the business of global energy transformation: saving billions through sustainable models

The Business of Global Energy Transformation

Also by Mats R. Larsson

THE TRANSPARENT MARKET ( with David Lundberg )

THE LIMITS OF BUSINESS DEVELOPMENT AND ECONOMIC GROWTH

GLOBAL ENERGY TRANSFORMATION

The Business of Global Energy Transformation Saving Billions through Sustainable Models

Mats R. Larsson Global Energy Transformation Institute

© Mats R. Larsson 2012 Foreword © Thomas Taro Lennerfors 2012

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First published 2012 by PALGRAVE MACMILLAN

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Softcover reprint of the hardcover 1st edition 2012 978-1-137-02448-0

ISBN 978-1-349-43854-9 ISBN 978-1-137-02449-7 (eBook)DOI 10.1057/9781137024497

To my wife Bodil and my daughters Cajsa and Maja

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vii

Contents

Foreword ix

Preface xiii

Acknowledgements xvi

1 I Mean “Business!” 1

Part I Emerging Transport and Energy Systems – A Foundation for Growth

2 The Need for Large-Scale Energy Systems Transformation 9

3 Not Technology, but Orgware, Business, and Financing 16

4 What Will Happen if We Fail? 32

5 How to Identify Lack of Business Orgware 38

6 The Contents of Business Orgware 44

7 Four Categories of Orgware 72

8 Geographical Aspects of Orgware 89

Part II Emerging Energy Systems – Sustainable Business Models

9 Business Situations 105

10 Business Situations, Technologies, and Emerging Business Models 114

11 Smart Grids and New and Visionary Materials Technologies 141

12 Development Opportunities for Well-Established Technologies 148

Part III The Development of Knowledge and Orgware

13 Development of a Visual Model and Decision-Making Method 161

14 The Role of Orgware in Energy Systems Transformation 164

viii Contents

15 Doing the Right Thing 171 16 Important Aspects of Change Management 185

17 Conclusion – Billions Can Be Saved, and the Probability of Success Can Be Increased 199

Notes 209

Literature 213

Index 215

ix

Foreword

It goes without saying that global warming and rising energy prices are two major challenges facing society today. Cynically, one could assert that global warming is just a meta-issue hovering above the real issue of rising energy prices and even energy security – that a country cannot secure the energy needed to function as usual. Having lived in Japan in the aftermath of the great earthquake in 2011, I am well aware of the impact of electricity shortages: scheduled powercuts, closed escalators, half-lit alleys, neon signs that are switched off. Referring to the former energy intensity and brightness of Japanese city centres, I even heard voices sighing, “Japan is starting to look like Europe.” Although this exclamation was a generalization, people have started to understand that the most vital fuel of modern society is energy and that there are risks associated with not having at hand the energy needed to keep going. The philosopher of science and technology Don Ihde writes that “The context is ‘lit up’ through technological breakdown. It is when the hammer is broken or missing that its involvements are shown. The fullness of the project – and the objectness of the hammer – gets shown when it is not functioning” (2010, p. 79). The breakdown that I experi-enced makes sense within the frame of the Heideggerian notion of tech-nology, where malfunctioning unveils the functioning of the system. Indeed, we are embedded in a technological system, one which would lose its grace, swiftness, and function without energy.

It is to this system that increasing energy use is attributable, and since the system is predominantly powered by fossil fuels (especially in the transport sector), it is a major cause of global warming. And it is this technological system that Mats Larsson is aiming to revolutionize, or reform.

This argument connects to Larsson’s previous work on energy systems. In Global Energy Transformation, he argues that large-scale system change away from dependence on fossil fuels must happen fast and that this is indeed possible. By drawing on successful American examples such as the space programme and the Marshall Plan, Larsson aims to inspire us to see that large-scale transformations have taken place in the past and thus have the potential to take place in the present, too. This revolutionary approach is quite refreshing, especially compared with the rather incremental approach that is

x Foreword

dominant in sustainability discourse: on a train from Stockholm to Lund I once got a paper cup on which was written, “By drinking this cup of coffee, you are making the world just a little better” – a refer-ence to the coffee being ecologically friendly. Remember also that commercial by oil major BP (before the Deepwater Horizon disaster) in which the message of the happy tune playing in the background was “Say, hey! We make the day a little better”, as BP promoted its Beyond Petroleum environmental image. And don’t forget IKEA’s never-ending list of small steps towards a greener planet. To sum up, small has indeed become beautiful.

This is not only a discourse promoted by large corporations. It cascades down to the average Joe sorting rubbish and buying ecologi-cally friendly toilet paper, climate-certified shower gel, and so on. We seem to want to make a contribution, but not to be willing to make any radical changes.

The world is fragmented. There are various good attempts to advance environmental technologies, and nurturing of knowledge about these individual technologies, but there are no attempts to integrate all these fragments into a workable system, Larsson argues. Scholars propose that there is an intrinsic link between matter and mind, and some even claim that our thoughts are visible in this fragmented material reality. If they are right, we cannot see anything but a laissez-faire, hygienic, individualist belief that our modern society (with its modern markets) will in some way take care of itself. How did we end up here?

The reason for this situation is probably the failure of the modern paradigm. Before the Second World War, there were numerous plans to create large-scale systems, to design perfect societies. But after the war, and especially after the movements of the 1960s and 1970s, scholars started to problematize grand narratives (stories about how things are or how they should be). They started to point out that horrible events such as the Holocaust were in fact logical outcomes of the modern project. A shift took place in the intellectual debate, a shift that brought us towards the local, towards practice, towards the micro level, towards respecting differences, towards making small changes for a world that will be just a little better, something like an attenuated present. And certainly the market economy would be the perfect way of accommo-dating this intellectual shift.

There have, of course, been streams of thought that did not throw out the modern baby with the bathwater. Attempts have been made to restore thinking about the common, to think on a large scale, to actively take responsibility for creating a new present. I think that these tendencies are refreshing.

Foreword xi

Larsson takes such a perspective on energy transformation. Using a modified version of Dobrov’s concept of “orgware” (different from hardware and software), Larsson points out that more than tech-nology is required to understand and to cause change. Technology is co-constructed with economy, politics, society, culture, and so on. In this way, his work resembles attempts to take a systemic view of tech-nology in a field called Large Technological Systems, which is held to have been created by the historian of technology Thomas P. Hughes.

That’s how I situate Larsson’s book. But it’s easy to talk about large-scale transformation, and one wonders, “What do we do then?” There are, of course, myriad ways in which to change the system, and in this book the main aim is to discuss competence or knowledge with respect to energy systems. One might not be surprised that in our alleged knowledge society, knowledge on different levels plays an important role in Larsson’s account. But Larsson criticizes the specialization of today’s society and its reverence for new technologies viewed in isola-tion. Technologies, as well as people, will and must be able to form part of a new system. The best way to get this is to think of the competence for integration. Another of Larsson’s propositions is that we must create sustainable business models. Business and technology must be thought of in unison. By bringing popular management theories and business models to the field of energy systems, Larsson is entrepreneurial in a Schumpeterian way – creating new combinations.

Larsson’s book usefully reviews what has been written about energy system transformation, a variety of cases (from the energy sector, but also from other sectors), and interesting technologies such as Green ICT and composite ships. The book can therefore be used not only as a manifesto, but also as an encyclopaedia.

Larsson sees the main challenge as lying in the transport sector, where the dependency on fossil fuels is great. I would encourage readers to think about the twists and turns of the struggle to promote large-scale energy transformation in a technological system that is already well set on its course. Is the tendency towards straightforward solutions compatible with the whole project of large-scale change?

There is another interesting aspect of Larsson’s book that could go unnoticed. It is the importance he assigns to fiction and the creation of narratives, heroes, and new myths about global energy transforma-tion. This reminds me of philosopher Richard Rorty’s statement that many philosophers think that “you can escape from the limitations of your background by exercising your innate rational powers” (2006, p. 372). Rorty adds that “one great divide in contemporary philosophy is between people who still believe something like this, and those who,

xii Foreword

like me, believe nothing of the sort”. Rorty proposes that rather than rational faculties, we need more creative imagination. He claims that the ideal candidates for the job are aesthetes and literary persons. Larsson has a couple of fictional stories. Whether they nurture one’s creative imagination or not is up to the reader to decide, but maybe we will see more of the same in the future, by Larsson or by others.

Larsson exhorts us to continue to perceive the sustainability/energy nexus as a challenge rather than as something that has already been solved.

Thomas Taro LennerforsSenior Lecturer, Uppsala University

Thomas Taro Lennerfors received his PhD from the Department of Industrial Management, Royal Institute of Technology, Stockholm, Sweden, in 2008. In 2010, he was appointed associate professor at Meiji University School of Commerce in Tokyo, and he is now a senior lecturer at Uppsala University in the Department of Engineering Sciences, Division of Industrial Engineering and Management. He is conducting research on the philosophy of sustainability, network forms of governance, and corruption in various industries. One of his prin-cipal interests is Green ICT, and he is research leader of the project IT for Sustainability funded by the Japan Society for the Promotion of Science. He has published a number of monographs, book chapters and scientific articles in for example the Journal of Business Ethics, Business and Society, and Culture & Organization.

xiii

Preface

The goal of this book is to describe the challenges of large-scale energy systems transformation from the perspectives of systems integration and business development. The text identifies the most cost-effective way for society to approach energy systems transformation, and the analysis indicates that society can save tens of billions of euro by applying the right approach.

It is hoped that the reader will develop an understanding of the business challenges that we have to face as we integrate sustainable energy technologies into large-scale systems, and start to roll them out across nations. A substantial share of the book is devoted to describing the various competencies and organizational resources that will be required, and to identifying resources that already exist and differences in resource needs between emerging technology complexes.

Until now clean energy has primarily been discussed from a tech-nical perspective. This is an attempt to develop a high-level picture of the business challenges in a number of emerging business areas. Below, I outline what I believe readers from a number of different backgrounds will gain from reading the book.

Business managers and researchers

The book attempts to identify and start to define the key role that business professionals are likely to play in the future development of sustainable energy systems. It sets out a number of key theories from business management and marketing and illustrates how these can be applied in order to go forward with and analyse business prospects in different phases of the development at hand. The book also aims to provide guidelines for investors and business managers who may consider entering the field of clean energy.

Readers with backgrounds in political science or politics

Energy issues have been on the political agenda for many years. Clean energy technologies have been proposed primarily as a way to combat climate change. From this perspective new energy technologies

xiv Preface

represent an additional cost compared to fossil fuel-based transporta-tion and energy systems that are relatively cost-effective. With the global peak in oil production we are facing a new situation in which we need to develop renewable fuels and new energy technologies in order to secure an energy supply. This means that business and economics need to rapidly introduce and expand new transportation systems, and develop viable strategies and business models for these emerging businesses. This is an entirely new situation, which dramati-cally changes the perspective on new energy sources and transporta-tion systems. The need to rapidly reduce our dependence on oil will present a new and, for many decision-makers, unanticipated chal-lenge, of which we rapidly need to grasp both the potential risks and business opportunities.

Readers with technical backgrounds

Many of our most talented leaders in business have technical back-grounds. With a sound basis in technology, experienced people can adopt a number of key business concepts and tools. As has been illus-trated by the business genius of the late Steve Jobs of Apple, and a number of other people before and after him, business is in itself a process of innovation on several levels. In order to become innovative the future master needs to learn and understand a few basics. This book provides some of the necessary concepts to whet the appetite of the clean energy leaders of the future for more business knowledge and experience.

Readers with backgrounds in economics

The prevailing paradigm in economics tells us that political leaders need to increase the freedom of markets, because the market provides the best way to allocate resources in society. There is also a line of economics that focuses on the role of institutions in economic devel-opment. This book attempts to merge these two views with respect to innovation and business development in the field of clean energy. It recognizes that markets, in general terms, are the most efficient tool for allocating resources, but it also discusses in detail the role of institu-tions, or “orgware,” which in the sense that I am using it is a broader term, in the development in the emerging fields of sustainable energy systems.

Preface xv

Readers with an interest in the prospects of particular technologies

In the book a number of sustainable energy technology and systems areas are discussed. These are:

– Smart grids – Green Information and Communication Technologies – Composite ships – Energy-efficient construction solutions and materials – Electric and hybrid vehicles – Natural gas and biogas vehicles – District heating.

xvi

Acknowledgements

I thank Philip Peck of the International Institute for Industrial Environmental Economics at Lund University for giving me the idea for this book by mentioning the importance of “orgware” in the area of technology transfer.

I am very grateful to Region Blekinge, and the municipalities in this region – Olofström, Sölvesborg, Karlshamn, Ronneby, and Karlskrona – and to the European Regional Development Fund for financing the project Avknoppning Sydost, within which I have met many of the companies and learned about the challenges in the different industries that form some of the case studies in this book.

I thank my colleague and friend Peter Oksman for his support with competence-building around energy systems issues.

I am grateful to Krister Örnfjäder, member of the Swedish Parliament, for his support and interest in the ideas expressed in this book.

I am also grateful to a number of representatives of the various compa-nies that I have worked with and interviewed in the past three years. I extend a deeply felt “thank you” to Martin Andersson of Asarums Industri, Michael Granoff and Mikkel Linnet of Better Place, Henrik Ny of Blekinge Institute of Technology, Anders Nilsson of Blekinge Offshore, Stefan Bernbo and Mikael Blomqvist of Compuverde, Anders Mathiasson of Energigas Sverige, Per Ljungberg of Ericsson, Sabine Froning of Euroheat & Power, Jörgen Andersson of Fönsterspecialisten, Hans Enocson and Magnus Rosenblad of General Electric, Daniel Enström of Informationsbyggarna, Mats Lindbom and Johnny Lilja of Karlskrona Kommun, Johan Edvardsson of Kockums, Bengt-Åke Claesson of Logica, Jonas Lööf of Miljöfordon Syd, Per-Ola Clemedtsson of NetPort, Fredrik Wernstedt and Christian Johansson of Noda, Mikael Runeson of Nordisk Etanol & Biogas, Anders Nyman of Nyman Consulting, Karl Liliehöök of Renhållningen Kristianstad, Svante Enlund and Jerry Zetterqvist of See Cooling, Staffan Fredholm of Sigma, Magnus Lindoffsson of Sweco, Lars Tedehammar of TBS Yard, Sven-Åke Jarl of Thermofloc, Mariana Davidsson of Vattenfall, Göran Sternsén of VMAB, Helén Elvmarker and Ulf Gustavsson of AB Volvo, Johan Konnberg and Ralf Svensson of Volvo Car Corporation, and Jan-Anders Jönsson of Åkej.

Last but not least I thank Stephen Rutt, Virginia Thorp, and the other team members at Palgrave Macmillan for their support by giving me the

Acknowledgements xvii

opportunity to publish a series of books that have helped me explore the management, business, and economic aspects of the transformation of global energy systems. The opportunities to publish my findings in The Limits of Business Development and Economic Growth in 2004, Global Energy Transformation – Four Necessary Steps to Make Clean Energy the Next Success Story in 2009, and the present book, have facilitated the develop-ment of my 10,000 hours of experience in an area where very few other researchers have taken an interest. Now, as the world stands on the brink of global energy transformation, the ideas developed throughout this series of books may contribute to a smoother process of transforma-tion for us all.

Despite my deeply felt gratitude towards the above contributors I have received no financing from any physical or legal persons for the development of the core ideas in this book or in the previous Global Energy Transformation . My sole aim has been to interpret the develop-ment needs of global energy transformation, and draw my conclusions as painstakingly and truthfully as possible. I have felt the moral obliga-tion – as I believe any knowledgeable person should – to try to contribute as much and as constructively as possible to the sound future develop-ment of society and the economy. I also have no political affiliations or any adherence to political ideas or dogmas. Any mistakes are entirely my own.

1

Some believe that the development of new sustainable technologies will solve our present problems of climate change and energy secu-rity. The most crucial part of this will be the development not of the new technologies themselves, but of sustainable business concepts that allow firms to make a profit from the application of those technologies. The success of this endeavour will rest on our ability to build not only clean energy systems, but profitable businesses based on them. It may be technology that has taken humanity from the cave to today’s tech-nological society, but it is business that has made it possible to invest in technology venture upon technology venture. Business and economics in combination have made it possible for us, as a society, to spend more money each time.

In the area of sustainable technology we have now spent hundreds of millions of euro, but we have paid little attention to the development of sustainable business models.

As will be shown in the concluding chapter of this book, the selection of the most promising and cost-effective technologies for global energy transformation can save tens of billions of euro for every country in Europe and the world over the coming decades. A focus on business and financing aspects and systems analysis will become necessary in order to increase the probability of success in this important endeavour.

Many experts on energy security and sustainability agree that we are in a tight spot and that we need to get our act together rapidly and trans-form energy-related systems into sustainable ones. Yet we are working on only part of the solution. Public and private financing bodies spend increasingly large sums on the development of new technologies, but few spend any time trying to find out how we are going to deploy these technologies in order to develop the sustainable businesses that we so

1 I Mean “Business!”

2 The Business of Global Energy Transformation

desperately need. This will not be solved by a small number of solitary business “geniuses” who will develop the right business models while the rest of us look on in awe.

Successful businessmen like Bill Gates and Steve Jobs can only work their magic within the context of a society that understands what they are trying to achieve. Sustainable business models can only be devel-oped within a society in which large numbers of competent people start to march in the same direction, not only from a technology, but also from a business perspective. It may be said that genius, like beauty, is to a substantial extent in the eye of the beholder. The business challenge is not only about building companies, it is about transforming society, because surrounding those emerging companies we need research into business and finance in the emerging industries, and government agen-cies, politicians, and other key decision-makers need to pave the way by making relevant and informed policy decisions, and by showing their interest and offering support by preparing the public for a new wave of business development.

