Commercialisation

Societal Embedding of Innovations Related to Renewable Energies andEnergy Saving
Juurruttaminen uusiutuvien energioiden käytön ja energiansäästön edistämisessä

Erja Väyrynen, Sirkku Kivisaari, Raimo Lovio
VTT Technology Studies
VTT Teknologian tutkimus
Abstract
This project assesses the possibilities of constructing a market for climate-friendly energy technologies by applying the process of ‘societal embedding of innovations’. The term refers to an interactive learning process amongst three groups of key
actors: producers, users and societal actors. Theirco-operation shapes the innovation to fit the needsof the market and contributes to creation of conditions in which the innovation can be adopted.
The project consists of two case studies representing both promotion of energy saving and renewable energy sources: (1) Shaping of the ESCO energy service concept in the municipal sector and(2) Increasing the use of wood pellets in single-family houses The results of the first case demonstrate that the approach of societal embedding
has evidently contributed to the adoption of the
ESCO concept in municipalities. As an outcome ofinteraction between the key actors, a reviewed
model for municipal ESCO activities was prepared. The experiences in the second case manifest
that, given the relatively early stage of development on the market, societal embedding would
have benefited from a longer time period. The useful results in this case study include identificationof barriers for diffusion and description of theneeds for further development.
The overall results of the project indicate that amore profound understanding of the demands

made on the product by its environment has beenachieved. The findings of the case studies also
highlight the need for allocating a sufficient timespan for societal embedding as well as for adjusting the process according to the situation on themarket.
As a conclusion the project indicates that societal
embedding may promote the implementation ofclimate-friendly energy technologies in at least
three ways. Firstly, the process mobilises key actors to co-operation. This generates interactive
learning on the problem and its solving. Market
construction is forged ahead by mutual adaptationof the innovation and its environment. Secondly, thisapproach offers a tool to examine the societal quality of the innovation, a question related vitally to climate change. Thirdly, by producing new knowledgeof the needs on the market, this approach supports
the societal actors in choosing different instruments
to induce the intended transition.
Tiivistelmä
Hankkeen tavoitteena on tuottaa tietoa siitä, miten
kasvihuonekaasuja vähentävien energiateknologioiden markkinoita voidaan rakentaa ns. juurruttamisen keinoin. Juurruttamisella tarkoitetaan vuorovaikutteista oppimisprosessia, johon osallistuu
teknologian tuottajia, käyttäjiä sekä yhteiskunnallisia toimijoita. Osapuolten yhteistyöllä teknologista ratkaisua muovataan sopivammaksi markkinoiden tarpeeseen. Hanke on toteutettu kahtena
tapaustutkimuksena.
Ensimmäisessä tapauksessa on tutkittu energiansäästöinvestointeihin liittyvän ESCO-toiminta235

mallin juurruttamista kuntasektorille. Juurruttamislähestymistavan voidaan todeta edistäneen
ESCO-konseptin käyttöönottoa. Tapauksen osapuolet laativat lisäksi KuntaESCO-toimintamallinselkeyttämään ESCO-hankkeen etenemisen kriittisiä vaiheita.
Toisessa tapauksessa on pyritty juurruttamisenkeinoin tukemaan puupellettien käyttöä pientalojen tulisijoissa etenkin lisälämmönlähteenä. Markkinoiden kehitysvaihe oli hankkeen käynnistyessä
vielä varhainen ja käytettävissä oleva aika tähän
nähden lyhyt. Juurruttaminen tuotti kuitenkin hyödyllisiä tuloksia mm. käyttöönoton esteiden tunnistamisessa ja kehittämistarpeiden kuvaamisessa.
Tapaustutkimukset ovat osoittaneet, että juurruttamisprosessi on sovitettava kuhunkin markkinavaiheeseen ja sille on varattava riittävästi aikaa. Tällöin voidaan luoda toimintaympäristölle mahdollisuus parantaa valmiuttaan käyttöönottoon, ja
markkinat ehtivät reagoida tähän muutokseen.
Juurruttaminen voi edistää ilmastomyötäisten innovaatioiden käyttöönottoa vähintään kolmella tavalla. Ensinnäkin juurruttaminen saattaa avaintoimijat vuorovaikutukseen keskenään. Prosessissa
tapahtuva yhteinen oppiminen auttaa osapuolia
ylittämään havaittuja esteitä ja löytämään yhteisesti hyväksyttyjä kehittämisperiaatteita. Markkinat alkavat rakentua, kun sekä innovaatio että sen
ympäristö sopeutuvat toinen toisiinsa. Toiseksi
juurruttamisprosessi nostaa esille ilmastomuutoksen yhteydessä keskeisen yhteiskunnallisen laadun
käsitteen ja tarjoaa välineen sen monipuoliseentarkasteluun. Kolmanneksi juurruttamisen yhteydessä syntyvä tieto hyödyttää yhteiskunnallisia
toimijoita myös muiden tarvittavien ohjauskeinojen valinnassa.

1 Introduction
Strengthening the status of energy saving and increasing the use of renewable energy sources are
significant means of reducing greenhouse gas
emissions. Despite the obvious benefits, the market has not yet adopted these procedures on as large

236

a scale as one might have hoped. It can be statedthat there are both visible and invisible barriers on
the market impeding the implementation and commercialisation of these technologies.
As a part of the Climtech technology programme,
the aim of the JUMENE project is to assess the possibilities of constructing a market for climate-friendly energy technologies and to explore
prospects for enhancing the operating conditionsof Finnish energy technology businesses. Morespecifically, the project focuses on identifying the
key actors, setting conditions for the development
and for the diffusion of new technologies, and examines their needs, visions and expectations in regard to the implementation of these technologies.
Another issue studied is the possibility of building
interactive strategies between the key actors in order to develop both the technologies and the market.
The method chosen to explore these questions iscalled ‘Societal Embedding of Innovations’. This approach has been inspired by and is closely related tothe studies of ‘Strategic Niche Management’ (Kempet al. 1998), and it has been developed further at VTT
Technology Studies (Kivisaari et al. 1999).
Societal embedding of innovations can be characterised as an interactive learning process amongst
three groups of key actors: producers, users and societal actors. The innovation is shaped in co-operation to fit the needs of the market. The approach also
aims at creating conditions in which the innovation
can be adopted by its environment. This approach ismost suitable in promoting innovations that are designed to meet societal needs. The Kyoto Protocol,
the National Climate Strategy and the National Energy Conservation Programme are examples ofcommitments reflecting societal needs and necessitating measures in the sphere of energy sector.
The project consists of two case studies representing both the promotion of energy saving and renewable energy sources: (1) JUMESCO: Shapingof ESCO energy service concept in the municipal
sector, and (2) JUMPE: Increasing the use of woodpellets in single-family houses. In terms of methodology, the project represents action research.

Besides analysing the intervention processes, researchers have also supported problem solving andnetwork building by acting as convenors, catalysts
and facilitators.
The second chapter of this article focuses on thedescription of the process of societal embedding. It
also refers to recent research dealing with transition to sustainability, and considers the role of societal embedding in this transition. In the third chapter we present the results of the project and continue with discussion in chapter 4. Our conclusions
and recommendations are found in chapter 5.
This article is based on the JUMENE project report
by Väyrynen et al. (2002). The project has been
carried out by VTT Technical Research Centre of
Finland, in co-operation with Helsinki School of
Economics and Business Administration, andMotiva, an impartial service organisation implementing the government’s decisions on energy
conservation and promotion of renewable energy
sources.

2 Societal embedding ofinnovations
The objective of societal embedding of innovations is to promote the commercialisation of innovations that on the one hand yield a business profit
and on the other hand support sustainable development. The process contributes to creating conditions in which these innovations can be adopted
and, at the same time, it assists in adapting the innovation to the demands made by its environment.
This approach can be characterised as a mutual adjustment of an innovation and the needs of the market, i.e. the impact goes in both directions (Kivisaari 1999).
2.1 Societal embedding as a learning
process
The notion of societal embedding is built on theidea of innovation as a recursive process; the different stages (idea generation, development, testing and implementation) do not follow one another

Product"What is the product / service
concept to be developed?"

Actor Network

The Market"Whose expertise or approvalis needed for development?"

Interests"What are the interest of
key actors? How is theircommitment gained?"
Figure 1. The process of societal embedding as an interactive learning loop
(Kivisaari 2001).

