Description
Case Study for Innovation in the Wood Bio-energy Sector in Europe:- Bioenergy is renewable energy made available from materials derived from biological sources. Biomass is any organic material which has stored sunlight in the form of chemical energy.
Case Study for Innovation in the Wood BioEnergy Sector in Europe
Abstract
This article aims to analyse sources of innovations for bio-energy at the firm level and to assess which policies have supported or impeded company innovations and business development. Our analyses are based on 14 firm-level cases from eight European countries. The case study data were collected in 2008 and 2009 using common interview guidelines. The cases represent companies engaged in activities that range from wood pellet and chip production to district heating, large-scale electricity production at a pulp mill site and other bio-energy business applications in Europe. As one might expect, the contents of the cases were diverse. Although the innovations analysed had different sources, in the majority of the cases, the innovations were prompted either by emerging new market situations (e.g. rising fossil fuel prices), new available woody biomass sources, or were driven by changes in company strategies or introduced and led by visionary managers. The case studies often stress the important roles of innova-tion champions with their innovative charisma and excellent interpersonal skills. Also, policy and policy measures played an important role in many of the analysed cases. Based on the analysed results, we found that determined national policies and programmes supporting and providing favourable financial conditions for investments in the area of renewables boosted innovative activities in the use of woody biomass for energy purposes.
15.1
Introduction
There is often a gap between political ambitions regarding bio-energy use and actual bioenergy use in many European coun- tries. The most obvious explanation is that bio-energy is not price-competitive because the costs of production are too high. Thus, the use of bioenergy has not grown as expected. There are two other potential explanations: first, the capital costs of wood fuel boilers are high compared with
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those of alternative forms of heating or electricity generation; and second, the full environmental costs of use are not factored into the cost models for alternative heat and energy sources. Environmental factors, such as reducing greenhouse gas emis- sions, provide a justification for cost-share measures in bioenergy policy or carbon taxes. Some environmental benefits of bio-energy are internalized in energy prices, but policy support varies greatly from country to country.
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Many factors aside from price and environment also influence actual bio-energy use. In the popular literature, these other factors are referred to as barriers and drivers (W. White, 2007, 'Assessing drivers for bioen- ergy and biomass supply. The perspective of economics', unpublished manuscript). It is important to obtain more knowledge about these barriers and drivers because such knowledge can be used to design more efficient bio-energy policies. Many of the barriers and drivers are of the kind that economists call transaction costs. In mature, well-functioning markets, transaction costs are low. In relatively new and weakly devel- oped markets, the transaction costs may be high. Most bio-energy projects involve com- panies and other actors who do not normally cooperate, and it takes time and effort to establish trust and a cooperative environ- ment between them. The decision-making process used to establish any bio-energy system also takes time and involves several public actors. This process creates transac- tion costs associated with supply chain development (Roos et al., 1999). Another important factor influencing longterm bio-energy use is technological development and innovation (Audretsch and Feldman, 1996; Staffan and Bergek, 2004). All customers have alternatives to bio-energy, and the alternatives may become relatively less expensive over time because of innova- tion. Without innovation, bio-energy systems will not ultimately be competitive. A central concern is what may drive innovations in bio-energy systems faster or more efficiently compared with competing energy systems. According to the Oxford English Dictionary, an invention involves the crea- tion of something new, and innovation is the act of introducing something new. From an economic perspective, an invention must be advantageous, or it must minimally be thought to be advantageous, to be considered an innovation (Nybakk, 2009). It is important to distinguish between different types of inno- vation (Nybakk et al., 2008). Jenssen and Nybakk (2009) found that product, process and market innovations are affected by different innovation drivers. Furthermore, it is common to distinguish between radical
and incremental innovation (Damanpour, 1991). Radical innovation is innovation that is new and different from previous solutions, whereas incremental innovation implies smaller and more subjective new solutions adopted by a firm. Recent innovation research on the wood industry distinguishes between product, process and business system inno- vations (Hovgaard and Hansen, 2004; Hansen et al., 2006). One might also add policy inno- vation to the list of systemic innovations. Product innovation is an act that leads to new products and services. Process innova- tion is an act that leads to new processes and refers to the process that is intended to pro- duce something. Business system innovation is the act that leads to new business systems. A business system consists of everything in a company that is necessary to manage, struc- ture, operate and administrate the business and its internal and external environment (Hovgaard and Hansen, 2004). Policy inno- vation is the introduction of new enabling policy measures (Rametsteiner et al., 2010). Drivers or antecedents of innovation are frequently debated in innovation literature. Largely, research concerning innovation and innovativeness can be classified in accordance with the level of the independ- ent variable. Four levels can be distin- guished: the individual, organizational, inter- organizational and societal levels. At the individual level, the importance of individu- als or 'innovation champions' is emphasized (Schön, 1963). Jenssen and Jørgensen (2004) define an innovation champion as a person willing to take risks by enthusiastically pro- moting the development and/or implementa- tion of an innovation inside a corporation through a resource acquisition process without regard to the resources currently controlled. The second level is organizational, which focuses on organizational culture and structure (Mintzberg, 1979). Factors at the organizational level that are assumed to influ- ence innovation might be categorized as organizational structure and communication, organizational culture, strategy, incentives, finances and slack (e.g. Duduman and Bouriaud, 2007; Tidd and Bessant, 2009). At the third level, the focus is on relationships between organizations, and it is
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assumed that relationships between individuals in different companies and networks of individuals at different organizations stimulate innovation within organizations (e.g. Burt, 1992, 1997; Granovetter, 1973). At the societal level, studies on the effect of regional clusters are an important example (Porter, 1990). Porter (1990) argues that the development of clusters is essential for national competiveness. The innovation system approach is another perspective from which to study innovation. It was introduced by Freeman (1987) and is considered an approach rather than a theory. However, an institutional view of innovation is reflected in the litera- ture on systems of innovation. Institutions shape and are shaped by the actions of organizations and the relationships amongthem (Edquist, 1997). The main compo- nents of a system of innovation are actors, institutions and their interactions. Actors are considered organizations, which are seen as formal structures with an explicit purpose that have been consciously created (Edquist and Johnson, 1997). Interaction among actors and institutional settings is important for innovation activities. The basic idea is that companies do not nor- mally innovate in isolation. Instead, in the innovation system approach, innovations are seen as based on interactive learning between organizations or actors (Edquist, 1997). Several scholars have also applied an innovation system approach on the wood and forest sector (Rametsteiner et al., 2005; Hansen et al., 2006; Rametsteiner and Weiss, 2006a,b).
15.2 Research Question, Method and Introduction of Cases
Factors influencing the diffusion of certain energy technologies are the topic of several studies (Dieperink et al., 2004; Madlener, 2007; Mahapatra, 2007). Unlike other stud- ies, which focus on a particular country and on microdata, we used case studies in different countries and compared the results from an international perspective. The aim
of this study was to understand different types of innovations and their drivers in Europeanbioenergycompanies.Furthermore, we wanted to determine how external rela- tions and institutional and policy factors affect the innovations and the innovation process. During the work of the European Science Foundationfunded COST Action E51, it became evident that innovations in the bio-energy sector are very different in various European countries. This paper attempts to analyse sources of innovations for bio-energy at the firm level in different parts of Europe. Based on the similarities and differences found, the policy implications of the findings are discussed regarding how to support bio-energy business development. This study was based on qualitative case studies that were built around the examina- tion of different innovation activities in com- panies in various European countries. The case studies were used to investigate drivers of innovation, the degree and importance of networks, and policies that impede and foster development. In the following chapter, we describe 14 firm-level cases from eight European countries: Finland, Norway, Lithuania, Estonia, Poland, Romania, France and Scotland. The research design, sampling, data and analyses are outlined. The results are then presented and discussed. Finally, some implications are considered, and suggestions are made for further research. The case study data were collected in 2008 and 2009 using the same interview guidelines (originally developed by Thomas Rimmler) in all countries to increase reliabil- ity. Also, a similar semi-structured interview method was applied. The cases represented companies that engaged in wood pellet and chip production, district heating, large-scale electricity production at a pulp mill site and other bio-energy business applications in Europe. An intensity sampling strategy was used to select the cases. Themes touched upon in the interviews fell into the following four main categories: 1. What is the main innovation undertaken by the company? 2. What were the origins of the innovation?
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Table 15.1. Case company descriptions. Case no., country and firm name C1: Norway: pellets case company Case description The company produces pellets from round logs; a garbage disposal company's surplus heat is used for the drying process The company produces pellets and briquettes The company produces and delivers energy wood chips from logging residues Electricity production in pulp mills The company buys pallets, repairs them or chips them; the chips are used for the production of briquettes and pellets and sold to small industry and private users Town district heating, supplying heat to the town, installing biomass-fired boilers (to replace coal-fired ones) and partial use of own willow plantations for raw materials Company that sells different wood-made materials, recently has also expanded into combined heat and power (CHP) production from forest residues and fuel wood Large-scale heat producer that began electricity production in 2009 (CHP) Pellet producer that partly uses round wood with debarking (and sawdust from sawmills) Large-scale producer of pellets from sawdust District heating cooperative The enterprise produces wood chips both to be consumed by the estate mansion and to be sold in regional markets The company produces wood pellets for fuel/energy and for horse bedding The company sells thermal energy for heating a town in north-eastern Romania; the thermal energy is produced from sawdust and small wood residue
C2: Lithuania: pellets case company C3: Lithuania: wood chips case company C4: France: electricity case company C5: Poland: pellets case company
C6: Poland: district heating case company C7: Estonia: wood chips and fuel wood case company C8: Estonia: district heating case company C9: Estonia: pellets case company C10: Finland: pellets case company C11: Finland: district heating case company C12: Scotland: wood chips case company C13: Scotland: pellets case company C14: Romania: district heating case company
3. What actors were involved, and how important were networks? 4. How did the respondent assess the potential for this innovation in the country (including the market and policy)? A detailed overview of the studied companies is given in Table 15.1. The data were collected by different researchers from the case study countries. The first portion of the data analysis was undertaken by the researcher in each coun- try. This analysis resulted in one document from each case with 2-14 pages of text. In the second step of the analysis, these documents were compared, and the text was grouped into themes and subthemes. The results of the second step of the analysis are presented
in the following chapters and discussed in the last chapter.
15.3 Types of Innovations and their Drivers
15.3.1 Case studies descriptions
The innovations found in the 14 case stud- ies are presented in Table 15.2. Even if we had selected more innovative companies for the case studies, the innovations found would probably have been predominantly incremental. The object of investigation was bio-energy companies (mostly pellet pro- ducers and district heating companies), and
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Table 15.2. Innovations in the cases and their drivers.