Our current way of life is to a large extent made possible by our use of energy. The way we live, the way we produce and transport our goods through global supply chains, and the way we organize local communi-ties, build roads, use electricity, and heat our homes, are all to a large extent determined by our access to abundant and inexpensive energy. Oil and other energy sources are traded on global markets and countries that do not possess large resources of energy of their own can purchase oil and other commodities from countries that have plentiful supplies. This is likely to change gradually towards a larger degree of self-suffi-ciency in energy. With higher energy prices and declining volumes of existing energy sources traded on global markets, countries will be forced to produce a larger share of their energy from indigenous sources or raw materials. This will present challenges and a number of poten-tial risks to countries that are late starters in this process, but it will also offer numerous new business opportunities for companies in coun-tries that from an early stage build strong positions in these emerging markets.

Over the past three years, since the publication of my previous book Global Energy Transformation: Four Necessary Steps to Make Clean Energy the Next Success Story , I have been discussing the need for national strategies for large-scale energy systems transformation with business managers, environmentalists, researchers, politicians, government offi-cials, and experts in all areas of society. I have also discussed with the same people the obstacles to the development of sustainable business

I Mean “Business!” 3

ventures. These dialogues have supplied much of the material for this book, including a number of case studies. I also take the opportunity to revisit some of my intellectual roots in business strategy, organization theory, and change management. Through the discussions with these knowledgeable, intelligent, and experienced people I have found that many people outside business lack an understanding of certain key busi-ness concepts that will need to play a key role in this development.

Even though business is as old as human society, business manage-ment theory comprises a number of young disciplines. While Newton developed the concept of gravity in the seventeenth century and Edison made his famous innovations around the turn of the twentieth century, most of the ideas related to business management that are referenced in this book have been developed and put into large-scale practice only over the past few decades. In such a short period, it would have been unreasonable to expect a deeper understanding of business to have been developed outside business circles, especially since most people have never had a reason to explore the detailed mechanisms behind the development and implementation of, say, mobile telephony or space technologies. We don’t need to understand scientific concepts to observe that rain falls from the sky or to use a mobile phone or GPS for navigation, but by having these experiences we understand some aspects of the science behind them. Even though business provides us with new technologies and products all the time, most people have not seen business development at work in the way they have seen gravity or mobile telephony work.

Now, for the first time since the beginning of industrialization, we need to transform some of the largest and most capital-intensive systems in our society. As we start to do this the need emerges for more people to understand, on a more detailed level, what is needed in order to be able to rapidly develop and implement new energy systems on a large scale. One of the main reasons why we need knowledge to be spread more widely in society is the simple but powerful fact that existing trans-port and energy systems and technologies have been developed over more than a century. This means that car and truck engines, and other components, as well as power grids and their components, are now not only very efficient in themselves but are produced in highly efficient production and logistics systems. We must take this into account as we face the challenges of transformation. It will make the transformation more challenging and demanding in terms of transformation strategies, change management, and the choice of tools with which to drive that transformation forward.


The energy transformation literature

Many books have been written on the development and implementation of clean energy systems from a technical point of view. I have searched far and wide for books about large-scale energy systems transformation written from a business perspective. The following illustrate what I have found. Most of the titles mentioned below discuss energy issues and renewable energy tech-nologies, but most discuss them from an angle other than that of business development, which is the topic of the present work.

A few books discuss the interface between business development and government policies for global energy transformation. In 2005, Leif Johansson, the then CEO of Volvo, the global leader in the heavy truck industry, published the booklet “European Challenge – How a manufac-turer of commercial vehicles can contribute to sustainable development and sharpen competitive edge within the EU.” 1 This is a very important work by a visionary industry leader that has not been widely circulated. In 2008 the Volvo group published a booklet with the title “Climate Issues in Focus,” 2 in which seven different engine alternatives for trucks and buses, based on renewable fuels, were analysed and discussed from a systems perspective. In this booklet Leif Johansson contributes analysis that builds on the reasoning of the previous publication.

The International Energy Agency, founded after the oil crisis of 1973 and is now financed by a group of 28 countries, publishes an annual report entitled World Energy Outlook . At least since the 2009 edition the IEA has strongly advised governments to take decisive steps towards a solution of the climate crisis. The measures recommended include the large-scale implementation of sustainable energy systems. In the executive summary of its 2009 report, this organization, which has the task of monitoring energy supply and advising governments on how to avoid disruptions, states:

The scale and breadth of the energy challenge is enormous – far greater than many people realize. But it can and must be met. The recession, by curbing the growth in greenhouse-gas emissions, has made the task of transforming the energy sector easier, by giving us an unprecedented, yet relatively narrow, window of opportunity to take action to concentrate investment in low-carbon technology 3 .

Professors Charles Weiss and William Bonvillian are the authors of the book Structuring an Energy Technology Revolution , 4 published in 2009. This important work is discussed at length below.

The American Energy Innovation Council was formed in 2009 by seven senior business managers, philanthropists, and venture capitalists from the United States. Among the founders are Bill Gates, founder and chairman of Microsoft and Jeff Immelt, CEO of General Electric and Head of President Obama’s Economic Advisory Panel. This council has to date published two reports that are available online at www.americanenergyinnovation.org. These reports are discussed below. The present author wrote the book Global Energy Transformation – Four Necessary Steps to Make Clean Energy the Next

I Mean “Business!” 5

Success Story , 5 also published in 2009. The present book builds on some of the ideas put forward in the previous work. In the same year I also wrote and published a complementary book Overcoming Overuse – Energy Transformation for a World Gone Fad. 6 Global Energy Transformation discusses the “hard” management aspects of energy transformation, such as organization struc-tures, transformation programs, and financing. Overcoming Overuse deals with the “soft” aspects, such as leadership and information.

In established energy industries some analysts have explored the systems integration that will be required and business challenges that will be faced in future development. In the emerging area of smart electric grids a number of books have been published. In SMART Power – Climate Change, the Smart Grid, and the Future of Electric Utilities 7 Dr. Peter Fox-Penner analyses the technical and business challenges of the development of a smart grid in the United States, and in The Advanced Smart Grid – Edge Power Driving Sustainability 8 , Andres Carvallo and John Cooper analyse the systems integration challenges in the same area. In the area of district heating there is also a significant literature on the technical developments needed and the challenges of, for example, rehabilitating aging district heating systems in the former Soviet bloc. This literature also discusses some business aspects of district heating. Through an extensive dialogue with Dr. John B. Kidd of Aston Business School I have learned about the opportunity to transform long-range transportation through the use of magnetic levitating trains. This idea has been developed and promoted by Dr. Kidd and it represents an example of an energy effi-cient large-scale transport system of the future that will require business and political, as well as technical orgware in order to become implemented.

The books and reports mentioned so far focus on the business and finan-cial challenges, and on the role that governments and public organizations such as the EU must play in the various areas of global energy transforma-tion. Much more extensive lines of literature discuss the technical aspects of clean energy technologies. I have selected a few books to represent the various areas.

The former Vice-President of the United States, Al Gore, is probably the best-known author within a large literature that analyses the climate change issue. He quantifies the need to reduce emissions of carbon dioxide and discusses a number of examples of technologies and activities that have been initiated in order to reduce emissions, and halt the progress of climate change. Gore produced the film An Inconvenient Truth , which first appeared in cinemas in 2006 and was released as a book in the same year. In 2009 he published the book Our Choice: A Plan to Solve the Climate Crisis .

A few books discuss the policy framework for renewable fuels, focusing mainly on policies for renewable power production. These include Energy Revolution 9 by Howard Geller (2003), Renewable Energy Policy 10 by Paul Komor (2004), and Energy Shift 11 by Eric Spiegel and Neil McArthur (2009).

Energy management is a vast area of expertise, in which researchers and consulting firms help companies improve their energy efficiency and reduce the cost of energy in their operations. The book Guide to Energy Management 12 by Capehart, Turner, and Kennedy (2006) is representative of this genre.

A number of technical textbooks about renewable energy systems have been published, primarily focusing on systems for heat and power generation,


discussing the opportunities offered by wind and solar power, wave and geothermal energy, again, primarily from a technical or user perspective. A book edited by Godfrey Boyle, a Senior Lecturer at the Open University in the UK, entitled Renewable Energy – Power for a Sustainable Future 13 and another by Boyle, Everett, and Ramage, Energy Systems and Sustainability , 14 with the same subtitle, serve as examples.

A number of books discuss renewable fuels for transportation. One example is Biofuels for Transport 15 by the Worldwatch Institute (2007).

The book Zoom , 16 by Iain Carson and Vijay V Vaitheeswaran (2008), discusses a number of innovative vehicle technologies that are in devel-opment within the transportation industry or in start-up companies. This is an example of books that argue that the necessary technologies already exist or are on the drawing-board. We do not need to worry, because the all-powerful market is already waiting on the side-lines with a range of solu-tions. In a similar vein, Peter Senge, the author of The Fifth Discipline (1990), on the subject of Organizational Learning, has also written The Necessary Revolution (2008), 17 in which he argues that the problem is already close to a solution.

I was first attracted to the energy area by the literature on the global peak in oil production, known as “Peak Oil.” Representatives of this literature are The Party’s Over 18 (2003) and Powerdown 19 (2004), by Richard Heinberg. It was a number of retired oil geologists who first drew attention to Peak Oil, including Kenneth Deffeyes, author of Hubbert’s Peak 20 (2001) and Beyond Oil: A View from Hubbert’s Peak 21 (2005). Another important contribution has been made by Matthew R. Simmons, with Twilight in the Desert (2005). 22

The term “transition” has been used by the proponents of local and small-scale activities to reduce dependence on oil. Representatives of this literature are The Oil Depletion Protocol 23 by Richard Heinberg (2006) and The Transition Handbook 24 (2008) by Rob Hopkins.

There is a literature on the subject of “orgware,” a term extensively used in the present book, used by researchers in the field of technology transfer in order to explain why a technology that works well in one country and environment is not accepted or does not work as well in another situation that from a technical perspective may have seemed suitable. One early exponent of this line of research is G. M. Dobrov, the author of the 1979 article “The strategy for organized technology in the light of hard-, soft-, and org-ware interaction.” 25 A later example related to sustainability is the report “Advancing Technology Transfer for Climate Change Mitigation” by Dalhammar, Peck, Tojo, Mundaca, and Neij of the International Institute for Industrial Environmental Economics at Lund University. 26

Part I

Emerging Transport and Energy Systems – A Foundation for Growth

9

2 The Need for Large-Scale Energy Systems Transformation

In my book “Global Energy Transformation – Four Necessary Steps to Make Clean Energy the Next Success Story” I concluded that the chal-lenge of transforming global energy systems on a large scale is unlikely to be solved automatically by market forces as oil prices increase. Instead there will be a need for an analysis of transformation oppor-tunities, large-scale programmes, planning, and managed programmes and projects. These are the “four necessary steps” referred to in the book’s sub-title. The market will not automatically solve global energy transformation because oil is used in huge quantities and the new technologies and fuel and vehicle systems that must be put in place are highly complex. The development and implementation of the renewable energy systems of the future will involve very large, long-term investments and transformation activities carried out by many different players.

There are two key reasons why we will need to drive energy systems transformation forward more forcefully than we do at present:

− The global peak in oil production is behind us; within the next few years oil production is likely to decline by 1–2 per cent or more each year, which will create a strong demand for renewable fuels and the vehicles that use them. The issue of energy security will most likely move to the forefront of the energy debate in the years to come.

− Climate change requires us to reduce emissions of carbon dioxide and other greenhouse gases. Declining oil production is likely to reduce emissions from transportation and other uses more than any planned schemes. The issue we are likely to be facing in the next few years is that of the security of the energy supply.


As will be indicated in the concluding chapter of this book, the savings potential of using the most cost-effective approach amounts to several billion euro for any country in Europe.

The late Professor Vernon W. Ruttan of University of Minnesota concluded in his book “Is War Necessary for Economic Growth?” that, even with sustained government investments, it takes several decades to develop and implement new general-purpose technologies for trans-portation or energy production on a large scale. This means that it will be many years before renewable energy technologies start to generate large volumes of renewable fuels that can replace oil and other fossil fuels.

Leif Johansson, former President of Volvo, the global leader in the heavy truck industry, argued in the company booklet “Climate Issues in Focus” (2008) that high-level political decisions need to be made in order for Volvo to start focused action to develop the vehicles of the future. The reason for this is that transportation systems do not end at national borders. Trucks need to be able to travel across conti-nents, and the same fuels must be available in all countries along the way. In order to accomplish this, those countries will have to agree to focus on a similar set of renewable fuels and engine technologies for their use.

We use 86 million barrels of oil every day, which amounts to 1.5 litres of oil for every individual on earth. All oil used for transportation liter-ally “goes up in smoke” and none of it, except for the amounts used to make plastics, can be recovered or recycled for re-use. The opposite is true of copper, which is often mentioned as a successful reversal of a trend similar to that of “Peak Oil.”

Every year we use two kilograms of copper per person. The volume of oil that we use is thus some 200 times larger than that of copper. In addition, all the copper we use remains in our buildings, cars, elec-tricity and telephone systems, and other structures we have built. According to the Copper Development Association of North America, every car contains some 1.5–2.5 kilometres of copper wire containing between 20 and 45 kilograms of copper, and 4 per cent of the total volume of copper used is employed in electric wiring and water pipes in the construction of buildings. The copper from used cars and buildings, when they are recycled, can be used to increase the volumes available, and the replacement of copper wires by optical fibre in the telecoms industry, and focused programmes to rewire cars and other vehicles to use less copper wire can reduce demand. Such measures can be intro-duced relatively rapidly.

The Need for Large-Scale Energy Systems Transformation 11

Oil is used for transportation and industrial purposes and measures to change fuels take a very long time. The transformation of energy systems requires very large investments in systems for renewable fuels that we have still not started to build on a large scale. A car and a light truck in the United States have median life of about 18 years; and a heavy truck has a median life of 28 years 1 . In a typical advanced country, petrol or diesel make up more than 95 per cent of transportation fuels, and most of the remaining volume is ethanol that is mixed into petrol or, in some countries, E85. Ethanol is produced using an amount of oil that is equivalent to, or even larger than, the volume of ethanol energy produced 2 . This means that increasing the amount of ethanol produced using current methods is unlikely to be a viable alternative to oil-based fuels. Instead, new technologies or systems for ethanol production will have to be developed in order to make ethanol a truly sustainable fuel.

We need to implement new energy systems on a massive scale, which must rapidly become at least as efficient as the energy systems we aim to replace. This book will elaborate the structure of a number of possible future systems, the processes and investments that will be necessary to put them in place, and the interrelationships between transportation fuels and our other types of energy use that will force us to develop new transportation fuels. In addition to this we will discuss the develop-ment and implementation of the vehicles that can use these new fuels.

Extreme business opportunities

The business opportunities that are emerging in sustainable energy areas are likely to open up very large new markets for industrial growth. In some areas large-scale business development is already under way. In 2005 the visionary CEO of General Electric, Jeff Immelt, started a group-wide project called Ecomagination. He wanted GE to lead devel-opment and invest substantial sums in the development of clean energy technologies before their markets really took off. He started by investing 400 million dollars in the project in the first year. GE found, however, that demand in many areas was already strong, and revenues for the new products developed in the programme exceeded expectations. The volume of investment was gradually increased, reaching more than a billion in 2008. This sum was further increased in 2010 as the company announced that it would invest an additional 10 billion dollars in the development of clean technologies over the next five years. Among the product groups covered by the programme were plants for cogeneration of heat and power, energy efficient engines for railways and airplanes,


and the development of technologies and systems for smart power grids.

While General Electric has targeted industries where there were already customers with substantial purchasing power, and where viable business models and structures were in place, a number of sustainable energy areas remain to be developed. In some cases this development will start almost from scratch. If financial environments and circum-stances are favourable, turnover in sustainable energy industries is bound to increase very rapidly and on a global scale.

The global use of oil amounts to 31 billion barrels per year. If we at some point in time were to introduce new fuels to replace 20 per cent of this volume, the value of these fuels would, at a market price of 100 dollars per barrel, amount to around 620 billion dollars in annual turnover for the companies that supply the new fuels. In addition to this there will be a need for distribution systems and vehicles that can run on the new fuels. Such vehicles and systems are likely to be sold by incumbents in the automotive industry, but in all large industrial transformation processes, opportunities for industry invaders emerge. Entrepreneurs who develop new vehicle concepts, fuels and production systems for those transportation systems, along with other innovations, are likely to seize the opportunities and succeed in carving out niches in emerging markets.

Consider the transformation of the IT industry. As a consequence of the growth of personal computers, graphical user interfaces, e-business and client server solutions, companies like Apple, Dell, Microsoft, and Google have come to the fore. At the same time a host of other niche players in hardware, software, and various information and service areas have established themselves.

Now, companies such as Tesla in electric vehicles, Better Place in elec-tric vehicle systems, Carbo Cat in light-weight ships and ferries, and See Cooling in cooling systems for green data centres, are developing strong business concepts for emerging markets. Incumbents such as Volvo, BMW, Ericsson, and IBM drive their development forward to compete and cooperate with many of the emerging new concepts and products. In the years to come the maps of many global markets will have to be re-drawn, based on developments and events that few people seem to expect.

In 2006 50 million cars and 19 million commercial vehicles were produced. The market value of these vehicles was several thousand billion euro. These are only some of the markets that are likely to be


affected by the transformation. Other markets, such as that for electric vehicle batteries and for systems for gas distribution and the dispensing of gas at fuel stations, are also likely to grow.

It is impossible to predict exactly what will happen and who the winners and losers will be, but we can describe some of the key challenges, and we can also identify a number of incumbents and key contenders for the leading positions in these emerging business sectors.