237

in linear fashion. Instead, the stages overlap eachother. The possible problems of implementation
are built into the product in the course of the development process. The final product reflects the developers’ values and ideas - and also aspects thatthey were not aware of. So in order to secure acceptance on the market, the expertise of users, various
interest groups and regulators also needs to be integrated into the development process.
The process includes continuous dialogue and negotiation between multiple actors. It can be described as an interactive learning loop in which
both the development target and the participating
network of actors undergo continuous change. The
spiral in Figure 1 represents the time from idea
generation to diffusion of the innovation. During
this development path three fundamental questions
arise:
1. What are the desired characteristics ofthe product or service under development?
2. Whose expertise or approval is needed fordevelopment and diffusion?
3. What are the interests of key actors to participate in the development work?
During the process these questions are reconsidered repeatedly. As a result, a more thorough understanding of the development target is achieved,
new challenges emerge regarding the compositionof the development network and new commitments to co-operation need to be ensured.
Working methods

The process of societal embedding can be divided
in three main tasks:
1. Identifying the key actors setting conditions to
the development and diffusion of the innovation.
2. Describing the needs, interests and visions of
key actors
3. Finding common ground for action in development of the innovation.
The key actors are identified and their needs, interests, and visions are described by thematic interviews of a number of specialists in different positions and roles. For building a more organised picture of the market, potential key actors are categor238

Societal actors

Producers

Users

Figure 2. Key actors in societal embedding.

ised into three groups on the basis of their primaryinterest in technology development and diffusion.
Potential key actors can be found in three different
domains: we can distinguish between producers,
users and societal actors (Figure 2).
The actors referred to as producers are business organisations, which seek to financially profit fromtheir businesses. Another interest they often shareis their pursuit of technical progressiveness. The
actors referred to as users share an interest in theusefulness, usability and price-quality ratio of the
product. The group of societal actors consists ofpublic authorities involved in setting general
guidelines and of various interest groups, including the media, exerting influence on technology
diffusion. The main interest of these societal actors
can vary from technical infrastructure to employment policy and from export activities to externalcosts of greenhouse gas emissions. All these domains cover a variety of actors depending on the
product.
The various expectations and needs are discussed
in ‘multi-voiced’ seminars or organised dialogues
where key actors representing different types ofexpertise and roles are invited. The target of theseseminars is to support the interaction between producers, users and societal actors and to discovercommon ground for action.

2.2 Transition management andsocietal embedding

3 Case studies
3.1 Background

Societal embedding focuses on enhancing commercialisation of innovations that yield financial
profit and contribute to sustainable development.
However, the process can be placed into a wider
context by asking whether this approach can promote and speed up sustainable development inwider society. This question links the study withrecent literature on transition management (Kempet al. 1998, Weber and Dorda 1999, Kemp and Rotmans 2002).
Transition refers to fundamental changes in society or societal subsystems. It has been claimed thatcertain kinds of network management strategies
aiming at diffusion of sustainable innovations may
promote transition. Having been proposed as sucha strategy, ‘Strategic niche management’ introduces sustainable innovations in a probe and learnkind of manner. It pays special attention to thebuilding up of support networks, to changes required in the institutional framework and to facilitating social and technological learning processes
in experimenting with innovations. Societal embedding is based on similar ideas. Both approaches
aim at fostering development and diffusion of sustainable concepts by promoting interaction and dialogue between different actor groups.
Although this kind of network management strategies have been viewed as necessary components oftransition, not all cases of strategic niche management or societal embedding act as stepping stones
for transition. When assessing successfulness fromthe point of view of transition, attention should be
paid to the quality of learning and institutional embedding. (Hoogma et al. 2001, 2002)
Network management is often presented as themost advanced way of steering complex change
processes and it has recently gained popularity ingovernance. However, it is clear that network management alone is not effective means for advancing
transition towards sustainability. It needs to be supported by active use of other instruments, such as
regulation and economic incentives (see Kivisaari
et al. 2002, Hoogma et al. 2002).

In the JUMESCO case we examine the possibilities of implementing the ESCO service concept in
Finnish municipalities. ESCO concept is based on
the idea that ESCOs (Energy Service Companies)
offer their customers the service of taking responsibility for the implementation of energy saving investments by financing, designing and installingthe equipment, and gain their returns by taking ashare of the energy costs saved.
The significance of this case arises from the factthat municipalities are major possessors of building stock and consequently, major consumers ofheating energy and electricity. Provided the municipalities would start to apply the ESCO concept,
the volume of the energy saving market would expand considerably.
The JUMPE case aims at increasing the use ofwood pellets in single-family houses. This relates
to a more comprehensive objective of promoting
wood based energy, as expressed in the Action Plan
for Renewable Energy Sources. It has been estimated that up to 80% of Finnish single-family
houses could use wood heating at least as a supplement. The under-utilisation of fireplaces is often
due to difficulties in acquiring suitable firewood,particularly in urban areas.
Wood pellets are made from waste sawdust andcompressed under high pressure with no glues orother additives. Wood pellets offer a novel way ofusing fireplace as a secondary heating unit even inhouses with electric heating as primary system.
Wood pellets may be used in specially designed
pellet stoves standing alone or inserted into existing fireplaces. Wood pellets can also be burned in awood stove or masonry fireplace by means of a pellet basket. As a hypothesis of this case study, we
suppose that, with an increasing number of households installing a pellet stove or adding a pellet
basket to their fireplace, the peak loads in electricity consumption during the winter season would
decline.
239

3.2 Results of the case studies
JUMESCO Case

The JUMESCO case related to shaping of the
ESCO concept to meet the needs of Finnish municipalities. Based on Motiva’s know-how and contacts, three municipalities, three ESCO-businesses
and three financing institutions were identified as
potential partners for experimentation. The target
was that the three “local groups” would agree on
concrete local piloting sites for ESCO experimentation and the JUMENE project would support the
network construction and learning processes andfurther develop the ESCO concept.
The societal embedding process was carried out
according to the tasks described earlier (2.1). The
major barriers for implementation were identified
and actions were taken to find ways to remove or
attenuate them. One of the most difficult issues
concerning regulations turned out to be the legislation that necessitates the use of competitive bidding in public procurement. In a project of ESCO
nature, municipalities are in need of well thoughtout criteria for comparing the total value of different tenders. A more diversified set of appropriate
criteria, than economic efficiency, was proposed.
Other questions raising concern were financing
and guarantees for the investment, allocation of
government subsidies and municipal decision
making in outsourcing.
During the 9-month project, the local partners
were working on finding appropriate pilot sites.
Researchers facilitated the work of the tripartite local groups by identifying and decreasing barriers.
Towards the end of the project, one of the pilot sites
advanced considerably. One city and one ESCO
company entered into agreement, and the energy
saving investment of the pilot case was granted a
20% subsidy by the Ministry of Trade and Industry.
The results of the JUMESCO case demonstratethat the approach of societal embedding has evidently contributed to the adoption of the ESCO
concept in municipalities. As an outcome of interaction between the key actors, a reviewed model
for ESCO activities was prepared, with expert as240

sistance from the Association of Finnish Local andRegional Authorities and with the selected localgroups, to make the concept better fit the needs ofmunicipalities.
JUMPE Case

The experiences in the JUMPE case were in somedegree different. The relatively early stage of development on the market would have required alonger time period for the process of societal embedding. The progress in the case has been slowed
mainly by two factors. The process has revealedconsiderably more divergent interests among theactor groups than anticipated. At the same time, it
has become evident that the expectations of certain
key actors have been so weekly articulated that thepossibilities to market construction in practicehave remained remote.
However, the benefits of the approach should not
be underestimated. The useful results in this casestudy include identification of obstacles on themarket and description of the needs for further development. One of the needs expressed with emphasis has been the need for special research comparing the combustion of wood pellets and its
emissions with the corresponding results of conventional firewood. Smaller enterprises also considered testing of their pellet equipment in independent test laboratories so expensive that they
could not afford it. Their claim to subsidised testing may be justified by their own R&D needs, but
in addition, by consumers’ interest in the results.
The lack of objective test results has turned out tobe one of the obstacles for the increase in demandof pellet equipment.
Successfulness of the case studies

When assessing the success of the process of societal embedding, we have to pay attention to collective learning and to evolution of deeper understanding of the problem and its possible solutions.
As a tool we can apply the criteria Hoogma (et al.
2001) has suggested (see 2.2). The aspects hebrings forth are the quality of learning and institutional embedding. Learning is in turn divided insingle-loop learning and double-loop learning.

Table 1. Evaluation of the success of societal embedding in the two case studies.

Quality oflearning

Institutional
embeddingCriteria of success

JUMESCOJUMPE

1. Single-loop -learninggood

moderate

2. Double-loop -learning

fairly goodlow

3. Are complementary technologies
and infrastructures developed?

moderately

in some degree

4. Are credible and widely sharedexpectations produced about
what might be feasible?

to some extent

to low extent

5. How broad is the array of actorsaligned in support of the newconcept?

broadfairly broad

According to Hoogma, learning should not be limited to conventional single-loop learning but itshould include also double-loop learning. Thismeans that conceptions about technology, user demand and regulations are not only tested, but alsoquestioned and explored. As to institutional embedding, three crucial aspects are identified. The
first aspect is to consider whether complementary
technologies and needed infrastructures are developed. The second aspect relates to widely shared,
credible and specific expectations about whatmight be feasible. And the third question relates toconsidering how widely different actors – users,
producers and societal actors – are aligned in support of the new mode of operation.
Table 1 gives a simplified description of the success of the case studies according to these criteria.
The distinction between the two cases is evident;
the JUMESCO case fulfils all the criteria to ahigher degree compared to the JUMPE case. A
special characteristic of JUMESCO is the occurrence of double-loop learning (crit. 2), enabled
partially by the successive multi-voiced seminars.
In the course of the process, target setting, modesof action and roles of key actors have been questioned and reassessed. This has also contributed tothe broad support of the new concept given by the
network of actors (crit. 5).

