1. Introduction
Solar energy, or photovoltaics (PV), is a new industry in terms of technology development and market penetration. The current energy sector is strongly dominated by fossil fuels and the evolution and diffusion of any new technologies, such as renewables, are strongly dependent on the characteristics of the existing energy system. All energy technologies have a long period of gestation resulting from a range of factors, including among others the maturity of the technology itself, nature of demand, availability of resources, required capital expenditure, service infrastructure, skills and knowledge requirements. According to Malerba,2 the propensity for a sector to innovate or the sectoral system of innovation (e.g. within the energy sector) is based on three building blocks, namely knowledge and technologies, actors and networks, and institutions. Winning new technologies emerge from a favourable combination of all of these factors. What have been the conditions facilitating or impeding the uptake of photovoltaics within the energy sector in Australia? It is also revealing to analyse the differences in the trajectories that solar energy industries have followed in other countries, such as Germany and Japan, where they have proven to be more successful.
The paper uses a historical–evolutionary approach, based on the concepts of innovation systems (national3 and sectoral4) and the analysis of Jacobsson and Lauber5 of the energy sector in order to understand the evolution patterns and the logics of innovative effort in Australia’s solar industry. This is done by: (1) a description of the industry evolution in terms of actors and interactions, knowledge base, institutions, technology structure, demand, problem solving and opportunity seizing activities; (2) comparison with Germany and Japan as industry leading countries; and (3) assessment of the existence of an innovation system in Australia.
The photovoltaics industry deals with the fabrication of materials, devices and systems to convert sunlight directly into electricity. It basically includes the manufacture of solar cells, building blocks for the solar–electric power system, modules, arrangements that connect and wire a series of PV cells to increase the voltage, PV manufacturing equipment, which is used for the fabrication of devices, module assembling and product testing, and the manufacturing of balance‐of‐systems that includes the electronic components and necessary storage elements that complete the solar–electric system. The industry has its origins in the space industry, but since the 1960s has moved gradually to a number of terrestrial applications. The global value of the industry in terms of sales is about US$2.5 billion. Where does Australia stand in these new developments?
The remainder of the paper is structured as follows. Section 2 introduces the fundamental problems shaping renewables in competition with established technologies. Section 3 details the evolution of the photovoltaics industry in Australia, Germany and Japan. Section 4 assesses the existence of innovation systems in these countries and sectors, and Section 5 offers some final remarks.
2. Problems and Opportunities
According to Andersen et al.6 and Tether and Metcalfe,7 real‐world innovation systems are built around cumulative sequences of problems or opportunities. The notion of ‘real world’ refers to the actual behaviour of actors, and reflects a bottom‐up conception of an innovation system that contrasts with other notions where the (national) innovation system is understood as the collection of a number of preconceived actors, institutions and the relationships between them. The concept of ‘problem or opportunity’ is important because they constitute the focusing devices around which actors organise their (innovative) activities. Since problem‐solving activities are distributed (i.e. not entirely within one actor), innovation systems are formed through distributed knowledge‐generating activities that lead to problem‐solving activities and provide economic outcomes. Problems and opportunities come, for example, as technical bottlenecks and breakthroughs but also in a softer (institutional) dimension as rules that may change or alter the way in which the game is played. This is particularly important in the case of renewable energy where regulation seems to be a crucial element affecting its development.
Actors within the innovation system respond to the changing environment with problem‐solving or opportunities‐seizing activities. These activities may take the form of producer–user networks, horizontal collaborations between firms of different sectors, agreement with venture capitalists or university–industry collaboration. As Andersen et al.8 explain, the systemic dimensions emerge naturally as a consequence of these bottom‐up generated interactions and responses to problems and opportunities.
The general problem that the new renewable9 energy industry faces is that of a considerable cost competitiveness gap between energy generation that uses renewable sources and energy generation that comes from existing fossil fuel sources or other established methods such as nuclear energy and traditional hydropower. In the case of the new renewables, most of the technologies associated with energy production are new and still either at a relatively immature stage of development or on a small production scale. However, there are significant differences between different renewable technologies as well as between countries, where the availability of energy resources and policy regimes dealing with renewables vary significantly.
Some of the fundamental problems for renewables are associated with the level of energy content/density, portability and complementarity with the existing energy system. Chemical (coal, gas and petroleum) and nuclear fuels are in an advantageous position in relation to renewables because of their relatively high energy density associated with the bonds of their molecular structure. The simple hydrocarbon molecules of higher energy content are stored forms of energy that have their origins some millions of years ago in the tissues of plants and animals. These chemical fuels can not only feed into power generation plants that operate with proven and reliable technologies but are also transported around the world by relatively conventional transport systems.