Case company C1: Norwegian pellets case company C2: Lithuanian pellets case company C3: Lithuanian wood chips case company
The innovation Pioneers producing pellets from forest raw materials that were dried by surplus heat from a garbage disposal and pellets from sawdust Briquettes produced from round wood Fuel chips produced from logging residues
C4: France electricity case company
Generation of electricity from wood biomass (pulping by-products, by-products of wood industries)
C5: Polish pellets case company
C6: Polish district heating case company
C7: Estonian wood chips and fuel wood case company . Estonian C8: district heating case company
Pellets and briquettes are made from recycled pallets and sawmill waste wood. Pallets are either chipped or repaired. Chips are made into briquettes or pellets for heating purposes or sold to an OSB plant. Heat energy supply from biomass-fuelled boilers that replaced old coal-fired boilers, a willow plantation project and a straw briquette line Started combined heat and power (CHP), both heat and the electricity production in Tallinn area from wood. Initiated the use of forest-felling residues and stumps of both heat and electricity (CHP) from Production wood and peat. First time the CHP was built on such a small territory. The total available area was 2.2 ha (site of the old boiler house); normally, the territory for CHP is c . times lager in size 4-5
Source/drivers for innovation The CEO developed the idea behind the innovation and was the main driver during the start-up process; he was the internal/innovation champion. Synergy with a waste disposal partner company was key sawdust deliveries from sawmills prompted the CEO to Unstable develop an independent sawdust production chain. Innovation was driven by good demand prospects in pellet importing countries The idea born at seminars on bio-energy and exhibitions accompanying international projects on bio-energy. Environmental scanning: local supply of logging residues and local demand for fuel chips. Low transportation cost for fuel chips Governmental initiative (instrument: calls for tender, with 15-20-year fixed prices). pressure on production costs and on markets. Competitive Technical skills and characteristics of internal process of the mill There was an oversupply of wood pallets and wood waste, highly priced gas and coal, a market for pellets, CO2 issues and rising ecoawarenes s Coal was replaced by wood because of rising coal prices and the need to replace coal boilers. Cheap land offered the option of establishing their own biomass plantations, and the chairman acted as an internal visionary A visit to Nordic countries resulted in secured demand for heat from the district heating network 'Tallinna Küte', secured raw materials from Woodex, pre-negotiated sales of electricity monopoly: they owned the resource (peatland), production of • Vertical heat, pipelines for delivery to customers and sales organization
• Forest areas are nearby, but harbours where pulpwood is exported are distant, so occasionally pulpwood is sold for heat productionprice of Russian gas • Increasing • All of these factors lead to the decision to build a CHP
C9: Estonian pellets case company C10: Finnish pellets case company
C11: Finland district heating case company
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C12: Scotland wood chips case company
C13: Scotland pellets case company
C14: Romania district heating case company
Chipping and grinding from round wood; Lack of raw material (sawdust) and desired market attributes drove stationary the chipper; debarking of round wood; and flex heat debarking decision. High demand for premium quality brand. (German standard). Cooperation with equipment manufacturers company strategy shifted: more business from the processing of Technological development; investments in the efficiency The of pellet production; and service innovations: sawdust from the company's own mills and the dust bought from The other turned into pellets. Market development was focused on in company increasingly focused on providing a full-service sawmills concept that included the delivery of pellets, Finland and abroad, because the company exports most of heat its production and the maintenance of power production plants (households not included). formation of cooperation: The owners of the coopera- The increasing price of oil improved the price competitiveness of The tive increased the demand for otherwise non-marketable wood-based energy. Thus, profitability increased for the energy small-diameter wood; the community created new producer. Income also increased for the landowners from local otherwise business and jobs as well as a good image in low-value wood and jobs for the municipality (win-win) replacing non-renewable oil-based energy production with bio-wood-based energy. supply chain and process (chip boiler Improved This activity began as a response to the rising cost of energy for a forheating), and business heating mansion house on the estate. The mansion is used for very large model business purposes on a mixed highland estate that supports forestry, farming, quarrying, sport shooting and tourism enterprises. Wood procurement characterizedis by opportunistic acquisition of low-grade fuel wood CEO wanted to add value to his timber and picked up ideas for Wood pellet production with two markets. The wood The fuel that market was the intended market, and the horse while working for a landowners' association. He believed that in bedding the market was discovered by chance. Establishing a future, wood fuel was going to be promoted by the Scottish modern governpellet production enterprise in high-quality ment. They chose to produce pellets instead of chips, because buildings. pellets 'Torrefaction' technique - it removes moisture from are more convenient and easier to handle. They started to the produce woodchips in a vacuum. The brand name for the wood pellets for horse bedding after noticing that another product: distributor 'Stovies'. The raw material is sourced locally from was selling pellets to the horse trade. The plant was designed to the use estate's own woods and from a nearby sawmill. The sawdust, but because it compromised the quality of the pellets, key they innovation is to make the right choice of the raw stopped using it material and to produce the right sort of fibre (without bark or twigs). and hot water from wood Heat In a national setting, new logistical equipment for sawdust collection, residues new buffer stores for sawdust; new thermal power plant; new distribution network; the replacement of the old heating equipment in buildings' basements with new conduits; a new system for thermal energy production based on sawdust, chips or bark
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this approach limited the possibility of find- ing significant product innovations. As seen in Table 15.2, most of the innovations were basically incremental process innovations and often associated with sup- ply chain innovations. Two of the compa- nies, one Norwegian (C1) and one Estonian (C9), were both local pioneers, using round logs in pellet production. In these cases, the innovations were not related to the end- product but were process innovations enabling the utilization of round logs. In Norway, pellet production with roundwood as a raw material was normally seen as unprofitable because of the high energy cost related to drying. However, the Norwegian company was the first in Norway (and one of the first in the world) to produce pellets directly from raw material from the forest, ideally from round logs. The company obtained its lumber from the forest: tree trunks were ground into chips, and after- wards, the raw chips were dried with warm air from the refuse disposal plant. After dry- ing, these were manufactured into pellets. The company was also one of few pellet producers in the world to use lowtempera- ture drying in pellet production. Several of the other case companies made larger invest- ments in new equipment and improved processes as their main innovation (e.g. Lithuania and Scotland). The Lithuanian case (C2) is an example of incremental innovation. The pellet and briquette producer exports 90% of its output. They were strongly dependent on sawdust deliveries from sawmills because the company was exposed to unstable round wood markets, resulting in varying quanti- ties of available sawdust. Confronted with such a situation, the management decided to implement a process innovation by developing a sawdust delivery chain, with the sawdust produced directly from round wood. The company decided to make an investment. They bought a wood chipper and put it into operation, thus decreasing the company's dependence on uncertain sawdust deliveries from sawmills. The innovation was driven by a strongly rising wood pellet demand in Europe. The man- ager displayed innovative behaviour, if not
features of an innovation champion, being able to analyse the present situation, as well as foresee the market developments and create a vision of the company's future. The two Finnish companies developed a business system innovation. In the energy cooperative (C10), the most important innovation was the establishment of cooperation. The owners of the cooperative increased the demand for otherwise nonmarketable small-diameter wood. Similarly, the community created new local business and employment and improved its image in replacing non-renewable oil-based energy production with bio-wood-based energy. This cooperation was possible because all key players (forest owner, community, inhabitants, forest transportation entrepre- neurs and heat producers) had something to gain from the system created. The increas- ing price of oil improved the price competi- tiveness of woodbased energy (although fluctuating oil prices are able to alter market conditions markedly). In the other Finnish case (C11), the most important innovations were classified as both business system and process innovations. There were both technological developments, including investments in the efficiency of the pellet production, and service innovations: the company increasingly focused on providing a full-service concept that includes the delivery of pellets, heat production and the maintenance of power plants. These serv- ices did not emphasize households as main customers, because the company operated on a somewhat larger scale. The company also exported large amounts of pellets. In one of the Scottish cases (C13), the most important innovation in recent years was a torrefaction technique ( process inno- vation) that removes moisture from the wood- chips in a vacuum. A further innovation was the spontaneous market innovation that emerged after the wood pellet producing process was initiated: the discovery of a major new market for the wood pellets in the 'horse bedding' market. The Romanian case (C14) was also a combination of process and business system incremental (local) innovation. When it was initiated in 2004, the innovations introduced
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were of national significance because the technologies that were used, even if they were not the latest in this field, were the most modern in Romania. Examples of the innovations are as follows: (i) new logis- tical equipment for sawdust collection; (ii) new buffer stores for sawdust; (iii) a new thermal power plant; (iv) a new distribution network; (v) the replacement of the old heating equipment in the buildings' base- ments with new conduits; and (vi) a new system for thermal energy production based on sawdust, chips or bark. The main results and outcomes of implementing this innova- tion were: (i) the capacity to produce cheap energy from wood residue; (ii) a new price for the energy produced in this power plant, which was half the average price of energy in the country; (iii) the self-evident ecologi- cal benefits; and (iv) the improvement of the region's image, which became more attractive to tourists. As stated above, most of the innova- tions in the Romanian case (C14) were pro- cess and business system innovations. In the Polish pellets case (C5), we also discovered product innovations that were new to the firm and a local market. The direct stimulus for establishing the firm was the possibility of utilizing wood waste in the form of pal- lets and sawdust. The oversupply of wood pallets and other waste wood was the basic reason for initiating the production of pellets. The waste wood was chipped and then pelletized, with a portion of the chips sold to a chipboards manufacturer. The CEO argued that the factors that were conducive to innovative activities in wood pellet production were ecological awareness in society and local demand. Local demand was enhanced because of the presence of areas without the natural gas infrastructure that would make it possible to use natural gas for heating purposes for inhabitants living there. The pellets also proved to be a cheaper fuel than heating oil and coal, and, because of their relatively low ash content, they were regarded as convenient to use. The French case (C4) was one of prod- uct innovation at the organizational level. The case company operates three pulp man- ufacturing units, producing fluff pulp for
absorbent products (nappies, etc.) and kraft pulp. The drivers of innovation are two constraints on the current production: increases in production costs and market pressures on the products. In 2007 and 2008, the company faced tighter fibre sup- ply conditions, with higher costs for raw materials. An additional pressure came from a sharp increase of fossil fuels, leading to higher costs of chemicals and transport. The Law on Water, passed in 2006, raised water costs, which are important in pulp production. Conversely, the company's main market (kraft pulp) is a mature, world- wide market (dominated by multinational companies) that fixes the reference price leading the company to behave as a price- taker. The erosion of prices in 2009 has endangered the business. Moreover, the long-term trends of paper consumption (kg paper/inhabitant) are uncertain and may well decrease. The determinants of demand (the development of the information soci- ety, government policies related to the reduction of paper consumption, and com- petition from other materials) may also decline. These constraints drove the company towards new markets and oriented activities to innovation. In accordance with legal objectives, the public authorities issued three calls for tenders and brought an opportunity to develop the innovation in energy production. Conversely, the other Polish case (C6) presented a typical process innovation. In the Polish district heating case, the main innovative activities begun in recent years were centred on three topics: new boilers fuelled with biomass that replaced old coal- fuelled ones; a willow plantation estab- lished in 2002 (with the initial idea that the firm could cover 60-70% of its heating needs with its own biomass sources); and a straw briquette-manufacturing line, with the straw briquettes sold to a large power station in the western part of the country. Each of the innovations proved successful, except the willow plantation, where major cultivation problems appeared. The replace- ment of old coal-fuelled boilers with new biomass-fired ones was the most important innovative activity and was directly tied
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with the willow biomass produced on land owned by the company. The main drivers behind the innovation were rising coal prices, cheap agricultural land with the potential to produce willow biomass and the need to renew the heat-producing infrastruc- ture (boilers). What must be stressed here is the vital role of the company chairman, who acted as an engine and driving force and was able to stimulate the entire company management structure to formulate a new energy supply programme for the town.
15.3.2 Drivers for innovations Previous research emphasizes that there are many different innovation drivers at different levels. Some of the literature concerns inter- nal and external factors driving firms' inno- vative behaviour. Related to the case studies analysed in this work, one can distinguish four levels driving innovations: the individ- ual, organizational, inter-organizational and societal levels. Here, the innovation drivers varied from country to country and among firms in each country. The Norwegian case (C1) clearly illustrated the importance of the 'innovation champion': the innovator and the engineer in a small business were the same person. Many actors were involved, but one person (or, at most, a few) turned the innovations into new business opportu- nities. Ultimately, it appears that several of the external actors were not very sup- portive. The champion theory is supported by several research findings (Jenssen and Jørgensen, 2004). Other cases (e.g. the dis- trict heating company in Poland) also emphasized the importance of the CEO and/ or the owner. In at least one case in Scotland (C15), the existence of an 'innovation cham- pion' was highlighted. This individual par- ticipated in as many activities as he could (e.g. shows, seminars and fairs around the country), but he recognized that much more could be done 'if there were six of him'. Environmental scanning is often seen as an important innovation driver (Jenssen and Nybakk, 2009). It encourages CEOs' and other managers' awareness of emerging trends and
can often lead to the recognition of innova- tion possibilities (Auster and Choo, 1994). First, the manager can learn about customers' preferences, demands and willingness to pay fordifferentproductsandservices.TheEstonian pellets case company began by producing pellets from round wood with a new chip- ping and debarking machine. The innovation was mainly based upon the observation of market needs using scanning. A similar situation was noticed in one of the Lithuanian cases (C3). A small family company doing forest contracting work in wood harvesting, forwarding and hauling saw a developmental chance in producing fuel chips from logging residues. The enter- prise was aware of the local logging residue supply because it was a material that they used to leave behind in the clear cut areas where they performed wood harvesting operations. Also, a local heating plant was located in the area, securing a stable demand for woody fuels. Thus, environmental scan- ning enabled the enterprise to develop by diversifying the product it offered. Secondly, CEOs and managers can learn about and be updated on technological changes and competitors. Companies in other regions or countries are more likely to have different information and ways of solving technical problems. In the Estonian wood chip and fuel wood case (C7), the ideas came from a visit to similar plants in Nordic counties. In one of the Scottish cases (C13), the CEO and a forester employee developed contacts with boiler builders, communicated with other people and conducted horizontal networking in a very practical way. In the other Scottish case (C12), the owner visited wood fuel plants in Germany, Northern Ireland and England before building his own plant. In procuring the plant, he made inquir- ies to several manufacturers. One particular engineering firm was especially useful because it immediately offered sensible advice and suggestions for the machinery that should be purchased. Thirdly, the social and economic environment is changing, as are public regulations and support programmes (e.g. Auster and Choo, 1994). To gain a competi- tive advantage, it is therefore important
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systematically to scan a company's surroundings for signs of possible opportunities and threats arising from new policy, which could reduce costs for new entrants or pro- vide funding for new initiatives. Today, with the ongoing debate on how to promote bio-energy to reduce CO 2 emissions, this type of scanning is especially important. For example, in Scotland, the Climate Change (Scotland) Act 2009 created a statu- tory framework for greenhouse gas emis- sions reductions in Scotland by setting an interim 42% reduction target for 2020, with the power for this figure to be varied based on expert advice, and an 80% reduction tar- get for 2050 (Part1). Similarly, in Lithuania, state promotion of wood heating plants created demand and local markets for woody fuels, indirectly helping woody fuel production chains to develop. Organizational-level innovations (emerging trends, updates to technology and scan- ning the social and economic environment) were not the emphasis in the Finnish cases, though we directly asked about this element. In all likelihood, the managers and develop- ers of the new bio-energy business did pay implicit attention to changes in the business environment (i.e. the managers and develop- ers of the companies were so involved in developing bioenergy that they could not even recognize it).
15.4.1. Strong ties in the innovation process These network ties, though often informal, are clearly visible in the Polish district heat- ing case. The main actors involved in the principal innovative activity were higher educational institutions (two universities), businesses providing technical advice and sharing their experience, the town authori- ties, local banks and other partners with whom contact had been established while visiting technology fairs and exhibitions. The variety of organizations involved in the innovative activity resulted not only from the complex nature of the innovation but also from the devotion and charisma of the company chairman. The network that was built was a complex one, with the compa- ny's stakeholders and shareholders (the local municipality, the housing cooperative and a few industrial plants) standing at its centre. Vertically, the structure of the net- work mirrors the material flow. Wood bio- mass suppliers deliver chips from a number of wood industries to the heating plant where they are converted to heat and deliv- ered to apartment blocks, public buildings and industrial plants. The lateral form of cooperation is much more complex, because it includes higher education institutions' providing advice (e.g. on the willow planta- tion), banks and government organizations providing advice on the possibility of using public funds to pay for the innovation, and other (often small) businesses providing technical assistance, advice and support. As a result of this network, a relatively small district heating company was able to implement successfully a costly innovation and fund it largely using public funding. In the course of achieving innovative activities, a network of formal and informal links was established. The flow of information in the network happened in business and town council meetings, at exhibitions and fairs, and through personal, and often informal, contacts. Books and professional journals were named as important sources of infor- mation concerning innovative activities. In the Norwegian pellet case (C1), the factory was built in connection with the refuse
15.4
External Relations in the Innovation Process
As described earlier, innovation is an interactive process within a company or among companies, organizations and other actors. These ties can be both weak (with occasional interactions, e.g. casual acquaintance) and strong (which implies more regular interactions within networks). The strength of a tie depends on factors such as trust and friendship. Stronger ties often go beyond short-term market transactions and include more long- term and stable partnerships. In Table 15.3, the importance of cooperation between different actors involved in the analysed innovation processes is emphasized.