One of the positive features in JUMPE case is theactiveness of the participants to discuss the barriers
and the ways of surmounting them. As a consequence, the commitment of actors to further development is considered to be fairly broad (crit. 5).
The weakest point in JUMPE is obviously the failure in achieving widely shared expectations about
feasible targets (crit. 4.) The key actors seem to be
in a certain kind of wait condition, not willing tomove over-hastily. Thus, the situation would be favourable for a continuation of societal embedding.

4 Discussion
The quality of an innovation is far from being an
unambiguous concept. Besides technological progressiveness, the product needs to be useful andwell integrated in the context of use and allowableaccording to regulations. When an innovation isdesigned to meet societal needs, e.g. controllingclimate change and reducing emissions, we have areason for highlighting the ‘societal quality’of theinnovation. This term refers to co-operative efforts
to secure the societal benefits and implications of
the innovation.
Realising the multi-dimensional societal quality ofa product is beyond the capabilities of the producer
alone. It calls for a continuous dialogue and co-op241

Societal
actorsSocietal benefits,
External costs,
Conformity to norms and regulations
Adaptability to social structures

Societalquality

Technical progressiveness,
Manufacturability,
Production and distribution costs,
Adaptability to distribution systems

Producers

Usefulness, Usability,
Cost of purchase and use,
Integration with existing practises

Users

Figure 3. Dimensions of societal quality with critical actors contributing to success(Kivisaari and Lovio 2000).

eration between a number of external actors. Orchestrating parallel interaction with users, producers and the wider society, including media and regulators, is needed. The three dimensions of societal
quality are presented in Figure 3.with the criticalactors contributing to the success of the innovation.
If we apply this triangular model to innovations
aimed at reducing GHG emissions, we perceivethat the technical progressiveness of the product or
its adaptability to infrastructure are not sufficientelements in market construction. Besides these,
several other questions should be solved: Who will
be responsible for external costs ensuing from theuse of the product? How will the product be integrated with existing practices of the users? What
are the prerequisites for its wider acceptance by the
public?

242

The case studies of this project may also be assessed referring to this frame. In the JUMESCO
case all key actors have participated in the discussion with their own preferences and concerns, andmost of the questions have reached a practicable
solution. Meanwhile, the JUMPE case leaves several questions unanswered, particularly from theuser perspective. For example, the conceptions of
the usefulness of pellet equipment are so far apartthat, given the limited time available, the possibility of making progress evades. These results areconvergent with the earlier evaluation in chapter 3.
Pursuing commercial success and societal quality
are by no means in conflict with each other. Instead, societal quality is a necessary precondition
for commercial success. Societal embedding offers a tool to examine, in close interaction between
the different actor groups, the various dimensionsof quality and contributes to achieving a combination of these features.

5 Conclusions
The overall results of the project indicate that amore profound understanding of the demands
made on the product by its environment has beenachieved. The findings of the case studies also
highlight the need for allocating a sufficient timespan for the process of societal embedding as well
as for adjusting the process according to the situation on the market. The market requires time foradapting to the change.
Processes aiming at commercialisation of radical
innovations are typically long lasting due to the numerous changes they require in their environment.
This also explains why societal embedding focuseson market construction by influencing extensively
on the environment of the innovation. When sufficient time is provided for the process, the groundfor co-operation is smoothened and the different
actor groups are better prepared for the implementation and commercialisation.
The heterogeneous composition of the actor
groups calls for special attention to communication, solving conflicts and maintaining momentum
during the process. Therefore the project hasbrought out the demand for an impartial consultant
managing the process of societal embedding. Consequently, research and R&D programs should include a parallel, specially funded project for societal embedding managed by the consultant.
As a conclusion the project indicates that societal
embedding of innovations may promote the implementation of climate-friendly energy technologies
in at least three ways. Firstly, the process mobilises
key actors to co-operation where different expectations and interests are articulated and awareness ofthe needs is increased. This generates interactive
learning on the problem and its solving. Market
construction is forged ahead by mutual adaptationof the innovation and its environment. Secondly,
this approach offers a tool to examine the societal
quality of the innovation, a question vitally related
to climate change. Realising the various dimensions of societal quality calls for a continuous dialogue between a number of actors, provided by so-cietal embedding. Thirdly, by producing new
knowledge of the needs on the market, this approach supports the societal actors in choosing different instruments to induce the intended transition
to sustainability.
Publications and reports made under
the project
Kivisaari, S., Lovio, R., Väyrynen, E., Saranummi, N.
2002. Public Private Partnership in Influencing
Transitions. Comparing Public Interventions for
Health Care and Energy Sector Transitions. Paper
for workshop on Transition to Sustainability through
System Innovations. Enchede 4-6.7.2002.
Lovio, R., Kivisaari, S., Väyrynen, E. 2002. Uuden teknologian kaupallistamisen ja käyttöönoton edistäminen. [Commercialisation and implementation of
new technology. (In Finnish)] In the Final Report of
the Climtech- Technology and climate change
programme. (to be published)
Väyrynen, E., Kivisaari, S., Lovio, R. 2002. Juurruttaminen uusiutuvien energioiden käytön ja energiansäästön edistämisessä – JUMENE. [Societal
Embedding of Innovations Related to Renewable
Energies and Energy Conservation. (In Finnish,with English abstract)]. VTT Research Notes. (tobe published)

References
Hoogma, R., Kemp, R., Schot, J., Truffer, B. 2002. Experimenting for Sustainable Transport, the Approach of Strategic Niche Management. Spon
Press. London and New York. 212 p. ISBN 0-41527117-7.
Hoogma R., Weber M., Elzen B. 2001. Integrated
Long-term Strategies to Induce Regime Shifts to
Sustainability. Paper presented in the conference“Towards Environmental Innovation Systems”.
7-29 September 2001. Eibsee, Germany. 25 p.
Kemp, R., Rotmans, J. 2002. Managing the transition tosustainable mobility. Paper for workshop on Transition to Sustainability through System Innovations.
Enchede 4-6.7.2002. 29 p.
Kemp, R., Schot, J., Hoogma, R. 1998. Regime shifts tosustainability through processes of niche formation: the approach of strategic niche management.
Technology Analysis & Strategic Management 10(2): pp. 175-195.

243

Kivisaari, S. 1999. Managing Societal Embedding of Innovations: The Case of Health Care. Article in
Schienstock G. & Kuusi O. (eds.), Transformation
towards a Learning Economy – The Challenge for
the Finnish Innovation System. Hakapaino. Helsinki. Sitra Series no. 213/1999, pp. 292-302. ISBN951-563-358-3.
Kivisaari, S. 2001. Kokemuksia vuorovaikutuksesta
kehittämistyössä; juurruttaminen kokeiluna. [Experiences from interaction in development work.
Societal embedding of innovations as experiment.
(In Finnish)]. VTT Technical Research Centre of
Finland, Group for Technology Studies. Espoo.
Working Papers 58/01. 54 p. + app. 16 p.
Kivisaari, S., Kortelainen, S., Saranummi, N. 1999.
Innovaatioiden juurruttaminen terveydenhuollon
markkinoilla. [Societal embedding of innovationsin health care. (In Finnish, with English Summary)]
The National Technology Agency, Tekes. Helsinki.
Reports of the Digital Media 7/99. 44p + app. 25p.
ISBN 952-9621-59-0.

244

Kivisaari, S., Lovio, R. 2000. Tuottajan, käyttäjän ja
yhteiskunnan vuorovaikutus teknologian muutoksen suuntaajana. [Interaction between producers,
users and society in the steering of technologicalchange (In Finnish)]. In Tarmo Lemola (ed).
Näkökulmia teknologiaan [Perspectives on technology]. Gaudeamus. Helsinki, pp. 218 - 238. ISBN951-662-810-9.
Weber, M., Dorda, A. 1999. Strategic Niche Management: a Tool for the Market Introduction of New
Transport Concept and Technologies. The IPTS
Report 31: 20-28.