In contrast, most renewable energy technologies use sources of low energy density (i.e. solar radiation that reaches roofs, wind in inland or coastal areas, and waves in the sea). The unitary energy content is much less and more disperse than in fossil fuels. Renewable sources are not stored (with the exception of biomass) forms and they may be present as kinetic (wind or tidal) or solar energy. They also face problems of intermittency (windy and sunny days vary during the year) and portability (sun and wind cannot be transported as oil, gas, coal or uranium can). For these reasons most renewable technologies are challenging and sophisticated from a technical viewpoint and expensive to develop. For example, photovoltaics have an initial technological challenge of an inherent low efficiency (12–15%) in converting solar radiation to electricity. A second problem is the high manufacturing costs for photovoltaic materials which are difficult to reduce without a large increase in the scale of production. This is particularly critical in the existing markets for photovoltaics that seem to be too small to justify a large increase in the scale of production.
Thus, in the absence of an institutional framework or policy regime that gives an economic value (price) to the benefits of renewable energy, such as very low emissions, or prices the negative impacts of non‐renewable technologies, such as pollution and effect on climate change, renewable technologies tend to be seriously disadvantaged. On the other hand, policy and institutions can play a crucial role in creating opportunities to encourage innovation.
3. Photovoltaic Industry
The principles of using the natural energy from the Sun can be found in the writings of Socrates, da Vinci or Ericsson. However, the use of photovoltaics as a source of power is a relatively new phenomenon initially associated with applications where other sources of energy were not possible. For example, in the 1950s the Bell Laboratories developed solar cells for the US space research programmes and photovoltaics emerged as the ideal source of energy. After the 1973 oil embargo, solar energy also appeared as an attractive alternative to fossil fuels which led to additional investments in related research and development. Nevertheless, in terrestrial applications photovoltaics focused mainly on remote areas where grid connection, diesel or battery options proved impractical or extremely expensive.10
3.1. The Australian Case
During the late 1970s and 1980s, Australia was leading the world in relatively large applications of photovoltaics in public infrastructural projects. Telecom Australia (a public telecom operator before Telstra) installed one of the world’s first and largest PV powered microwave repeater stations in central Australia and continued to run an important PV research, development and testing programme at the Telecom Research Laboratories. In 1981, Australian National Railways installed a PV powered signal relay system, also one of the world’s largest at the time.11
These and other remote access applications, most of them for niche applications such as solar water pumping, grew strongly during the 1980s and 1990s locating Australia as the world leader (in per capita terms) in both production and use of PV with approximately 5% of the world market.12 The Australian engagement in the Asia/Pacific region through a government soft‐loan finance policy administrated by AusAid was used as a mechanism for the delivery of PV systems for approximately a million people in poor rural communities.13 The Sydney Olympics’ Athletic Village created the world’s largest (at that time) grid‐connected solar suburb with a capacity of 630 kW. Another 70.5 kW were added with the Superdome Olympic Games Indoor Complex in 2000. However, in the last six years the growth rate of photovoltaics in Australia has been considerably slower than in other leading markets, mainly due to the lack of development in the on‐grid market where most of the growth (30% annually) is concentrated.
Actors, interactions and coalitions
The first organisations involved in photovoltaics in Australia were in academia. A photovoltaics programme was established at the University of New South Wales (UNSW) in 1974 following the US Department of Energy large programme to develop a practical low cost cell. Funding from the Australian Research Council helped to advance the ideas of the laser grooved buried grid cell and further development was possible due to SERDF and NERDDC14 funding.15 At that time, Telstra had imported PV cells for use in its remote telecom installations that required reliability and low maintenance in their power supply.
Interactions between the research sector and industry started when Tideland, a US based company, approached UNSW with the intention of exploring the possibilities of incorporating the advances in the tunnelling contact cell in a manufacturing process. It set up a manufacturing facility, headed by UNSW’s academics and based on local technology and expertise. A relatively new player, Solarex, another US based company, also established local manufacturing production in Australia in 1983 as a result of the rise in tariffs for imported cells. In 1985, UNSW licensed its buried contact cell technology to Tideland which was bought by BP Solar, a large user of PV‐cells in the same year. Thus, BP Solar acquired the rights to the buried contact cell technology through a 20‐year exclusive license of the patented technology and accelerated the commercialisation through a number of trials in its Sydney plant with the support of the UNSW researchers and some funding from SERDF. Subsequently, BP Solar established a pilot production line in Spain, which was scaled up to production in 1992 and became BP Solar’s main production facility. The commercial technology was labelled ‘Saturn cell’ and was focused largely on the European grid connected market, a type of market that was not well developed in Australia.
