This piece was written with Graham Provost, intern at the World Resources Institute.
The agenda at this week’s Pacific Energy Summit, hosted by the National Bureau of Asian Research, in Hanoi, Vietnam, includes increasing energy security, expanding access to energy, and decarbonizing the power sector. Given these goals, plus the staggering growth in energy demand in Asia, as well as increasingly volatile fossil fuel prices and rapidly falling renewable energy costs, there are many opportunities to scale up renewable energy throughout the region. (For more on renewable energy’s rapid growth see here and here.) In order to take advantage of this fast-moving sector and develop internationally competitive domestic industries, countries need to have a strong capacity for innovation.
A new conference paper, "Taking Renewable Energy to Scale in Asia," explores these opportunities and challenges for the Summit Participants.
Building a Sustainable Competitive Advantage through Innovation
The International Energy Agency predicts $2.1 trillion will be invested in renewables worldwide between 2011 and 2020. While many countries seek to supply their own domestic electricity to realize the economic opportunities around renewable energy, engaging with the international market holds great potential, particularly for smaller countries that cannot create large domestic markets.
There has been a trend to use local content requirements and other infant industry protections to create domestic production of renewable technologies, even for quite small markets. While sometimes successful, this approach can make clean energy more expensive and risks creating a domestic industry that is not internationally competitive and cannot capture as much of the $2.1 trillion in investment. Requiring domestic production for a large portion of the value chain also risks losing access to the latest technology and low-cost components for domestic electricity generation, which may be available only as imports.
A more sustainable approach is to create a healthy innovation system to support domestic companies and maintain pressure on suppliers, foreign and domestic, to reduce prices over time. Governments should focus their support of innovative capacity on the value chain segments where their country may be globally competitive, rather than trying to force a large proportion of the value chain to locate on their shores. Building this innovative capacity will provide a competitive edge internationally, making infant industry protection much less necessary and building a more robust, sustainable industry in the long term. This, in turn, will lower the costs of renewable energy for consumers and taxpayers.
Government can invest in a number of important functions to develop a country’s innovative capacity. These include well-known strategies of fostering research and development (R&D), and training a high-caliber workforce. But for the energy sector in particular, these must also include building necessary energy infrastructure and creating a regulatory environment that supports innovation. Governments should work to ensure that their domestic innovation systems are effective at:
- Creating and sharing new knowledge
- Building competence
- Creating collaborative networks
- Developing infrastructure
- Providing finance
- Establishing governance and the regulatory environment
- Creating markets
Asian Policymakers Are Already Investing in Innovation
Many Asian policymakers have already recognized the importance of each of these functions of the innovation system and have taken steps to promote them. For example, many are working to create and share new knowledge, such as Singapore’s large investment in R&D in renewable energy, particularly solar.
Many of Asia’s developing and emerging economies have weak transmission systems that limit the amount of renewable energy that can be integrated into the grid. China, for example, is investing heavily in developing infrastructure by building new transmission lines between wind-rich regions and cities along the coast. The Chinese government is also encouraging development of ultra high voltage transmission lines in part to provide access to electricity markets for gigawatt-scale wind-power bases. (For more on this topic see: 2010 China Wind Power Outlook.)
India’s Solar Mission, a comprehensive national program promoting adoption of solar photovoltaics, contains provisions to promote innovation on many fronts. For example, the program is considering establishing a fund to provide financing for at least 50 solar technology start-ups across India over the next five years. The fund would support R&D, new solar technology pilots, and new and unique business models. The Solar Mission also has several components that contribute to establishing a supportive regulatory environment. For instance, the Indian government has streamlined the process for certifying and rating solar technology manufacturers and has created a clearance mechanism whereby all business permits can be obtained simultaneously.
These are just a few examples of public investments in innovative capacity in the region. They go far beyond R&D and enable Asian innovators to attract private investment and reach new markets with their clean energy products. They create the robust innovation system entrepreneurs need to compete effectively.
In Asia, renewables promise to become a significant industry, driven by falling renewable energy prices, fossil fuel price volatility, public health impacts around fossil fuels, and fast-growing regional energy demand. However, the highly regulated nature of the power sector means that policymakers play a uniquely influential role in encouraging innovation and creating effective government policies that will be crucial to supporting industry success.
By first identifying segments of the value chain where they can compete and then supporting entrepreneurs with a healthy innovation system, Asian countries can take advantage of the global energy transformation to drive their own economic development.
For a more detailed discussion of these issues, see Letha Tawney’s paper for the Pacific Energy Summit, “Taking Renewable Energy to Scale in Asia.”