New business is often impossible – at first

Business is about making possible the seemingly impossible. The path taken by business development is often unexpected, often exceeding the expectations even of experienced business professionals, because most industry experts do not have the time to analyse the forces that are going to influence development, and most experts in an area focus on technology issues, which makes it difficult to fully embrace all the relevant business aspects.

This was the case in 1997 when David Lundberg and I wrote “The Transparent Market,” in which we analysed the strategic business opportunities offered by the Internet. When we discussed this with our colleagues, many of them experienced business consultants, most did not believe that companies would ever make extensive use of the Internet to do business or exchange information. To most people we spoke with it seemed highly improbable that electronic information exchange and business transactions would ever become standard modes of business communication.

To most people new business ideas seem impossible. This may be because they require very large investments and transformations of the current framework within which business is done. The introduction of new technologies and business models also involves the development of competencies and skills that nobody has yet heard of, and the develop-ment of companies that offer these services. In addition, the develop-ment of these component factors must coincide with interest on the part of customers using the new technologies and buying the new serv-ices. Such transformations are typically hard to foresee, even by those close to centres of development.

However, some experts in innovation and business development have high expectations for the success of new business offers, because they have worked for many years in innovative environments or devel-oped new business ventures. Although we all know that most business


ventures fail at an early stage, new user-friendly technologies that dramatically reduce cost or increase customer value do have a good chance of success.

Throughout business history many of the most important technology development projects and business ventures have seemed impossible to most of their contemporaries. Who would have thought, when Thomas Edison started the first power grid in New York in 1882, that grids would cover the whole developed world by the mid-twentieth century? Who would have believed in the early days of the automobile that this – at the time – impractical and very expensive product would become the preferred means of transportation in the latter half of the twentieth century? After all, farmers who bought the first tractors kept horses as back-up because the new vehicles often broke down. And when Ruben Rausing started to develop the Tetra Pak, a beverage container made from paper carton, who believed that this company would become the largest packaging company in the world?

By now we ought to expect the world to change in unpredictable ways. Most of us use hundreds or thousands of technologies every day that were undreamt of a century or even fifty years ago. Technology development and change has had a tremendous impact on society and on our daily lives. But it has also had many less-known consequences.

Rampant specialization and increasing complexity

One of the factors that underpin present-day economic efficiency is the increasing level of specialization in all areas of society. Specialization creates increasing complexity, since more specialists need to become involved in order to perform a particular task. Specialization seems to be an impor-tant feature of highly developed societies. Similar developments have been described by the archaeologist Joseph Tainter for ancient societies like the Roman Empire and Mayan culture in his book “The Collapse of Complex Societies.” 3

Increasing specialization has been a fact of life since time immemorial; archaeologists determine the level of specialization by the heterogeneity of a society, the number of different occupations and social strata within it, and the number of specialized tools that it uses. Specialization developed slowly in agricultural society where families were largely self-sufficient. As indus-trialization began, specialized companies emerged in a number of industrial areas.

Food production was gradually taken over by dairy firms, meat-packing companies, and grain and cereal companies. With the growing size of markets, and increasing customers’ purchasing power, dairy companies have driven the process even further to specialize in cheese, soft cheese, milk, or yoghurt. There are companies that specialize in fruit yoghurts, or other


specialties. These special foods also require an increasing proliferation of production technologies, packaging solutions and marketing campaigns, and companies that develop, sell, and maintain production and packaging machinery and sell packaging materials for each of these products.

In the computer industry, development started with one type of computer, a few general components, and one language, Assembler. With the develop-ment of graphic interfaces, the Internet, and e-business on multiple plat-forms, the number of specialized programming languages, web development and other tools has greatly increased. As an example, a student of computer games programming learns to use a number of programming languages and systems tools that have been specifically developed for these purposes, such as Unity, Maya, Kodu, and C++.

This increasing level of specialization represents both an opportunity and a challenge. With the development of new fuels and transportation systems we will see the development of new industries, and there will be a need to gradually dismantle or re-direct activities within a number of existing indus-tries. This will place complex demands on several systems in society, such as the innovation, education, and infrastructure systems, and perhaps the tax and financial systems. In order to take advantage of this development deci-sion-makers in politics and in industry will have to predict developments, make plans, and adapt systems based on forecasts. Some of these develop-ments will be driven by market forces and are not likely to require interven-tion by governments, but others will need to be planned for and driven or coordinated by public sector players.

Compared to previous situations of technology development and transfor-mation, such as the diversion of the production systems of the US, UK, and other nations to the production of military materials during World War II, the current situation, with a substantially higher level of specialization, is likely to offer a new type of challenge, which will resemble these previous situations in a number of respects, but the higher degree of specialization will present an additional challenge.

Business development and the introduction of new technologies and systems is a long-term process that involves planned and coordinated activi-ties. The higher the degree of specialization in a society, the more coordina-tion and project management will become necessary in order to ensure the overall efficiency of the process.

16

Over the past few years in society there has been an increased focus on energy issues. This has followed from an increasing awareness of the pressing demands of climate change, and an emerging awareness of the even more pressing demands of the global peak in oil production. This has triggered increasing investments in technology development financed by the EU, national governments, and other parties that finance research. Unfortunately, technological development alone is not likely to lead to the large-scale implementation of renewable energy systems.

Practitioners and theorists identify one of the key factors of success in technology transfer projects – in addition to technology, or hardware, and knowledge – as the existence of “orgware.” 1 When technology is transferred from one country or situation to another, some of the most important obstacles to development arise from the lack of knowledge about new technologies and systems, organized structures for public debate, political decision-making, legal frameworks, research and inno-vation systems, frameworks for pricing and efficient competition, tax systems, and the existence of relevant institutions and organizations. In the area of technology transfer the “software” aspect is represented by the knowledge that is necessary in order to apply a technology, or a complex of technologies, in the new situation. In the present work, in order to avoid confusion, the words “knowledge,” “competence,” and, where relevant, “experience,” are used; the term “software” is used in its more conventional sense of computer programmes and systems. “Orgware” is used throughout to mean the organized structures of companies and company organizations comprising knowledgeable individuals, rules, regulations, incentives, systems, and the processes that develop as a society understands the need for organized decision-making in an area.

3 Not Technology, but Orgware, Business, and Financing

Not Technology, but Orgware, Business, and Financing 17

A number of key individuals that have been interviewed identify the lack of knowledge on the part of key decision-makers and administra-tors about sustainable technologies as one of the main obstacles that have to be overcome when we plan to introduce entirely new energy systems. Institutions and innovation systems do exist to support tech-nology development, but there is seen to be a lack of institutions that build knowledge around and support the integration of technologies into systems, and the development of viable business models based on sustainable energy. The interviewees do not mean that just a few individual decision-makers lack the necessary knowledge. Instead, in most countries there is a need to build relevant knowledge among the majority of members of parliament, employees who work in different roles in innovation systems, professors and researchers at universities and institutes, investors and business managers, and many other key persons who together form the chief decision-making bodies of modern economies. In the future, sustainable energy and transport technologies are going to permeate every part of society, just like their current coun-terparts. To use a modern concept, energy systems and related parts of society are truly “entangled.” The process of replacing these entangled systems by new ones that will be just as entangled, but perhaps in other ways, represents a tremendous challenge.

When the concept of orgware was first presented to the author of the present book, he saw its relevance to situations related to technology and business development, not just technology transfer. Without the requisite orgware, it will be difficult for a society to muster the resources to develop and implement new technologies. Hopefully the account in this book will open the eyes of decision-makers, researchers, and experts to the need for orgware in clean energy and transportation areas.

Green orgware

The green movement started in the 1960s. The book that is considered as this start of the development was “Silent Spring” by Rachel Carson, published in 1962. Since then a lot of research has been done into issues like pollution levels and sources, the role of carbon dioxide in climate change, and the development of green technologies that do not pollute or that reduce the amount of pollution.

The replacement of oil in transportation systems by renewable fuels has been debated for a long time by proponents of sustainability, politi-cians, and representatives from the oil and vehicle industries. Due to the role of carbon emissions in climate change this debate has become


even more heated over the past few years. As increasing numbers of engineers and other sustainability experts work with these issues, those who have first-hand knowledge of various aspects of sustainability and related technologies have become increasingly vocal. This also means that many in business and politics, who might become involved, not for reasons of sustainability, but rather for the growth opportunities offered by this development, do become involved and start to support green ideas.

This is in many ways a very positive and necessary development. In the efforts to promote its ideas the green movement has argued that we need to transform energy systems regardless of the cost. Their main opponents have been economists, business people, and conservative politicians, who have argued that the cost of introducing renewable fuels will be high, and that we should instead do this at the pace that markets can afford in order for the economy to be able to absorb the cost. The business aspects of introducing renewable fuels have not been present in the debate except as an unknown (but very large) volume of investment and cost that will need to be carried by companies and organizations in order to implement renewable fuels systems on a large scale. Due to the somewhat abstract level of the debate little effort has been expended in sorting out the details. Nor has the overall invest-ment, which will amount to tens of billions of euro in any single country, been calculated or debated. It has not, whether in the debate or in publicly available analyses, been broken down into the components or activities that will become necessary in order to go forward with the implementation.

As the need to implement fossil-free transportation systems is attracting increasing amounts of attention, many people in business and technology realize that we now have access to the technologies necessary for the introduction of renewable fuels and electric vehicle systems. However, neither the peak in oil production itself nor its consequences for economic and business growth and the future of tech-nical development are on the public radar in the same way as global warming. This means that the debate is mostly based on the arguments developed around the issue of climate change: the perils of our depend-ence on sources of fossil fuels that are being rapidly depleted are maybe added as an afterthought.

Furthermore, the implementation of new transportation systems is still to a large extent treated as a technical issue, rather than as a series of business issues ranging from systems integration, to financing and marketing.


Throughout the sustainability debate, society has developed substan-tial resources of orgware related to the issues on which sustainability experts have so far concentrated. An awareness of environmental issues now permeates parliaments, the organizations that make up innova-tion systems, media, research, and, increasingly, business. We now need to build orgware, in the form of organized knowledge and systems, in areas that have not yet been significantly addressed. This is the chal-lenge taken on by this book. As the issues related to the development of competence and orgware are analysed in some detail a more complex and challenging picture emerges, seen through the eyes primarily of technology development and an analysis of climate change.

2012 government policies

Toward the end of January 2012 the Swedish Member of Parliament Krister Örnfjäder put a formal question to the Minister of IT and Energy, Anna-Karin Hatt, representative of the Centre Party, which introduced environmental issues into Swedish politics in the late 1970s. Due to its long-standing engage-ment in energy issues the Centre Party, of the four parties in the governing conservative and liberal coalition, is considered to have the highest level of competence in energy issues. The question was about the measures the Swedish government is taking in order to secure the country’s energy supply. The following answer, translated from the Swedish, was received from the Minister on 1st February 2012:

“To the parliament Answer to question 2011/12:328 by Krister Örnfjäder (s). Securing the

future supply of transport fuels. Krister Örnfjäder has asked me what the government is doing to ensure

that the Swedish economy will not be affected by a future reduction in global oil production.

This is a good and relevant question, even if I see it from another perspective myself. The primary reason for reducing Sweden’s dependence on fossil fuels is not so much the risk of a reduction in global oil production, but primarily the negative effects on the environment and climate that result from our use of fossil fuels. Among the measures that the government has already taken in order to reduce our use of fossil fuels I would especially like to put forward the following:

fuel taxes that favour the use of bio-fuels, a number of financial incentives that favour the sale of more environ-

mentally friendly vehicles, such as the subsidy for environmentally friendly cars,

support for investment in plants for biogas production, financing of research and development of second generation bio-fuels and

more environmentally friendly vehicles, and


particular support for electric vehicles. These measures are part of a long-term effort on the part of the govern-

ment of having a vehicle fleet by 2030 that is independent of fossil fuels. Stockholm 1st February 2012. Anna-Karin Hatt” In Sweden biogas is free from tax, while petrol and diesel are heavily taxed.

The government has introduced a tax on natural gas, because of natural gas’s emission of carbon dioxide. This has met with criticism from proponents of vehicle gas, because vehicle gas in Sweden is about 30 per cent natural gas, and the measure is deemed to reduce the competitiveness of vehicle gas. The subsidy of environmental vehicles mentioned by the Minister amounts to 4,500 euro for a maximum number of 5,000 vehicles from 1st January 2012. The support for investments in plants for biogas production represents 30 per cent of the investments made by farmers in farm-based biogas production. The Swedish biogas industry estimates that the total amount of farm waste, including manure and waste from vegetable production, is 3–4 TWh, which is less than four per cent of the Swedish use of petrol-based fuels for trans-port. The amount of biogas produced was growing very slowly in 2011, from a level of 1.5 TWh, mostly produced from sludge from water purification plants. We are still heavily dependent on oil, despite decades of unfocused research into and development of green technologies.

Unfortunately, contrary to the assertion of the Minister, securing the fuel and energy supply is in all probability the most pressing goal. Only with a global economy in extremely good shape can we hope to achieve the multi-billion euro investments in new transport systems and energy technologies we need in order ensure economic growth.

The goal of developing a fossil-free transportation sector in Sweden by 2030 is ambitious but not entirely realistic. If the matter is approached from a purely mathematical point of view, we may remind ourselves that vehicles in Sweden, according to national statistics, have an average life of more than 15 years. In order to replace all vehicles by fossil-free ones by 2030 all the vehicles sold in 2015 would need to be fossil-free. At present less than one per cent of vehicles sold are genuinely fossil-free. The term itself needs to be analysed and debated, since ethanol is produced in an agriculture system that is itself driven by fossil fuels, which means that ethanol should probably not at present be included in the total of fossil-free fuels.

It is a slight simplification to suggest that the vehicle fleet of any country in 2030 will be made up of all the vehicles sold in every year from 2015 to 2030, but it can give a general idea of how vehicle fleets are composed. Most vehicles sold between 2020 and 2030 will still be in service; a somewhat larger share of the vehicles sold between 2015 and 2020 will have been taken out of circulation, and some vehicles older than 15 years will still be in use. However, almost all the vehicles sold in 2015 will be fossil-based, as will a very large majority of those sold in 2020. The best way for a large share of the vehicles sold in 2029 to be fossil-free is to promote fossil-free vehicles on a large scale as soon as possible. All other alternatives are likely to be more costly and come with a lower probability of success.

According to Carlos Ghosn, chief executive of Renault and Nissan, elec-tric vehicles could account for ten per cent of new car sales by 2020. Due to


the heavy investments in systems that expansion is likely to vary from one country to another. Denmark and France, where 103 and 235 million euro respectively are invested in the development of electric vehicle systems, may see a larger share of the growth in electric vehicles than Sweden, where 21 million euro are invested in subsidies for a maximum of 5,000 environmen-tally friendly vehicles. The amount necessary to invest in order to replace all five million fossil-fuel vehicles by fossil-free alternatives by 2030, and to supply all of them with fossil-free fuels, would be exorbitant.

On 13th February Krister Örnfjäder followed up his question with an inter-pellation (a question from an MP requiring a more substantial answer) in which he asked about the government’s view of the relationship between the energy supply and the country’s wealth and how much the Swedish govern-ment expects would have to be invested in order to achieve a fossil-free trans-portation sector by 2030. The response to this interpellation came on 20th March. It largely repeated the arguments of the response to the question quoted above and mentioned that during the spring of 2012 the government would set up an enquiry to identify the next steps that have to be taken in order to reach its ambitious goal.

In the case of energy systems transformation the following categories of necessary orgware can be identified:

− Technical − Market − Political − Financial

The template below describes the orgware challenge, and will be used later to identify details related to the development of orgware in different business and technology related areas:

Technical “orgware”

Market “orgware”

Political “orgware”

Financing “orgware”

Supranational “orgware”

National “orgware”

Regional “orgware”

Local !orgware!

Orgware template


At present substantial effort is put into the development of the hard-ware and software aspects of the various technologies and sub-systems, but virtually no attention is paid to the aspects of business related orgware: the need to rapidly and forcefully integrate those technologies into well-structured and functioning systems that can be rolled out on a large scale in individual countries and internationally.

Orgware is largely built around knowledge and abstract structures, rather than the tangible machinery developed by new technology that represents the hardware of technology implementation. Another factor, the importance of which is still underestimated by many who take an interest in energy transformation, is “systems integration.” Many informed people seem to take it for granted that simply because there are now electric vehicles, charging posts, and the other necessary technologies of electric vehicle systems, these will almost immediately be adopted into widespread use. Over the past two to three years, the author of this book has often been asked why more is not happening now that we have access to the necessary technologies and that these have been tested in various environments and situations. I often try to explain that it is not because people are stupid or because there is a general unwillingness on the part of politicians or business people to see these technologies succeed. The existence of steel, railway engines, and electronic control systems for railways does not necessarily mean that people start to build railway systems. In the same way, the exist-ence of electric vehicles, charging posts, and smart grid technologies does not automatically lead to the large-scale development of electric vehicle systems.

In addition to technology development we need to develop business models, secure long-term financing for companies that can start to build renewable fuel systems, and train the people who are going to take on the various roles in this development. If this does not happen based on market-driven processes, we need to analyse the various busi-ness aspects of the technologies and systems that we expect to develop in order to find out why. As business experts, politicians, and experts in the various transportation and fuel technologies and application areas spend time doing this they will develop an understanding of the needs of systems integration, business development, and financing of ventures. This development will be critical for the large-scale imple-mentation of renewable fuel systems, but it is not likely to start until financial resources become available.

In addition to the categories of orgware above there is also the geographical dimension. Orgware can be built on the following levels:


− Local − Regional − National − International

In the case of district heating, for example, systems are usually local and a large share of the orgware that has been built around this tech-nology is local. Due to the relative simplicity of business models in this area, most of the orgware is also technical, and most of the experts that are active within organizations that work with district heating have a technical background.