There have been other innovative efforts in the Australian photovoltaics industry such as the new (crystal silicon on glass) CSG‐technology developed at UNSW that attracted the interest of the NSW electricity generating company, Pacific Power; the Australian National University’s PV research group which attracted the interest of Origin Energy and its parent construction materials company, Boral Ltd.16
In Australia, the interactions between firms and universities have been largely driven by the research capacity of the latter. Technologies developed by the academic sector have attracted attention from overseas firms and some joint‐ventures have been established to commercialise these technologies. In other cases, firms (utilities) have used university research as a ‘window’ to follow developments in the area.17
The coalitions formed around particular technologies18 and their ability to legitimise renewable technologies economically and socially are useful concepts to understand the forces behind diffusion and development of renewable technologies. The coalitions formed around Australian PV industry have been weak in terms of their capacity to influence the policy agenda. The main actors in these coalitions have been research groups in universities, small industry associations representing a very limited number of manufacturing companies involved in photovoltaics, some utilities with interest in renewables and weak community groups and political parties. This situation seems to contrast strongly with the German case (see below) where the influence of coalitions supporting renewables has been more effective in provoking changes in the existing institutional framework.
Knowledge base
Three main characteristics stand out in the generation and application of knowledge in the Australian PV industry: (i) strong participation of the university sector in developing cutting edge knowledge and basic research in PV; (ii) strong industry knowledge focus on remote applications for off‐grid PV systems; and (iii) considerable gap between the knowledge generated in universities and its industrial applications in Australia. These characteristics reflect a phenomenon of fragmentation in the Australian photovoltaics industry.
Australian universities have a long trajectory of successful research outcomes that have been demonstrated on a number of quantifiable achievements (see, for example, Table 1). Some of the technologies developed in Australian universities have been successfully incorporated in sectoral innovation systems overseas. The relevance of the achievements contrasts with the relatively slow level of diffusion of photovoltaics technology, particularly in comparison with leading countries such as Japan and Germany (see below). In other words, the Australian experience lacks elements of the sectoral innovation system that may allow the industrialisation of knowledge in photovoltaics. The relatively large but atomised market of diverse off‐grid users represents a challenge for the development of the knowledge needed for mass production of PV.
| Year | Achievement (* first in the world) |
|---|---|
| 1979 | First silicon cell with 650 mV photovoltage |
| 1981 | 678 mV silicon cell |
| 1983 | Theory of silicon cell efficiency bounds |
| First 18% efficient silicon cell* | |
| 1984 | First 19% efficient silicon cell* |
| Buried contact cell patents filed | |
| 1985 | First 20% efficient silicon cell* |
| First license agreement, buried contact cell | |
| 1986 | 20% efficient buried contact cell* |
| Geometrical light trapping theory published | |
| 1989 | First 20% efficient silicon space cell* (high altitude aircraft testing by NASA) |
| First 17% polycrystalline cell* | |
| First 20% efficient photovoltaic module (concentrator module using UNSW cells) | |
| 1990 | First 23% efficient silicon cell* |
| 21.6% large concentrator cell | |
| First commercial sales, buried contact cell | |
| Solar car ‘Spirit of Biel’ wins 1990 World Solar Challenge | |
| 1992 | 717 mV cell* |
| First large system using buried contact cells (24 KW system in Berne) | |
| 1993 | First 20% efficient flat‐plate photovoltaic module* (buried contact cells) |
| Nine of the top 10 placegetters in Sunrayce ‘93 use buried contact cells | |
| 1994 | 20.8% efficient photovoltaic module* |
| First 24% efficient silicon cell* | |
| 720 mV silicon cell* | |
| Europe’s largest PV system uses buried contact cell (1MW Toledo‐Spain plant) | |
| Patent filed on thin‐film multilayer cell | |
| 15% multilayer cell demonstrated (20 microns on CZ substrate) | |
| 1995 | Pacific Solar for med (to commercialise multilayer cell) |
| 17.6% efficiency for multilayer cell (30 microns on CZ substrate) | |
| 21.5% efficiency thin silicon cell (50 microns thick) | |
| 1996 | 22.3% efficient photovoltaic panel* |
| Honda Dream wins 1996 World Solar Challenge using 23–24% UNSW cells | |
| 1997 | 22.7% efficient photovoltaic module* |
| Licensee BP Solar becomes world largest manufacturer by sales revenue | |
| BP announces major commitment to its ‘unique (solar technologies)’ | |
| 1998 | 24.4% efficient silicon solar cell* |
| First 20% efficient polycrystalline Si cell* | |
| BP announces scaling up of buried contact technology, 10 MW/y in 1998; 40 MW/y in 2000 | |
| Pacific Solar begins pilot production (thin film ‘multilayer’ cells) | |
| Source: 1999 Australia Price ‘Energy Science and Technology’, nomination of Professor Martin Green and Professor Stuart R. Wenham for contributions to the development and commercialisation of silicon photovoltaics. |
The more recent cooperative efforts between industry and universities in developing and commercialising technologies (i.e. UNSW–Pacific Solar and ANU–Origin Energy) may be pointing in a different direction as they mainly target on‐grid applications.