Financing of the Commercialisation of Climate-Friendly Energy Technology
Ilmastomyönteisen energiateknologian kaupallistamisen rahoitus

Matti Pulkkinen, Ville Lehtinen
LTT-Tutkimus Oy, Helsinki, Finland
Abstract
This research concentrated on the financing of thecommercialisation of climate-friendly energy
technology from the viewpoint of business enterprises, investors and public financing. According
to the research findings, the financing does notseem to be a substantial problem to the development of climate-friendly energy technology. Capital investment in the industry has increased and, in
addition to domestic investors, international investors as well have taken interest in the Finnish environment technology. Business enterprises are alsoquite satisfied with public financing. Although thegeneral view is positive, there is room for improvement in business enterprises, investors as well as in
the public sector.
Lyhennelmä
Tutkimuksessa keskityttiin ilmastomyönteisen
energiateknologian kaupallistamisen rahoitukseen
alan yritysten, sijoittajien ja julkisten rahoittajien
näkökulmasta. Tutkimuksen havaintojen mukaan
rahoituksen saatavuus ei näyttäisi olevan ilmastomyönteisen energiateknologian kehittämisellesuuri ongelma. Pääomasijoitukset alalle ovat kasvaneet ja kotimaisten sijoittajien lisäksi kansainväliset sijoittajat ovat kiinnostuneet suomalaisesta
ympäristöteknologiasta. Lisäksi yritykset pitävät
julkisia rahoituspalveluita melko hyvinä. Vaikka
yleiskuva on myönteinen, kehittämisen varaakin
löytyy niin yritysten, sijoittajien kuin julkisen sektorinkin toiminnassa.

1 Introduction
Extensive ratification of international climatic
treaties will create a globally increasing demandfor climate-friendly technology. The growing market gives new expansion possibilities to Finnish
enterprises. Finland is already a significant agent
in some areas of energy technology.
In the last ten years the Finnish economy has become increasingly driven by financial market,
where financiers and investors play an importantrole. In Finland, the growth of climate-friendly energy industry will partly depend on the ability of
the industry to get an increasing share of the capital
investment resources. This in turn depends onwhether the expected yield is attractive enough forthe investors. Efficient public financing continues
to be an important factor, especially in the initial
phases of young business enterprises.
The research project sought answers especially tothe following questions:
1. What are the present financing opportunities
for small and medium-sized enterprises concentrating on climate-friendly energy technology, and what kinds of business and financing
plans do these enterprises have for the next few
years?
2. As an investment object, how do investors viewenergy technology, are they willing to increase
investments in Finnish energy technology, andif they are, on what conditions?
3. In the area of energy technology, how has capital investment business developed in Finlandas opposed to the rest of Europe?
4. What kind of possibilities do the different actors in Finland (Tekes, the National Technology
Agency, Ministry of Trade and Industry, Motiva,
Finnvera etc.) offer presently, and how could
these be developed further?

245

2 Technology / Methods

3 Summary of results

The data of this research was gathered with several
different methods. The state of innovation and financial environment of energy technology in Finland and abroad was examined by using earlier researches and literary sources.

3.1 Enterprises’ yield on capital high– renewable energy technology
enterprises have biggest growth
expectations

The basic method for the interviews was a theme
interview technique, which was used to gather data
in a structured though flexible manner, according
to interview situations. The interview round consisted of two parts: the interviews of authorities oncommercialisation of energy technology and on financing, and the interviews of the key personnel inthe case enterprises.
Fifteen case enterprises were selected from small
and medium-sized climate-friendly enterprisesthat manufacture energy production or operation
technology, or other enterprises that advance climate-friendly energy technology (maximum 250
employees). One criterion for selection was thatabout half of the enterprises should have risk financing. Existing balance sheets and the relevant
information gathered from the interviews wereused to draw up a financial statement analysis concerning the growth, profitability and financial status of the enterprises. When the management wasinterviewed, the main topic was the financing of
the enterprise.
In addition to the interviews conducted in the caseenterprises, the position of climate-friendly energy
technology in the financial market was analysed bygetting acquainted with capital investors’ and business angels’ views of the industry and its future.
This analysis was made with a questionnaire thatwas given to the member companies of the Finnish
Venture Capital Association and to the members ofbusiness angel network maintained by Sitra (thetarget group consisted of approximately 110 interviewees).

246

The turnover of enterprises analysed (15) varied
between fourteen thousand euros and thirty-two
million euros. On the average, the turnover of theanalysed enterprises has increased by nine per centa year in the last five years, and net earnings haveincreased even more. Overall, the financial structure is satisfactory. Capital invested in 1997 in theenterprises in the ratio of their turnovers would
have resulted in approximately forty-four per centannual yield on the portfolio. The high yield depends on many factors, but the most importantones are the comparatively good economic and operational continuity of the selected enterprises, aswell as the gain from the spread of the investments.
Although the general view of the enterprises iscomparatively good, it should be said that the analysed areas and their respective enterprises varied
significantly from each other. Some enterprises
had not even begun the commercialisation of theirproduct and their profitability was very poor.
The biggest growth expectations of the case enterprises were in the ones that dealt with renewableenergy technology (biomass excluded). These enterprises expected their turnovers to grow from thepresent two-and-a-half million euros to a hundred
million euros in the year 2005. The actualisation of
the growth predictions of the wind power technology enterprises depends on their growth in the
global market. On the other hand, the growth of thesales of earth heat pumps depends on the domestic
demand, although the export prospects to e.g. Russia are quite good.
Approximately half of the case enterprises had one
or several capital investors as a shareholder. So far
only domestic capital investors are shareholders ofthese enterprises, but about a third of them havebeen approached by a foreign capital investment
enterprise. All the interviewed small and medium-sized enterprises did not have growth objectives. In these cases the financing was not seen as aproblem, and in general these enterprises were notinterested in risk financing. The majority of the enterprises had applied and received bank loans.
3.2 Interest of capital investors is
growing – political risks slow down
investments
Many of the investors thought that enterprises developing energy technology do not have enoughknowledge of the possibilities offered by capital
investors. The capital investors have been contacted mainly by other renewable energy technology enterprises. There were also many of these enterprises among the candidates for investments. So
far, however, only one of the interviewees had
made an investment in these enterprises. The enterprises that offer software and expert services havealso been quite active. In the area of building materials, several inquiries have been made but they
have resulted only in few investments. The inquiries from the enterprises that utilise biomass seemto have resulted in investments in several cases.
The studied enterprises have not had as much contact with business angels as with capital investors.
At the moment, very few business angels consider
investments in the energy technology, and of theinterviewees only one had made an investment in
the field.
In general, the capital investors were more optimistic than business angels about the internationalisation of the climate-friendly energy technology. The capital investors thought that there isgood potential for internationalisation in biomass
and other renewable energy production, as well as
in software and expert services. The long experience and tradition in Finland, as well as the wealthof raw materials, were seen as strengths of biomass. The faith in the internationalisation of building materials was the weakest. Reasons for thiswere the regionality of the industry as well as thehard competition in the field.
The investors thought that global emission trade
and the ratification of the Kyoto treaty would significantly hasten the innovations and investmentsin the energy industry. It was also thought that theliberation and competition in the energy market
would hasten innovations. Several of the interviewees thought that the introduction of new environmental technology had too many political risks.
3.3 Enterprises satisfied with publicfinancing services – investors morecriticalIn Finland, climate-friendly energy technology isfinanced e.g. by Ministry of Trade and Industry(energy aid), Employment and Economic Development Centres (internationalisation aids etc.),
Tekes (research and development aids and loans),and Finnvera (environment loans and backings).
The interviewed (15) enterprises had extensive experience of the public sectors’ sources of financing. Tekes had financed research and development
in almost all of the enterprises either with aids orwith loans. In addition, many enterprises had received financing or backing from Finnvera as wellas backing from the employment and economic
centres. So far, the share of international financing
has not been significant. Only one of the enterprises had financing from the European Union.
The agents in the Finnish innovation chain, Tekes,
Finnvera and the employment and economic centres, got mainly positive comments from the interviewed enterprises. It is possible that the selection
criteria for the enterprises had something to dowith this. In general, the interviewed enterprises
thought that it was not a problem to get public financing for their projects. It was also thought that
there had been a lot of improvement in the public
innovation system. Finnvera has become moremarket oriented and, according to the enterprises,
they work more efficiently and swiftly. In principle, the employment and economic centres got

247positive feedback from their active attitude, butthey are still in formative stages and there is a lot ofroom for development. The research and development aid and loan from Tekes got mostly positive
comments. Although the general view is positive,
the interviews showed several possibilities for development.
The investors were more critical than the enterprises about the energy technology’s public financing system. Among other things, the investors
thought that the public agents should take greaterrisks in the financing of energy technology. The
public sector’s cautious risk taking shows e.g. in
the fact that capital investors and business angels
do not have enough good investment objects in energy and environment technology. This statement
is supported in part by the observation that all but
one of the researched enterprises had received
Tekes financing, but many of them did not have any
significant expansion plans. From this it can be deduced that these enterprises have low research anddevelopment risks and little potential for commercialisation.
All in all, an effective relationship between public
and private financing is becoming increasingly important. Capital investment activities aimed at developing business ventures has grown enormously
in our country while the public financial instruments have largely remained stagnant. One canask, if the possible changes in the public financing
will enhance the part of private financing in the industry, or if these changes add to the risks and inturn raise the costs of investments. An interestingquestion in itself is, whether private and public financing influence each other in the current situation. According to the interviews in the energy
technology enterprises, this relationship is not veryclear-cut. Some of the interviewees thought thatpublic and private financing do not have any influence on each other, while others thought that getting public financing helps in getting better terms
on capital financing. Perhaps surprisingly, many of
the interviewees thought that getting private financing helps significantly in getting public financing.