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Table 15.3. Descriptions of networking and the networks' importance for the innovation. Importance for the innovation Medium/large degree importance: cooperation with the garbage disposal was of special importance
Case company C1: Norway: pellets case company
Network description
C2: Lithuania: pellets case company: C3: Lithuania: wood chips case company France: C4: electricity case company C5: Poland: pellets case company
Relatively low importance Relatively low importance Significant importance with regard to practical feasibility and realization of innovatio n importance. The weak network was Low not vital for the realization of innovation. Important role of information flows
C6: Poland: district heating case compan y
High importance. The innovation would not have been possible without the network. Numerous problems in the course of the innovative undertaking required cooperation on the part of very different agents
C7: Estonia: wood chips and fuel wood case compan y
A separate company is buying all of their pellets, does the logistics further down the value chain, and assists with marketing and sales (domestic & exports). Local forest owners provide timber via a forest owners' organization (co-owner). A garbage disposal partner plant provides the heat for drying. Other energy companies are co-owners and, in some cases, customers provide sawdust. Foreign wholesalers and end-users (90% Sawmills of production). Association of businesspersons and financial institutions. A specific association for pellet & briquette manufacturers may be beneficial residues from state forest company. All sales to local heating Harvest plant. Little contact with association. Owner does not believe in networking collaboration with banks (leasing loans) and with the national External professional organization of pulp and paper industries No formal cooperation with any major institutions, authorities or businesses. Vertical chain providing feedback: wood pellet and waste suppliers (the pellet company), pellet buyers (private and small industry). Weak lateral network resulting from contacts with similar businesses (advisory role and exchange of experience). Important role of information flow from sources like wood machinery fairs, journals, the Internet and personal contacts network: local wood industries as biomass suppliers, local Vertical heat consumers (private residents, public institutions and businesses). Lateral network: local municipality, housing cooperative and industry, higher education and research institutions - advisory roles. Consultancies and banks provided economic analyses and prepared application documents for public funding. Smaller companies provided technical support. Vital role of personal contacts with science and business representatives. Important role of information sources: visits to fairs and exhibitions, access to trade journals for wood procurement: forestry firms, transport and Network logistics. In cooperation with the Estonian State Forest Management Centre control regarding potential suitability of forest felling residues for chip test production. Buyers of heat and electricity were mentioned as important partners, but not as much as network partners. Suppliers of technology were mentioned, but the contact was not frequent enough for them to be called an actor in a network (this contact was more a normal buyer/seller relationship) Low importance
Low importance
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Clients and marketing channels were important for changing technology Low importance. The main driver has been the company in working to develop its own busines s Significant importance. Without the network, the cooperative would not have been established or been operational
Strong importance at establishment of informal networks built to help scope projec t High importance for practical feasibility and realization of innovation
C8: Estonia: district heating Network for wood procurement case company Estonia: pellets C9: Research - University of Technology, equipment manufacturers, case other compan companies, market representatives of end-users in other y Finland: countries of company-owned and other sawmills that provided C10: A network pellet raw compan material (mainly sawdust) for pelleting. A network of different y companies to increase the size of the plant. A company network to conduct research to improve the quality of pellets and extend its raw material base for wood chip procurement and heat service - local forest owners, C11: Finland: Network district heating case wood procurement company, municipality and the cooperative, company which charged the users of the heating services. The network was originally developed under a special project of the local Forestry Centre (District Government on Forestry), which invited different actors to discuss cooperation and later to agree to the establishment of the cooperative rely mainly on an informal network of actors. Making contact with C12: Scotland: wood chips They ascase many key players as possible (almost all of whom were private company sector operators), visiting existing set-ups and learning from others' mistakes is considered more useful academic research on the subject. They never paid consultants, and their confidence on the expertise of institutions was almost zero Forestry Commission and the Biomass Development Officer have C13: Scotland: The pellets been case very helpful in promoting the enterprise outside and inside the municipal area. company They are the core actors in the public sector - Aberdeenshire Council; Chamber of Commerce: Arbuthnott Wood Pellets applied for a business award that has some connections with the Chamber of Commerce and networking: making contact with as many key players as C14: Romania: Scouting district possible. heating case The network is mainly composed of different power plants from company the 2000 project, environmental agencies, the town municipality, Sawdust the Romanian government and the Danish Agency for Environment Protection. No collaboration with R&D or universities Networks are very important. The existence of the analysed Thermal Power Plant is a consequence of network's existence. Networks are used to recruit new actively
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disposal plant. This co-location not only provided a good use for surplus heat but also allowed joint operation with the mutual utilization of the competence and manpower of the two companies (i.e. the waste disposal and pellet businesses). In addition, the forest owners' organization and several energy com- pany coowners were involved in pellet production. The CEO in the Scottish pellets case (C13) also emphasized the importance of his network of contacts. The company belongs to the Aberdeen Renewable Energy Group, which has regular meetings. It also belongs to the biomass group that is part of the renew- able energy group and is represented in shows, seminars and fairs around the coun- try. The CEO also attempts to participate in as many networking events as he can. Other important actors who help the case company with marketing are the Forestry Commission and the regional Biomass Development Officer (a public sector official). They help to promote the company both outside and inside the municipal area. The raw material for wood pellets is sourced locally from the estate's own forest and a nearby sawmill, fromwhichoff-cutsareobtained.Additionally, there are several other important actors from the public sector. Maintaining a large net- work may be a key to success, but sustaining a large network of contacts can also be costly and very time-consuming. The CEO recog- nizes that he could do more if he had more time. This lack of time is a major challenge of setting up, running and building networks for an enterprise where one individual is pivotal. In the French case company (C4), two main network partnerships were created. First, the company established three leases, one for each installation, with banks. The long-term contracts for electricity generation provide guarantees of revenues, reducing the risks associated and facilitate borrowing. The leasing form enables the company them to distribute installation costs over a period at a predetermined interest rate with an option on ownership, rather than a major one-off investment. The second partnership, with the national Paper and Board organiza- tion, facilitated resolution of difficulties in
collaboration with public authorities, enabling practical implementation. At the inception of the Norwegian company, different private companies, associa- tions and public organizations had an important role, but the entire process was driven by the inventor and CEO. The Estonian power and electricity production company (C8) generally did not consider suppliers of technology to be network partners, because (for them) it was more a weak, short-term buyer/seller relationship. The forestry com- panies, suppliers of round wood or chips, were mentioned as network partners, but they were assigned low importance. There was competition in the timber market, and if one supplier was having problems, then the others would be available. At the inception of the Romanian company (C14), the process was driven more by a system of actors. The project or case company is based upon cooperation between the Romanian government and the Danish Agency for Environment Protection, as well as the Environmental Protection Inspectorates in the different counties involved. The Danish Agency for Environment Protection has been involved in developing and co-financing a large number of projects in Romania, with Neamt County as the specific target area. Sawdust, bark and wood waste had been stockpiled in many places, causing a consid- erable impact on the natural environment. The new plant reduced local pollution from the wood industry and changed the heating system from a reliance on fossil fuels to the use of bio-energy. In 2000, the project was developed by the Romanian Agency for Energy Conservation, the Danish Agency for Environment Protection and local Romanian agencies for environment protection from different counties, together with a consulting firm with engineers. There were five loca- tions selected. With respect to lateral cooper- ation, the Danish Agency for Environment Protection and the Romanian government were, collectively, both the initiator and the finance institution on the basis of the Kyoto Protocol. At the same level, other actors were involved: the European Union, which funded 'Sawdust 2000' through a Phare Project; the municipality (as the proprietor and finance
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institution); and two companies that offered consultancy and coordinated the activities (because they were permanently in contact with the municipality and the Danish Agency for Environment Protection). Vertical coop- eration existed both before and after imple- mentation between the municipality and the staff of the power plant to assure the proper functioning of the plant. The Sawdust 2000 project allowed the establishment of five power plants in Romania. Thus, it created an interesting network for horizontal coopera- tion: the five plants remain connected through their managerial staff. In addition, as part of horizontal cooperation, the plants communi- cate with environmental agencies and cus- tomers that provide the feedback needed for permanent adaptation to new innovations.
15.4.2 Weak ties in innovation process In contrast to the networks presented above, both Lithuanian cases showed relatively insignificant or underdeveloped network- ing. In the case of the smaller family enter- prise doing forest contracting work and producing fuel chips, this is understanda- ble. However, in the other case (the pellet manufacturer) the network observed was insufficient, and the company's manage- ment was aware of it. Although the pellet manufacturing company (C2) was a member of a local business association and estab- lished contacts with banks and leasing com- panies, no consulting or advisory bodies were present in the network. This absence led to a situation in which the management had to gather almost all the necessary infor- mation by itself. The CEO expressed a strong need to establish an association of woody fuels producing enterprises. The Polish case (C5) may be regarded as nearly the opposite of the network in the previous case (C6). The pellet manufactur- ing company, employing only six people, did not build a strong formal network. However, in the course of the delivery of wood pallets and other waste wood to the company, before the innovation to the pel- letizing line was initiated, certain vertical
ties with suppliers were established that facilitated the information flow. Ties with pellet buyers, however, appeared later when the pelletizing line began operations. A weak lateral network was also noted; the company management, being active in waste wood processing, had contacts with other similar businesses that served as sources of information and advice. Thus, the information flow proved decisive in the process leading to the innovation. Here, different wood processing machinery fairs, exhibitions and trade journals played an important role in delivering information on technical solutions. Finally, the company was aware of the potential local market for wood pellets before the idea of the innova- tion was even developed. This awareness indicates that information on the local mar- ket demand must have been available to the management, and it was sourced informally through unofficial contacts. Indeed, exter- nal relations are often not fully perceived because they have the character of relations based on acquaintance, friendship or accidental meetings. Also, the low importance of the net- work was highlighted in both Estonian case studies (C7) and (C8) and in the case of the Finnish pellet company (C10) where the companies developed the business and innovations without the support of other actors. Here, the networks are important only in terms of the companies' efficiency regarding the provision of raw material and the maintenance on the market.