Institutional set up and funding
According to Jacobsson and Bergek,19 new technology, its actors, their access to resources and the formation of markets are strongly related to the existing and potential institutional frameworks. Institutional change, which is at the heart of the process whereby new technologies gain ground,20 has been very slow in responding to the needs of the Australian photovoltaics industry. For example, Australia’s lack of compliance with the Kyoto targets not only created a considerable uncertainty about the concrete need for clean technologies such as PV but also affected the value system around renewables. The government’s decision to maintain the mandatory renewable energy target (MRET) at the current 9,500GWh until 2010, when this target has been strongly criticised by the renewable lobby, is a clear signal of the lack of commitment to the development of the renewable industry.21
The rules that govern competition between renewable and fossil fuel technologies can be changed, as competition not only takes place in the market but also in the political–institutional context. So far, advocators of incumbent technologies have been more effective than supporters of renewable technologies in winning the battle for influencing the institutional arena.
An important institutional factor has been the nature of research funding. Research funding for fundamental research funded by the Australian Research Council has been critical of the generation of new ideas and technologies in the PV industry.22 However, this funding has tended to be allocated on the basis of scientific excellence as research groups compete for grants based on publication records and the impact of their previous research. This pattern of R&D funding has helped to strengthen research groups with already good track records in academia, limiting considerably the funding available for other newer or smaller research groups. The large potential of renewable technologies (and PV) may justify a broader research structure and diversification.
The immaturity but also the competitive character of the PV technology internationally have put enormous pressure on researchers aiming to commercialise technologies. Although all research groups have been using public funding, the present structure of funding for technology development has presented serious limitations both in terms of the total amount of money available, rigidities and lack of clarity of offers and commitments. Intellectual property (IP) rights have also remained an unclear area. The experience of other countries (mainly the US, Germany and Japan) seems to show that not only was more generous funding available but also more innovative formulas were found in terms of sharing public funding, facilities sharing and IP arrangements.
Another interesting institutional characteristic of the support for photovoltaics has been the strong emphasis on major projects and programmes for off‐grid power generation in remote areas. This reflects Australia’s unique problems in terms of geography, location of rural and aboriginal communities, isolated tourist facilities, remote water pumping needs and so on, where photovoltaics (as well as other renewable technologies) may be cost‐competitive technologies, particularly in displacing diesel run systems. The support for renewables for remote Australia (instead of urban Australia where much of the growth is taking place) contrasts strongly with the approach taken in Germany and Japan where most of the government support has gone to the cities.
A final institutional factor affecting PV development is the stability of the ‘rules of the game’. Stability in policies and programmes is crucial in reducing the uncertainty that actors working in immature technologies face. Experienced researchers in the PV industry have pointed out that the formation of a research group able to produce significant research outcomes requires at least a 10‐year period of research work with a relative critical mass of researchers and equipment; this of course requires a stable source of funding. Most of the research groups, including the Australian Cooperative Research Centre for Renewable Energy, ACRE, have not had stable funding for more than a decade. Many funding programmes for renewable energy have also been disbanded, including the Energy Research and Development Corporation (ERDC), ACRE and SERDF. The privatisation and corporatisation of electrical utilities have also affected the funding for renewables.
New markets formation and demand
In the formative phase, new technology usually focuses on niche markets where it is superior in one or more dimensions. These niche markets usually operate under a particular government subsidies scheme and may serve as ‘nursing markets’23 for processes of learning and knowledge development where the relation price/performance of the technology can be improved. Nursing markets are also important because they provide incentives for new firms’ entrance into the different stages of the value chain. The time span involved in this formative stage may be very long, and patience and understanding of the evolution of the technology are crucial. A necessary condition for a ‘change in gear’ is that large markets are formed and the new technology or emerging innovation system has to be aligned with the whole range of new technological and market opportunities24 that may also emerge.
Australia has been a sophisticated niche market for PV off‐grid applications. PV‐based remote access power supply (RAPS) grew quite strongly during the 1980s and 1990s with the support of the Federal and State governments (see Figure 1). However, Australia’s early entry and possible leadership in off‐grid renewable energy systems for rural and isolated communities have not been easily translated into the development of on‐grid systems. Most technological and market opportunities in PV have been around the fast growing on‐grid markets which are lacking in Australia. In contrast, in Japan and Europe large government programmes supporting solar energy for residential use, schools, public facilities and demonstration projects have created a market for PV‐panels. This has facilitated the involvement of industry actors with the objective of manufacturing PV‐cells. The emergence of these protected markets for PV has helped firms to focus innovative activities on cost reduction mainly by improving the process of the photovoltaic materials and increasing the scale of production. In Europe and Japan, research and development activities in photovoltaics have been predominantly driven by large firms that had an earlier interest in electronics–chemical materials (e.g. Degussa in Germany and Mitsubishi, Asahi, Matsushita Electric, Sanyo in Japan), along with interactions with university research and public research labs.