In areas relating to transportation systems the playing-field for tech-nology development and implementation is generally broader and often of an international nature. The business challenges are also much more complex. Business models for electric vehicles are likely to have more in common with those developed within the telecoms industry or other similar international high-tech areas.

Orgware is built on shared values, developed based on disagreement

Orgware can be described as organized knowledge that “lubricates” and structures all kinds of different processes in society. Tax authorities build and organize knowledge about tax systems and how they can be developed. Organizations, such as Scouts and Guides, which arrange activities and train children represent the orgware in these areas. There is nothing mystical or strange about the idea of orgware. It simply builds in various forms as people perform activities together, organize politi-cally, start companies, and develop and regulate markets. In organi-zation theory it was noted at an early stage that organizations build management resources that meet the demands of their environments. The same thing happens across society. As people with an entrepre-neurial spirit identify a new challenge, or a need for new resources in order to solve a problem, they often form an organization or a depart-ment within an existing organization and start to build competence and resources in the new area.

The orgware that results is built on the beliefs and values shared by people regarding how we should organize society in a particular area. Employees in a company usually share the belief that the offerings of the company represent the best way to satisfy particular customer needs. In the case of structures of government and authorities the orgware


reflects the values shared by the majority of people in a country. These values are to a substantial extent political, but the core orgware of, for example, an innovation system, is not usually fundamentally changed when a new government comes into office. The European Union (EU) programmes for innovation financing that are in operation are built on a set of values that are shared across the EU and are administrated by bodies that build the relevant competence. This competence is organ-ized in the forms of institutions that operate on sets of rules and princi-ples that reflect their underlying values.

The administrators of these programmes who develop the rules, guide-lines, and systems have to share the main bulk of the ideas and values they are based on. Each individual may, however, disagree with some or a number of ideas and practices, or they may think that the core ideas represent the best alternative available at present. However, at any one time many employees of an organization would support the introduc-tion of a number of new ideas and principles that could be incorporated into the system. Most organizations need not only to accept, but to embrace, a high degree of diversity of backgrounds and ideas in order for development in society and in business to be possible.

This is probably the reason behind the discovery that science develops through “revolutions.” This idea was first described and published in 1962 by the sociologist Thomas S. Kuhn of the University of Chicago, in his book “The Structure of Scientific Revolutions.” 2 While individual professors, administrators, or politicians may pick up new ideas all the time and incorporate them into their understanding of, for example, business development and innovation, the overall “paradigm” within these areas will change more slowly. Important changes to theories that may, over time, reflect the way that research is run in an area of science require both that a large number of key persons have adopted the same new ideas, and that some leading figures inside or outside the systems bring these ideas to the forefront and promote changes based on them. Many people now see that this description of the way that science develops, as put forward by Kuhn, also serves as a general model of innovation for society in general. The word “paradigm shift” has become a household word among innovators, entrepreneurs, and change managers.

In the analysis put forward by Kuhn, he identifies long periods of “normal science,” mainly characterized by science as a “mopping up exercise.” This involves research projects that aim to find new data and information that is required in order to build a complete picture of all aspects of an existing paradigm, and to verify that the theories that


form part of the paradigm are valid for all possible situations. As this process moves forward, data are found that cannot be accounted for within the existing paradigm. To begin with, these data are seen as irrel-evant “outliers” that are not taken into account when the researchers analyse their data, but as this data accumulates some scientists start to take it into account, and identify relevant new patterns. Over time an increasing number of researchers, especially young people who have not yet found their place in the research community, feel that these data need to be accounted for and possibly incorporated into the body of theories. As these “renegade” scientists go about their business they often find that major changes to the existing body of theories need to be made.

This process may lead to the introduction of a new paradigm, which is soon adopted by a growing number of practitioners who find the new ideas intriguing. The new ideas put forward by Einstein as his theories of relativity replaced Newtonian physics as the leading paradigm are a well known example of a scientific revolution during the twentieth century. It takes a number of years for a new paradigm to spread and revolutionize an area. As new ideas, and those who champion them, become increasingly prominent in the debate and start to attract atten-tion and financing, more people jump on the band-wagon and drive the revolution forward.

While Kuhn meant his ideas to be applied to the development of science, we can also apply them to the broader context of science, busi-ness, and society at large.

I would like to briefly view this reasoning from the perspective of a previous development in which I took part. In 1998 David Lundberg and I published “The Transparent Market,” in which we argued that in the future companies and individuals would increasingly do business and exchange information on the Internet, and that this would affect the strategic playing-field for companies. With the increased adoption of electronic business, existing companies would face new competitive challenges and investors and entrepreneurs who wanted to start new companies would have to take this into account in a very profound way. At the time, the idea that companies and individuals from all walks of life would do business on the Internet was difficult to get across. Now, only a little more than a decade later, we see how a paradigm shift in society, not only a scientific revolution, has overthrown previously existing key ideas in a number of areas. The whole IT and telecoms indus-tries are based on communication over electronic networks, electronic business has become an integral part of business life in general, and the


electronic revolution has changed the way people work, communicate, listen to music, access film, and do shopping.

Who wants to become an entrepreneur?

Where are the entrepreneurs who want to join forces and drive the development of the systems and business aspects of global energy transformation? Entrepreneurs are resourceful individuals who happen to be at the right place when there is a need for their skills. Entrepreneurs frequently carve out a niche in society where they can develop organizations or businesses that become sign-posts to their achievements.

“Social entrepreneurs” are active in various areas of society and develop new ideas, structures and organizations. Sometimes they are presidents or prime ministers, but they may have all sorts of different backgrounds and come from all walks of life. Gandhi was a lawyer before he decided to unite the peoples of India and liberate the country from British rule. Lord Baden-Powell started the boy scout movement after a long army career.

Presumably, many of the entrepreneurs who will take a leading role in energy systems transformation already work with sustainability or energy technology and have an interest in business development. However, we need more people from other parts of society to take part in business development and transformation in clean energy areas, including those with business backgrounds, politicians, and govern-ment administrators at different levels, but also writers, philosophers, and visionaries from other spheres of society.

Different orgware needs

In his book ”Civilization” published in 2011 the historian Niall Ferguson identifies the ability to build institutions as the key success factor behind the development and spreading of western-style civilization across the globe over the past half millennium.3 The key to this development has been the competition of multiple players and gradual adaptation of organizational solutions to develop the six, according to Ferguson, “killer apps” of western civilization: competition, science, property rights, medicine, a culture that supports consumption, and the protes-tant work ethic. The present book identifies the need to start the process of developing and gradually adapting business orgware, in a number of areas related to energy systems transformation. Orgware development, in the mind of the present author, is the process that over time leads to


the development of institutions. We need to go through this process of trial and error in a much shorter space of time than the development described by Ferguson and in order to achieve that, we need to take into account many of the experiences developed through history.

From a purely technical point of view, the systems that integrate hard-ware and software can be developed as soon as the necessary technolo-gies are in place. But, as we will see through a number of case studies below, for the development of systems that function effectively and competitively within the broader context of society and the economy, further forms of orgware will be required. In most cases some fragments of what is needed must be in position before a development can start. As the development continues and the need for knowledge and competence in the various related areas becomes clear, further resources will be devel-oped and the orgware will proliferate and become better organized.

One interesting and somewhat unexpected conclusion that has emerged during the writing of this book is that some technologies and solutions are likely to require much larger and more complex orgware resources than others. It is very likely that the alternatives that are less demanding in terms of orgware, and also substantially less risky, also have a higher probability of success.

Throughout this book a few short narratives or stories will be presented. These are meant to illustrate, in a light-hearted way, aspects of the energy transformation challenge, and challenges related to the creation of orgware for large-scale energy systems transformation. They are intended to be read as fiction, and the ideas included do not neces-sarily reflect the values held by the author. The role of narratives in energy systems transformation will be discussed in Part III, where the general idea of these narratives will be put into context. The following account is the first story.

The Great Parade

Today is the day of the great parade. I couldn’t be more excited and proud. It is not pride for myself or my friends. No, it is pride in what we, as a society, have achieved together over the past thirty years. In fact, the work began even before I was born, but on a small scale. It was not until thirty years ago that it was expanded and intensified. The President at that time set a number of challenging goals for our nation and started to build awareness of the formidable task that lay ahead of us. He also built an international consensus about the goals and principles for the Global Energy Transformation. This led both to the initiation of similar programs in a number of other countries and an effort of international collaboration of an unprecedented scale.


I was in my late teens then: hopeful, but also a little cautious. I did not see how I could contribute, and the work seemed both technical and abstract. My father talked about the need to organize the effort and apply change management techniques to the program. I don’t think I got that at the time.

As I finished my education at an Ivy League university, I applied for a job with the agency in charge of managing the program. It was expanding rapidly at the time, something that was fiercely contested by the opponents of “big government.” They wanted to minimize the involvement of govern-ment and they were entirely opposed to planning. That was, to a large extent, the sentiment of the time.

Nevertheless, the President managed to secure support for his program. It was hard at first, and the program started as a number of separate efforts in different sectors, run by different government agencies. I used to work in one of these programs – the one dealing with solar power. We were assigned the task of expanding our nation’s research in this area and to make sure that we had both the technology and the financial capacity to increase production to ten percent of our total electricity demand in five years. When we started, hardly anyone believed that we would succeed.

There were similar programs for the expansion of wind, wave and geothermal power generation. Some were initiated after we started in the area of photovoltaics: technologies for the generation of electricity from solar energy. There were also teams that were responsible for the overall co-ordination of efforts. The manager of the electricity generation team, David Robson, was a terrific person. I worked with him when I was respon-sible for co-ordination of the expansion plan for the production of solar panels. I simply had to make sure that the companies that were working in this area were keeping to their investment and development schedules. There was another team responsible for the purchasing and installation of the early batches in order to ensure that expansion targets for panels and for solar power were met. Later in the program our projects were disman-tled and I started to work for one of the utilities companies that were built around renewable power. It was spun off from three existing utilities that had started it as a cooperative effort. But before that, I was recruited into David Robson’s team and got to work with him for more than two years. He later became president of one of the largest utility firms on the west coast. He had all the characteristics of a great leader: a tremendous capacity to digest information, he was always ahead of the rest of the team and could see both opportunities and challenges more clearly than any of us.

I sometimes think about David’s courage. He dared to take a number of decisive steps at the beginning of the program. I dare say it was no picnic for him later on, either. It’s funny how things sometimes turn out. There


was so much to do, and things were complicated by a number of setbacks at the beginning.

The program, however, taught us a lot. Before it started, many people had the impression that only business created value in society in an efficient way. People put all their efforts into improving companies and business. At this time, business and government activities were completely separate. This seems to have made government grow. The checks and balances that were provided through more co-operation between business and govern-ment were not in place at the time. Few people realized that government also had a kind of market, and that this could work as a counterbalance to the expansion of administration.

Many other things have changed, too. We have developed a deeper concept of democracy. There are now more tools that people can use in order to influence the future of society than the elections that we had to rely on in the old system. I know, you have to wonder ... Yes, the Constitution is still in place. It serves its purpose as well as it did thirty years ago. The main difference is that citizens have a greater understanding of the interaction between business, government and society, and this has given us the tools for better influence on local, regional and national issues that were previ-ously out of reach of most people.

Today is the day of the great parade. We have held a parade now every year for the past ten years to celebrate the successful transformation of society to sustainability. It is still an on-going effort and we are not yet completely independent of fossil fuels, but we have put the most challenging parts of the transformation behind us. Today, we are going to celebrate the thirtieth anniversary of the beginning of the transformation program.

Washington DC, 4th July 2043 4

Well functioning orgware in other industries and technology areas

The lack of orgware to support the implementation of new energy technologies in Europe, North America, and other industrialized and industrializing countries means that the situation is different from that in other technology and business sectors. As we will see later, many of the business challenges in the emerging areas of green technology are vastly different from those in existing energy and transportation related industries. In existing industries, new and improved models of vehicles and other new technologies are developed and launched to replace existing and less efficient, or more polluting, technologies.

The challenges of sustainable energy systems and business develop-ment to a substantial extent are those of developing and implementing


entirely new systems. This is quite different from merely introducing new types of vehicles, such as plug-in hybrids, that can be used within existing system infrastructures. This is a unique type of situation due to the magnitude and complexity of the fuel and transportation systems that will have to be built. Substantial business competence can be found in existing vehicle and utilities companies, and many other firms that are already active in energy- and fuel-related areas. But the focus of development and marketing will be different in the future. Companies have focused on selling new models of vehicles and other products based on existing technologies that are already part of well established systems. For these companies it has not been necessary to create orgware for the development of products based on entirely new technologies. The primary need has been for research resources in technology and business strategy for the improvement of existing technologies or the replacement of old component technologies by new ones.

One more aspect is that of time. The orgware resources that we already have access to have been built over a long period. The orgware that we now need in order to develop will have to be created comparatively quickly. As we are in the process of launching a number of new fuels and technologies for the production, distribution, and use of renewable fuels, we need entirely new, or expanded, innovation systems in energy areas. However, systems and business orgware have been built in sectors that are not directly related to energy, and we can use these and learn from them as examples. The purpose of the following brief example is to indicate in which sectors we should look, rather than providing a complete account of the situation in any area.

The rapid penetration of new technologies in mobile telephony has been driven in environments where orgware has for a long time supported large-scale financing of development and implementa-tion, international standardization, and the rapid roll-out of national, European, and global systems. The telecoms sector is of particular relevance because there have been important large-scale developments there during recent decades.

The telecoms industry consists of a number of large and resourceful players with well defined roles in the roll-out of new telecoms technolo-gies. Due to the existence of global technology companies, national and global operators, and numerous technology and service providers that have specialized in different areas, the market-driven aspects of tech-nology development and implementation are well organized. Within such a well-structured organizational framework of companies and government organizations in close cooperation, standardization can take


a leading role, risk can be kept at reasonable levels, and, as a consequence, large-scale investments in technology development can be made.

In most countries the commercial structure is supported by govern-ment agencies that are responsible for legal frameworks, technology forecasting, and standardization. These organizations collaborate inter-nationally to make agreements about international standards, roll-out plans and other aspects that need global agreements. Due to the long-standing importance of telecoms, the well-structured industries, and the large financial resources that are available in the sector, there is also a well functioning global research community covering all impor-tant aspects of telecoms technologies, systems integration, and business aspects. All-in-all, this is an example of a system where innovation and business development can be driven forward rapidly and successfully.

A further observation is that in mobile telephony, broadband and related areas there have not been established technologies or providers of such technologies that have defended their market positions and shares based on advantages of cost or superior performance. Each new generation of technologies has provided significant capacity and cost advantages, which has made it a matter of major business interest among operators to invest in the new systems. The user hardware and services were all relatively affordable from the beginning and the introduction of mobile telephony has created substantial new value for customers; companies have to a substantial extent cooperated in order to create the prerequisites for rapid market growth.

In the case of railways, well developed orgware has existed for a long time that on the national level has supported the implementation of high-speed train systems, but integration across nations in Europe has taken longer, due to the lack of standardization of signal and control systems and the need to develop international cooperation and stand-ardization in these areas. One thing we can learn from this development may be that it is a good idea to develop international standards before different countries start to develop national systems. Once national systems are built it will become much more difficult and costly to agree on and implement international standards.

In the emerging sectors for renewable energy the type of orgware that is likely to become necessary in order to develop and implement renew-able energy technologies, develop national and international systems, and rapidly roll these out on a large scale is not in place. As the former CEO of Volvo, Leif Johansson, pointed out in the brochure “Climate Issues in Focus,” transportation systems span continents, and the solu-tions developed in one country have to be matched by the development of similar solutions in other countries.

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The consequences of a reduced supply of fuel for transportation are relatively straightforward and can be understood by laymen as well as experts. On a global level, economic development may seem somewhat mysterious and influenced by a number of unpredictable forces that are hard to identify and describe. In order to handle the complexity of large-scale economic environments economists have developed the method of changing one parameter at a time, keeping the others constant. The term used to describe this method is “ceteris paribus,” a Latin expression which means that everything else is kept constant. In order to understand the consequences of decreasing fuel supplies we need to develop a framework for analysis in which other factors are kept constant. Once we have understood the impact of the global peak in oil production we can estimate how large other factors might have to be in order to balance the risks of a reduced supply of oil.

When I discuss the prospects of global energy transformation with some of the most knowledgeable persons in energy and transportation sectors I often get the response that we already have access to many of the solutions, and many insightful people argue that the solutions are relatively straightforward. We, which supposedly means all of us together in society, “only” need to implement new technologies and systems, or initiate savings measures on a large scale!

As long as the time aspect or the volume of investments that will become necessary in order to drive global penetration of a number of existing technologies forward is not explicitly brought into the equa-tion, energy and transport systems transformation may appear rela-tively unproblematic, but as we introduce some relatively simple facts the picture becomes more complicated:

4 What Will Happen if We Fail?

What Will Happen if We Fail? 33

− At some point in the near future global oil supply is estimated to begin to decrease by some unspecified percentage, maybe in the area of between one and two per cent annually, perhaps more.

− In order to maintain or expand global economic activity we are going to need very large volumes of renewable fuels that supply, or large-scale savings activities that save, energy resources at the rate that production capacity for oil is lost.

− All types of activities, whether the development and implementa-tion of new technologies, or large-scale savings activities, must be based on strategies, plans, and coordinated programmes and efforts. Otherwise a number of small-scale activities will be initiated that have little or no prospects of becoming expanded into large-scale programmes.

− Implementing energy-saving technologies that reduce the need for electricity, for example smart grid technologies and LED lighting on a large scale, and at a break-neck pace, may not help to maintain or expand global transport systems. For transportation we are almost entirely dependent on oil. Only by introducing electric or hybrid vehicle technologies on a large scale that can help us make use of the electricity saved can savings on electricity translate into increased capacity to transport goods and people.