15.5 Institutional and Policy Factors Affecting Innovations in Bio-energy
The supporting and impeding actors related to the different cases are presented in Table 15.4. The institutional settings in the different countries differ. The CEOs' views of the policy instruments also vary between companies in the same country. In the Estonian electricity production cases (C8), political 'lobbying' was needed to change the local legislation Energy Act, wherein electricity production from local
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Table 15.4. Positive and negative impact(s) of policy. Case Supporting factors Opposing no. factors C1: Subsidy at inception. The grant was an important factor in the endeavour Support to households was not sufficient. Subsidised Norway: to undertake the project. Subsidies were provided to private households electric pellets case prices in many municipalities. Subsidised addition to for the compan the purchase of pellet stoves. Subsidies were also provided to trade electric grid but no corresponding goals for bioy and energy industry for investment in pellet stoves markets enabled the company to develop by exporting the majority C2: Open No direct subsidies were provided, and the policy has not Lithuania: of production. Financial support through EU been pellets case the main supporting factor. Underdeveloped local market programmes for compan pellets. No promotion of woody fuels use in y households support of investment into wood chip production C3: The innovation within the company was not supported directly by any political No direct Lithuania: wood means. However, indirectly, the state promotion of wood heating from logging residues chips plants case created demand for wood chips. Additionally, the EU company programmes supported the purchase of wood chip production equipment C4: Calls for tender instruments (not direct subsidies like subsidies as part of the Visibility of investment is reduced because guaranteed prices France: electricity case investments) but fixed prices guaranteed for electricity between calls for tenders are different. Uncertainty produced of compan investment in R&D activities in y future support to small companies innovating through C5: Price relations are favourable for woody fuels; prices are a basic tool Insufficient Poland: forsupporting RES. Rising eco-awareness in pellets case eco-friendly projects. Still insufficient advertising of wood society as compan a source of y energy procedures for public funding too C6: Government subsidies for investments in eco-friendly projects (95% of Application Poland: complicated district heating the investment was in various ways supported by the government). Plantations case with energy plants are financially supported by the government. company Obligatory renewable energy quotas for companies dealing in energy legislation and energy policy: the use and production renewable C7: EU In the planning stage, the legislation did not support the idea; Estonia: energy wood should be increased; the opening of the electricity market in Estonia another factor was the proximity of the Iru Power Plant, chips (which a and fuel occurred more slowly than in the rest of the European Union) Estonian subsidiary company of the state-owned wood energy monopolistic case policy: by 2010, the share of renewable electricity would be 5.1% (in electricity and power production company Eesti it company 2007, Energia Support from Tallinn City government (is it a political was 1.75%) issue?) own management team made a significant effort and took the initiative The old version of the energy act, which regulated the principles C8: Their Estonia: district heating to change the Energy Act so that local fuels could be used for of energy price and return on investment electricity (investment case production. When the law was changed, the opportunity emerged to payback) in electricity production. The Earth's Crust company start Act planning the CHP. In the current 'Development Plan of the (earlier, it was important for peat production, with Estonian permits Electricity Sector until 2018', more attention is paid to energy production from local communities), not important from a forestry point from renewable energy sources (including bio-fuels) The of view. Waste Act: currently the ash from CHPs cannot Sustainable be Development Act in 2005 set some limits on monopolistic activities by used for further production (e.g. construction, Eesti road Energia (at that time an electricity producer using oil shale; since 2009, construction this ) company also uses wood for electricity production)
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C9: Estonia: pellets case compan y C10: Finland: pellets case compan y C11: Finland: district heating case company
C12: Scotland: wood chips case compan y C13: Scotland: pellets case compan y C14: Romania: district heating case company
Availability of different support programmes and grants offered by Enterprise Estonia that are co-financed from the EU structural funds. The company studied different programs. However, during that time, it did not find one that could meet its needs, and thus, it did not use any of them support for R&D: mainly knowledge on pelleting technology. In Public the future, the extension of the raw material base for pellets will be emphasized in R&D. Investment support for households if they replace oil boilers with pellet boilers subsidies for harvesting young stands (the purpose being to support State forest growth) and for chipping. Without these subsidies, the chipbased energy would not be price competitive. Public support for R&D: knowledge of small-scale heating ability and technology. A person at the Forestry Centre (district government Office on Forestry) made the network work. He ran the plan and enabled different partners to cooperate. His salary was partly paid by regional development funding for a special project coordinated by the Centre aid for biomass boilers was Grant available
In end user markets (in different countries), CO2 quotas and support programs for obtaining kettles/boilers that use pellets will create additional demands for pellets No impeding policies identified, though the slow growth in the number of households using pellets for heating has caused debates regarding whether the policy measures have been sufficient and efficient During the municipality planning stage, the use of pipelines for hot water heating was not obligatory or even an option to consider. Even now, this use is not obligatory, but since the municipalities learned that district heating using wood chips is an option, they have invested in pipelines
Weak support from the state authorities that comprised the official support system. Regulatory and planning environment limiting the renewable energy options of the estate license to handle the waste (sawdust) produced The funding for the plant was 40% grants from the Scottish Biomass Support Needed Scheme and 60% from the company's own capital. A policy 'window' was open for just a few months, but AWP managed to capitalize on it to provide support for setting up the plant Danish Agency for Environment Protection, the initiator and finance institution No opposing factors identified (28% of the total cost). EU support through the Phare Project (36% of the total cost). Romanian state institutions: the necessary legal framework was created for the implementation of the Sawdust 2000 project. The Romanian government, through the Romanian Agency for Energy Conservation and the town Municipality, supported 36% of the total cost of the project
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(bio)fuels (including wood and peat) was not allowed. In this way, the state protected its own electricity production monopoly. After changes to the Energy Act, the final planning of combined heat and power plants by private businesses could be initiated. When in the Estonian case enterprises began electricity production from wood, the state-owned company also started to use wood in addi- tion to oil shale (in 2009). After that change in the local timber market, the biggest forest management organization, the State Forest Management Centre, created a new subdepartment: the Wood Energy Division. In the French case (C4), the public authorities issued three calls for tenders for electricity generation from biomass in respect to the national objectives for increases in renewable energy sources (RESs). The national objectives are reinforced by the latest European and national legislation. The revised directive for the promotion of energy from RESs establishes an objective for France of 23% of energy being produced from RESs in 2020, strengthened by the new national legislation increasing the objective of elec- tricity production from biomass (MEEDDAT, 2009). The calls for tenders created an oppor- tunity for business, ensuring the sale of elec- tricity produced at a predetermined price for a certain period (15-20 years). It provides guarantees on future revenues and increases the security of the investments. In electricity generation, the case company possesses both the technical skills necessary to run the process and opportunities in internal proc- esses with chemical pulping. In this context, the calls for tender brought opportunities to realize the constraints. The stimulating role of policy in supporting innovative activities that led to the implementation of clean technologies (e.g. heat production from biomass) can be clearly noted in the Polish district heating case. New biomass-fuelled boilers that replaced the old coal-fired ones were funded up to 95% with public money set aside by the government in the form of different eco- funds for ecoinvestments. Various policies that are often very general and only set direc- tions for future development usually result in more specific documents specifying rules
and financial means and measures that sup- port the activities described in those poli- cies. Such a situation enabled the district heating company to make use of financial means of ecoinvestment, thus contributing to the realization of the eco-policy. Using these methods of funding is often perceived as difficult, because the application proce- dures are complicated and require experi- ence and knowledge. With this in mind, the importance of building networks, including financial consultancies, cannot be overesti- mated. Another stimulating instrument that had its origins in the policy and was specified in greater detail in resulting legal documents was the financial support for the willow plantation. Growing willows, which are considered an energy plant, entitles the company or farmer who wants to establish an energy plantation to certain financial assistance from the government. This meas- ure encourages firms and formers to set up energy plantations, thus contributing to innovative activities. Yet another factor that contributed to the successful performance of the district heating company was the obliga- tory renewable energy quota that has to be met by all firms that deal in energy. This quota results indirectly from the energy pol- icy. On one hand, this obligation requires solutions and innovations related to the use of renewables among firms dealing in energy. However, it also provides them the opportu- nity to sell their bioenergy production to energy giants, for example, who simply have to meet their obligatory quotas, leading to better financial results for the innovator. This dynamic can also be perceived as indi- cating the stimulating role of centrally adopted measures and policies. The Polish pellets company case (C5) was not able to use public funding, because its application was not strong enough to secure such funding. When asked about political factors supporting innovative activities in the bio-energy sector, the CEO mentioned the favourable price relation- ship between woody and fossil fuels and the rising eco-awareness of the public at large. This eco-awareness could still be increased if proper advertising activities promoting woody fuels were used. Another
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opposing factor that was indicated was the insufficient financial support to small firms innovating in the bio-energy area.
15.6 Discussion, Implications and Future Research Needs
A summary overview of the findings from the case examples is presented in Table 15.5. The case companies can be classified into pellets or chips producers and electricity and/or heating companies. Most bio-energy companies in Europe, and most cases in this study, are SMEs. Several studies show that SMEs, in general, are less innovative than larger companies, but there is considerable variation among them (Asheim et al., 2003; Kaufmann and Tödtling, 1999). However, there are also studies that indicate the opposite (Acs and
Table 15.5. Summary of the cases and findings. Aspect Innovative activities Pellets, chips
Audretsch, 1988) and studies that find no differences in innovation related to com- pany size. Some of the differences can be explained by varying definitions of innova- tion. Indeed, certain scholars have a more radical view of innovation and others a more incremental view. Another complex relationship is the effect of innovativeness on performance. Many studies indicate a positive effect (e.g. Damanpour et al., 1989; Deshpandé and Farley, 2004). Nybakk et al. (2008, 2009) studied forest owners and nature-based com- panies and found a significant relationship between innovation/innovativeness and per- formance. Thus, even if there is less innova- tion among SMEs and one-man firms, the importance of that innovation for economic performance can be just as significant. A last point is that there are considerable differ- ences between industries. This result must
Electricity, heating Systemic technological innovations
• Incremental improvements of
autonomous processes • Widening applications • Business model Smaller in comparison Broader drivers are similar: environmental concerns, relative cost advantage etc. Internal (personal) initiative and knowledge Mainly direct business networks: • Supplier involvement (equipment, other inputs) • User involvement (new applications)
Size of firms Dominating drivers
Larger in comparison
Supporting networks
More informal networks National differences: network failures Public policy Subsidies for technology and R&D Effects of existing policy measures
National differences
Combined initiative: internal (personal), network, government Business networks: • Supplier involvement (cooperative procurement channels) • User involvement (local acceptance) Broader cooperation with (municipal) government offices, professional associations, banks and higher education institutions. More formal networks National differences: network failures Support more through regulations of price, quantities, etc. Effects of both existing and anticipatory measures/ legislation National differences
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be taken into consideration in the presenta- tion of the different innovations in Table 15.2. Most of the innovations described in this study can be considered incremental. These innovations are new to the country (or perhaps only new to the firm) but do not mean that that they are of lesser importance for economic performance and growth. Our study demonstrates that innovation champions are often very important for the realization of projects. The innovation champions may be employed at either private or public organizations or could be selfemployed. Most projects are complex and require the power and initiative of a cham- pion. From a policy perspective, an impor- tant issue is how the institutional framework for the establishment and operation of bio-energy plants can be made as simple as possible. This framework would create space for champions to operate more effectively. It should be stressed here that champions, often possessing not only innovative cha- risma but also good interpersonal skills, are usually very effective, even under adverse conditions. A general economic and legal framework can be more or less favourable to innovativeness, but even the best possible conditions can prove unhelpful when there is no personal leader who is keen on driving innovation forward. Regardless, such an innovation cham- pion does not exist in a vacuum. Several of the case studies indicate a positive relation- ship between external relationships and inno- vation. This finding is consistent with different traditions in the management and economics literature (e.g. Granovetter, 1973; Burt, 1992; Jenssen, 1999; Weiss and Rametsteiner, 2005; Nybakk et al., 2008, 2009). Many of the bio-energy companies are small and do not normally innovate alone but rather do so in cooperation with others. Networking can contribute to innovative capacity and innovativeness among small firms by giving companies novel ideas and access to resources, as well as by transferring knowledge (Nybakk et al., 2009). Accordingly, small firms that invest in networking with local actors will obtain an advantage via expo- sure to new ideas, by concentrating on core expertise and by finding new and better ways
to run their businesses. External relations and a larger social network are also linked to learn- ing. A larger network improves the firm's understanding of its environment, resources, markets, customers and suppliers. This network fosters the implementation of new ideas, new products and new ways of running the business, and is consistent with both organizational management literature (e.g. Calantone et al., 2002) and systems of innovation litera- ture (e.g. Lundvall, 1992; Isaksen, 1999). Interorganizational factors and networks are also of great importance among small wood bio- energy companies. An interesting research topic would be to examine the role of consult- ants, industry organizations (e.g. bio-energy associations), environmental organizations and business networks in creating framework conditions. By developing new policy instru- ments to promote networking and clustering in rural regions in Europe, policymakers can help to develop innovativeness among bio- energy companies. Consistent with the industry structure of bio-energy companies in Europe, most of the case companies are small-scale. For these small companies, few significant organiza- tional factors influencing innovation were identified. For example, most of the firms would not have their own research and devel- opment (R&D) departments or an employee working full-time on R&D. However, the organization of a small family business does present different challenges. Nevertheless, none of the drivers of innovation was linked to the cooperation within the owner's/man- agers' family in the present study. Policy and policy measures played an important role in all cases. Energy policy is one of the most important policy fields for all governments, and there are numerous policy measures and public programmes concern- ing all energy systems. One observation is that policy measures are said to be decisive in many of the cases. To study the role of policy measures in more detail, one would have to consider each case in greater depth, but it seems that countries with an explicit policy regarding alternative energy have had greater success with bio-energy innovations. Furthermore, a tax on CO2 emissions would make substitutes less competitive and would
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be important to increase the use of bio- energy. Environmental policy drivers are obviously important, with policy regarding the reduction of GHG emissions (replacing coal firing or oil prices) especially essential. This policy is part of the rhetoric in many cases, but for there to be a real impact on decision-making, the rhetorical arguments must also translate into policies, such as taxes on fossil fuels or capital and ongoing support for bio-energy (e.g. subsidies and calls for tenders). Another important factor is the supply of cheap raw materials. In some cases like Romania (C14), the abundance of raw material constituted an environmental problem and was a very strong driver of bio-energy innovation. A range of other factors emerged as important in different cases. Price development and expected price development of substitutes obviously play an important role because energy markets are volatile and future price development paths are difficult to foresee. Technological development was important in some cases, but until recently, more research money has been used for con- ventional energy sources than for bio-energy. Thus, it is difficult to foresee if there will be any major innovations in the near future con- cerning bio-energy systems. In many of the cases, the bio-energy solutions were quite new to the market, markets were poorly developed and many actors that did not usu- ally cooperate had to cooperate to arrive at a solution. All of this indicates high transaction costs. Another indicator for high transaction costs is relatively long planning times for the projects. Comparing transaction costs for bioenergy investments in different countries would be an interesting future research topic. Much rhetoric is deployed at the European Union level about a 'level playing field' for European producers, but, in the case of European wood energy production, this does not exist. Some countries have provided
substantial policy support for wood energy over a long period. In other cases, positive policy developments have been more recent. This study did not explore the policy means in great detail, but it can be concluded that the conditions for innovation created by pol- icy vary widely. The wood energy developments explored are predominantly, but not exclusively, smallscale. Some larger-scale operations were examined in Romania and France based on the exploitation of waste or by-products. It seems probable that wood energy produc- tion will continue to embrace both small firms operating in predominantly local mar- kets and much larger undertakings. This creates space for different types of innova- tion, but in most cases, the innovation will be incremental rather than profound and based on process and supply chain develop- ment. Innovation in the policy environment can also be an important supporting factor. Indeed, it is the unwillingness of those in the policy community to put a price (or the right price) on carbon emissions that is probably the biggest single obstacle to the develop- ment of bio-energy from wood. However, the widespread availability of lowgrade wood products, wood waste or waste heat from paper-making creates an opportunity for bio- energy production that has been exploited, more or less successfully, by the operators of our case studies. In summary, although supply availabil- ity was occasionally instrumental in stimu- lating innovation, the decisive factor in wood heat developments is more often changes in the market or policy environ- ment and a champion who is prepared to make the effort (either as a private or a social entrepreneur) to develop local projects. In general, the innovations observed were incremental rather than fundamental but, in sum, represent a significant development in wood energy systems.