The ‘change in gear’ in the diffusion of the PV industry in Australia has not been possible so far because of the very small size of the on‐grid markets. The MRET in its present form has had limited impact on PV technology diffusion because the high production cost of photovoltaics puts it at a disadvantage with respect to other more established renewable technologies. The deliberate intention of not picking winners and providing subsidies or funding for photovoltaics had meant that no special treatment has been given to those more sophisticated renewable technologies leaving them exposed to the challenges of the market.
3.2. The Case of Germany and Japan
Germany and Japan are the fastest growing markets for PV technology; diffusion rates between 1995 and 2001 have been 662% and 893%, respectively (Table 2). Although it is still difficult to talk about a well working innovation system due to its immaturity, the diffusion data suggest that compared to Australia, many of the pieces have been put in place to expect further growth of the PV sector in these countries.
| 1995 | 2001 | Change 1995–2001 | |
|---|---|---|---|
| Australia | |||
| Total energy generation (TWh) | 173 | 223 | 29% |
| Net generation capacity of photovoltaics (MW) | 13 | 34* | 162% |
| Ratio generation capacity of photovoltaics to total energy generation (MW/TWh) | 0.075 | 0.153 | 104% |
| Germany | |||
| Total energy generation (TWh) | 533 | 580 | 9% |
| Net generation capacity of photovoltaics (MW) | 18 | 150 | 733% |
| Ratio generation capacity of photovoltaics to total energy generation (MW/TWh) | 0.034 | 0.259 | 662% |
| Japan | |||
| Total energy generation (TWh) | 981 | 1,033 | 5% |
| Net generation capacity of photovoltaics (MW) | 43 | 452 | 951% |
| Ratio generation capacity of photovoltaics to total energy generation (MW/TWh) | 0.044 | 0.437 | 893% |
| United States | |||
| Total energy generation (TWh) | 3,558 | 3,863 | 9% |
| Net generation capacity of photovoltaics (MW) | 67 | 213 | 218% |
| Ratio generation capacity of photovoltaics to total energy generation (MW/TWh) | 0.019 | 0.055 | 189% |
| Source: Calculations from Table 1 and Table 2, International Energy Agency IEA Statistics, Renewable Information, 2003. |
Actors, interactions and coalitions
In Germany, the strong industrial fabric in sophisticated manufacturing has allowed the vertical integration of the photovoltaics industry from feedstock materials to module fabrication. The two large photovoltaics companies in Germany, Solar World and RWE Schott Solar, have followed the strategy of fully integrated operations. Solar World, which started in the trade business of renewable energy products, acquired Bayer Solar (now Deustche Solar) from Bayer AG to manufacture silicon wafers and cells. This full integration (still at a relatively small scale) guarantees more independence from the fluctuations of the PV markets characterised by a limited number of players. For example, wafers were only produced by three companies in Germany and two of them are direct competitors. This involvement in upstream operations gives the firms the potential to control areas of high value added that may have a key impact on the cost structure of the whole industry. Solar World has created a joint venture with the Düsseldorf specialty chemicals producer, Degussa AG, to develop a process for the production of solar grade silicon at substantially lower cost than before.
In Japan, the very large electronics industry has created a natural base for the diversification of the photovoltaics industry. Most of the big players such as Sharp, Sanyo, Mitsubishi Electric, Canon, Matsushita Ecology systems come from the electronics industry. Sharp, the world leader with 20% of the global market share, started the development of PV cells in 1957, entered mass production in 1963 and in the 1970s was using solar cells as a power source for calculators.
The history of diversity and expertise of the two countries’ manufacturing sectors has created a different platform for embracing photovoltaics in relation to Australia. While in Australia the PV industry has developed in an academic–scientific environment, in Germany and Japan, it has done this in a more industrial–business‐like environment.
The effect of size is also important. The large Japanese and German markets have allowed the presence of many more industry actors. This has clear implications for the diversity of the knowledge base generated and in the variety of search and experimentation. A review of the PV research and development projects under the Sunshine Program25 shows a large diversity in terms of industry participants, universities and government agencies.
Knowledge base
As a result of the different types of actors involved, the knowledge base underpinning the PV industry in Germany and Japan differs considerably from that of the Australian PV industry. In Germany, as mass production is already in place in a number of factories, much of the R&D is aimed at cost reduction for solar cells and PV modules by increasing cell and module efficiency. The involvement of solar firms in the production of silicon materials has forced them to explore relationships with firms in other industries. For example, efforts towards the development of solar grade silicon, which may have an important cost reduction impact, have led to the formation of research joint‐ventures between solar and chemical specialty firms such as Degussa and Wacker Chemie. Another example of the increasing expansion of the knowledge base of the photovoltaics industry in Germany is the development of the Building Integrated Photovoltaics (BIPV). Architects and project developers are developing new options in the use of photovoltaics. New knowledge is been created around the design, manufacture and installation of PV modules in buildings. The decision of the government to incorporate PV in all new government buildings in the newborn capital city of Berlin has created an important ‘space’ for the experimentation of new architectural solutions and innovations involving BIPV.