248

3.4 Strong growth in investments tothe energy sector in Europe in 2001
In recent years, capital financing has grown rapidly
in Finland. In 2001, the total sum of capital investments was 340 million euros. There were altogether 449 investment decisions that concerned
294 enterprises. In 2001, there were three investments to the energy industry that were worth approximately four million euros.
In Europe, Great Britain is the leading country incapital investments, In Finland, Sweden, Belgium
and the Netherlands there are more capital investments in high technology than on the average in the
EU. In Austria, Greece and Portugal only few capital investments are made in high technology.
The investments in the energy industry by the European Venture Capital Association represent approximately one per cent of all their investments.
Between 1996 and 2001, the investments in the energy industry increased by eighty-five per cent,with the same pace as investments altogether. In
2001, the member organisations of EVCA madealtogether 10 672 investments, of which 120 had
some connection to energy technology.
In 2001, the proportion of investments in the energy industry in Europe rose from 0.7 per cent to
2.8 per cent. In Finland, energy industry’s share of
all capital investments was about 1%. However,these figures are not comparable, because EVCA
does not separate investments in environment
friendly energy technology from investments e.g.
in power companies. EVCA’s examination of Europe covers the whole energy industry, and thepowerful growth in investments might be explained by the privatisation of energy companies
and the adjoining investments, increased investments in the energy technology and especially increased investments in the climate-friendly energy
technology.

4 Discussion
The initial assignment was significantly larger
than the actual conducted research. According to
the assignment, in addition to the commercialisation of the climate-friendly energy technology
the research should have covered the promotion of
the introduction of this technology. The researchshould also have covered an international comparison of the commercialisation and introduction ofthis technology. However, at a very early stage themanagement group of the research decided to concentrate on the financing aspect.

problem in developing climate-friendly energy
technology. Capital investments in the industry
have increased, and in addition to domestic investors, also international investors have taken interest
in Finnish environment technology. Additionally,
the enterprises were quite satisfied with the publicfinancing services.

When examining the experiences and attitudes ofcapital investors, it should be remembered that thereturn percentage of the questionnaires was notvery high, so that the results and interpretations are
not conclusive. It is probable that the questionnaires were answered more readily by those agents
who have already invested in the energy industry’s
enterprises or who considered making those investments. In this case the answers may give an
overly positive picture of the views of capital investors.

Although the general view is positive, there isroom for development in all sectors. The financing
of demonstration targets is still a substantial problem, and at least points for examination can befound in the activities of the enterprises, investors
as well as the public sector. One of these points iswhether the Tekes aid should be given at an earlier
stage, because financing is more expensive to thesmall and middle-sized enterprises than to the government and Tekes. In connection to the demonstrations, there should be a research project thatwould produce marketing material. Tekes could
also take into consideration if the demonstrations
could be viewed more as research and development than commercialisation. Some kind of risk
insurance for the financing product should be developed and used in projects that have great technological risks. Most of the OECD countries have
replaced direct support to enterprises’research anddevelopment by tax reliefs. In Finland, there
should also be consideration and analysis of the effectiveness of tax reliefs and direct aids in commercialisation of climate-friendly energy technology, as well as in other targets. In addition, there
should be a systematical comparison between theprivate and public financing of climate-friendly
energy technology e.g. in EU countries, so that theright perspective could be acquired.

5 Conclusions

Publications and reports made under
the project

One of the starting points of this research was thesuspicion that lack of financing was slowing down
the commercialisation of climate-friendly energy
technology. According to the findings of the research, financing does not seem to present a major

Pulkkinen, M., Lehtinen, V. 2002. Ilmastomyönteisen
energiateknologian kaupallistamisen rahoitus. [TheFinancing of the Commercialisation of ClimateFriendly Energy Technology (in Finnish).] LTT
Tutkimus Oy, 2002.

In evaluating the results of the research, it should
be taken into consideration that although the interviewed enterprises represent a wide range of small
and medium-sized climate-friendly energy technology enterprises, their financial position is possibly better than that of an average enterprise in theindustry. The problem with a systematic comparison between different lines of business is that the
researched enterprises work on several lines ofbusiness.

249

Markets of New Energy Technologies
Uusien energiateknologioiden markkinat

Suvi Monni, Sampo Soimakallio,
Mikael Ohlström, Ilkka Savolainen
VTT Processes, Espoo, Finland
VTT Prosessit, Espoo

ments. Cumulative investments associated withelectricity production are estimated to be around25 billion € between 2000 and 2020, including also
the capital expanditure of electricity transmission.

Abstract

The increase in electricity demand, as well as markets of energy technologies, depend on several factors, resulting in significant differencies between
estimated investments. Especially, this is the casewhen considering investments in renewables,
which are strongly dependent on international
agreements, capital grants and on other policy
measures as well as on technological development.

Some 85% of the global energy need is covered byusing fossil fuels. The demand of energy, particularly need of electricity, is increasing, but emissions of carbon dioxide should be halved to fulfil
the ultimate objective of the UNFCCC: the stabilisation of the greenhouse gas concentrations in theatmosphere. Therefore, the structure of energy
production as well as energy use are under pressure
for a significant change, resulting in increased demand of new green energy technology.
Currently, global annual energy investments are
just over 1% of gross world product. Tightened requirements for reduction in greenhouse gas emissions may result in the growth of this contribution
close to 2%.
Large investments are needed to cover the growthof electricity demand. Globally, need of additional
electricity generation capacity is assessed to be
600–1500 GW from 2000 to 2020, corresponding
to average annual investments of 90–180 billion(109) US$. In addition, by taking all the plant retirements into account, total annual investments
may be over 200 billion US$.
In the European Union, new plant requirements tocover increasing electricity needs are approximately 300 GW between 2000 and 2020. Decommissioning of power plants will, however, double
this demand, corresponding to average annual investments of 15–22 billion €.
In Finland, the demand for new electricity capacity
is assessed to be 5.5–7.5 GW in 2020. Roughly halfof the capacity demand substitutes plant retire250

Tiivistelmä
Maailmassa käytettävästä energiasta n. 85 % tuotetaan fossiilisilla polttoaineilla. Energian kysyntä
ja erityisesti sähköntarve kasvaa, mutta samalla
fossiilisten polttoaineiden käytöstä syntyvät hiilidioksidipäästöt olisi vähennettävä alle puoleen nykyisistä ilmastonmuutoksen hillitsemiseksi. Tämä
aiheuttaa merkittäviä paineita maailman energiantuotantorakenteen ja käytön muuttamiselle. Ekologiselle ja taloudelliselle energiatekniikalle on siis
odotettavissa kasvava maailmanlaajuinen kysyntä.
Tällä hetkellä energiainvestoinnit ovat hieman yli
prosentin maailman kokonaisbruttokansantuotteesta. Osuus saattaa lähivuosikymmeninä nousta
lähelle kahta prosenttia kasvihuonekaasupäästöjen
rajoittamisvelvoitteista johtuen.
Lisääntyvän sähköntarpeen tyydyttämiseen tarvittavat investoinnit ovat suuria. Maailmanlaajuisesti
uutta sähköntuotantokapasiteettia tarvitaan arviolta 600–1500 GW vuosien 2000 ja 2020 välillä.
Keskimääräisinä vuosittaisina investointikustannuksina tämä tarkoittaa 90–180 miljardia USA:ndollaria. Lisäksi käytöstä poistuvan kapasiteetinkorvaaminen saattaa nostaa kokonaisinvestoinnit
jopa yli 200 miljardiin dollariin.

EU:ssa lisääntyvän sähköntarpeen tyydyttämiseen
tarvittavan uuden kapasiteetin määrä on arviolta n.
300 GW vuosien 1995 ja 2020 välillä. Suljettavat
voimalaitokset nostavat investointitarpeen kuitenkin noin 600 GW:iin vastaavana ajanjaksona, mikä
vastaa keskimääräisinä vuosittaisina pääomakustannuksina n. 15–22 miljardia euroa.
Suomessa uuden sähköntuotantokapasiteetin tarpeen on arvioitu olevan noin 5,5–7,5 GW vuonna
2020. Karkeasti arvioituna noin puolet tästä määrästä korvaa käytöstä poistuvia voimalaitoksia.
Sähköntuotantolaitoksiin ja sähkönjakeluun liittyvät kumulatiiviset investoinnit vuosien 2000 ja
2020 välillä ovat arviolta noin 25 miljardia euroa.
Sähköntarpeen kasvu ja eri teknologioiden markkinat riippuvat monista eri tekijöistä, ja siten myös
arviot tarvittavista investoinneista vaihtelevat runsaasti eri tutkimusten välillä. Erityisen suurta vaihtelu on tarkasteltaessa investointeja uusiutuviinenergianlähteisiin, sillä ne ovat voimakkaasti riippuvaisia mm. teknologian kehityksestä, kansainvälisistä sopimuksista, investointituista ja muista
ohjauskeinoista.