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doc_260362455.docx
Case Study for Innovation in the Wood Bio-energy Sector in Europe:- Bioenergy is renewable energy made available from materials derived from biological sources. Biomass is any organic material which has stored sunlight in the form of chemical energy.
Case Study for Innovation in the Wood BioEnergy Sector in Europe
Abstract
This article aims to analyse sources of innovations for bio-energy at the firm level and to assess which policies have supported or impeded company innovations and business development. Our analyses are based on 14 firm-level cases from eight European countries. The case study data were collected in 2008 and 2009 using common interview guidelines. The cases represent companies engaged in activities that range from wood pellet and chip production to district heating, large-scale electricity production at a pulp mill site and other bio-energy business applications in Europe. As one might expect, the contents of the cases were diverse. Although the innovations analysed had different sources, in the majority of the cases, the innovations were prompted either by emerging new market situations (e.g. rising fossil fuel prices), new available woody biomass sources, or were driven by changes in company strategies or introduced and led by visionary managers. The case studies often stress the important roles of innova-tion champions with their innovative charisma and excellent interpersonal skills. Also, policy and policy measures played an important role in many of the analysed cases. Based on the analysed results, we found that determined national policies and programmes supporting and providing favourable financial conditions for investments in the area of renewables boosted innovative activities in the use of woody biomass for energy purposes.
15.1
Introduction
There is often a gap between political ambitions regarding bio-energy use and actual bioenergy use in many European coun- tries. The most obvious explanation is that bio-energy is not price-competitive because the costs of production are too high. Thus, the use of bioenergy has not grown as expected. There are two other potential explanations: first, the capital costs of wood fuel boilers are high compared with
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those of alternative forms of heating or electricity generation; and second, the full environmental costs of use are not factored into the cost models for alternative heat and energy sources. Environmental factors, such as reducing greenhouse gas emis- sions, provide a justification for cost-share measures in bioenergy policy or carbon taxes. Some environmental benefits of bio-energy are internalized in energy prices, but policy support varies greatly from country to country.
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Many factors aside from price and environment also influence actual bio-energy use. In the popular literature, these other factors are referred to as barriers and drivers (W. White, 2007, 'Assessing drivers for bioen- ergy and biomass supply. The perspective of economics', unpublished manuscript). It is important to obtain more knowledge about these barriers and drivers because such knowledge can be used to design more efficient bio-energy policies. Many of the barriers and drivers are of the kind that economists call transaction costs. In mature, well-functioning markets, transaction costs are low. In relatively new and weakly devel- oped markets, the transaction costs may be high. Most bio-energy projects involve com- panies and other actors who do not normally cooperate, and it takes time and effort to establish trust and a cooperative environ- ment between them. The decision-making process used to establish any bio-energy system also takes time and involves several public actors. This process creates transac- tion costs associated with supply chain development (Roos et al., 1999). Another important factor influencing longterm bio-energy use is technological development and innovation (Audretsch and Feldman, 1996; Staffan and Bergek, 2004). All customers have alternatives to bio-energy, and the alternatives may become relatively less expensive over time because of innova- tion. Without innovation, bio-energy systems will not ultimately be competitive. A central concern is what may drive innovations in bio-energy systems faster or more efficiently compared with competing energy systems. According to the Oxford English Dictionary, an invention involves the crea- tion of something new, and innovation is the act of introducing something new. From an economic perspective, an invention must be advantageous, or it must minimally be thought to be advantageous, to be considered an innovation (Nybakk, 2009). It is important to distinguish between different types of inno- vation (Nybakk et al., 2008). Jenssen and Nybakk (2009) found that product, process and market innovations are affected by different innovation drivers. Furthermore, it is common to distinguish between radical
and incremental innovation (Damanpour, 1991). Radical innovation is innovation that is new and different from previous solutions, whereas incremental innovation implies smaller and more subjective new solutions adopted by a firm. Recent innovation research on the wood industry distinguishes between product, process and business system inno- vations (Hovgaard and Hansen, 2004; Hansen et al., 2006). One might also add policy inno- vation to the list of systemic innovations. Product innovation is an act that leads to new products and services. Process innova- tion is an act that leads to new processes and refers to the process that is intended to pro- duce something. Business system innovation is the act that leads to new business systems. A business system consists of everything in a company that is necessary to manage, struc- ture, operate and administrate the business and its internal and external environment (Hovgaard and Hansen, 2004). Policy inno- vation is the introduction of new enabling policy measures (Rametsteiner et al., 2010). Drivers or antecedents of innovation are frequently debated in innovation literature. Largely, research concerning innovation and innovativeness can be classified in accordance with the level of the independ- ent variable. Four levels can be distin- guished: the individual, organizational, inter- organizational and societal levels. At the individual level, the importance of individu- als or 'innovation champions' is emphasized (Schön, 1963). Jenssen and Jørgensen (2004) define an innovation champion as a person willing to take risks by enthusiastically pro- moting the development and/or implementa- tion of an innovation inside a corporation through a resource acquisition process without regard to the resources currently controlled. The second level is organizational, which focuses on organizational culture and structure (Mintzberg, 1979). Factors at the organizational level that are assumed to influ- ence innovation might be categorized as organizational structure and communication, organizational culture, strategy, incentives, finances and slack (e.g. Duduman and Bouriaud, 2007; Tidd and Bessant, 2009). At the third level, the focus is on relationships between organizations, and it is
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assumed that relationships between individuals in different companies and networks of individuals at different organizations stimulate innovation within organizations (e.g. Burt, 1992, 1997; Granovetter, 1973). At the societal level, studies on the effect of regional clusters are an important example (Porter, 1990). Porter (1990) argues that the development of clusters is essential for national competiveness. The innovation system approach is another perspective from which to study innovation. It was introduced by Freeman (1987) and is considered an approach rather than a theory. However, an institutional view of innovation is reflected in the litera- ture on systems of innovation. Institutions shape and are shaped by the actions of organizations and the relationships amongthem (Edquist, 1997). The main compo- nents of a system of innovation are actors, institutions and their interactions. Actors are considered organizations, which are seen as formal structures with an explicit purpose that have been consciously created (Edquist and Johnson, 1997). Interaction among actors and institutional settings is important for innovation activities. The basic idea is that companies do not nor- mally innovate in isolation. Instead, in the innovation system approach, innovations are seen as based on interactive learning between organizations or actors (Edquist, 1997). Several scholars have also applied an innovation system approach on the wood and forest sector (Rametsteiner et al., 2005; Hansen et al., 2006; Rametsteiner and Weiss, 2006a,b).
15.2 Research Question, Method and Introduction of Cases
Factors influencing the diffusion of certain energy technologies are the topic of several studies (Dieperink et al., 2004; Madlener, 2007; Mahapatra, 2007). Unlike other stud- ies, which focus on a particular country and on microdata, we used case studies in different countries and compared the results from an international perspective. The aim
of this study was to understand different types of innovations and their drivers in Europeanbioenergycompanies.Furthermore, we wanted to determine how external rela- tions and institutional and policy factors affect the innovations and the innovation process. During the work of the European Science Foundationfunded COST Action E51, it became evident that innovations in the bio-energy sector are very different in various European countries. This paper attempts to analyse sources of innovations for bio-energy at the firm level in different parts of Europe. Based on the similarities and differences found, the policy implications of the findings are discussed regarding how to support bio-energy business development. This study was based on qualitative case studies that were built around the examina- tion of different innovation activities in com- panies in various European countries. The case studies were used to investigate drivers of innovation, the degree and importance of networks, and policies that impede and foster development. In the following chapter, we describe 14 firm-level cases from eight European countries: Finland, Norway, Lithuania, Estonia, Poland, Romania, France and Scotland. The research design, sampling, data and analyses are outlined. The results are then presented and discussed. Finally, some implications are considered, and suggestions are made for further research. The case study data were collected in 2008 and 2009 using the same interview guidelines (originally developed by Thomas Rimmler) in all countries to increase reliabil- ity. Also, a similar semi-structured interview method was applied. The cases represented companies that engaged in wood pellet and chip production, district heating, large-scale electricity production at a pulp mill site and other bio-energy business applications in Europe. An intensity sampling strategy was used to select the cases. Themes touched upon in the interviews fell into the following four main categories: 1. What is the main innovation undertaken by the company? 2. What were the origins of the innovation?
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Table 15.1. Case company descriptions. Case no., country and firm name C1: Norway: pellets case company Case description The company produces pellets from round logs; a garbage disposal company's surplus heat is used for the drying process The company produces pellets and briquettes The company produces and delivers energy wood chips from logging residues Electricity production in pulp mills The company buys pallets, repairs them or chips them; the chips are used for the production of briquettes and pellets and sold to small industry and private users Town district heating, supplying heat to the town, installing biomass-fired boilers (to replace coal-fired ones) and partial use of own willow plantations for raw materials Company that sells different wood-made materials, recently has also expanded into combined heat and power (CHP) production from forest residues and fuel wood Large-scale heat producer that began electricity production in 2009 (CHP) Pellet producer that partly uses round wood with debarking (and sawdust from sawmills) Large-scale producer of pellets from sawdust District heating cooperative The enterprise produces wood chips both to be consumed by the estate mansion and to be sold in regional markets The company produces wood pellets for fuel/energy and for horse bedding The company sells thermal energy for heating a town in north-eastern Romania; the thermal energy is produced from sawdust and small wood residue
C2: Lithuania: pellets case company C3: Lithuania: wood chips case company C4: France: electricity case company C5: Poland: pellets case company
C6: Poland: district heating case company C7: Estonia: wood chips and fuel wood case company C8: Estonia: district heating case company C9: Estonia: pellets case company C10: Finland: pellets case company C11: Finland: district heating case company C12: Scotland: wood chips case company C13: Scotland: pellets case company C14: Romania: district heating case company
3. What actors were involved, and how important were networks? 4. How did the respondent assess the potential for this innovation in the country (including the market and policy)? A detailed overview of the studied companies is given in Table 15.1. The data were collected by different researchers from the case study countries. The first portion of the data analysis was undertaken by the researcher in each coun- try. This analysis resulted in one document from each case with 2-14 pages of text. In the second step of the analysis, these documents were compared, and the text was grouped into themes and subthemes. The results of the second step of the analysis are presented
in the following chapters and discussed in the last chapter.
15.3 Types of Innovations and their Drivers
15.3.1 Case studies descriptions
The innovations found in the 14 case stud- ies are presented in Table 15.2. Even if we had selected more innovative companies for the case studies, the innovations found would probably have been predominantly incremental. The object of investigation was bio-energy companies (mostly pellet pro- ducers and district heating companies), and
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Table 15.2. Innovations in the cases and their drivers.