Japanese firms have a long history in the mass production of photovoltaics. The sharp reduction of module prices, namely 109% in 10 years,26 illustrates the accumulated expertise of Japanese firms in manufacturing cost reduction. On the other hand, the relatively large number of players not only in cells and modules manufacturing but also in research activities had created a dynamics of diversity and competition in Japan. For example, the number of producers involved in the manufacturing of different types of silicon cells and modules (including amorphous silicon and hybrid modules which are only sold in Japan) is much higher than in other competing countries (including the US). Another interesting aspect of the Japanese photovoltaics industry is the increasing alignment of the knowledge base with those applications that have a large market potential and where mass production can be exploited rapidly. The clearest example is the consistent effort (resources and knowledge) put toward the standardisation of grid‐connected systems which has resulted in considerable price reductions.27 In this effort to standardise products, the role of the construction industry has been crucial, and some construction companies with a focus on PV have been acquired by PV manufacturers to gain better market knowledge of PV applications.
Institutional set up and funding
Institutions have played a critical role in the diffusion of photovoltaics in Germany and Japan although in different ways. Renewables, and photovoltaics in particular, have reached a considerable level of legitimisation in Germany due to the formation of important coalitions supporting these technologies. Although the first Electrically Fed‐in Law (EFL) introduced in 1991 and the 1,000‐roof programme did not generate enough economic incentives to build a growing market, the political struggle behind the support of these programmes gathered a number of organisations such as environmental groups, solar cell firms, Eurosolar and the Green party.28 These organisations’ activities, which started with a local scope, created an important advocacy platform that was instrumental in achieving substantial changes in the subsequent legislation dealing with renewables. The social democrats joined the solar coalition leading the ‘100,000 Solar Roofs’ Programme that was approved in 1998 and had a critical impact in expanding the market for PV. The Greens organised a broad coalition including solar manufacturers, the trade union (IG Metal) and politicians, which was supported by the Social Democrat Party and led to the revision of the EFL in 2000. The new EFL law, fixed for a period of 20 years, gives special incentives for PV and has changed radically the legislative platform supporting PV in Germany.
In Japan, the process of legitimisation of photovoltaics technology has been different. The security of a reliable energy supply, particularly after the two oil crises, emerged as the main reason for METI to support renewable energy. This was also seen as a window of opportunity for the creation of a new technology‐intensive industry. Thirdly, the fulfilment of the Kyoto targets became an important objective after 1997. In contrast to Germany, where advocacy started from environmentalists and the Green party, in Japan, the government led the legitimation of renewables by emphasising their strategic importance. This government leadership was followed by the business sector which in a corporative fashion established the guidelines for the development of the industry. As a result, policy started with a relatively high level of subsidies and non‐horizontal incentives but with a clear middle and long‐term commitment and a market‐based approach. These policies are also characterised by a considerable long‐term frame (15 years), which creates an advantageous scenario for firms’ planning. The best example of this has been the successful Sunshine Program that was initially launched in 1974 and after two substantial changes (the New Sunshine Program and the Advanced PV Generation Program‐APVG) will continue until 2010. This level of programme continuity is not seen easily outside Japan.29
The structure of funding behind the Japanese PV programmes shows a pragmatic approach that contrasts strongly with the ‘good science’ approach adopted in Australia. Priority selection was related to technological development for mass production; advanced manufacturing technology, advanced solar cell technology and innovative PV technology are part of the agenda of the newly created New Energy Development Organisation (NEDO). For example, NEDO sponsors 100% R&D activity carried out by selected research institutions and companies, including sponsoring of a pilot plant and development for new PV technologies. In addition to these activities, there are programmes for future technologies (in and outside NEDO) where participation for Japanese institutes or companies is on invitation only.
The pragmatic institutional set up supporting PV development in Japan may be seen as a paradox between a consensual dirigiste approach and clear market orientation. The rules of the game seem to respond quickly to the progress of the technologies in the process of market acceptance and diffusion. For example, funding for the programme for the introduction of residential PV systems was launched with massive increases but the national subsidy decreased as the value of the module prices also decreased.
New markets formation and demand
The nature of demand in Germany and Japan was highly influenced by the fact that the development of the photovoltaics industry was directed towards on‐grid connections. The provision of subsidies created nursing markets and helped mainstream the technologies. Another important feature of the PV industry in these countries is its ability to be bound with the countries’ technological structure, which was not achieved in Australia.