− The same is true for natural gas, biogas, DME, and other new fuel alternatives. In order to use any of these new fuels on a large scale we need large numbers of new trucks, cars, buses, or other vehicles that are able to run on these fuels.

− Globally we use about 31 billion barrels of oil every year (one barrel is 159 litres). In order to replace one per cent of the oil we use by renew-able fuels or natural gas we need to buy electric vehicles, gas vehicles and so on that can use 300 million barrels of oil per year. This is roughly equivalent to the annual amount of oil use by the people of the Netherlands, the nineteenth-largest oil user in the world, a country with 17 million inhabitants. If oil declines at a rate of two per cent per year the global economy will have to save an amount equivalent to twice that of the Netherlands every year, and so on.

− The investments needed in order to develop and implement new fuels and transport systems on a large-scale amount to several billion euro in all countries. The larger the country, the bigger the investment.

− In addition to replacing the declining volumes of oil by renewable fuels, economic growth has until now depended on a steady increase in the volumes of oil. The annual rate of increase has in the past amounted to about 1.5 per cent 1 . For the economy to continue to


grow using the present principles of organizing production we would have to calculate with a “baseline” of new fuels amounting to the total volumes to grow by the volume of decline, in addition to the 1.5 per cent representing the annual growth.

Furthermore, for the global economy to be able to muster the very large investments that will become necessary in order to develop and imple-ment new fuels and transportation systems, the economy will need to be in very good shape. If the total volume of transportation fuels declines it will become increasingly difficult to maintain global economic activity, growing job markets, and investments in new systems.

Economic growth is not an issue?

One of the main arguments of this book is that we need to organize production processes and energy use in much more energy-efficient systems than we have today. This will have to include a rapid increase in the proportion of products that are produced locally or regionally, instead of using today’s global supply chains and production struc-tures. However, the alternative of local production must be weighed, case by case, against alternatives such as using new fuels to maintain our ability to transport goods and people world-wide. This is because we need to rapidly replace oil volumes that we expect to decline in the next few years, and involves economic considerations that will need some further explanation.

Many knowledgeable people argue that economic growth is not important. According to these arguments we need to break the global economy down anyway and build local and regional economies that are self-sufficient in most of the basic goods and services that they need. The proponents of this type of reasoning often refer to works by scholars such as Professor Herman Daly, 2 Richard Douthwaite, 3 and Professor Tim Jackson. 4

I would argue that this book is even more relevant for people who propose this type of transition, who often argue that the transition to local and regional economies will not require the large-scale invest-ments that are necessary in order to maintain a global economy. None of the people with whom I have had the pleasure of discussing this has been able to back their argument with hard figures and calculations.

Based on experience, however, the development of a new production system based on a large number of small production units would, for the same population size, require greater investment to achieve the same capacity as a small number of large production units. This is due to


the advantages of scale that apply to many areas of human endeavour. In the case of biogas production there is a need for a certain size of production unit, because with existing technologies, the refining of gas to vehicle gas quality is dependent on large-scale units.

A reasonable assumption would be that a large-scale transformation to production systems based on local and regional production of food and other necessities will require very large investments in production equipment, local and regional distribution centres, local stores, and all the other aspects of production and distribution systems that we have become accustomed to. While small-scale local production can some-times be organized around farms or in other small production units, it seems unrealistic to suppose that we can use existing buildings and resources to produce food, clothes, and other necessities for the world’s population on a local basis.

Furthermore, over the past half century, local and regional structures and resources for production have been replaced by global or national supply chains. This development cannot easily be reversed. It would require a large amount of analysis and strategy development if we were to revert to local production on a large scale.

Some products, such as bottled water, beer, and other uncomplicated products can easily be produced in large volumes locally. In other cases, supply chains and production are more complex. Raw materials for clothes may need to be imported if people in the north are to wear clothes made from cotton or other light materials. The most difficult shift, however, may be the need for many people to work in the produc-tion of basic foodstuffs, clothes, and other necessities, in the produc-tion of which they have no training or experience. This shift may not be attractive to people who now work in sectors like services, informa-tion and communications technology (ICT), or media.

Such a shift to local production would require large-scale invest-ments. In order to invest large sums of money in new business ventures, whether local or global in nature, ventures must be based on sound business principles and strategic thinking.

Slow, instead of swift, transformation

Assume that over the next few years we manage to increase the volume of renewable fuels produced, and our opportunities to use electricity for transportation, and implement new fuel saving technologies to such an extent that we get access to 200 million barrels of oil-equivalents in the form of renewable fuels every year. Assume at the same time that we would need to add 400 million barrels to the global fuel supply to


maintain present production systems or for an orderly transformation of systems. In such a case the price of fuel would increase and those who participate in the global economy would not be able to buy the volumes of fuel they have become used to.

The first thing that would probably happen then is that some of the weakest consumers and producers in developing countries would become unable to purchase the volumes they need. In addition to this, fuel is saved on a voluntary basis by people all over the world. Many people in developed countries, who could perhaps afford to buy an elec-tric or gas vehicle, or invest in some other fuel saving technology, are likely to put up with the price increase and continue to use their car or other means of transportation in much the same way as today. The same may be true for producing companies, which would see the cost of transportation of components and finished products increase. The majority are likely to continue to buy according to their usual patterns, rather than investing large sums of money in the development of entirely new supply chains. Their hesitation in investing the necessary money in such a development would be similar to the present hesitation of governments to invest heavily in the implementation of sustainable energy and transport systems and the slow adoption by households and companies of renewable fuels, vehicles, and other new technologies. The usual first choice is to wait and see if it becomes necessary or more advantageous to invest in new technology or in the transformation of supply chains or business processes.

As this development proceeds it will become increasingly obvious to large numbers of players in the global economy that the problem is not going to go away or be solved by market forces. At various points in the development people and decision makers are going to notice that ... :

− the prices of oil and petroleum products gradually increase to previ-ously unseen levels.

− increasing numbers of people in developing countries can no longer afford to buy petrol to go to work, or transport their goods to market.

− the volumes of goods imported from developing countries decrease, and the prices increase more than the increase in the cost of transportation.

− economic growth seems increasingly difficult to achieve. High oil prices and a decreasing supply of oil become increasingly cited as the reason for this.


− governments start to assume their role of financing increasingly systematic programmes and projects within global energy transfor-mation. Strategies, plans, and managed transformation activities are started.

− progress is monitored with a keen eye by people from all walks of life. Resources become increasingly focused on energy transforma-tion and resource endowments for many other development efforts are gradually reduced. At this point there is likely to be a shortage of people with the right competence for energy transformation projects, while many individuals with backgrounds from other sectors are looking for ways to help.

− gradually, systematic and large-scale efforts on international, national, regional, and local levels become organized and financed.

Throughout this process increasing numbers of people start to ask themselves why we did not engage in structured mitigation activities at an earlier stage and why governments and other high-level decision makers did not react to the warning signals that were present at an early stage in the development.

38

In his book “The Logic of Scientific Discovery” 1 the philosopher Karl Popper argues that it is impossible to verify scientifically that something does not exist. To illustrate his point he gave the example of a “black swan.” If someone has seen only white swans it may be tempting to conclude that there are no black swans. In a community of researchers in which none has seen a black swan, this conclusion may become treated as truth. But a researcher may at any time spot a black swan in a remote area that scientists have not previously searched. Instead of trying to verify a theory, Popper argues, scientists can only strengthen it by deriving hypotheses from it, which they then try to falsify. Any test that does not falsify a hypothesis strengthens it, but most hypoth-eses can only be strengthened, never verified.

The argument in this book cannot be falsified by the identification of single individuals or companies who approach global energy trans-formation based on the approaches of systems integration or business concepts. Several examples of such individuals and efforts are presented in this book. The key argument put forward is built on the observation that most development efforts in clean energy and transportation are based on small-scale technical and local or regional initiatives, and that there is a need for large-scale efforts to develop the systems that will become necessary in the future. In addition to systems integration and business development there is a need to develop orgware on a large scale.

A large number of observations made by the author between 2009 and 2012 indicate the lack of this type of orgware:

− Many technology ideas are described by experts as equally “inter-esting,” but few attempts are made to relate different technologies

5 How to Identify Lack of Business Orgware

How to Identify Lack of Business Orgware 39

to each other in terms of time-frame, investment needs, or overall potential to generate or save energy. The data collected for the high-level reasoning of this book has not been easy to come by, and it will require substantial research effort to continue to compile a coherent picture of the opportunities and investment needs. This is in itself testimony to the lack of orgware in the areas mentioned.

− The complete timelines and total expected investments in business development and systems integration are seldom presented, and there seems to be little effort going on to develop this high-level knowledge.

− Organizations that finance projects often emphasise short-term results, rather than building a foundation for large-scale systems transformation. This is illustrated in the concluding chapter through an example indicating that the optimal solution may be the applica-tion of a number of different approaches in a relatively intricate, but cost effective, combination.

Every opportunity is worth exploring

In business only a small number of technologies and business ideas have the potential for success. Experts are aware of the cost and time required to take new technologies from prototypes to finished products that are sold in large volumes.

During the past three years I have repeatedly been asked by experts and people who work in various positions within the energy field and have a significant interest in energy transformation about the potential of different technologies:

− electric vehicles (“I’ve heard that the potential is not so large as its proponents claim.”)

− nuclear fusion (“I’ve come to believe that this technology will solve our energy problems”)

− biogas (“In our region we plan to transform the entire transport sector – private as well as public vehicles – to biogas by 2020”)

These questions and propositions have been so many and so varied that I have concluded that these remarks are indications not of a lack of information or understanding among individuals, but of an absence of organized and structured knowledge development. When I have searched the literature, read newspapers, and listened to presenta-tions, I find that there is little material available that puts the different


technologies into the context of large-scale energy systems transforma-tion. Given this, the remarks become understandable and something that we might expect.

I have searched for organizations or government agencies whose job is to analyse energy and transport systems transformation from a systems, business, and financing perspective, but have found none. Also, as I have presented conclusions and discussed with hundreds of experts in Sweden, the rest of Europe, and the US, I have rarely been given a valid reference to experts or high-level decision makers who are genuinely interested in, or responsible for, the development of knowl-edge or decision-making resources in these areas. The only exceptions are some of the individuals and organizations that have contributed material or ideas to this book, who have themselves sometimes made similar observations.

A business-based view

A business-based view of the transformation opportunities that are offered by different technologies, systems, and products would be rela-tively straightforward. Experts can analyse and to some degree agree upon the overall potential of different technologies. It is possible to analyse the potential of electric vehicles, gas as a fuel for transportation, or “green ICT,” but the true potential of each technology is only devel-oped and realized when it is actually used. We cannot delay large-scale implementation until experts have researched all the technical aspects of future use, because it will take decades to develop and implement new large-scale energy systems, and many opportunities will only emerge as more people with a range of expertise start to seek them out.

We should start to implement systems based on a number of prom-ising technologies in combination, and allow them to become devel-oped by market forces in the way that the Danish government, as I will describe later, has driven development of wind power to its strong present position. After thirty years of development there is still a need to subsidize the production of electricity from wind, but this need is decreasing as new generations of the technology are developed.

In a situation where new technologies have to compete against a number of mature technologies that have been developed over a century of technology development and implementation, this should not be seen as unusual.

“A reality distortion field”

A certain degree of optimism and an inclination to look beyond the issues that arise along the way is often beneficial. Steve Jobs, for example, took


such views on a principled basis for the development projects at Apple: colleagues referred to this frame of mind as “Steve’s reality distortion field.” 2 Sometimes this enabled colleagues and partners to see opportu-nities that they had previously not been able to identify, and leverage the limited resources that were available in development projects. It also served to persuade investors, journalists, and other influential people of the opportunities created.

Sometimes, however, reality distortion put the whole company or project at risk. Some people in regular contact with Jobs, such as the management team of Pixar, a company that Jobs formed after he was ousted from Apple, based on the acquisition of the computer division of Lucas Film, developed methods as a group to signal to each other during meetings not to become immersed in “the field.” 3 The visionary personality and persuasiveness of Jobs made him sometimes bet his own money and that of his companies on a number of ventures that ulti-mately failed to meet the ambitious targets that Jobs had set for them. Among these were the computer company NeXT and the attempts to develop computer hardware and software at Pixar.

During Jobs’s first period at Apple, his “reality distortion field” seems to have been balanced by colleagues who silently questioned his ideas and sometimes acted in a way that was directly opposed to his explicit instructions. This led to the purchase of a floppy disc drive from Sony for the first version of the Macintosh, instead of developing a proprietary drive which would have delayed the launch by almost a year. 4 Later, when he was running NeXT and Pixar, such balances were not at work to the same degree. This, according to Walter Isaacson, Jobs’ biographer, is one of the explanations behind the failures. When he came back to Apple Jobs had learned lessons from these mistakes and managed to balance his tendencies toward perfection and design extremes, and learned to build cost and time-to-market factors more strongly into the equation.

In the effort towards sustainability there are similar tendencies towards reality distortion, most of which probably arise from attempts by technology experts to make sense of the various developments in the face of a confusing array of technologies and projects. Until now sustainability development has been driven primarily by individuals with a strong commitment to the principle of sustainability, and it has been the battles against emissions and climate change that have been in focus. Increasing awareness of the necessity to transform the ways in which we use energy has been achieved through many heated debates with business people, economists, and politicians who have argued that large-scale energy transformation is going to hurt business interests and economic growth.


However, the opposite situation is now starting to emerge. Due to the role of energy as a fuel for the global economy, and the role that is played by energy in the lives of citizens in the modern world, global energy transformation is rapidly becoming a business issue. Despite the importance of energy systems transformation, most people are not yet aware of the relatively new debate about energy security. Even experts who understand the problems very well have not yet made up their minds about the solutions and may thus hesitate to go public with their ideas. For most people the main reason for transforming energy systems is still the need to curb emissions and battle climate change. For many experts who have for decades tried to do this, the only means available is to run small-scale and local transition projects. The only hope for mankind, according to this view, would be to secure increasing amounts of money for technology development and small-scale trans-formation efforts.

What many of us will have to realize is that a transformation of some of the largest and most capital-intensive systems of society is going to require large investments, business development, and a focus on a small number of technologies and systems with global potential. This will require focus and cooperation between many different players.

At present we sometimes experience what can be interpreted as a “reality distortion field” built upon arguments that have been devel-oped by the innovators and early adopters within the sustainability movement. These arguments were developed when the challenge was to get individuals and local communities to start up individual and local activities to promote sustainability. These communities have managed to prove that change is possible, and the movement has proved that there is a global potential in this. The global scale-up to national and international transformation efforts will require the development of a new set of visions, methods, and tools that will have to be designed to work in global environments and to finance global energy transfor-mation. This will include the development and communication of an entirely new rationale for energy systems transformation that will carry the development forward. A part of this rationale is developed in this book.

Split vision is necessary

One aspect of the rationale is the need for “split vision” on the part of experts and proponents. Previously the rationale of sustainability was built on individuals taking action locally and it primarily involved small investments in every type of technology that could contribute to


the transition effort. In the new situation we need to look at the issues from a number of perspectives simultaneously:

− Local, regional, national and international. − Capital-efficient large-scale investments in combination with indi-

vidual and local adoption of technologies and products. − Individual and local contributions within a global transformation

community. − Technology, systems integration, business development, large-scale

financing, and high-level political decisions.

The role of communication, training, and information

Orgware includes not only knowledge in the minds of people, but also knowledge that has become manifest in structures in society and insti-tutions, such as standards, subsidies, financing solutions, and business models. Only those who understand the matters at hand can make informed decisions about these and many other important aspects of energy transformation and create relevant institutions, systems, and the various types of framework that are necessary for each of these new technologies to be developed and thrive.

The large-scale implementation of clean fuels and energy systems will require large-scale training and information activities that will become necessary at an early point in this development. At this point it is suffi-cient to note this need.

44

Having said that we need to develop a broad base of knowledge related to the business challenges of energy transformation, and build finan-cial and market orgware based on this knowledge, we must then ask what this actually means in concrete terms. What knowledge is it, apart from the purely technical challenges of electric vehicle systems, renewable fuels, and other emerging energy-related technologies, that must be mastered by high-level decision-makers in the local, regional, national, and international arenas? What sort of competence is needed by the people who are going to drive strategic ventures and political campaigns in favour of renewable fuels systems forward day-by-day?

Political decision-makers and public administrators who promote and to some extent finance technology and business development projects will never develop the business knowledge of a CEO, venture capitalist, or marketing director. These individuals will need an understanding of different types of business models and strategies, as well as some rudimentary understanding of market penetration by new technolo-gies and of systems integration issues. This knowledge is necessary in order for public-sector decision-makers to build a foundation for busi-ness ventures, financing, and long-term technology development and systems integration programmes.

It is important for champions of clean technologies in all parts of society to understand the barriers to development and implementation that these technologies are going to face from time to time. This has never been as critical in other situations related to technology devel-opment, because it has not mattered to the same degree for the devel-opment of society in general if one particular technology or another succeeds. For example, with regard to entirely new technologies, the development of a mobile phone service may have seemed as important

6 The Contents of Business Orgware

The Contents of Business Orgware 45

or promising as the development of a new functional food based on a new bacterial culture of that could be used in yoghurt.

We now need to be able to nurture a particular set of technologies for renewable fuels because in the next few years we are going to need large volumes of new fuels and sustainable transportation systems. If the key problem were emissions and climate change, cleaner or more fuel effi-cient diesel engines would have been a perfectly relevant solution. If the problem were the promotion of innovation or technology develop-ment in general there are many promising new technologies within IT and mobile telephony, new materials and other technology areas, and all these are likely to create a substantial number of new companies and jobs. These technologies, however, are not going to supply the fuels or the sustainable energy technologies that we now need.