Case company C1: Norwegian pellets case company C2: Lithuanian pellets case company C3: Lithuanian wood chips case company
The innovation Pioneers producing pellets from forest raw materials that were dried by surplus heat from a garbage disposal and pellets from sawdust Briquettes produced from round wood Fuel chips produced from logging residues
C4: France electricity case company
Generation of electricity from wood biomass (pulping by-products, by-products of wood industries)
C5: Polish pellets case company
C6: Polish district heating case company
C7: Estonian wood chips and fuel wood case company . Estonian C8: district heating case company
Pellets and briquettes are made from recycled pallets and sawmill waste wood. Pallets are either chipped or repaired. Chips are made into briquettes or pellets for heating purposes or sold to an OSB plant. Heat energy supply from biomass-fuelled boilers that replaced old coal-fired boilers, a willow plantation project and a straw briquette line Started combined heat and power (CHP), both heat and the electricity production in Tallinn area from wood. Initiated the use of forest-felling residues and stumps of both heat and electricity (CHP) from Production wood and peat. First time the CHP was built on such a small territory. The total available area was 2.2 ha (site of the old boiler house); normally, the territory for CHP is c . times lager in size 4-5
Source/drivers for innovation The CEO developed the idea behind the innovation and was the main driver during the start-up process; he was the internal/innovation champion. Synergy with a waste disposal partner company was key sawdust deliveries from sawmills prompted the CEO to Unstable develop an independent sawdust production chain. Innovation was driven by good demand prospects in pellet importing countries The idea born at seminars on bio-energy and exhibitions accompanying international projects on bio-energy. Environmental scanning: local supply of logging residues and local demand for fuel chips. Low transportation cost for fuel chips Governmental initiative (instrument: calls for tender, with 15-20-year fixed prices). pressure on production costs and on markets. Competitive Technical skills and characteristics of internal process of the mill There was an oversupply of wood pallets and wood waste, highly priced gas and coal, a market for pellets, CO2 issues and rising ecoawarenes s Coal was replaced by wood because of rising coal prices and the need to replace coal boilers. Cheap land offered the option of establishing their own biomass plantations, and the chairman acted as an internal visionary A visit to Nordic countries resulted in secured demand for heat from the district heating network 'Tallinna Küte', secured raw materials from Woodex, pre-negotiated sales of electricity monopoly: they owned the resource (peatland), production of • Vertical heat, pipelines for delivery to customers and sales organization
• Forest areas are nearby, but harbours where pulpwood is exported are distant, so occasionally pulpwood is sold for heat productionprice of Russian gas • Increasing • All of these factors lead to the decision to build a CHP
C9: Estonian pellets case company C10: Finnish pellets case company
C11: Finland district heating case company
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C12: Scotland wood chips case company
C13: Scotland pellets case company
C14: Romania district heating case company
Chipping and grinding from round wood; Lack of raw material (sawdust) and desired market attributes drove stationary the chipper; debarking of round wood; and flex heat debarking decision. High demand for premium quality brand. (German standard). Cooperation with equipment manufacturers company strategy shifted: more business from the processing of Technological development; investments in the efficiency The of pellet production; and service innovations: sawdust from the company's own mills and the dust bought from The other turned into pellets. Market development was focused on in company increasingly focused on providing a full-service sawmills concept that included the delivery of pellets, Finland and abroad, because the company exports most of heat its production and the maintenance of power production plants (households not included). formation of cooperation: The owners of the coopera- The increasing price of oil improved the price competitiveness of The tive increased the demand for otherwise non-marketable wood-based energy. Thus, profitability increased for the energy small-diameter wood; the community created new producer. Income also increased for the landowners from local otherwise business and jobs as well as a good image in low-value wood and jobs for the municipality (win-win) replacing non-renewable oil-based energy production with bio-wood-based energy. supply chain and process (chip boiler Improved This activity began as a response to the rising cost of energy for a forheating), and business heating mansion house on the estate. The mansion is used for very large model business purposes on a mixed highland estate that supports forestry, farming, quarrying, sport shooting and tourism enterprises. Wood procurement characterizedis by opportunistic acquisition of low-grade fuel wood CEO wanted to add value to his timber and picked up ideas for Wood pellet production with two markets. The wood The fuel that market was the intended market, and the horse while working for a landowners' association. He believed that in bedding the market was discovered by chance. Establishing a future, wood fuel was going to be promoted by the Scottish modern governpellet production enterprise in high-quality ment. They chose to produce pellets instead of chips, because buildings. pellets 'Torrefaction' technique - it removes moisture from are more convenient and easier to handle. They started to the produce woodchips in a vacuum. The brand name for the wood pellets for horse bedding after noticing that another product: distributor 'Stovies'. The raw material is sourced locally from was selling pellets to the horse trade. The plant was designed to the use estate's own woods and from a nearby sawmill. The sawdust, but because it compromised the quality of the pellets, key they innovation is to make the right choice of the raw stopped using it material and to produce the right sort of fibre (without bark or twigs). and hot water from wood Heat In a national setting, new logistical equipment for sawdust collection, residues new buffer stores for sawdust; new thermal power plant; new distribution network; the replacement of the old heating equipment in buildings' basements with new conduits; a new system for thermal energy production based on sawdust, chips or bark
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this approach limited the possibility of find- ing significant product innovations. As seen in Table 15.2, most of the innovations were basically incremental process innovations and often associated with sup- ply chain innovations. Two of the compa- nies, one Norwegian (C1) and one Estonian (C9), were both local pioneers, using round logs in pellet production. In these cases, the innovations were not related to the end- product but were process innovations enabling the utilization of round logs. In Norway, pellet production with roundwood as a raw material was normally seen as unprofitable because of the high energy cost related to drying. However, the Norwegian company was the first in Norway (and one of the first in the world) to produce pellets directly from raw material from the forest, ideally from round logs. The company obtained its lumber from the forest: tree trunks were ground into chips, and after- wards, the raw chips were dried with warm air from the refuse disposal plant. After dry- ing, these were manufactured into pellets. The company was also one of few pellet producers in the world to use lowtempera- ture drying in pellet production. Several of the other case companies made larger invest- ments in new equipment and improved processes as their main innovation (e.g. Lithuania and Scotland). The Lithuanian case (C2) is an example of incremental innovation. The pellet and briquette producer exports 90% of its output. They were strongly dependent on sawdust deliveries from sawmills because the company was exposed to unstable round wood markets, resulting in varying quanti- ties of available sawdust. Confronted with such a situation, the management decided to implement a process innovation by developing a sawdust delivery chain, with the sawdust produced directly from round wood. The company decided to make an investment. They bought a wood chipper and put it into operation, thus decreasing the company's dependence on uncertain sawdust deliveries from sawmills. The innovation was driven by a strongly rising wood pellet demand in Europe. The man- ager displayed innovative behaviour, if not
features of an innovation champion, being able to analyse the present situation, as well as foresee the market developments and create a vision of the company's future. The two Finnish companies developed a business system innovation. In the energy cooperative (C10), the most important innovation was the establishment of cooperation. The owners of the cooperative increased the demand for otherwise nonmarketable small-diameter wood. Similarly, the community created new local business and employment and improved its image in replacing non-renewable oil-based energy production with bio-wood-based energy. This cooperation was possible because all key players (forest owner, community, inhabitants, forest transportation entrepre- neurs and heat producers) had something to gain from the system created. The increas- ing price of oil improved the price competi- tiveness of woodbased energy (although fluctuating oil prices are able to alter market conditions markedly). In the other Finnish case (C11), the most important innovations were classified as both business system and process innovations. There were both technological developments, including investments in the efficiency of the pellet production, and service innovations: the company increasingly focused on providing a full-service concept that includes the delivery of pellets, heat production and the maintenance of power plants. These serv- ices did not emphasize households as main customers, because the company operated on a somewhat larger scale. The company also exported large amounts of pellets. In one of the Scottish cases (C13), the most important innovation in recent years was a torrefaction technique ( process inno- vation) that removes moisture from the wood- chips in a vacuum. A further innovation was the spontaneous market innovation that emerged after the wood pellet producing process was initiated: the discovery of a major new market for the wood pellets in the 'horse bedding' market. The Romanian case (C14) was also a combination of process and business system incremental (local) innovation. When it was initiated in 2004, the innovations introduced
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were of national significance because the technologies that were used, even if they were not the latest in this field, were the most modern in Romania. Examples of the innovations are as follows: (i) new logis- tical equipment for sawdust collection; (ii) new buffer stores for sawdust; (iii) a new thermal power plant; (iv) a new distribution network; (v) the replacement of the old heating equipment in the buildings' base- ments with new conduits; and (vi) a new system for thermal energy production based on sawdust, chips or bark. The main results and outcomes of implementing this innova- tion were: (i) the capacity to produce cheap energy from wood residue; (ii) a new price for the energy produced in this power plant, which was half the average price of energy in the country; (iii) the self-evident ecologi- cal benefits; and (iv) the improvement of the region's image, which became more attractive to tourists. As stated above, most of the innova- tions in the Romanian case (C14) were pro- cess and business system innovations. In the Polish pellets case (C5), we also discovered product innovations that were new to the firm and a local market. The direct stimulus for establishing the firm was the possibility of utilizing wood waste in the form of pal- lets and sawdust. The oversupply of wood pallets and other waste wood was the basic reason for initiating the production of pellets. The waste wood was chipped and then pelletized, with a portion of the chips sold to a chipboards manufacturer. The CEO argued that the factors that were conducive to innovative activities in wood pellet production were ecological awareness in society and local demand. Local demand was enhanced because of the presence of areas without the natural gas infrastructure that would make it possible to use natural gas for heating purposes for inhabitants living there. The pellets also proved to be a cheaper fuel than heating oil and coal, and, because of their relatively low ash content, they were regarded as convenient to use. The French case (C4) was one of prod- uct innovation at the organizational level. The case company operates three pulp man- ufacturing units, producing fluff pulp for
absorbent products (nappies, etc.) and kraft pulp. The drivers of innovation are two constraints on the current production: increases in production costs and market pressures on the products. In 2007 and 2008, the company faced tighter fibre sup- ply conditions, with higher costs for raw materials. An additional pressure came from a sharp increase of fossil fuels, leading to higher costs of chemicals and transport. The Law on Water, passed in 2006, raised water costs, which are important in pulp production. Conversely, the company's main market (kraft pulp) is a mature, world- wide market (dominated by multinational companies) that fixes the reference price leading the company to behave as a price- taker. The erosion of prices in 2009 has endangered the business. Moreover, the long-term trends of paper consumption (kg paper/inhabitant) are uncertain and may well decrease. The determinants of demand (the development of the information soci- ety, government policies related to the reduction of paper consumption, and com- petition from other materials) may also decline. These constraints drove the company towards new markets and oriented activities to innovation. In accordance with legal objectives, the public authorities issued three calls for tenders and brought an opportunity to develop the innovation in energy production. Conversely, the other Polish case (C6) presented a typical process innovation. In the Polish district heating case, the main innovative activities begun in recent years were centred on three topics: new boilers fuelled with biomass that replaced old coal- fuelled ones; a willow plantation estab- lished in 2002 (with the initial idea that the firm could cover 60-70% of its heating needs with its own biomass sources); and a straw briquette-manufacturing line, with the straw briquettes sold to a large power station in the western part of the country. Each of the innovations proved successful, except the willow plantation, where major cultivation problems appeared. The replace- ment of old coal-fuelled boilers with new biomass-fired ones was the most important innovative activity and was directly tied
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with the willow biomass produced on land owned by the company. The main drivers behind the innovation were rising coal prices, cheap agricultural land with the potential to produce willow biomass and the need to renew the heat-producing infrastruc- ture (boilers). What must be stressed here is the vital role of the company chairman, who acted as an engine and driving force and was able to stimulate the entire company management structure to formulate a new energy supply programme for the town.
15.3.2 Drivers for innovations Previous research emphasizes that there are many different innovation drivers at different levels. Some of the literature concerns inter- nal and external factors driving firms' inno- vative behaviour. Related to the case studies analysed in this work, one can distinguish four levels driving innovations: the individ- ual, organizational, inter-organizational and societal levels. Here, the innovation drivers varied from country to country and among firms in each country. The Norwegian case (C1) clearly illustrated the importance of the 'innovation champion': the innovator and the engineer in a small business were the same person. Many actors were involved, but one person (or, at most, a few) turned the innovations into new business opportu- nities. Ultimately, it appears that several of the external actors were not very sup- portive. The champion theory is supported by several research findings (Jenssen and Jørgensen, 2004). Other cases (e.g. the dis- trict heating company in Poland) also emphasized the importance of the CEO and/ or the owner. In at least one case in Scotland (C15), the existence of an 'innovation cham- pion' was highlighted. This individual par- ticipated in as many activities as he could (e.g. shows, seminars and fairs around the country), but he recognized that much more could be done 'if there were six of him'. Environmental scanning is often seen as an important innovation driver (Jenssen and Nybakk, 2009). It encourages CEOs' and other managers' awareness of emerging trends and
can often lead to the recognition of innova- tion possibilities (Auster and Choo, 1994). First, the manager can learn about customers' preferences, demands and willingness to pay fordifferentproductsandservices.TheEstonian pellets case company began by producing pellets from round wood with a new chip- ping and debarking machine. The innovation was mainly based upon the observation of market needs using scanning. A similar situation was noticed in one of the Lithuanian cases (C3). A small family company doing forest contracting work in wood harvesting, forwarding and hauling saw a developmental chance in producing fuel chips from logging residues. The enter- prise was aware of the local logging residue supply because it was a material that they used to leave behind in the clear cut areas where they performed wood harvesting operations. Also, a local heating plant was located in the area, securing a stable demand for woody fuels. Thus, environmental scan- ning enabled the enterprise to develop by diversifying the product it offered. Secondly, CEOs and managers can learn about and be updated on technological changes and competitors. Companies in other regions or countries are more likely to have different information and ways of solving technical problems. In the Estonian wood chip and fuel wood case (C7), the ideas came from a visit to similar plants in Nordic counties. In one of the Scottish cases (C13), the CEO and a forester employee developed contacts with boiler builders, communicated with other people and conducted horizontal networking in a very practical way. In the other Scottish case (C12), the owner visited wood fuel plants in Germany, Northern Ireland and England before building his own plant. In procuring the plant, he made inquir- ies to several manufacturers. One particular engineering firm was especially useful because it immediately offered sensible advice and suggestions for the machinery that should be purchased. Thirdly, the social and economic environment is changing, as are public regulations and support programmes (e.g. Auster and Choo, 1994). To gain a competi- tive advantage, it is therefore important
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systematically to scan a company's surroundings for signs of possible opportunities and threats arising from new policy, which could reduce costs for new entrants or pro- vide funding for new initiatives. Today, with the ongoing debate on how to promote bio-energy to reduce CO 2 emissions, this type of scanning is especially important. For example, in Scotland, the Climate Change (Scotland) Act 2009 created a statu- tory framework for greenhouse gas emis- sions reductions in Scotland by setting an interim 42% reduction target for 2020, with the power for this figure to be varied based on expert advice, and an 80% reduction tar- get for 2050 (Part1). Similarly, in Lithuania, state promotion of wood heating plants created demand and local markets for woody fuels, indirectly helping woody fuel production chains to develop. Organizational-level innovations (emerging trends, updates to technology and scan- ning the social and economic environment) were not the emphasis in the Finnish cases, though we directly asked about this element. In all likelihood, the managers and develop- ers of the new bio-energy business did pay implicit attention to changes in the business environment (i.e. the managers and develop- ers of the companies were so involved in developing bioenergy that they could not even recognize it).
15.4.1. Strong ties in the innovation process These network ties, though often informal, are clearly visible in the Polish district heat- ing case. The main actors involved in the principal innovative activity were higher educational institutions (two universities), businesses providing technical advice and sharing their experience, the town authori- ties, local banks and other partners with whom contact had been established while visiting technology fairs and exhibitions. The variety of organizations involved in the innovative activity resulted not only from the complex nature of the innovation but also from the devotion and charisma of the company chairman. The network that was built was a complex one, with the compa- ny's stakeholders and shareholders (the local municipality, the housing cooperative and a few industrial plants) standing at its centre. Vertically, the structure of the net- work mirrors the material flow. Wood bio- mass suppliers deliver chips from a number of wood industries to the heating plant where they are converted to heat and deliv- ered to apartment blocks, public buildings and industrial plants. The lateral form of cooperation is much more complex, because it includes higher education institutions' providing advice (e.g. on the willow planta- tion), banks and government organizations providing advice on the possibility of using public funds to pay for the innovation, and other (often small) businesses providing technical assistance, advice and support. As a result of this network, a relatively small district heating company was able to implement successfully a costly innovation and fund it largely using public funding. In the course of achieving innovative activities, a network of formal and informal links was established. The flow of information in the network happened in business and town council meetings, at exhibitions and fairs, and through personal, and often informal, contacts. Books and professional journals were named as important sources of infor- mation concerning innovative activities. In the Norwegian pellet case (C1), the factory was built in connection with the refuse
15.4
External Relations in the Innovation Process
As described earlier, innovation is an interactive process within a company or among companies, organizations and other actors. These ties can be both weak (with occasional interactions, e.g. casual acquaintance) and strong (which implies more regular interactions within networks). The strength of a tie depends on factors such as trust and friendship. Stronger ties often go beyond short-term market transactions and include more long- term and stable partnerships. In Table 15.3, the importance of cooperation between different actors involved in the analysed innovation processes is emphasized.