Technological structure and complementarities
The technological structure is a key factor in connecting actors within and between innovation systems. It consists of sets of bounded technological combinations,30 i.e. the technological structure consists of capital goods, capital resources, technologies and products that are complementary or substitutable to one another. One reason why the technological structure is important is that actors are frequently related through the changes that occur in the structure because it is conducive to (business) opportunities.
The nature of the Japanese construction sector and its relation with photovoltaics well illustrate a case where the technological structure is favourable for the development of an innovation system. In Japan the average lifetime of a residential home is about 25 years and usually corresponds with the lifetime of solar modules. Many houses are either prefabricated or fabricated with standardised building components, which favours the integration of solar modules. This advantage (well recognised among solar cell manufacturers) has helped the formation of strategic alliances between construction companies and solar cell manufacturers.
The promotion of photovoltaics has not been a difficult task in Japan and Germany because of the large availability and variety of PV modules in terms of prices, quantities and designs. Additionally, the growing environmental awareness has led to the development of concepts such as the Life Cycle Cost for the total building which includes the costs of CO2 emissions from the stages of building, operation and maintenance until demolition and recycling. Smart concepts for building materials, implementation of building isolation and integration of photovoltaics modules have led to a better Life Cycle Cost compared with conventional buildings.
The impact that photovoltaics has had on the technology structure and the energy sector in Japan and Germany has been significant and way beyond the restricted applications in Australia.
4. Sectoral Innovation Systems
The Australian photovoltaics industry has about 30 years of history. It has followed two main paths: one focused on remote access power supply applications and the other on on‐grid connected systems. The growth and diffusion rates between these two segments of the PV industry however have differed considerably. In contrast to international markets for photovoltaics, including Germany and Japan, the off‐grid systems dominated the development of these technologies in Australia. There is a perception that the Australian photovoltaic industry has lost its world leadership in the last few years which is confirmed by the diffusion rate (see Table 2); Australia is losing the race against Japan and Germany, which have emerged as the leading countries.
The innovative effort in the Australian photovoltaics industry has followed a development pattern characterised by seven main features:
- •
cutting edge university research knowledge generation reinforced by research funding system;
- •
low diversity and limited experimentation;
- •
knowledge is used and industrialised elsewhere (mainly overseas);
- •
applications focused on small scale off‐grid RAPS where process of cumulative causation/increasing returns are difficult;
- •
innovative effort is not driven by competition;
- •
low competition for small markets; and
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industry actors waiting for a change in the rules of the game.
In short, a photovoltaics industry has evolved to the stage that it is characterised by an inability to exploit the (relevant) knowledge base generated by some strong university research groups. Support from government programmes has generally failed to reach the minimum level that allows for the serious involvement of industry actors; most firms are either waiting for more incentives to enter into the industry or independently funding research projects themselves, with the idea of having a ‘window’ into the renewable industry. Institutional change (changes in policies, programmes, incentives, regulations) has created a number of small actors (most of them in simple activities such as RAPS and module installations coming from elsewhere in the electrical profession) ‘struggling’ to maintain their business. Their survival, however, depends critically on the continuation of government (Federal and State) funded programmes. Finally, the present industrial structure and institutional set have not allowed the emergence of strong advocacy coalitions in favour of PV technology. The fact that existing powerful coalitions related to fossil fuels or energy intensive industries see renewable energy either as a competition or as a factor that may affect their competitiveness, has had a major impact on the creation of a climate that legitimises the rapid diffusion of PV technology.
The innovative effort in Germany and Japan has followed quite a different direction from that in Australia. A major difference is the industry actors’ participation in research activities which aim at objectives of cost reduction, mass production and use.
The innovative effort in Germany has the following characteristics:
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industry driven knowledge generation;
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upstream cost reduction (experimentation on silicon materials process);
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BIPV experimentation; and
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considerable industrial research towards mass production.
Although the Japanese PV industry shares some of the characteristics of the German model, it places more emphasis on standardisation as a way to achieve mass production and there is more diversity of product experimentation. The following points illustrate the direction of the innovative effort in Japan:
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mass production of PV‐cells and modules;
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efforts for product standardisation for grid‐connected markets;
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large diversity in cell/module experimentation;
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large industrial R&D programmes (cooperative and in‐house);
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intense competition in both cells and modules; and
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innovative efforts focussed on a convergence of PV, architecture and construction materials to the standardised applications of PV.
5. Evaluating the Existence of Sectoral Innovation Systems
This concluding section of the paper attempts to evaluate the existence of the emerging innovation systems. Three criteria are used to assess the existence of an innovation system considering the processes that are conducive to the diffusion of the new technologies, including economic and growth outputs. These are:
- i.
economies of scale/increasing returns;
- ii.
institutional alignment; and
- iii.
standardisation and reuse of knowledge.
