been used to strengthen this technological preference.

  • Traditional industrial policy protects and maintains incumbent actors less willing to change

An example from the UK is that industrial policy is used to protect existing incumbent regimes. In this case, given the threat posed to nuclear by new low carbon technologies, the British government’s long term support for nuclear skills and training as well as policy support highlights this protective function.

  • Energy disruption paves the way for new green industrial policy

Energy disruption is perhaps an influencing factor in why industrial policy is widely being reconsidered in many countries around the world. This can be seen in the UK, where there are signs that the dominant non-interventionist economic logic is increasingly being challenged as industrial policy makes a return.

Authors

Phil Johnstone
Research Fellow, Science Policy Research Unit, University of Sussex

Paula Kivimaa
Senior Research Fellow, Science Policy Research Unit, University of Sussex

Read and download the full paper here (pdf).

 

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