Entrepreneurs, consultants, and engineers with a focus on clean energy need to understand how technologies in development, and some of those that have already been launched, will be integrated into technical and business systems, and how business models for the long-term growth process can be designed. They also need to understand in which areas market-based growth is likely to occur and where markets may fail to drive implementation at the expected rate.

The discussion below will enumerate some business concepts that may explain why some businesses succeed, and why most fail. Some of these concepts are mainly relevant to the development and imple-mentation of new technologies, while some are more relevant to and understanding of the development of and opportunities for existing companies and technologies. Both these views are necessary in order to understand the emerging situation where a number of new technolo-gies are going to compete for market space with those already tried-and-tested and known to be cost-effective.

In addition to these business principles, some concepts and ideas related to innovation systems for new technologies are discussed below. These are included because business concepts are of little use if the industrial envi-ronment in general is not favourable to a set of new technologies. Toward the end of the business discussion we will identify business situations that are almost impossible and ones that are complex, challenging, or straight-forward. In the discussion of these situations we are going to make use of the entire body of business knowledge that we have developed.

Business models and strategies

The basis of a business understanding is an understanding of how compa-nies develop business models and strategies in order to make a profit. Here


the more recent term “business model” is used rather than the related “business idea.” From this perspective the term “business model” covers all the important aspects and it is somewhat broader in scope.

Research into business strategy, marketing, and related areas has been going on since the 1960s and a number of seminal works have been published since then. Each of these presents a concept that has become a cornerstone of business strategy; most of the concepts discussed here have been developed in the past thirty years.

Business models

The business model determines the “architecture” of the cost and revenue streams of a venture or company, as well as identifying the key resources that a company will need in order to carve out a profit-able position in an industry. The background of the business model concept is that with the development of electronic business a number of ventures that provided free services were launched. In the case of many of these companies revenue streams come from sources other than the customers for the services. This highlighted the need to define business models and identify the key user categories, their role in the concept, and the number of customers that are expected to pay for the service. In cases of e-business ventures, the cost of launching a service such as Facebook or Skype may be low. In many cases the development is done by entrepreneurs in their spare time or as a venture run with limited resources. Business models have emerged based on experiences made after the launch. But in the case of risky ventures that involve large capital investments, the cost and revenue streams must be more thoroughly analysed and forecast in order to reduce risk and identify possible obstacles to success.

Despite the novelty of the concept, different types of business models have existed for a very long time. For example, newspapers and television networks have been paid for largely by advertisers, leaving only a fraction of the cost to subscribers. Below we identify five types of business models that may be relevant in the case of renewable fuels:

− Sales of products and services − Systems operator − Sub-systems operator − Free services paid for by other revenue streams − Government investor or facilitator.


Below we will take a brief look at each category.

Business models and strategies provide leverage

Strategists try to identify a competitor’s weak spots and develop strate-gies that take advantage of the relative strengths of their own company. A person who tries to break through a blockage with a crow bar needs to find the weakest spot and apply maximum strength and leverage in order to force it.

We can think in a similar way to create break-through applications for clean fuel technologies. Technologies are applicable in a large number of areas and for many different applications. Consider electric vehicle technolo-gies: they can be used for small cars, luxury cars, sports cars like the Tesla, buses, or trucks. The existence of the technologies themselves is not likely to lead to a business break-through.

While all of these are possible applications some are likely to be more successful than others from both a marketing and financing point of view. As a comparison, take the case of carbon-fibre technology; the first compo-nents produced were expensive and high-value applications in which the advantages of a light and robust material could be realized and could justify the high price. This made space and aircraft applications the best options.

Developing a business model that targets customers with offerings that can rapidly pay back the investment and create high growth potential are ideal. Based on this business model a strategy can be developed in order to create dominance in a target market. The Better Place business model for electric vehicles is a case in point. Denmark’s need for a storage facility for electricity in order to expand the proportion of electricity generated by wind power, in combination with the opportunity to offer electric mobility in a relatively small country to demanding customers, represents a combina-tion of customer needs that can form the basis of a viable business model. Denmark also has some of the world’s highest taxes on petrol and diesel cars, and electric vehicles are tax-exempt until 2013.

In most countries these factors are not present to the same degree and it may be significantly more difficult to develop business models that can form the basis for growth. In such cases governments may need to step in and create viable market conditions.

Business models that target the most attractive segments with a willing-ness to pay premium prices for products or services provide leverage for an attempt to break into a new market. Even in the case of government incen-tives an analysis of the various customer segments and their willingness to pay will make any government subsidy more efficient. If the goal is to get high-volume users to buy clean fuel vehicles, in order to rapidly create a customer base of large users, it makes sense to develop systems and offerings that target high-volume users that are used to paying a high price for serv-ices, instead of the general, more price-sensitive, customer.


Sales of products and services

This is the oldest and least complex of business models. It may seem relatively straightforward and may indeed be so in mature and stable business environments.

As a CEO of any business can testify, making a profit in this type of business is difficult enough, as sales volumes and prices are subject to fluctuations and ambitions to expand existing businesses or start up new lines of business fail to meet their targets. Each type of busi-ness has its own challenges, such as – in fashion industries – the need to renew the range of clothes with every new season, the challenge of managing supply chains, logistics and production in a company with highly complex products, or the need to move perishable foodstuffs rapidly through grocery supply chains.

Numerous works on the subject of entrepreneurship and innovation conclude that the development and early growth phases are particularly difficult in any business venture. When a new product or service is being launched on the market the venture requires increasing volumes of financing compared to the technology development phase. It often takes longer for a new product or service to reach break-even and turn a profit than even experienced companies and investors foresee. These issues are also relevant to other business models, and will be discussed under the heading of marketing and the product and technology adop-tion cycle.

For example, this type of business model is relevant to the introduc-tion of hybrids and plug-in hybrid vehicles. These vehicle types utilise sustainable technologies and do not require the implementation of entirely new systems, since users of plug-in hybrids can charge their batteries at home and use the petrol or diesel engine of the vehicle for mobility over longer distances.

Systems operator

The business model of offering systems-based products or services to customers, is in many ways more complex than selling products or serv-ices. This is particularly true in the launch and growth phases, because companies that have to launch complete systems based on a number of different sub-systems need to finance the design and implementa-tion of the system up to a certain level of usability in order to start to do business. Many systems become more attractive to customers as the number of users increases, because more users add more value to Internet services, more destinations in airline networks, and more people can be called on mobile phone networks. In the initial stages of


development the value to customers is lower, and there is often substan-tial uncertainty about the long-term financial viability of the system. Because of the need to build the system before there are customers, the aspiring systems operator takes a substantial risk.

The “limited risk” of mobile telephony

In this context it might be argued that telephone companies did face a similar type of high-risk challenge when mobile telephone systems were introduced. These were based on an entirely new technology that had not been used before in civilian contexts. However, many of the key technologies had been in use for decades in military and emergency applications, which meant that substantial experience had been built in a number of areas.

One more aspect that makes the telephony situation different is that there were no competing systems in place that offered the same services at the same price or lower. Customers had over more than half a century developed the habit of phoning friends and business contacts on landline phone networks, and business people had a good understanding of the value created by tele-phoning business contacts and partners. With a mobile phone customers could call not only other mobile phone users, but anyone with a land line, which immediately created substantial value for owners of mobile phones.

In some cases business people can land multi-million dollar orders with a single phone call and there are occasions when a phone call from the right company at the right time creates a unique business opportunity that would have been missed if the call had not been made. It is therefore possible to estimate, or develop a gut feeling for, the value of enabling people on the move to make more important phone calls or to increase the time when customers or decision-makers can be available on the phone.

Even a quite expensive mobile telephone service can be justified on the basis of an occasional additional order that could be taken due to the extra availability of business contacts through mobile connections.

In contrast, electric vehicle systems or gas vehicles will replace petrol and diesel vehicles that offer exactly the same service at an established very low cost. This represents a substantial difference between the two situations and they might have little in common in terms of the business challenges offered.

Starting an airline or building a railway or telephone network involves huge investments and a high level of uncertainty as to when the system will break even financially. This is the primary reason why many existing infrastructure systems and networks have been built over a very long time, and why they were often started by governments, or government-owned companies. Such bodies did not make the invest-ments primarily in order to make quick profits, but to provide a new and valuable service to citizens, or to introduce new technologies and


services that may lead to future development and economic growth in the economy.

In the case of modern IT and communications technologies, the capital-intensive development of technologies and networks was to a large extent financed by government agencies. Commercialization and expansion of these networks for information services was then financed by market-based players. Now that the Internet is in place it has become possible for individuals or commercial service providers to reduce the need to invest by launching services on a small scale, such as in the case of Hotmail, Skype, Spotify, and other Internet-based services. We will take a closer look at the development of Internet technologies below. The successful introduction of the services mentioned would not have been possible without the large-scale and long-term investments in the development of the Internet and the electronic communication tech-nology that we now take for granted.

The advantage for companies that are able to invest in the develop-ment of complete systems on their own is that they can control all aspects of the systems and avoid a large part of the risk that sub-systems operators have to face. Building a complete new system is usually a very large investment, but it can sometimes be achieved by a single company, or a consortium of companies. This model has been applied by the companies that have established mobile telephony networks. The systems operators take the risk and contract and pay sub-suppliers, but carry the responsibility for selling system services and operating the systems themselves.

Sub-systems operator

It may on the surface seem less risky for a company to be one of many investors in an overall system that consists of a number of sub-systems run by different companies. However, this is usually a much more diffi-cult proposition. It is hard to find situations where this model has been successful in establishing large-scale business systems.

One of the most important traits of investors is that they tend to be risk-averse. Each company that aspires to become an operator of a sub-system in a gas or electric vehicle system is likely to strive to reduce risk by waiting to invest until the other key sub-systems operators have started to build their parts of the systems on a sufficiently large scale. As most investors are likely to do this, large and risky investments are likely to be postponed in the absence of a company or consortium that takes on overall responsibility for the role of systems operator. Business consortia may be initiated by business visionaries who bring together


companies and financing parties with the relevant resources and compe-tencies, or by government initiatives, similar to those undertaken in many countries when licences for 3G mobile telephone networks were auctioned.

While the prevailing idea of business and technology development is the market-driven approach and it is assumed that the necessary invest-ments to build the businesses of the future will always be made based on market-driven development. It may be difficult to get this to work when it comes to the creation of complex systems run by multiple players.

Free services paid for by other revenue streams

On the Internet there has been a proliferation of business models that are based on the offering of free services to private customers, who later become the targets for advertising or the marketing of additional serv-ices or products, the revenues from which pay for the whole, or a part of, the basic service.

Skype charges customers to call fixed-line telephones or cell phones, Facebook sells advertising, and the music service Spotify sells adver-tising to cover the cost of basic services; premium customers, who do not want their listening to be disturbed by advertising, have to pay for the service.

In all of these instances the cost of serving each customer is very low, and advertisers pay a price that is comparable to the cost of reaching potential customers by newspaper or television advertising, or by direct mail. Paying customers in the millions sometimes pay the small amount it costs for the company to serve them, or these services may also be subsidized through advertising. The value of a network is created by the large number of its users, and the opportunity for advertisers to reach a large audience and gear advertising toward individual customers or groups of customers with particular features. In the case of renewable fuels the attractiveness of these networks to potential advertisers will be determined by the ability of the services operators to reach a large body of users with characteristics that are likely to make them attractive to advertisers.

Government investments or support

Governments, or government-owned companies, have been the long-term investors and operators behind many of the infrastructure systems that in many countries have been privatized in recent decades. The late economics Professor Vernon W. Ruttan of the University of Minnesota analysed the development of six different technology complexes in his


book “Is War Necessary for Economic Growth?” His answer to the ques-tion was ‘no’, but he found that war, or the risk of war, has been the driver behind the development of general-purpose technologies in the areas that he researched. In all of the technology examples large-scale and long-term government investments were necessary for the devel-opment of the technologies and these technologies in their turn have been important drivers of economic growth. Governments have also provided much of the investment needed for technologies that form the basis for large-scale infrastructures. The general-purpose technologies analysed by Ruttan are:

− The American production system − Airplane technologies − Space technologies − Information technologies − Internet technologies − Nuclear power.

Without large-scale and long-term government investments the devel-opment and implementation of these technologies would have taken considerably longer; it was in any case decades from the beginning of the development until the technologies had become implemented on a large scale. In the case of nuclear power Ruttan concludes that it is doubtful whether this technology could even have been developed at all without large-scale and long-term government investments.

Based on this analysis Professor Ruttan asks himself whether new general-purpose technologies will be developed in the present state of the world, where there seems to be no threat of a large war. Will govern-ments muster the financial strength to invest the huge sums of money that will be necessary to develop technologies, integrate early systems, and bring new general-purpose technologies to the market? Private firms are normally not able to do this because they, and their CEOs, have relatively short-term perspectives. They don’t have the ability to finance technology development and implementation over decades.

Instead, governments can finance technology development by tech-nology procurement in its early phases. They can also purchase systems solutions that are not ready for private markets, or finance the necessary sequences of development and implementation projects. One example is the development of the ARPANET and the different technologies required to use this for secure information transfer across a continent. Within this project the US Government developed the computer and


messaging technologies that were necessary for “packet switching,” breaking down information into packets that can be sent individually along different routes between computers on a network. This tech-nology was conceived by the first Director of the ARPA Information Processing Techniques Office in the late 1950s and first demonstrated in October 1972 at the Conference on Computer Communication in Washington DC. 1

Through years of use of the network and its early technologies, expe-rience was built and key problems were identified, as well as the possible and preferred solutions to those problems. Later, the messaging tech-nologies TCP/IP were developed, which now form the basis for Internet communication. Due to the large number of users and the fact that a large portion of the investments in the development were made by the US Government, the cost of Internet communication is low. This technology is now accessible to a large share of the global population, and IP-telephony, which is based on this technology, is offered free by Skype and other operators in competition with fixed-line and mobile telephony.

The conversion of the ARPANET to TCP/IP started in the 1970s and in 1982 the net was split into a defence research network (ARPANET) and an operational military network (MILNET). The second step of this development involved the establishment of a 20 million dollar fund to subsidize the installation by computer manufacturers of TCP/IP on their machines. This had the result that by 1990 TCP/IP was available for almost all computers in the US market. This opened up the Internet to universities in the United States, enabling ARPA, in 1990, to end its operational responsibility for the ARPANET. In 1990 the use of the ARPANET was restricted to educational and non-profit organizations. In order to create the World Wide Web and make the network open to everybody, Internet Service Providers had to be created. These were primarily private firms in the developed countries, but in developing countries they tended, according to Ruttan, to be government-operated bodies. The second step in this development was to establish an agency that could administrate Internet addressing. In 1998 the Internet Corporation for Assigned Names and Numbers was established, whose function it is to assign IP numbers to computer networks and oversee the Domain Name System that assigns numbers to domain names.

Since 2000 the Internet, and services on this network, have enjoyed rapid growth. The technologies that are now in use world-wide have only been incrementally adapted to emerging needs. Most of the key technologies had already been developed in projects funded by the US


Government, which has in several different ways over more than half a century (if we include the necessary development of computer tech-nologies) funded technology development in these areas. In addition to financing development, the US Government has financed the early stages of use of these technologies in government-financed organiza-tions, the training of individuals to use the early technologies before they became easily accessible through graphical user interfaces, and a host of other critical steps. The World Wide Web technology itself was developed by Tim Berners-Lee at the research facility CERN in Switzerland in an effort to create a better library system for the perma-nent storage of research documents.

This very brief account of some of the main steps in the develop-ment of the Internet illustrates the need to develop the necessary technologies and bring these into large-scale use in pilot user organi-zations. Later it becomes necessary to develop the business-oriented structures of domain administration and the development of initial service providers. The different needs that emerge along the long-term path of development and implementation of this type of technology require knowledgeable decision-makers in several areas of society. This brief description mentions only small parts of the orgware that needs to be developed, and that is described by Ruttan in the case of Internet technologies.

It is not entirely a coincidence that the description of government-financed development programmes takes up more space in this book than the other types of business models described above. The role of governments in the development and implementation of new general-purpose technologies is not widely appreciated or understood. It is important to highlight this alongside the market-driven aspects and provide an example of a technology that has recently come into wide-spread use in the global market, the development of which has almost entirely been financed by the US Government. We may tend to look upon the introduction of the Internet as a purely commercial success, but seen from the perspective of Professor Ruttan’s description, that success is almost entirely based on large-scale and long-term public investments.

In 2009 the book “Structuring an Energy Technology Revolution” was published. The authors are two professors, Charles Weiss, Distinguished Professor of Science, Technology, and International Affairs at Georgetown University, and William B. Bonvillian, Director of the MIT Washington Office and a former senior advisor to the US Senate. Their book anal-yses the need for an “innovation system” supporting the large-scale


development and implementation of sustainable energy technologies. The authors identify the necessary institutions and mechanisms of a system that will not only be able to develop the technologies, but that will also possess the resources to scale up volume production and bring the technology to the market on a large scale.

As we know, technologies are expensive at first and it is not until they are in volume production that their cost decreases so that they become affordable for ordinary consumers. As we will see later, there are not many sustainable energy technologies that have reached this stage of low cost and widespread adoption.