These three dimensions of the existence of an innovation system are interrelated. For example, economies of scale on the level of the ‘system’ are achieved through the reuse of knowledge by the means of creating and adherence to standards. These standards connect actors and signal the way to direct innovative efforts towards areas of lower technological and economic uncertainty. Institutional alignment is crucial in the creation of standards and a favourable climate where actors can foresee innovation opportunities.
The review of the PV industry in Australia, Germany and Japan suggests the existence of marked differences on the three key criteria. In terms of economies of scale and increasing returns, it is quite clear that while the Japanese and German industry have moved towards mass production as a way to cut costs and diffuse the technology, Australia’s low scale and slow market diffusion have made the achievement of economies of scale and positive feedbacks difficult despite its early entrance into the industry. One of the reasons for this has been the limited role played by large industry actors and the lack of an industrial base in related industries.
Institutional factors are predominant considerations in addressing the question as to why there is not a visible innovation system operating in the Australian renewable energy industry in general and the PV industry in particular. Behind the successful experiences in the development of innovation systems in renewable energy industries (e.g. wind industry in Denmark and photovoltaics in Japan and Germany), has been a long‐term commitment to adequate policies, stable export programmes and strong financial support. Factors favouring social legitimacy, consensus and acceptance of renewable technologies have also been very important. However, in Australia, most of the existing programmes have come into existence almost by chance, for example, as part of the political process regarding GST (general sales tax) legislation, which included a number of government ‘concessions’ for renewable energy sources. Renewable energy policy has at best been ad hoc. This has been clearly manifested in the policy duality regarding the development of a renewable energy industry on the one hand, and greenhouse abatement on the other.
Ideologies and vested interests have great power in determining the outcomes of particular technologies. The level of political consensus, conflict or confusion has strongly influenced the speed of the diffusion of these technologies. The creation of related sectoral innovation systems requires the involvement of different types of players that organise activities and innovative effort under a stable and clear scenario where some common ground and shared visions exist. The creation of this consensus in photovoltaics in Japan and Germany has been partially driven by METI and NDEO which have seen the technological opportunities behind this industry. The Australian experience however, so far, has shown a different direction; a number of barriers exist for the industry actors, particularly those able to scale up production and reduce manufacturing costs. At the same time, public policy has not created the necessary space in which the knowledge base created in universities could be used by actors in a way to generate increasing returns and long lasting effect.
Following some targeted research funding in the 1980s and 1990s, the linear principle that good science ‘will deliver’, the allocation of money based on the track record of scientists has persisted. This is not necessarily appropriate for a new industry where there is no clear notion of where the winning technological solutions will come from. More experimentation in differing but complementary research groups appears to be a necessity, but with the imperative of reducing the current degree of fragmentation that exists in this field.
Finally, due to the limited presence of industry actors driving the industry, efforts in Australia for product standardisation have not been at the core of industry development. The establishment of standards has been a difficult issue as the industry is quite atomised and a number of SMEs focus on the niche market for RAPS.
The features of the sectoral innovation systems for the three countries are summarised in Table 3. Most of the gaps in Australia’s innovation system are related to the lack of social and economic rather than scientific and technological fundamentals. In other words, in strong contrast with the Japanese and German cases, the social and political terrain has not been fertile for the growth of this industry.
| Photovoltaics | Economies of scale/increasing returns | Institutional alignment | Standardisation and reuse of knowledge | System failures (examples) |
|---|---|---|---|---|
| Australia | Lack of economies of scale | Ad‐hoc policies, lack of political and social legitimisation for renewables. Low level of subsidies and incentivesExcellence science base policies have limited the level of experimentation | Relevant but fragmented knowledge base. Mainly exploited by overseas innovation systemsMuch of the RAPS based knowledge cannot be applied to urban PV systems | Lack of industrial actors with resources to bring technology to mass‐productionLevel of incentives for renewables does not allow the involvement of large firms in photovoltaicsLack of a national climate for supporting renewable energy |
| Germany | High level of political legitimisation of renewable technologies | Strong efforts of integration with building industry to develop common standards (BIPV) | ||
| Japan | Achieving economies of scale and reducing cost is the focal point of PV industry | Government leadership sees the industry with high technology opportunitiesLarge subsidised long term Government programmes | Knowledge focus in cost reduction and mass productionConverging standards in construction industry |
This institutional set‐up and policy framework regarding renewable energy may bias the future development in favour of ‘innovation systems’ generated overseas limiting Australian participation as a user of imported renewables technologies or a peripheral contributor to the provision of ancillary equipment and services. This seems to be disconnected from the research activities that happen in universities, where world‐leading findings are being achieved. In fact, it is likely that many of these research achievements may be used (or incorporated) into non‐Australian innovations.