1 Introduction
The use of fossil fuels, including coal, oil and natural gas, represents some 85% of the global energy
production. The demand of energy is increasing
particularly in developing countries, but also in theindustrialised world, in concomitance with a target
to reduce carbon dioxide emissions to a harmlesslevel in order to mitigate climate change. According to IPCC (2001) this means that global CO2
emissions should be more than halved. Therefore,
strong emission cuts in industrial countries shouldbe implemented within the next few decades. Significant changes in the energy production and in
the usage are required to achieve the challenging
target.
Rising to the challenge takes decades due to relatively slow energy system regeneration. Operatingtime of investments in power plants, industrial,buildings or in infrastructures typically varies from
20 to 50 years, with an annual substitution rate ofsome 3–4% (Savolainen et al. 2000). Currently,

global annual energy investments are just over 1%of gross world product. According to Nakicenovic
et al. (1998), this share may increase to near 2%,
due to emission reduction requirements.
The demand for new green energy technology is
projected to increase significantly world-wide, resulting in a generation of remarkable business possibilities for relevant enterprises. The extent of
adoption of new energy technologies is, however,limited by different types of factors. First of all,there are scientific or theoretical maximum potentialities, which do not necessarily remain at a constant level, e.g. in a case of biomass. In addition,
the amount of energy that could be produced is restricted by technological and economic aspects.
The maximum adoption potential, named as market potential, is finally generated by demand andsupply, policies of government as well as by acceptance of consumers.
The scope of this work was to study the investments needed for new energy technologies over the
next few decades. Capital expenditure was only
calculated for capacity of electric power production, due to lack of data. In addition, investments
associated with electric transmission and utilisation were not taken into account. Instead, decreaseof further investments due to technological development was assessed. Investments were examinedby energy sources from global, European Unionand from national point of view, and are expressed
as currency and as power unit, and represented cumulatively. Costs are expressed in US dollars(2000) or in euros (2000).

2 Methods
The study was carried out by using literature review and existing energy scenarios. Results of projects made under the Climtech programme werealso exploited. Two different types of approachwere used in the analysis. The first one concerned
investments associated with the whole energy system, whereas in the second one, individual energy
technologies covering wind power, solar energy,
bioenergy as well as combined heat and power production (CHP) were studied. Connection between
examined energy technology and energy system251was assessed only roughly, if at all, in the latter
type of approach.
Energy scenarios are typically based on projections of population growth and economic expansion. Assumptions concerning development ofspecific consumptions associated with different
types of economic sectors are also generally included in the scenarios. Gross world product is assessed to be three to five-fold compared with thecurrent level by 2050, due to projected populationand economic growth (Nakicenovic et al. 1998).
This means that energy demand will necessarily
increase, regardless of continuous slow development of energy efficiency. However, administrative controlling, e.g. by means of energy and environmental taxes or with emission trading, could accelerate this development due to environmental
protection matters.
In addition to above mentioned basic parameters,
the scenarios typically contain many other assumptions resulting in divergence of progression.
In fact, there could be as much different types ofscenarios as assumptions. In the analysis of investments associated with the whole energy system,
two types of scenarios were taken into consideration. One represents progression like business as
usual (BAU), whereas another describes more ecological development (ECO) with assumptions ofenergy saving.

3 Results
3.1 Global review
3.1.1 Total investments

Global primary energy and electricity demand
were estimated by using existing scenarios,
IIASA/WEC (1998), IEA (2000) and EIA (2001),
representing global energy production and use.
World primary energy need was close to 400 EJ/a,and electricity production some 12 000 TWh/a, inthe year 1990. Electricity demand will increasesome 75% from 1990 to 2020, and become threefold by 2050, in the case of BAU-scenario. The respective growth is approximately 43% and 91%, in252

the case of ECO-scenario. Proportion of electricity
from primary energy will increase roughly equally
in both scenarios through the examined period.
Thus, the growth of primary energy consumption
is slower.
The contribution of world electricity production is
projected to decrease in OECD region by 2050.
Furthermore, a shade decrease is also estimated forreforming economies (REFs), whereas remarkable
growth is assessed for developing countries by
2050, due to relatively rapid growth of populationand of economics.
Global average full-load hours for electricity production was approximately 4 300 h/a in 1998,
based on published statistics (EIA 1999). The demand of additional electricity production capacity
was calculated using average full-load hours foreach individual energy source. The need of new capacity to meet the increasing demand of electricity
varies between 600 GW (ECO) and 1 500 GW(BAU) from 2000 by 2020. Respective numbers
are 1 000 GW (ECO) – 2 400 GW (BAU) by 2030,
and 2 700 GW (ECO) – 4 400 GW (BAU) by 2050.
It should be noted that substitution of capacity thatwill be decomissioned was not totally included inthese numbers, resulting in significant underestimating of demand of new capacity. Currently, approximately 3–4% of existing capacity is substituted annually, corresponding to some 90–130 GW.
Cumulative investments in additional electricity
production capacity vary between 1 800 billion
US$ (ECO) and 3 600 billion US$ (BAU) from2000 by 2020. Respective number is roughly 2 800(ECO) – 5 300 (BAU) billion US$ by 2030, and
6 000 (ECO) – 9 600 (BAU) billion US$ by 2050.
If cumulative investments of additional electricity
generation capacity were divided equally for eachyear, the annual investments would represent
90–180 billion US$ on the average between 2000
and 2020. By taking all the plant retirements into
account, total annual investments may be over 200
billion US$.
In the case of BAU scenario, two thirds of investments result from coal, nuclear power and natural

gas plants between 2000 and 2020. Approaching
the year of 2050, the share of nuclear power will increase, corresponding to just under half of the total,
whereas the contribution of coal goes down to negligible level. The other half of the investments will
result roughly from renewables (e.g. wind power)
and from waste between 2030 and 2050.
In the case of ECO scenario, natural gas, nuclear
power and hydro power cover some 15% each of
the total investments between 2000 and 2020. Contribution of renewables and wastes is roughly 40%
over the same period, but will increase to near 90%
between 2030–2050. It should be noted that energy
saving assumed in ECO scenario will possibly require remarkable investments in usage technologies, which are not considered in this study.
Most of the investments will be implemented in developing countries. Furthermore, taking also theshort of infrastructure for electricity distribution
and supply into account, the contribution of total
investments will be even higher.
3.1.2 Investements in renewables

Estimates of global investments in renewable energy were based on several publications (e.g. IEA
1999, NCPV 2001, Clini and Moody-Stuart 2001,
BTM 2001, IPCC 2001).
Current investments in solar energy technology areat a relatively low level, corresponding around 3
billion US$ annually. Despite, the sector is growing rapidly. Assessments of global cumulative investments in solar electricity vary between 30 to 85
billion US$ by 2010, and between 180 and 850 billion US$ by 2020, respectively. The estimates published in several studies represent that investments
in solar heat are projected to be higher than in solar
electricity, at least on a short view.
Investments in wind power are also rapidly increasing worldwide, especially in Europe. Therefore, many evaluations concerning installed capacity in 2010 done at the end of 1990s have alreadybecome obsolete, due to the extremely rapid
growth of wind power market in the recent years.
However, future investments in wind energy

strongly depend on policies and measures, and naturally also on development of technologies andcosts. Thus, the assessments have quite a large
variation. The estimated global cumulative investments in wind power are 100–900 billion US$ by
2010, and 200–1300 billion US$ by 2020.
Estimates of biomass use as primary energy in theforthcoming decades are available, but the investments are difficult to assess based on these. The investment costs depend strongly on the processes
and technologies used. Biomass can also be used to
produce heat, electricity, both (CHP) or e.g. to process traffic fuels. In addition, biomass may substitute fossil fuels without large investments, or it canbe combusted together with fossil fuels. The estimates on investments in electricity produced by using biomass vary between 20 and 240 billion US$
by 2020.
Combined heat and power production (CHP) has asignificant potential, because in many areas heatand power are still produced separately, eventhough CHP might be a more economical and ecological alternative. The share of combined heat andpower production of global electricity production
was 6% in the year 2000. This share is projected to
grow to 10–30% by 2010. The future of CHP market depends strongly on ratification of Kyoto Protocol, and particularly on emission trading (Brown
2001, ENS 1999).
3.2 Consideration of the European
Union
3.2.1 Total investments