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Table 15.3. Descriptions of networking and the networks' importance for the innovation. Importance for the innovation Medium/large degree importance: cooperation with the garbage disposal was of special importance
Case company C1: Norway: pellets case company
Network description
C2: Lithuania: pellets case company: C3: Lithuania: wood chips case company France: C4: electricity case company C5: Poland: pellets case company
Relatively low importance Relatively low importance Significant importance with regard to practical feasibility and realization of innovatio n importance. The weak network was Low not vital for the realization of innovation. Important role of information flows
C6: Poland: district heating case compan y
High importance. The innovation would not have been possible without the network. Numerous problems in the course of the innovative undertaking required cooperation on the part of very different agents
C7: Estonia: wood chips and fuel wood case compan y
A separate company is buying all of their pellets, does the logistics further down the value chain, and assists with marketing and sales (domestic & exports). Local forest owners provide timber via a forest owners' organization (co-owner). A garbage disposal partner plant provides the heat for drying. Other energy companies are co-owners and, in some cases, customers provide sawdust. Foreign wholesalers and end-users (90% Sawmills of production). Association of businesspersons and financial institutions. A specific association for pellet & briquette manufacturers may be beneficial residues from state forest company. All sales to local heating Harvest plant. Little contact with association. Owner does not believe in networking collaboration with banks (leasing loans) and with the national External professional organization of pulp and paper industries No formal cooperation with any major institutions, authorities or businesses. Vertical chain providing feedback: wood pellet and waste suppliers (the pellet company), pellet buyers (private and small industry). Weak lateral network resulting from contacts with similar businesses (advisory role and exchange of experience). Important role of information flow from sources like wood machinery fairs, journals, the Internet and personal contacts network: local wood industries as biomass suppliers, local Vertical heat consumers (private residents, public institutions and businesses). Lateral network: local municipality, housing cooperative and industry, higher education and research institutions - advisory roles. Consultancies and banks provided economic analyses and prepared application documents for public funding. Smaller companies provided technical support. Vital role of personal contacts with science and business representatives. Important role of information sources: visits to fairs and exhibitions, access to trade journals for wood procurement: forestry firms, transport and Network logistics. In cooperation with the Estonian State Forest Management Centre control regarding potential suitability of forest felling residues for chip test production. Buyers of heat and electricity were mentioned as important partners, but not as much as network partners. Suppliers of technology were mentioned, but the contact was not frequent enough for them to be called an actor in a network (this contact was more a normal buyer/seller relationship) Low importance
Low importance
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Clients and marketing channels were important for changing technology Low importance. The main driver has been the company in working to develop its own busines s Significant importance. Without the network, the cooperative would not have been established or been operational
Strong importance at establishment of informal networks built to help scope projec t High importance for practical feasibility and realization of innovation
C8: Estonia: district heating Network for wood procurement case company Estonia: pellets C9: Research - University of Technology, equipment manufacturers, case other compan companies, market representatives of end-users in other y Finland: countries of company-owned and other sawmills that provided C10: A network pellet raw compan material (mainly sawdust) for pelleting. A network of different y companies to increase the size of the plant. A company network to conduct research to improve the quality of pellets and extend its raw material base for wood chip procurement and heat service - local forest owners, C11: Finland: Network district heating case wood procurement company, municipality and the cooperative, company which charged the users of the heating services. The network was originally developed under a special project of the local Forestry Centre (District Government on Forestry), which invited different actors to discuss cooperation and later to agree to the establishment of the cooperative rely mainly on an informal network of actors. Making contact with C12: Scotland: wood chips They ascase many key players as possible (almost all of whom were private company sector operators), visiting existing set-ups and learning from others' mistakes is considered more useful academic research on the subject. They never paid consultants, and their confidence on the expertise of institutions was almost zero Forestry Commission and the Biomass Development Officer have C13: Scotland: The pellets been case very helpful in promoting the enterprise outside and inside the municipal area. company They are the core actors in the public sector - Aberdeenshire Council; Chamber of Commerce: Arbuthnott Wood Pellets applied for a business award that has some connections with the Chamber of Commerce and networking: making contact with as many key players as C14: Romania: Scouting district possible. heating case The network is mainly composed of different power plants from company the 2000 project, environmental agencies, the town municipality, Sawdust the Romanian government and the Danish Agency for Environment Protection. No collaboration with R&D or universities Networks are very important. The existence of the analysed Thermal Power Plant is a consequence of network's existence. Networks are used to recruit new actively
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disposal plant. This co-location not only provided a good use for surplus heat but also allowed joint operation with the mutual utilization of the competence and manpower of the two companies (i.e. the waste disposal and pellet businesses). In addition, the forest owners' organization and several energy com- pany coowners were involved in pellet production. The CEO in the Scottish pellets case (C13) also emphasized the importance of his network of contacts. The company belongs to the Aberdeen Renewable Energy Group, which has regular meetings. It also belongs to the biomass group that is part of the renew- able energy group and is represented in shows, seminars and fairs around the coun- try. The CEO also attempts to participate in as many networking events as he can. Other important actors who help the case company with marketing are the Forestry Commission and the regional Biomass Development Officer (a public sector official). They help to promote the company both outside and inside the municipal area. The raw material for wood pellets is sourced locally from the estate's own forest and a nearby sawmill, fromwhichoff-cutsareobtained.Additionally, there are several other important actors from the public sector. Maintaining a large net- work may be a key to success, but sustaining a large network of contacts can also be costly and very time-consuming. The CEO recog- nizes that he could do more if he had more time. This lack of time is a major challenge of setting up, running and building networks for an enterprise where one individual is pivotal. In the French case company (C4), two main network partnerships were created. First, the company established three leases, one for each installation, with banks. The long-term contracts for electricity generation provide guarantees of revenues, reducing the risks associated and facilitate borrowing. The leasing form enables the company them to distribute installation costs over a period at a predetermined interest rate with an option on ownership, rather than a major one-off investment. The second partnership, with the national Paper and Board organiza- tion, facilitated resolution of difficulties in
collaboration with public authorities, enabling practical implementation. At the inception of the Norwegian company, different private companies, associa- tions and public organizations had an important role, but the entire process was driven by the inventor and CEO. The Estonian power and electricity production company (C8) generally did not consider suppliers of technology to be network partners, because (for them) it was more a weak, short-term buyer/seller relationship. The forestry com- panies, suppliers of round wood or chips, were mentioned as network partners, but they were assigned low importance. There was competition in the timber market, and if one supplier was having problems, then the others would be available. At the inception of the Romanian company (C14), the process was driven more by a system of actors. The project or case company is based upon cooperation between the Romanian government and the Danish Agency for Environment Protection, as well as the Environmental Protection Inspectorates in the different counties involved. The Danish Agency for Environment Protection has been involved in developing and co-financing a large number of projects in Romania, with Neamt County as the specific target area. Sawdust, bark and wood waste had been stockpiled in many places, causing a consid- erable impact on the natural environment. The new plant reduced local pollution from the wood industry and changed the heating system from a reliance on fossil fuels to the use of bio-energy. In 2000, the project was developed by the Romanian Agency for Energy Conservation, the Danish Agency for Environment Protection and local Romanian agencies for environment protection from different counties, together with a consulting firm with engineers. There were five loca- tions selected. With respect to lateral cooper- ation, the Danish Agency for Environment Protection and the Romanian government were, collectively, both the initiator and the finance institution on the basis of the Kyoto Protocol. At the same level, other actors were involved: the European Union, which funded 'Sawdust 2000' through a Phare Project; the municipality (as the proprietor and finance
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institution); and two companies that offered consultancy and coordinated the activities (because they were permanently in contact with the municipality and the Danish Agency for Environment Protection). Vertical coop- eration existed both before and after imple- mentation between the municipality and the staff of the power plant to assure the proper functioning of the plant. The Sawdust 2000 project allowed the establishment of five power plants in Romania. Thus, it created an interesting network for horizontal coopera- tion: the five plants remain connected through their managerial staff. In addition, as part of horizontal cooperation, the plants communi- cate with environmental agencies and cus- tomers that provide the feedback needed for permanent adaptation to new innovations.
15.4.2 Weak ties in innovation process In contrast to the networks presented above, both Lithuanian cases showed relatively insignificant or underdeveloped network- ing. In the case of the smaller family enter- prise doing forest contracting work and producing fuel chips, this is understanda- ble. However, in the other case (the pellet manufacturer) the network observed was insufficient, and the company's manage- ment was aware of it. Although the pellet manufacturing company (C2) was a member of a local business association and estab- lished contacts with banks and leasing com- panies, no consulting or advisory bodies were present in the network. This absence led to a situation in which the management had to gather almost all the necessary infor- mation by itself. The CEO expressed a strong need to establish an association of woody fuels producing enterprises. The Polish case (C5) may be regarded as nearly the opposite of the network in the previous case (C6). The pellet manufactur- ing company, employing only six people, did not build a strong formal network. However, in the course of the delivery of wood pallets and other waste wood to the company, before the innovation to the pel- letizing line was initiated, certain vertical
ties with suppliers were established that facilitated the information flow. Ties with pellet buyers, however, appeared later when the pelletizing line began operations. A weak lateral network was also noted; the company management, being active in waste wood processing, had contacts with other similar businesses that served as sources of information and advice. Thus, the information flow proved decisive in the process leading to the innovation. Here, different wood processing machinery fairs, exhibitions and trade journals played an important role in delivering information on technical solutions. Finally, the company was aware of the potential local market for wood pellets before the idea of the innova- tion was even developed. This awareness indicates that information on the local mar- ket demand must have been available to the management, and it was sourced informally through unofficial contacts. Indeed, exter- nal relations are often not fully perceived because they have the character of relations based on acquaintance, friendship or accidental meetings. Also, the low importance of the net- work was highlighted in both Estonian case studies (C7) and (C8) and in the case of the Finnish pellet company (C10) where the companies developed the business and innovations without the support of other actors. Here, the networks are important only in terms of the companies' efficiency regarding the provision of raw material and the maintenance on the market.
