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Seizing Economic Opportunities in the Low-Carbon Power Sector

This post was written with Pablo Torres, an intern with the Two Degrees of Innovation project.

In these turbulent economic times, leaders around the world are looking to strengthen their economies and create jobs. They are grappling with how to effectively capitalize on the green economy to drive growth. In a new WRI working paper, we look at ways that policymakers can create new green jobs through investments in innovation to meet our challenges in the power sector.

Building the capacity to innovate is a key competitiveness strategy. Successfully competing in the growing low-carbon power sector is no different. However, innovation—improvements in cost and performance—can also close the gap between the low-carbon technologies of today and the low-cost, high-performance technologies the world needs. Policymakers have a crucial role to play in supporting innovators and creating a dynamic innovation ecosystem where they can thrive.

A large and growing global market for low-carbon power technologies

The transition to low-carbon power, needed to avoid disastrous climate change, has begun. While there is much more to do to limit climate change to 2°C, existing national commitments to low-carbon power are creating a large and growing global market for utility-scale, low-carbon power technologies:

  • In 2010 investment in renewable energy generating capacity (including large hydro) was greater than fossil-fuel investment, and according to the Renewable Energy Policy Network, "[r]enewable energy accounted for approximately half of the estimated 194 gigawatts of new electric capacity added globally during the year."

  • Developing countries are playing a major role. The Renewable Energy Policy Network’s 2011 Global Status Report indicates that "For the first time, investment in renewable energy companies and utility scale generation and biofuel projects in developing countries surpassed that in developed economies.”

  • The market has the potential to be truly massive. The International Energy Agency estimates that the total investment needed to achieve a 90 percent reduction in the carbon intensity of electricity generation by 2050 (compared to 2007 levels) is US$32.8 trillion.

Both developed countries and emerging economies have an opportunity to join this growing global market. Countries like China have already explicitly targeted the low-carbon power sector as a new strategic sector leading economic growth worldwide. But competing in the global low-carbon value chain—developing, manufacturing, installing, operating, and integrating low-carbon power technologies—will require building innovation capacity.

Creating “innovation ecosystems”

Policymakers have a crucial role to play in supporting innovators and creating a dynamic innovation ecosystem where they can thrive.

Our paper explores why innovation is a central strategy to long-term competitiveness in this highly price-sensitive sector. How can policymakers help their innovators thrive in order to build a domestic industry that competes successfully? They can do so by investing in their “innovation ecosystem”. The innovation ecosystem is made up of those who participate in the process of innovation very broadly, and the rules that govern how those people and companies interact.

The innovation ecosystem approach captures the complexity, uncertainty, and diversity of innovation and identifies the critical services innovators need to thrive. In the low-carbon power sector these include:

  • Creating and sharing knowledge
  • Building competence
  • Creating collaborative networks
  • Developing infrastructure
  • Providing finance
  • Establishing governance and the regulatory environment
  • Creating markets for low-carbon power

To accelerate innovation, to increase the odds of innovation processes ending in success, it is critical to ensure all of the services or functions are being delivered effectively and efficiently.

Framework for building a dynamic innovation ecosystem

Finally, our paper presents a framework to help policymakers deliver these services and build a competitive industry. The framework includes the following steps:

Step 1: Global value chain assessment and positioning

  • Purpose: Decide which technologies and segments of the low-carbon power value chain will be the targets of innovation.

  • How: Conduct a landscape assessment of the country’s or region’s assets and capabilities and map these against opportunities in the global low-carbon power sector. Use this data to choose focus technologies and value chain segments.

Step 2: Ecosystem analysis

  • Purpose: Determine how well the current innovation ecosystem is delivering each critical function.

  • How: Conduct an analysis of innovation ecosystem functions for the technologies and segments of the low-carbon power sector selected in step one.

Step 3: Policymaking, design and implementation

  • Purpose: Reinforce functional strengths and correct systemic failures in the innovation ecosystem.

  • How: Select policy tools appropriate to the local context that will support the ecosystem functions.

Step 4: Policy evaluation, learning, and adaptation

  • Purpose: Monitor the impacts and the effectiveness of the adopted policies and changes in the sector. Make evidence-based adjustments to adapt to a rapidly maturing global sector.

  • How:

    • Evaluate the impact of the policies implemented in step three on the innovation ecosystem functions.
    • Evaluate whether innovation is accelerating through improved cost and performance metrics and whether this is achieving the economic development, energy, and environmental goals.
    • Survey changes in the global sector.
    • Update policy packages to adapt to the new situation.

Scaling up renewable energy needs to happen today, and it needs to happen with the best possible technology at the lowest cost. Innovation is essential to making this happen, but thinking about innovation must go beyond the lab. It’s the technical, process, and policy innovations that will also help achieve a low-carbon energy future.

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