Estimates on development of primary energy andelectricity demand in the EU were based on European Union Energy Outlook 2020 (EC 1999),
where a kind of BAU scenario has been described.
No type of ECO scenario concerning the EU was
found in any study. Thus, only BAU scenario wasconsidered.
The primary energy need of the EU was approximately 55 EJ/a in 1990. It is projected to increase to
65 EJ/a by 2010, and to near 68 EJ/a by 2020 (EC2531999). At the same time, the share of the EU fromglobal primary energy need will decrease fromaround 15% in 1990 to 11–12% in 2020. Electricity production was some 2 200 TWh/a in the EU in
1990. It is assessed to grow to 3 000 TWh/a by
2010, and roughly 500 TWh/a per decade by 2030
(EC 1999). By comparing these numbers with
global electricity production estimates based on
constructed BAU scenario, the proportion of theEU will decrease from approximately 18% to near
15% during above mentioned period.
According to EC (1999), energy supply in the European union is dominated by fossil fuels over thetime period examined. Despite increasing adoption of renewables, the share of them in energy supply shall remain at a relatively low level, andachieve appr. 6% by 2020. The use of electricity is
projected to increase roughly 1.7% annually overthe period. The proportion of wind power in electricity production is assessed to grow from 0.1% in1999 to just over 4% by 2030.
According to EC (1999), approximately 300 GWof new power production capacity is needed in theEuropean union to cover the increase of electricity
demand between 1995 and 2020. If plant retirements are also taken into account, the EU will require close to 600 GW of new capacity in the same
period. Respective numbers between 2020 and
2030 are some 110 GW and near 400 GW. The useof combined heat and power production is becoming more general. Even a third of the power plantinvestments may be associated with CHP between
1995 and 2020 as well as 2020–2030.
The investment costs were evaluated by using basic assessments published in Backround Study for
the Finnish Climate Change Action Plan (MTI
1/2001), as well as estimates represented by
Nakicenovic (1998). Cumulative investments inelectricity production capacity corresponding to
the analysed scenario were assessed to be roughly
380–570 billion € from 1995 by 2020. Assumingthat these investments are divided equally between
years, the annual investments would be roughly
15–22 billion €.
254

3.2.2 Investments in renewables

In the European Union, the use of renewable energy is promoted by action plans and directives. A
target of 12% for the contribution of renewablesources of the electricity production until 2010 was
set in the White Paper “Energy for the future: renewable sources of Energy” (EC 1997), against
6% in 1996. Commission has also set a directive on
the promotion of electricity from renewable energy
sources in the internal electricity market.
In the EU, investments in solar electricity are estimated to be 6–9 billion € by 2010. Solar heat market is evaluated to be broader also in the EU, corresponding to investments of some 5–40 billion € until 2010 (ATLAS 1999, Solpros 2001a). Roughly
half of the globally installed solar electricity capacity has been installed in developing countries.
They are projected to be a significant market areafor European solar electricity industry also in the
future, especially in the case of off-grid applications (ATLAS 1997).
Europe is globally the most remarkable market areaof wind energy. Nearly all of the European wind energy capacity is installed in the EU countries, and
90% of world’s wind turbine manufacturers are European. Cumulative investments are estimated to beas high as 70 billion € in the EU by 2010. Investmentsof even 190 billion € could be achieved by 2020 (EC1997, BTM 2001, IEA 2001).
The investments in combined heat and power in theEuropean Union were estimated using four scenarios from European Cogeneration Study (Whiteley
et al. 2001) and a scenario from European Union
Energy Outlook 2020 (EC 1999). In addition,
White Book on renewable energy (EC 1997) was
also used in the case of biomass-CHP. Investments
in CHP depend strongly on market prices of the fuels used, especially of natural gas, which is themost important CHP fuel at the moment and also in
the near future. Possible deregulation of European
gas and electricity market, as well as policies andmeasures, will also have a significant impact on theinvestments in CHP. Under favourable circumstances, cumulative investments in CHP in total
may rise up to 100 billion € by 2010, and up to 190
billion € by 2020, respectively. In that case, invest-

ments in biomass-CHP may rise up to 60 billion €by 2010, and close to 70 billion by 2020.
3.3 National review
3.3.1 Total investments

Estimates on the development of primary energy
and electricity demand in Finland were based on
scenarios of the Climtech programme. Three typesof scenarios were taken into consideration. BAU
scenario represents circumstances where emission
cuts to fulfil the requirements of the Kyoto Protocol are not implemented. In addition, the fifth nuclear power plant will not be constructed in the
BAU scenario. On the contrary, preceding assumptions are fulfilled in two ECO scenarios concernedin this study. These represent conventional (CONV)and optimistic (OPT) technological development.
In Finland, primary energy consumption was some
1.1 EJ/a in 1990, and close to 1.4 in 2000. The increase of energy consumption has not been as highas the economic growth of recent years. According
to BAU, CONV, and OPT scenarios, the energy demand is assessed to rise to 1.5 EJ/a by 2010, and it
is estimated to vary from just below 1.5 to approximately 1.6 EJ/a in 2030, depending on the scenario.
Absolute consumption of electricity has been
growing steadily in Finland. Total annual electricity consumption was just over 60 TWh in 1990,
against close to 80 TWh in 2000. The consumptionof electricity is estimated to grow to 89–92 TWh/aby 2010, and to be 102–107 TWh/a by 2030.
Relatively large investments are needed to cover
the increasing demand of electricity. Besides, thepresent power and heat plants will have to be replaced gradually. In many cases the present plants
are being used as far as it is economically and environmentally reasonable, so the decomissioning
schedules are not well known. The present electricity production capacity in Finland is approximately 17 GW nominal power. The demand of newelectricity capacity is assessed to be 2–3 GW by2010, 5.5–7.5 GW by 2020 and 10–14 GW by
2030 (Kara et al. 2001). Roughly half of the capacity demand substitutes plant retirements.

Total energy investments in Finland were approximately 660 million € in 2000. The share of energy
investments were around a percent of GDP in
1990s, and it is projected to remain at the samelevel during the considered time period.
Cumulative energy investments are estimated to beroughly 17 billion € within BAU scenario during
the first decade of 21st century. These costs are assessed to be 10% higher in both ECO scenarios, resulting mainly from investments in nuclear power
plant. Respective cumulative investments are projected to be 21–22 billion € during the following
two decades within all examined scenarios.
Roughly two thirds of total energy investments areassociated with the costs of electricity production.
It should be noted that capital expenditure associated with electric transmission is included in thisshare.
3.3.2 Investments in renewables

The estimates on investments in renewable energy
in Finland are mainly based on estimates made in
Climtech projects and also on some other publications (Vartiainen et al. 2002, Solpros 2001b, Helynen et al. 1999). Like in many other countries, theinvestments in renewable energy in Finlandstrongly depend on policies and measures, on taxation and investment grants. Assessments of cumulative investments in solar energy technology vary
between 30 and 590 million € by 2010, and between 30 and 720 million € by 2020. Respectively,
investments in wind energy were estimated to be
110–590 million € by 2010 and 360–2240 million€ by 2020. Value of investments in biomass-CHP
was estimated to be some 2–5 billion € by 2010.

4 Export of Finnish energy
technology
Export of Finnish energy technology increased
significantly in the past decade (Figure 1). Value ofenergy technology export was approximately 0.8
billion € in 1990, against 3.2 billion € in 2000, corresponding to 6.5% of the whole Finnish export.
Approximately a quarter of energy technology exported in 2000 was so called sustainable technol255

3,5Energy technology exports and imports in Finland
3

ExportImportbillion euros

2,5

2

1,5

1

0,5

0
1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

Figure 1. Export and import of Finnish energy technology between 1988 and 2001 (Hernesniemi 2002).

ogy. Currently, Finland is one of the most in energy
technology spesialised country in the world.
Advanced combustion technology and associatedcomponent manufacturing is one of the strong aspects of Finnish energy technology. In addition,
manufacturing of wind power plant components
have continuously become more important in export markets. Start-up of Finnish wind power plant
manufacturing, penetrating roughly a share of 10%
from the global market by 2010, has also been settled as an objective. Annual export of Finnish wind
power technology could in that case be at least 2
billion €. The current export of Finnish solar power
products is approximately 8 million €. According
to National Action Plan for Solar Energy (Solpros
2001b), export of 115 million € by 2010 has been
settled as a target.
The total annual export of Finnish renewable energy technologies is assessed to be from 1 to 6 billion € in 2010. The potential could be even larger,
when also other sustainable energy technologies,
such as frequency converters providing more efficiency, would be taken into account.

256

5 Conclusions
The growth of electricity demand appears to be inevitable during the next few decades, regardless ofcontinuous but slow development of energy efficiency. Therefore, large investments are needed
world-wide to cover the growth of electricity demand. Globally, annual investments of additional
electricity generation capacity was assessed to beon the average 90–180 billion US$ between 2000
and 2020. Contribution of the European Union isroughly 10% of projected global investments. Furthermore, average annual investments in additional electricity production capacity in Finland
are under 1 billion € between 2000 and 2020, corresponding to some 5% in maximum of respective
invesments in the EU.
Significant differencies between examinations exist, due to numerous assumptions and uncertainties
associated with assessments. Particularly, this is
the case when considering investments in renewables, which arise from strong dependence on
policies and measures as well as on developmentsof technologies and costs.