Seen from the perspective of the present book, Professors Weiss and Bonvillian describe some of the large pieces of public orgware that will become necessary for the launch of new large-scale energy technolo-gies, and they identify six institutional gaps in the innovation system of the US that have to be filled in order to create an energy technology revolution:

A gap in “translational R&D,” which by the authors is expressed 1. as creating a “DARPA for energy.” DARPA is the Defense Advanced Research Projects Agency, which since it was first established in 1958 has produced many innovations in the defence technologies area. An “ARPA-E” for energy technology development would finance not only basic research into advanced energy technologies, but also the application of those technologies in particular areas of use, along the lines of DARPA. An institution for the development of large-scale demonstration 2. projects that private companies have no strong incentive to carry out on their own. The authors argue that technologies that have been shown to work well at laboratory scale require expensive and risky demonstrations at full scale. Such demonstrations may cost 100 million dollars or more. Governments will need to make these investments in order to prepare for the large-scale implementation of clean energy systems. New energy technologies face tough competition from vehicles 3. and energy systems based on technologies that have already been produced in millions of units. The cost of production of these vehicles has, through this process, been reduced to the affordable levels that we have become used to. New energy technologies need to be competitive with these mature technologies almost from day one. To reduce costs in the manufacturing process there is a need for the government to finance the development of break-through


engineering for these technologies. The authors compare this to the need for new semiconductor manufacturing technology in the face of Japanese competition, which led to the establishment of the industry consortium Sematech, which received 500 million dollars in government financing in its first five years of operation. Filling the collaboration gap through road-mapping in a coordinated 4. effort between the private and public sectors, as DARPA has done for defence technologies. Motivating talented people to engage in energy technology and 5. systems research. The authors quote the research of Paul Romer, who points out that the nation or region that sends out the highest number of trained prospectors in an area finds the most gold. Romer argues that, in the same way, to increase the number of technological advances large numbers of talented people must be engaged in R&D. Such efforts must go beyond technology development, and take technologies into the systems and business development phases. In the words of Weiss and Bonvillian: “This means that universities will need to place more focus on their organizational models for tech-nology transition. If further resources are to be placed on university-based energy research, as indeed they must be, universities will need to sharpen their abilities to move their technological concepts into commercial markets.” 2 Presumably, based on the reasoning above, this would also be a matter of assigning more resources to commer-cial matters and train people in finance, marketing, communication, and other business-related concepts that have to be covered in order to implement and expand these systems. The more business people that engage in this development, the better the business ideas that emerge are likely to be. The packaging of incentives and mandates for technology deploy-6. ment is the last, but probably not the least, measure suggested. This includes tax incentives and credits for the adoption of clean energy technologies, loan guarantees and low-cost loans, government stand-ards (including appliance standards and energy technology stand-ards), and regulatory mandates.

These six measures would together form significant portions of the orgware that will be built up on the public side, but alongside the estab-lishment of these bodies, standards, and incentives, commensurate orgware would rapidly be built in private companies, so that compa-nies could understand and interpret the strategies and systems devel-oped by the public organizations, and to enable them to apply for their share of the financing and other incentives invested in development


programmes. As governments invest in the development of technology, systems, and business, business opportunities will start to emerge. In addition to planned product and service development, these opportu-nities are often unexpected off-shoots from the development: almost chance discoveries made by people with different backgrounds who engage in the projects that are started.

Jobs and industries of the future

Every year numerous studies are published that highlight growth indus-tries and job opportunities of the future. These are based on a number of different approaches, some scientific, involving analysis and interviews with researchers some are based on interviews with employers, recruitment firms, or career consultants. Considering the importance of large-scale energy systems transformation and the urgent need to build competence in this area it is a useful exercise to take a look at these studies from the perspective of this book.

Due to the diversity of purposes and the different methods that are used it makes little sense to single out individual studies from the Internet. Instead I try to convey a general picture. In a brief review of a dozen such listings done in early 2012, I found that some related to general categories such as computer network specialist, nurse, or management analyst. Some provide more detailed guidance, listing jobs like cyber security specialist, genetic counsellor, or organic food farmer. In none of the studies was the need for large-scale resources in emerging energy industries mentioned. Most studies of jobs of the future did not refer at all to the need for talented people in energy-related sectors. Instead they highlighted areas that have been impor-tant magnets for talent in the past. Only one study identified two areas of sustainability as jobs of the future: the roles of organic food farmer and sustainability officer in companies.

Every year the Swedish business weekly Veckans Affärer publishes a list of 101 young “supertalents” in Swedish business and research. These are people under 40 years of age who show extraordinary development potential. In the studies of 2011 and 2012 only one individual out of 202 for the two years was related to energy. This was a young professor at the Royal Institute of Technology in Stockholm. None were involved with anything remotely linked to the management issues of energy systems transformation.

More serious studies of challenges of the future often identify sustaina-bility as an important area of activity of the future. Presumably this means that large numbers of individuals need to become involved, and not just as organic farmers or sustainability officers. The consumer technology and entertainment company Sony published a study that has identified four trends that its authors believe will shape the future: 3

− Companies supplying products and services for sustainability − Bartering meets Virtual Reality − Big Brother society − The collective before the individual.


These high-level trends that seem to indicate dramatic and, for most people, unexpected shifts in the way we live have reportedly been identified through workshops with technology and sustainability experts. They represent high-level and long-term scenarios of the future. All trends and scenarios concern themselves with the transition to a sustainable society. The “Big Brother society” envisages a large organization to monitor emission levels to ensure that emissions are kept within limits. The trends highlight a number of high-level developments that the participants found probable. The present book seeks to develop a framework for connecting high-level ideas with concrete paths forward, avoiding some of the dystopian future scenarios that emerge from studies like the above. It is also an attempt to show that we can influence development in more ways than just technology development and a wait-and-see approach to business development and large-scale systems implementation. This discrepancy between, on the one hand, the conclusions of the more analytical books like that of Weiss and Bonvillian and the reports published by the American Energy Innovation Council that project a way forward to develop future technologies and, on the other, the lists of jobs of the future presented here may not be surprising. After all, the purpose of the job lists is to guide young people towards job markets where strong demand is already present or is emerging. The companies that publish these lists would find themselves in a difficult situation if they were to list jobs such as managers and systems integrators in sustainable energy areas where there are currently absolutely no jobs on offer in advertisements or on the Internet. This discrep-ancy shows that we are at a crossroads in the development of society. Leading analysts see that we need to drive society in a new direction. At the same time, the general public, and analysts who use methods based on the current perceptions of large numbers of individuals involved in the management of existing industries, seem to see no sign of change on the horizon.

In order to drive the development forward, more people from a wide range of industries and walks of life need to become involved in transformation efforts. For this to happen, people will have to develop an understanding of the challenges that lie ahead of us, as indicated by some of the more analyt-ical publications discussed in this book.

Based on these examples of projections of the job market it may appear that companies of the future will produce similar products to those of today, just more environmentally friendly, and industrial systems will become organized along roughly the same lines. New processes may be introduced, for instance, to make agriculture more environmentally friendly, but most people will work in much the same way as we do today. Because our use of energy is to a very large extent connected to the ways that we live, work, produce and deliver products and serv-ices, large-scale energy transformation will mean that many important aspects of life will be different in the future.

One of these is the need to develop and implement entirely new and untested energy technologies and systems. This will require the


development of entirely new production systems, based on technolo-gies that we at present have little or no experience of producing or using. The experience curve is a concept that has been developed in order to explain why it is difficult for new technologies to be competi-tive against established alternatives.

The experience curve

The production cost of goods and services tends to decline in a highly predictable manner, the pattern of decline continuing throughout the life of a product. A large number of technologies – from IT-components to stone crushing – develop in the same way. The production cost declines very rapidly in the first few years as the first units and batches of a product are produced, and then declines more slowly. 4 This concept is as valid for the development of sustainable energy and transport systems as it is for the existing technologies and systems.

The general rule is that with each doubling of the accumulated production volume the unit cost of production declines by 15 to 20 per cent. Cost-reduction in high-tech component industries tends to reach 20 per cent, while low tech industries hover at the lower end of the spectrum.

This means that the second aircraft produced of a new model will typically cost 15 per cent less than the first, and the 2000th plane will

1

0

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0.4

0.6

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0.8

1

1.2

2 4 8 16 32 64 128

256

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Accumulated volume

2048

4096

8192

1638

4

3276

8

6553

6

1310

72

2621

44

5242

88

1048

576

15% experience curve illustrating the cost development from the beginning of production of a product or service.


cost 15 per cent less than the 1000th. In the case of inexpensive plastic razors or aluminium beverage cans, of which millions of units are produced over the life of the design, the 200 millionth is likely to cost 15 per cent less to produce than the 100 millionth.

This development is due to the continuous improvement activities in which all parts of companies engage. Many of these improvements are deliberate, planned, and the result of projects that are run in order to improve. Some are based on unexpected discoveries made through the pursuit of other ends. A large proportion occur because individuals involved in all activities from design to logistics, purchasing, produc-tion, and related areas learn how to improve their work to become more productive. For example, as production volumes increase, companies that develop production equipment develop increasingly automated and advanced equipment that increases the speed of production and lowers its cost. With increasing volumes sold increasing amounts of money can be spent on this and other types of improvement and more companies and people can participate in the same development.

This curve explains why the cost and price of new products and tech-nologies decreases very rapidly at the beginning, but in the competition between products that have been on the market for a century and that are still produced in hundreds of millions every year, such as petrol-fuelled engines for cars, and products that have recently been devel-oped, such as electric vehicles, or engines for gas-fuelled cars that are produced in very small quantities, it will take some time for the recently developed products to become competitive.

This is the primary reason behind the type of financing of break-through engineering projects suggested by Weiss and Bonvillian above. The new technology is not likely to catch up and become competitive against established technologies as long as production volumes differ dramatically, to the advantage of the mature alternative.

One example of the effects of this curve is that an engine fuelled by natural gas or biogas is, according to Volvo, about 20 per cent less energy-efficient than a diesel engine. Much of the experience that have been gained through the development of diesel engines can also be applied to the development of gas engines, but much work remains to be done before gas engines reach the same level of efficiency.

A new shared value

The development of the type of innovation system, or orgware, described so far would require a new shared value in the political community,


and in society as a whole. This value would be based on the idea that large-scale development, systems integration, and implementation in the fields of renewable energy will not be achieved by the market left to its own devices. It will require large-scale and long-term government investments in the various phases of the transformation in order to succeed.

The argument that governments need to support the development and implementation of renewable fuel systems on a large scale rests on strong research within the areas of institutional economics, inno-vation system research, and on experiences from the development of many of the general-purpose technologies that we now use to facili-tate almost everything that we do in modern society. The initiative of the American Energy Innovation Council, described below, is staffed jointly by the Washington DC-based think-tank the Bipartisan Policy Center, founded by former US Senate Majority Leaders Howard Baker, Tom Daschle, Bob Dole, and George Mitchell, and the Climate Works Foundation. The council represents an effort to position the energy issue within a framework of consensus and values that are broadly shared across society.

The American Energy Innovation Council

In the summer of 2010 the American Energy Innovation Council published its first report, “A Business Plan for America’s Energy Future.” The members of the council are seven top-level entrepreneurs, business executives, and venture capitalists, who argue that the American Government needs to take a leading role in the development and implementation of large-scale sustain-able energy systems. The members are:

− Norman Augustine, former Chairman of Lockheed Martin and former Undersecretary of the Army

− Ursula M. Burns, Chairman and Chief Executive Officer of Xerox Corporation

− John Doerr, Partner in the venture capital firm Kleiner Perkins Caufield & Byers

− Bill Gates, Co-chairman of the Bill and Melinda Gates Foundation and Chairman of Microsoft

− Charles Holliday, Chairman of the Board Bank of America and former Chairman and CEO of DuPont

− Jeff Immelt, Chairman and CEO of General Electric and Head of President Obama’s Economic Advisory Panel

− Tim Solso, Chairman and CEO of Cummins,

In August 2009 The Washington Post published an article bearing the title “Falling Behind on Green Tech” and jointly written by Doerr and Immelt. The


authors argued that America is facing four interrelated crises: an economic crisis, a climate crisis, an energy security crisis, and a competitive crisis, and argued that the last two of these constitute the most critical issue for the future of America.

“The question is whether the United States will lead or lag in tomorrow’s global energy markets. And the difference between these two futures is dramatic.” The authors highlighted the focus of China on innovation and business development in “green tech markets,” and noted that the United States seemed to fall behind in a number of areas. The conclusion was that US policies need to become more supportive of clean energy initiatives, and that the Government should strive to fulfil the commitment made by President Obama, that the country should become the world’s largest exporter of renewable energy.

In June 2010 the establishment of the Council was announced and the first report, “A Business Plan for America’s Energy Future,” was published on its website. In this report the Council highlighted the need for Government involvement in green energy innovation, citing two primary reasons for this. Firstly, innovations in energy technology can generate significant and quan-tifiable economic benefits that are not reflected in the price of energy. These include cleaner air, health advantages, but also a reduced risk of “energy price shocks and related economic disruptions,” and energy security. Secondly, the energy sector requires a level of investment and risk that is higher than most private companies can carry, and the rate of turnover of equipment in the energy sector is slow, due to the long life of equipment for energy production and distribution. This slow turnover “exacerbates the dearth of investments in new ideas, creating a vicious cycle of status quo behavior.” The analysis led to five recommendations for the US Government to start to build renewable energy orgware on the national level:

− “Recommendation 1: Create an independent national Energy Strategy Board

− Recommendation 2: Invest $16 billion a year in clean energy innovation − Recommendation 3: Create Centers of Excellence with strong domain

expertise − Recommendation 4: Fund ARPA-E at $1 billion per year − Recommendation 5: Establish and fund a new Energy Challenge Program

to build large-scale pilot projects.”

In September 2011 the council published its second report, with the title “Catalyzing American Ingenuity: The Role of Government in Energy Innovation.” In this document the council describes the historic role of the US Government in driving and promoting innovation in other areas, such as defence, health, agriculture, and information technology. The report argues that government investments in these areas have often been critical for progress and formed the basis for the establishment of the United States as a leading nation in these industries. Furthermore, the council argues, the energy sector stands out from other areas of industry, due to the critical importance of a reliable energy supply for both the functioning of the economy and its competitiveness, and the role energy plays in people’s daily lives.


The council allocates an entire chapter of the report to a discussion of how the government needs to increase investment in the development and imple-mentation of clean energy systems, regardless of the prevailing economic conditions. Financing this type of activity should not be seen as a cost, but as an investment. Under-funding investment in research and development during a period of financial austerity is compared to removing an engine from an over-loaded aircraft in order to reduce its weight.

Business case and other financial calculations

The next business concept to describe briefly is that of the “busi-ness case.” In 1997 the author of this book worked as a management consultant with Cap Gemini. A number of management consultants were invited by our sister company Gemini Consulting to participate in a week’s training course, where we were introduced to the methods and principles of business consulting. I had worked as a business consultant with strategy and organization development since 1990, but many of my colleagues had an IT background and were unfamiliar with business concepts.

One of my most vivid memories from the week is the reply of one of my colleagues to a question about what we would bring with us from the training course. My colleague replied that the most important thing he or she had learned was that every IT project should be supported by a “business case.” Although I had worked as a business consultant for many years and had studied business at university, like him or her, I had not previously been introduced to this term. A business case can be defined as the financial rationale behind an investment or a project. It sums up the cost of the project and estimates the increased revenue or reduced cost that will be achieved. It is narrower in scope than a profit-and-loss calculation for a whole company or business area, which summarizes all the expected revenue and cost for a business year.

A business venture, or any type of project, needs a clearly defined business case that identifies the rationale for going through with it. In the early stages, business cases for technology projects may not have to show a potential for profit. Nevertheless, project managers need to think in business terms from the beginning and identify target customer segments and identify the value that each type of customer expects from an offering. It is especially important to identify key busi-ness parameters and the unique selling points that a project aims to develop in a technology, product, or service. The business case should identify key customers, partners, and the interface between the items that are developed in the project and other components that will be


necessary in order to develop a uniquely competitive product. If aspects of the business case are difficult to identify, this should be cause for concern and for further development of the business aspects.

Business strategy and marketing

Business strategy is a genuinely complex area of expertise and a “moving target” for managers. There are a large number of theories that offer advice to managers, but the goal of the best managers is to surprise the market and “break the rules,” proving that what was previously thought to be impossible can actually be achieved. What, then, could possibly be the point of urging the development of orgware consisting of people in all parts of society who understand business, when most experts would agree that one of the key features of business is, in fact, its unpredictability? In business the most innovative managers almost create the equivalent of water flowing upwards, or the blooming of roses in mid-winter.

Our surprise at outstanding achievements is probably due to our imperfect knowledge of what can be achieved. In the 1980s the retail sector was seen as a sector with low growth and little potential for future development. Then came Wal-Mart and others and revolutionized the business models in this sector. Similarly, Steve Jobs of Apple created a series of unexpected successes in a number of industries.

We cannot let ourselves become satisfied with an understanding of technology development because while outstanding achievements in business can seldom be predicted, the general direction of development can. We can also, through the analysis of historical and current business challenges, identify those that are achievable, and where some degree of success can be foreseen, and situations that are highly challenging. Through this type of study we may even be able to identify situations in which success is virtually impossible – the equivalent of Bob Beamon in the 1968 Olympics long-jump competition jumping 20 metres, instead of the highly improbable 8.90 that he did actually manage.

In society we need to create circumstances that support the develop-ment and implementation of renewable fuel technologies and systems and other sustainable technology complexes, and the development of business environments where the success of such efforts becomes highly probable, if they are well thought out and managed. We must not create environments in which every manager in every company has to be a genius, by favouring business circumstances that make it very difficult to succeed. The market economy is a very powerful tool in the hands of people who understand how to use it. The market, however, has never


been able to turn lead into gold on a large scale, creating whole indus-tries managed by business geniuses, and we should not expect this to happen this time, either.

Therefore it makes sense to relate a few of the most important busi-ness strategy theories here, and see what we can learn from them that can serve our overall purpose.