15.5 Institutional and Policy Factors Affecting Innovations in Bio-energy
The supporting and impeding actors related to the different cases are presented in Table 15.4. The institutional settings in the different countries differ. The CEOs' views of the policy instruments also vary between companies in the same country. In the Estonian electricity production cases (C8), political 'lobbying' was needed to change the local legislation Energy Act, wherein electricity production from local
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Table 15.4. Positive and negative impact(s) of policy. Case Supporting factors Opposing no. factors C1: Subsidy at inception. The grant was an important factor in the endeavour Support to households was not sufficient. Subsidised Norway: to undertake the project. Subsidies were provided to private households electric pellets case prices in many municipalities. Subsidised addition to for the compan the purchase of pellet stoves. Subsidies were also provided to trade electric grid but no corresponding goals for bioy and energy industry for investment in pellet stoves markets enabled the company to develop by exporting the majority C2: Open No direct subsidies were provided, and the policy has not Lithuania: of production. Financial support through EU been pellets case the main supporting factor. Underdeveloped local market programmes for compan pellets. No promotion of woody fuels use in y households support of investment into wood chip production C3: The innovation within the company was not supported directly by any political No direct Lithuania: wood means. However, indirectly, the state promotion of wood heating from logging residues chips plants case created demand for wood chips. Additionally, the EU company programmes supported the purchase of wood chip production equipment C4: Calls for tender instruments (not direct subsidies like subsidies as part of the Visibility of investment is reduced because guaranteed prices France: electricity case investments) but fixed prices guaranteed for electricity between calls for tenders are different. Uncertainty produced of compan investment in R&D activities in y future support to small companies innovating through C5: Price relations are favourable for woody fuels; prices are a basic tool Insufficient Poland: forsupporting RES. Rising eco-awareness in pellets case eco-friendly projects. Still insufficient advertising of wood society as compan a source of y energy procedures for public funding too C6: Government subsidies for investments in eco-friendly projects (95% of Application Poland: complicated district heating the investment was in various ways supported by the government). Plantations case with energy plants are financially supported by the government. company Obligatory renewable energy quotas for companies dealing in energy legislation and energy policy: the use and production renewable C7: EU In the planning stage, the legislation did not support the idea; Estonia: energy wood should be increased; the opening of the electricity market in Estonia another factor was the proximity of the Iru Power Plant, chips (which a and fuel occurred more slowly than in the rest of the European Union) Estonian subsidiary company of the state-owned wood energy monopolistic case policy: by 2010, the share of renewable electricity would be 5.1% (in electricity and power production company Eesti it company 2007, Energia Support from Tallinn City government (is it a political was 1.75%) issue?) own management team made a significant effort and took the initiative The old version of the energy act, which regulated the principles C8: Their Estonia: district heating to change the Energy Act so that local fuels could be used for of energy price and return on investment electricity (investment case production. When the law was changed, the opportunity emerged to payback) in electricity production. The Earth's Crust company start Act planning the CHP. In the current 'Development Plan of the (earlier, it was important for peat production, with Estonian permits Electricity Sector until 2018', more attention is paid to energy production from local communities), not important from a forestry point from renewable energy sources (including bio-fuels) The of view. Waste Act: currently the ash from CHPs cannot Sustainable be Development Act in 2005 set some limits on monopolistic activities by used for further production (e.g. construction, Eesti road Energia (at that time an electricity producer using oil shale; since 2009, construction this ) company also uses wood for electricity production)
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C9: Estonia: pellets case compan y C10: Finland: pellets case compan y C11: Finland: district heating case company
C12: Scotland: wood chips case compan y C13: Scotland: pellets case compan y C14: Romania: district heating case company
Availability of different support programmes and grants offered by Enterprise Estonia that are co-financed from the EU structural funds. The company studied different programs. However, during that time, it did not find one that could meet its needs, and thus, it did not use any of them support for R&D: mainly knowledge on pelleting technology. In Public the future, the extension of the raw material base for pellets will be emphasized in R&D. Investment support for households if they replace oil boilers with pellet boilers subsidies for harvesting young stands (the purpose being to support State forest growth) and for chipping. Without these subsidies, the chipbased energy would not be price competitive. Public support for R&D: knowledge of small-scale heating ability and technology. A person at the Forestry Centre (district government Office on Forestry) made the network work. He ran the plan and enabled different partners to cooperate. His salary was partly paid by regional development funding for a special project coordinated by the Centre aid for biomass boilers was Grant available
In end user markets (in different countries), CO2 quotas and support programs for obtaining kettles/boilers that use pellets will create additional demands for pellets No impeding policies identified, though the slow growth in the number of households using pellets for heating has caused debates regarding whether the policy measures have been sufficient and efficient During the municipality planning stage, the use of pipelines for hot water heating was not obligatory or even an option to consider. Even now, this use is not obligatory, but since the municipalities learned that district heating using wood chips is an option, they have invested in pipelines
Weak support from the state authorities that comprised the official support system. Regulatory and planning environment limiting the renewable energy options of the estate license to handle the waste (sawdust) produced The funding for the plant was 40% grants from the Scottish Biomass Support Needed Scheme and 60% from the company's own capital. A policy 'window' was open for just a few months, but AWP managed to capitalize on it to provide support for setting up the plant Danish Agency for Environment Protection, the initiator and finance institution No opposing factors identified (28% of the total cost). EU support through the Phare Project (36% of the total cost). Romanian state institutions: the necessary legal framework was created for the implementation of the Sawdust 2000 project. The Romanian government, through the Romanian Agency for Energy Conservation and the town Municipality, supported 36% of the total cost of the project
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(bio)fuels (including wood and peat) was not allowed. In this way, the state protected its own electricity production monopoly. After changes to the Energy Act, the final planning of combined heat and power plants by private businesses could be initiated. When in the Estonian case enterprises began electricity production from wood, the state-owned company also started to use wood in addi- tion to oil shale (in 2009). After that change in the local timber market, the biggest forest management organization, the State Forest Management Centre, created a new subdepartment: the Wood Energy Division. In the French case (C4), the public authorities issued three calls for tenders for electricity generation from biomass in respect to the national objectives for increases in renewable energy sources (RESs). The national objectives are reinforced by the latest European and national legislation. The revised directive for the promotion of energy from RESs establishes an objective for France of 23% of energy being produced from RESs in 2020, strengthened by the new national legislation increasing the objective of elec- tricity production from biomass (MEEDDAT, 2009). The calls for tenders created an oppor- tunity for business, ensuring the sale of elec- tricity produced at a predetermined price for a certain period (15-20 years). It provides guarantees on future revenues and increases the security of the investments. In electricity generation, the case company possesses both the technical skills necessary to run the process and opportunities in internal proc- esses with chemical pulping. In this context, the calls for tender brought opportunities to realize the constraints. The stimulating role of policy in supporting innovative activities that led to the implementation of clean technologies (e.g. heat production from biomass) can be clearly noted in the Polish district heating case. New biomass-fuelled boilers that replaced the old coal-fired ones were funded up to 95% with public money set aside by the government in the form of different eco- funds for ecoinvestments. Various policies that are often very general and only set direc- tions for future development usually result in more specific documents specifying rules
and financial means and measures that sup- port the activities described in those poli- cies. Such a situation enabled the district heating company to make use of financial means of ecoinvestment, thus contributing to the realization of the eco-policy. Using these methods of funding is often perceived as difficult, because the application proce- dures are complicated and require experi- ence and knowledge. With this in mind, the importance of building networks, including financial consultancies, cannot be overesti- mated. Another stimulating instrument that had its origins in the policy and was specified in greater detail in resulting legal documents was the financial support for the willow plantation. Growing willows, which are considered an energy plant, entitles the company or farmer who wants to establish an energy plantation to certain financial assistance from the government. This meas- ure encourages firms and formers to set up energy plantations, thus contributing to innovative activities. Yet another factor that contributed to the successful performance of the district heating company was the obliga- tory renewable energy quota that has to be met by all firms that deal in energy. This quota results indirectly from the energy pol- icy. On one hand, this obligation requires solutions and innovations related to the use of renewables among firms dealing in energy. However, it also provides them the opportu- nity to sell their bioenergy production to energy giants, for example, who simply have to meet their obligatory quotas, leading to better financial results for the innovator. This dynamic can also be perceived as indi- cating the stimulating role of centrally adopted measures and policies. The Polish pellets company case (C5) was not able to use public funding, because its application was not strong enough to secure such funding. When asked about political factors supporting innovative activities in the bio-energy sector, the CEO mentioned the favourable price relation- ship between woody and fossil fuels and the rising eco-awareness of the public at large. This eco-awareness could still be increased if proper advertising activities promoting woody fuels were used. Another
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opposing factor that was indicated was the insufficient financial support to small firms innovating in the bio-energy area.
15.6 Discussion, Implications and Future Research Needs
A summary overview of the findings from the case examples is presented in Table 15.5. The case companies can be classified into pellets or chips producers and electricity and/or heating companies. Most bio-energy companies in Europe, and most cases in this study, are SMEs. Several studies show that SMEs, in general, are less innovative than larger companies, but there is considerable variation among them (Asheim et al., 2003; Kaufmann and Tödtling, 1999). However, there are also studies that indicate the opposite (Acs and
Table 15.5. Summary of the cases and findings. Aspect Innovative activities Pellets, chips
Audretsch, 1988) and studies that find no differences in innovation related to com- pany size. Some of the differences can be explained by varying definitions of innova- tion. Indeed, certain scholars have a more radical view of innovation and others a more incremental view. Another complex relationship is the effect of innovativeness on performance. Many studies indicate a positive effect (e.g. Damanpour et al., 1989; Deshpandé and Farley, 2004). Nybakk et al. (2008, 2009) studied forest owners and nature-based com- panies and found a significant relationship between innovation/innovativeness and per- formance. Thus, even if there is less innova- tion among SMEs and one-man firms, the importance of that innovation for economic performance can be just as significant. A last point is that there are considerable differ- ences between industries. This result must
Electricity, heating Systemic technological innovations
• Incremental improvements of
autonomous processes • Widening applications • Business model Smaller in comparison Broader drivers are similar: environmental concerns, relative cost advantage etc. Internal (personal) initiative and knowledge Mainly direct business networks: • Supplier involvement (equipment, other inputs) • User involvement (new applications)
Size of firms Dominating drivers
Larger in comparison
Supporting networks
More informal networks National differences: network failures Public policy Subsidies for technology and R&D Effects of existing policy measures
National differences
Combined initiative: internal (personal), network, government Business networks: • Supplier involvement (cooperative procurement channels) • User involvement (local acceptance) Broader cooperation with (municipal) government offices, professional associations, banks and higher education institutions. More formal networks National differences: network failures Support more through regulations of price, quantities, etc. Effects of both existing and anticipatory measures/ legislation National differences
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be taken into consideration in the presenta- tion of the different innovations in Table 15.2. Most of the innovations described in this study can be considered incremental. These innovations are new to the country (or perhaps only new to the firm) but do not mean that that they are of lesser importance for economic performance and growth. Our study demonstrates that innovation champions are often very important for the realization of projects. The innovation champions may be employed at either private or public organizations or could be selfemployed. Most projects are complex and require the power and initiative of a cham- pion. From a policy perspective, an impor- tant issue is how the institutional framework for the establishment and operation of bio-energy plants can be made as simple as possible. This framework would create space for champions to operate more effectively. It should be stressed here that champions, often possessing not only innovative cha- risma but also good interpersonal skills, are usually very effective, even under adverse conditions. A general economic and legal framework can be more or less favourable to innovativeness, but even the best possible conditions can prove unhelpful when there is no personal leader who is keen on driving innovation forward. Regardless, such an innovation cham- pion does not exist in a vacuum. Several of the case studies indicate a positive relation- ship between external relationships and inno- vation. This finding is consistent with different traditions in the management and economics literature (e.g. Granovetter, 1973; Burt, 1992; Jenssen, 1999; Weiss and Rametsteiner, 2005; Nybakk et al., 2008, 2009). Many of the bio-energy companies are small and do not normally innovate alone but rather do so in cooperation with others. Networking can contribute to innovative capacity and innovativeness among small firms by giving companies novel ideas and access to resources, as well as by transferring knowledge (Nybakk et al., 2009). Accordingly, small firms that invest in networking with local actors will obtain an advantage via expo- sure to new ideas, by concentrating on core expertise and by finding new and better ways
to run their businesses. External relations and a larger social network are also linked to learn- ing. A larger network improves the firm's understanding of its environment, resources, markets, customers and suppliers. This network fosters the implementation of new ideas, new products and new ways of running the business, and is consistent with both organizational management literature (e.g. Calantone et al., 2002) and systems of innovation litera- ture (e.g. Lundvall, 1992; Isaksen, 1999). Interorganizational factors and networks are also of great importance among small wood bio- energy companies. An interesting research topic would be to examine the role of consult- ants, industry organizations (e.g. bio-energy associations), environmental organizations and business networks in creating framework conditions. By developing new policy instru- ments to promote networking and clustering in rural regions in Europe, policymakers can help to develop innovativeness among bio- energy companies. Consistent with the industry structure of bio-energy companies in Europe, most of the case companies are small-scale. For these small companies, few significant organiza- tional factors influencing innovation were identified. For example, most of the firms would not have their own research and devel- opment (R&D) departments or an employee working full-time on R&D. However, the organization of a small family business does present different challenges. Nevertheless, none of the drivers of innovation was linked to the cooperation within the owner's/man- agers' family in the present study. Policy and policy measures played an important role in all cases. Energy policy is one of the most important policy fields for all governments, and there are numerous policy measures and public programmes concern- ing all energy systems. One observation is that policy measures are said to be decisive in many of the cases. To study the role of policy measures in more detail, one would have to consider each case in greater depth, but it seems that countries with an explicit policy regarding alternative energy have had greater success with bio-energy innovations. Furthermore, a tax on CO2 emissions would make substitutes less competitive and would
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be important to increase the use of bio- energy. Environmental policy drivers are obviously important, with policy regarding the reduction of GHG emissions (replacing coal firing or oil prices) especially essential. This policy is part of the rhetoric in many cases, but for there to be a real impact on decision-making, the rhetorical arguments must also translate into policies, such as taxes on fossil fuels or capital and ongoing support for bio-energy (e.g. subsidies and calls for tenders). Another important factor is the supply of cheap raw materials. In some cases like Romania (C14), the abundance of raw material constituted an environmental problem and was a very strong driver of bio-energy innovation. A range of other factors emerged as important in different cases. Price development and expected price development of substitutes obviously play an important role because energy markets are volatile and future price development paths are difficult to foresee. Technological development was important in some cases, but until recently, more research money has been used for con- ventional energy sources than for bio-energy. Thus, it is difficult to foresee if there will be any major innovations in the near future con- cerning bio-energy systems. In many of the cases, the bio-energy solutions were quite new to the market, markets were poorly developed and many actors that did not usu- ally cooperate had to cooperate to arrive at a solution. All of this indicates high transaction costs. Another indicator for high transaction costs is relatively long planning times for the projects. Comparing transaction costs for bioenergy investments in different countries would be an interesting future research topic. Much rhetoric is deployed at the European Union level about a 'level playing field' for European producers, but, in the case of European wood energy production, this does not exist. Some countries have provided
substantial policy support for wood energy over a long period. In other cases, positive policy developments have been more recent. This study did not explore the policy means in great detail, but it can be concluded that the conditions for innovation created by pol- icy vary widely. The wood energy developments explored are predominantly, but not exclusively, smallscale. Some larger-scale operations were examined in Romania and France based on the exploitation of waste or by-products. It seems probable that wood energy produc- tion will continue to embrace both small firms operating in predominantly local mar- kets and much larger undertakings. This creates space for different types of innova- tion, but in most cases, the innovation will be incremental rather than profound and based on process and supply chain develop- ment. Innovation in the policy environment can also be an important supporting factor. Indeed, it is the unwillingness of those in the policy community to put a price (or the right price) on carbon emissions that is probably the biggest single obstacle to the develop- ment of bio-energy from wood. However, the widespread availability of lowgrade wood products, wood waste or waste heat from paper-making creates an opportunity for bio- energy production that has been exploited, more or less successfully, by the operators of our case studies. In summary, although supply availabil- ity was occasionally instrumental in stimu- lating innovation, the decisive factor in wood heat developments is more often changes in the market or policy environ- ment and a champion who is prepared to make the effort (either as a private or a social entrepreneur) to develop local projects. In general, the innovations observed were incremental rather than fundamental but, in sum, represent a significant development in wood energy systems.
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