In Finland, export of energy technologies has increased significantly in the past years. Furthermore, the demand for ecological and economic
technologies is projected to grow, resulting inemerging markets. This may considerably benefit
Finnish enterprises involved in energy technology.

Helynen, S., Holttinen, H., Lund, P., Sipilä, K., Wolff, J.,
1999. Uusiutuvien energialähteiden edistämisohjelman taustaraportti. [Backround report for the
Action Plan for Renewable Energy Sources. (InFinnish)]. Ministry of Trade and Industry, Studies
and reports 24/1999. Edita ltd, 1999. 112 p.

Publications and reports made under
the project

IEA 1999. The Evolving Renewable Energy Market.

Monni, S., Soimakallio, S., Ohlström, M. 2002. Arvioita
energiateknologian markkinoista lähivuosikymmeninä. [Estimates on Markets of Energy Technologies During the Next Few Decades. (In Finnish)].
VTT Processes, Project report PRO4/Tnnn/02.
Espoo, 2002. 69 p. (to be published).

IEA 2001. The potential of wind energy to reduce CO2
emissions. Report Number PH3/24.

References
Atlas, 1997. www-sites of ATLAS project involved in
4th Framework Programme for Research and Technological Development (RTD) of the European
Commission. http://europa.eu.int/comm/energy_transport/atlas/
Brown, M., 2001. The Global Market Opportunity – andnd
How it can be Achieved. 2 International CHP
Symposium, Amsterdam. 10 May 2001.
BTM 2001. International Wind Energy Development.
World Market Update 2000. Forecast 2001-2005.
BTM Consult ApS, 65 s, Ringköbing 2001.
Clini, C., Moody-Stuart, M., 2001. Renewable Energy:
Development that Lasts. 2001 G8 Renewable Energy Task Force Chairmen’s report.
EC 1997. Notification of the European Commission.
COM(97) 599 of 26.11.1997. Energy for the Future: Renewable Sources of Energy – White Paper
for a Community Strategy and Action Plan.
EC 1999. European Union Energy Outlook to 2020. European Commission. Serie: Energy in Europe, Special issue. November 1999. 217 p.
EIA 1999. International Energy Annual 1999. wwwpages. Table 6.3 and 6.4. Referred in autumn 2001.
http://www.eia.doe.gov/emeu/iea/elec.html.
EIA 2001. International Energy Outlook 2001. wwwpages. Referred in July 2001. http://www.eia.
doe.gov/oiaf/ieo.
ENS 1999. Cogeneration Online for Global Power
Surge. www-pages. Environment News Service.
http://www.ens-news.com

Hernesniemi, H. 2002. Stats of Finnish Energy Technology Export. Private communication 20.2.2002.
IEA 2000. World Energy Outlook. Highlights. OECD/
IEA, 2000. 92 p.

IIASA/WEC 1998. IIASA/WEC Global Energy Perspectives. www-pages. Referred in July 2001.
http://www.iiasa.ac.at/Research/ECS/docs book_st/
wecintro.html.
IPCC 2001. Climate Change 2001: Mitigation. Contribution of Working Group III to the Third assessment Report of the Intergovernmental Panel on Climate Change. [Metz, B., Davidson, O., Swart, R.,
Jiahua, P. (eds.).]. Cambridge University Press,
Cambridge, United Kingdom and New York, NY,
USA. 752 pp.
Kara, M., Hirvonen, R., Mattila, L., Viinikainen, S.,
Tuhkanen, S., Lind, I. (eds.) 2001. Energy Visions
2030 for Finland. VTT Energy. Edita Plc, Helsinki
2001.
MTI 1/2001. Teknologia ja kasvihuonekaasupäästöjen
rajoittaminen – Taustatyö kansallista ilmasto-ohjelmaa varten. [Technology and Mitigation ofGreenhouse Gas Emissions – Backround Study for
the Finnish Climate Change Action Plan. (In Finnish)]. Ministry of Trade and Industry, Publications
1/2001. Edita ltd, 2001. 198 p.
Nakicenovic, N., Grübler, A., McDonald, A. 1998.
Global Energy Perspectives. Cambridge University
Press. 299 p.
NCPV 2001. Investing PV is Good, Sound Business. Solar Electricity, the power of choice. National Renewable Energy Laboratory, National Center for
Photovoltaics, USA.
Savolainen, I., Tuhkanen, S., Ohlström, M., Pipatti, R.,
Pingoud, K., Johansson, A. 2000. Teknologia ja
ilmastonmuutos – Lähtökohtia Climtech-ohjelmalle.
[Technology and Climate Change – Starting point
for the Climtech technology programme. (In Finnish)]. Tekes, Helsinki. 65 p. Technology Review:
85/2000. Available also at: http://www.vtt.fi/
ene/Climtech/Suomi/julkaisut.html.
257

Solpros 2001a. Aurinkoenergian teknologia- ja markkinakatsaus. [Technology and Market Review of Solar Energy. (In Finnish)]. Tekes project 594/480/00.
Solpros 2001b. Kansallinen aurinkoenergian toimenpideohjelma. [National Action Plan for Solar Energy. (In Finnish)]. Road-map for Solar Energy
Technology and Markets in Finland. Tekes-project594/480/00.
Vartiainen, E., Luoma, P., Hiltunen, J., Vanhanen, J.
2002. Hajautettu energiantuotanto: teknologia,
polttoaineet, markkinat ja CO2-päästöt. [Distributed Energy Production: Technology, fuels, markets
and CO2 emissions. (In Finnish)]. Gaia Group Plc.
Edita Plc, Helsinki 2002.

258

Whiteley, M., Minett, S., Hinnells, M., Rajkiewicz, A.,
Alakangas, E., Kolin, S. 2001. The Future of CHP
in the European Market – The European Cogeneration Study. Final publishable report.
XVII/4.1031/P/99-169.

Tekes’ Technology Programme Reports

14/2002

Technology and Climate Change. CLIMTECH 1999–2002. 258 p. Sampo
Soimakallio, Ilkka Savolainen (eds.)

13/2002

Avautuneet sähkömarkkinat ja jätteiden energiakäyttö – lainsäädännöllä synnytettyinä markkinoina. TESLA- ja Jätteiden energiakäyttö -teknologiaohjelmien arviointiraportti. 62 s. Mervi Rajahonka, Lasse Kivikko, Mikko
Valtakari, Matti Pulkkinen

12/2002

Information Technology and Electric Power Systems, TESLA Technology
Programme 1998–2002. Final Report. 80 p.

11/2002

Informaatiotekniikka sähkönjakelussa, TESLA-teknologiaohjelma 1998–
2002. Loppuraportti 102 s.

10/2002

Kilpailukykyä yritysten toimintatapoja kehittämällä – GPB-, ProBuild- ja Laatu-ohjelmien arviointi. Arviointiraportti 44 s. Mikko Valtakari ja
Mervi Rajahonka

9/2002

Energiateknologiayritykset liiketoimintaympäristön murroksessa. Materiaalit
energiatekniikan palveluksessa, KESTO-teknologiaohjelma 1997–2001. Arviointiraportti. 31 s. Lasse Kivikko

8/2002

Materials for Energy Technology, KESTO Technology Programme
1997–2001. Final Report. 128 p.

7/2002

Materiaalit energiatekniikan palveluksessa, KESTO-teknologiaohjelma
1997–2001. Loppuraportti. 128 s.

6/2002

Water Services 1997–2001. Evaluation and Final Report. 132 p.

5/2002

Pigmentit paperin raaka-aineena 1998–2001. Loppuraportti. 87 s.

4/2002Global Project Business, Kansainvälinen liiketoiminta 1998–2001.
Loppuraportti.

3/2002

ETX – Electronics for the Information Society 1997–2001. Final Report. 387 p.

2/2002

Evaluation of Finnish R&D Programmes in the Field of Electronics and Telecommunications (ETX, TLX and Telectronics I) Evaluation Report. 95 p.

1/2002TLX Telecommunications – Creating a Global Village 1997–2001.
Final Report. 200 p.

14/2001

Laatu verkostotaloudessa -teknologiaohjelma 1998–2001. Loppuraportti.

13/2001

Vesihuolto 1997–2001. Loppuraportti. 94 s.

12/2001

Pro Muovi -teknologiaohjelma 1998–2001. Loppuraportti. 74 s.

11/2001

Space Technology Programmes 1995–2000. Evaluation Report. 36 p.

10/2001

Competitive Reliability 1995–2000. Evaluation Report. 2001, 42 p.

9/2001

Transport Chain Development Programme KETJU 1998–2000.
Final Report.

Subscriptions: www.tekes.fi/english/publications259