Business strategy

In business strategy there are a number of different schools of thought that provide guidance to managers. Two of the most notable have been founded by Professor Michael E. Porter of Harvard Business School, and Professor Henry Mintzberg of MIT. In 1980 Porter published the book “Competitive Strategy,” following it some years later by “Competitive Advantage.” In these two books Porter laid down his framework of “stra-tegic planning” as the primary means for companies to achieve leader-ship in their industries.

Porter argues that companies create successful businesses through the careful analysis of markets, competitors, and forces that are at play and that are likely to form, or transform, the playing field of an industry into its future shape. Based on this type of analysis managers can deter-mine which strategies are likely to lead to growth, profits, and overall success, enable them to avoid strategies that are not so promising, and make strategic plans for the future.

Henry Mintzberg, on the other hand, argues that strategic planning has never been the key to business success. Instead, successful strategies emerge over time as companies experiment with different approaches. As most people who have ever seen a plan break down due to unex-pected events may assume, companies usually apply a little bit of both. Most companies make strategic plans for the future, hoping to incor-porate all the information they have access to. In reality only some of their predictions turn out as expected and managers have to “fly by the seat of their pants,” perhaps making a revised plan that takes the new developments into account. The access to a plan, and all the effort and learning that has gone into its development, prepares the management team for “unexpected” events. In reality, many of the alternative devel-opments and their probabilities can be anticipated and prepared for, something companies try to do in their strategic planning processes.

In this book it is argued that we need to make strategic plans and finance development based on these plans. It is also the case, however, that we need to experiment and start to build the renewable energy systems of the future right now. As Weiss and Bonvillian argue, there


is a need for investment in risky large-scale projects that need govern-ment financing or co-financing. We need to start many experiments and get a large number of people to experiment. Only in this way can we expect to find out how the new technologies are going to work, and how consumers and professional buyers are going to purchase and use them. Based on these experiences we need to revise plans, re-start our work according to the revised plans, review our experiences, and then, again, the plans. Working along the experience curve in this way is a never-ending journey of exploration of new technologies, and it is not realistic to expect that planners, however competent and perceptive, will be able to map development years or decades in advance.

Market segmentation and the adoption curve

Market segmentation and the curve of product and service adoption are the most basic concepts of marketing. Market segmentation was initially done by geography, industry, user needs or psychographic profiles. Recently these practices have become ever more elaborated by companies in different industries as they target increasingly narrow segments of the market with specific offerings. Companies like Nike are pioneering this research by studying the life-styles of young users in order to determine how their products are used and which customer needs they are expected to meet. They then adapt their products and marketing, or develop entirely new products or marketing approaches, based on their findings.

The pricing of a product typically reflects its position in the product life-cycle. When a product is launched it needs to be sold at a rela-tively high price in order to retrieve a large share of the investment in its development before competitors enter the market. The price is then adjusted as demand and production volumes increase, and as competi-tors enter the scene. In order to justify the initial high price the product must be positioned as an innovation, and marketing and advertising should target market segments that are willing to pay the premium price. Most companies, through market analyses and customer-oriented experiments and product tests, have very good ideas of which customer categories are likely to be the first to purchase the new products after they have been launched.

The launch of new technologies is different from the launch of new styles of shoe. In the case of a new technology customers are often afraid to purchase a product based on a brand new technology, because the technology is unproven and its first generations may not


be as user-friendly as later generations. It may also be more difficult to find services or spare parts to maintain the product. As the product is unproven in the market there is also the risk that it will not succeed and that the company, due to lack of interest, will have to withdraw before the product gets a foothold. If the product depends on the development of a system of users there may be a risk that the system does not attract enough users in order for it to expand at the expected pace, or it may not be expanded at all and many customers may find themselves with products that are almost worthless. This was the case with Betamax and System 2000 VCRs in the late 1980s, as the VHS system developed into the de facto standard.

The first customers to adopt a new type of product are called “innova-tors;” they form a fairly small category that likes to be the first to buy and try out new products. The next category is the “early adopters,” and this group is larger. They want the security of not being first, but they try to keep ahead of the next category, the “early majority.” When the early majority steps in prices have already decreased substantially and less expensive copies have been launched. The product is now in wide-spread use by a number of different user categories.

The early phases after the introduction of the product represent the most difficult period for a company. The book “Crossing the Chasm 5 ” by Geoffrey A. Moore describes this development in detail. The majority of ventures never make it through this early phase, because they are often technology-driven, and the management does not understand the market it is targeting well enough to achieve the necessary sales growth. The author, a consultant with decades of experience from technology marketing in Silicon Valley, argues that companies initially need to identify more than one target market for its offering and cross-reference customers between these markets in order to build a number of strong reference cases. After a few years of pilot implementations with customers in different segments the company may have a number of reference cases from a few industries or user areas, and it is ready to “cross the chasm.” It then needs to select one segment and build a strong foothold with customers there, where it is confident that rapid growth can be achieved. After achieving a strong demand and market leadership in one segment the company can continue to grow by penetrating more segments, either with the standard offering or with adapted versions targeted at specific segments.

This illustrates the challenges of product innovation and marketing, and the substantial risks that innovative companies are facing.


Built to last

In 1994 the book “Built to Last” 6 by Jim Collins and Jerry Porras was published. It is a remarkable book in that it reports the results from a very large research project that analysed the factors that make compa-nies successful over the long term. In the study, the team of researchers selected eighteen industries in each of which there was one leading company that had led development in the industry for more than fifty years. A number of further criteria were chosen in order to identify the industries and companies. In each of the industries the achieve-ments of the leading company were compared to the achievements of a significantly less successful, but nevertheless important and large, competitor.

The researchers selected as some of the leading companies Boeing, IBM, Ford, and General Electric. The less successful comparison firms were, in the same industries, McDonnell Douglas, Burroughs, General Motors, and Westinghouse. The firms in the study had all been in busi-ness for more than half a century, and the successful and less successful patterns identified could all be traced back to the early days of the companies and the ideas and management styles of their founders. The profound impact of the founder and the early management team on the performance of the company and its development, even in later years, was the reason for the title of the book.

I include this book in this array of works and theories on business success not because we should demand that all ventures in sustain-able energy technology areas show all the characteristics identified by the researchers of this project within the leading companies. However, those who work with business ventures in these areas, even if they are sometimes mainly technology-driven, should be aware of some of the key characteristics of extraordinarily successful companies. They also, at a relatively early point in the development of ventures, need to put increasing emphasis on the business aspects and the factors that form the basis for long-term success.

Perhaps the most important finding was that the founders of these companies could be described as “clock builders,” as opposed to the “time tellers” of the less successful companies. Clock builders like Thomas Edison of General Electric or Thomas Watson Sr. of IBM focused on the development of organizations that could work without their personal involvement in every decision. The “time tellers” of compar-ison firms spent much more time making decisions themselves than on organizing efficient decision-making by others. The founders of the most successful companies were also more pragmatic and accepting of ambiguity, not succumbing to the “tyranny of the ‘or’.” They did not


demand that definite choices were made until they became necessary. Instead, these companies were able to work for longer periods of time on solutions that could operate in a number of different contexts. This gave rise to an inclination towards experimentation, and the principle of trying a lot of different ideas and approaches in order to keep and build on the things that work, rather than making quick decisions and sticking to them.

Another significant finding was that the founders of the leading companies did not only, or sometimes not even mainly, found their companies in order to make a profit and they did not, during their time as managers, emphasize profit as the main goal. Instead Thomas Edison was driven by a genuine curiosity and determination to develop new technologies and bring them to market for the improve-ment of society. The same was true for George W. Merck, the founder of the pharmaceuticals company Merck, which has sometimes given away medicines to developing countries that could not pay for them, or discounted medicines for the same purpose. The values held by the founders have to a substantial extent been perpetuated by succes-sors. Although mostly utilitarian, these values need not always be so in order to function as the cement that binds an organization together. In the case of Philip Morris, the unifying value is described as the genuine enjoyment of smoking and the determination among managers to defend their right to smoke. This, however, seems to be an exception to the more common observation that values tend to be utilitarian or customer-oriented. The core values of Marriott and Nordstrom, for example, are the very strong determination to provide service and create value for customers.

These values, and the organization and systems that develop and build upon them, form an enduring core within the most successful companies. In their constant effort to stimulate and drive progress, the founders and their management teams have taken pains to preserve them and build even more strongly around them.

One of the common denominators for the great companies was their ability to set extremely ambitious goals for themselves, and achieve them. The “Big Hairy Audacious Goals” that the founders set for themselves in building the companies often worked as inspiration and examples for managers in the later phases of development of these companies. In the early fifties, Boeing’s management team gambled the whole company on the success of the development of the first civilian jet, the Boeing 707. The investment in this project was estimated to require three times the annual after-tax profit for the previous five years, or one quarter of the net worth of the company.


At the point when Boeing decided to go ahead with the development of the first commercial jet, airlines had shown little interest in acquiring jet aircraft. In addition, the sales force reported that airlines had an “anti-Boeing-bias” largely due to the fact that the company generated three quarters of its revenues from the US Air Force.

In comparison, Boeing’s competitor Douglas Aircraft, the then leader of the commercial aircraft industry, decided upon a wait-and-see strategy. This company launched its first jet, the DC8, in 1958. By then Boeing had taken the lead in the commercial aircraft industry and Douglas, which later became McDonnell Douglas, would never be able to recover that position.

The business environment and the dedication to the businesses created by the founders and their early management teams formed the bases for corporate cultures that have become cult-like in their adher-ence to the shared values, goals, and the written and unwritten rules of the companies. This is exemplified by Nordstrom, which has developed a very strong culture of customer service among its employees.

Overall, this fostered a culture where capable and dedicated indi-viduals could grow and excel, and where they were also given the space to develop their ideas and put them to work. This has led to the expectation that every individual in the leading companies can deliver excellent results, rather than results that are “good enough.” This set of principles, according to Collins and Porras, creates a basis on which the best companies in each industry can attract and keep individuals of a higher average quality than their less successful counterparts. The leading companies would on average have better and more moti-vated managers, who could lead the other employees better than their competitors’ managers. The organizing principles provide a framework for a higher level of efficiency and the development of competence and superior skills. In all probability it is a large number of small but significant advantages in many areas of the organization that add up to decades of superior performance and value-creation among the compa-nies of the leading group.

The role of clusters and innovation systems

Having launched his seminal works in the area of business strategy, Michael E. Porter turned his attention to the competitive advantages that nations develop in particular industries, analysing the reasons for the dominance of some countries in particular business areas. He identified the existence of “clusters” of competence surrounding the successful companies as one of the most important factors behind


national dominance, and analysed and described his findings in the book “The Competitive Advantage of Nations.” Clusters are concen-trations of orgware surrounding an industry in a particular country. Within a cluster of core companies, industry associations, government agencies, research organizations, and individuals with long experience from an area tend to move between organizations, building up strong competence in a large number of people from a variety of different professions.

These clusters also contain the “innovation systems” that are so often highlighted today in national efforts to promote technology innovation. The term “orgware” includes all the organized knowledge in companies, institutions, organizations, and various formalized structures. The first to identify institutions as one of the key factors in national economic growth was the American economist Mancur Olson, who analysed the reasons for the “stagflation” period of the 1970s and the early 1980s. Researchers within the field of institutional economics have found that one of the reasons why Japan had managed so much better than most other developed countries was that the institutional structure of Japan was more supportive of innovations than those of the other countries. A particular example of an important government organi-zation that contributed to Japanese development in the 1970s is the Ministry of International Trade and Industry (MITI), which coordinated efforts within Japanese industries and initiated cooperation between industry and the government to achieve goals of competitiveness and export. 7 Other countries focused more on trying to save old industries, financing ailing steel companies, ship-yards or textile companies, while the Japanese were busy developing positions in consumer electronics, cars, and other growing technology areas.

The achievements of Olson, Porter, and a number of other researchers are being developed further by researchers into institutional structures, innovation systems, and orgware for technology and business develop-ment. While technology development has so far been the primary area of focus for the promotion of innovation on the national level it is now logical to look closely at the need to build business competence in order to promote the development and implementation of general-purpose technologies and systems and applications built on those in energy-related areas.

72

The first type of orgware that is developed in relation to a new tech-nology is technical. In many countries there is already a strong orienta-tion to support technology development in the early phases. National and regional “innovation systems” have been developed, mainly stimu-lated by the research into the phenomenon of “clusters” that was started by Porter and Olson.

As well as technical orgware, financial orgware is also required to support small-scale projects for technology development and demon-strators. Compared to the business development that follows, tech-nology development requires relatively few resources. In order to integrate new technologies into working systems, market services on a large scale, take orders, and deliver the product, systems integra-tion and business concept development, marketing and information campaigns, national or international sales resources, and resources for production, and logistics are all essential. For large projects this often means organizations having as many as several hundred employees in these departments.

Given the size of such business opportunities, the number of customers to be served, and the complex systems of partners and suppliers that need to be built, the leading companies and systems in clean transpor-tation industries are likely to employ several thousand employees over time.

This means that the interest and knowledge that is developed in an area of society increases exponentially as a technology complex moves into the phases of systems integration and commercialization. In busi-ness sectors such as telecom, where global companies already exist both in technology and systems areas, and there are also operators and service providers of different kinds, large systems of market and organizational

7 Four Categories of Orgware

Four Categories of Orgware 73

orgware already exist to support the introduction of new technologies and systems. Existing orgware in such industries is already used in the early phases of technology development to screen new technology ideas in order to select the most promising for substantial investments at an early stage, while less promising projects are terminated or put on the back-burner. Examples of the products of such orgware are magazine articles and technology television shows that feature new technologies in IT and other technology areas. In areas where business structures are already in place, experts from academia, business journalists, or financial analysts estimate the potential of a technology on the drawing board. These early assessments from dozens of different sources provide guid-ance to investors and business managers who are considering financing the development of a new technology. Reviewers are not necessarily right, but they contribute their knowledge to the debate. In clean energy sectors, orgware of this type is not widespread, and business aspects seem to be considered late in the development process.

This debate and the process of gradual selection drive the pace of development, leading to the investment of more money and resources in the most promising technologies. In fledgling industries and tech-nology areas there is insufficient knowledge in research, financing, market, and political circles; this makes the business debate in early stages difficult, or so it seems in many of the areas referred to in this book.

Business experts such as the members of the American Energy Innovation Council argue in favour of incentives and subsidies, but politicians hesitate to take on the large financial commitment of creating the business circumstances necessary in order for technologies to succeed. Many people involved in technology development assume that once a technology has been developed and technical systems inte-gration takes place, viable business models will emerge. But very few resources have yet been devoted to the analysis of the business aspects of emerging energy systems, or of the knowledge and orgware that are required in order to take these new technologies to market.

Below we will briefly discuss each type of orgware, its role in energy systems transformation and what aspects of it are required in order to move global energy transformation forward.

Technical orgware

Technical knowledge starts to form in an area as new technology ideas are developed on the drawing board. As inventors look for financing for their projects, new technology ideas are presented to specialists at


universities, venture capital firms, and others with an interest in tech-nology, who then evaluate the ideas and compare them to what they already know about technology development in their areas of speciali-zation. Technologies that may not be launched for another ten years or more into the future are discussed in technical magazines.

A number of transport technologies are now ripe for large-scale imple-mentation in transportation systems and the technologies must be integrated into customer-oriented systems. There will be many knotty problems to be solved in the next decade, and the direction of develop-ment will increasingly be driven by customer requirements and expec-tations. The same will be true for the technologies of other technology complexes.

Market orgware

The launch of a new technology, as the analysis in Crossing the Chasm indicates, signals the beginning of a new phase of learning for compa-nies. Dialogue with customers intensifies, over questions such as appli-cation development, pricing alternatives, sales volumes for different applications, and the patterns of sales growth that can be expected. It is through this dialogue that companies learn about market needs and gradually improve their products and business offerings.

It is a matter of two-way communication. Before the launch of the Macintosh, Steve Jobs argued that customers do not know what they want until they can see and test the product 1 . The same assumption also guided Apple through the launches of the iPod, iPhone, and iPad. Companies teach customers about new possibilities by offering prod-ucts and services. Customers teach technology companies by reacting to those offerings and demanding new applications or features.

In technology business it is usually the case that early customers ask for products and technologies to be adapted to fit the intended appli-cations in which they want to use them 2 . This is to be expected, and companies that develop computer software and other technology prod-ucts often wait to finalize the user interface and other key aspects of the user experience until they have some feedback from customers. This means that in many situations only a limited number of customers can be approached initially, since adaptation to customer needs is costly, and a few pilot projects are often sufficient in order to develop a small number of standard solutions that can be offered to later customers. In the case of emerging energy and transportation systems, close interac-tion with key customers and investors is likely to become necessary in order to launch pilot systems and adapt them to customer needs.


As companies start marketing efforts they rapidly build knowledge of which business models work, and which do not. One of the most common mistakes made by companies and investors is to make overly optimistic assumptions about the attractiveness of their initial offerings and the rate of growth in the market, and thus underestimate efforts and financing needs.

Bubble trouble

In 1997 the present author co-wrote the book The Transparent Market , 3 which was published the following year. The book discussed the idea of e-business, and we argued that business on the Internet and other electronic networks was set to grow rapidly in the near future. Our ideas met with an almost complete lack of interest from the people we contacted. Even management consulting colleagues did not understand why we, in our mid-thirties, took such an interest in a new technology that was primarily used by young people who were playing games.

We argued that, due to the cost advantages and the geographical reach of on-line business, the Internet would certainly develop into a medium for business and information-sharing between companies, their customers, and business partners. We also argued that the websites of the time were only early examples of the more developed e-business offerings that would appear as time went on.

We were surprised at this lack of interest, and waited for the time when people would start to understand what we were talking about. In 2001 the tide turned. Suddenly many people with whom we talked seemed to know a lot about electronic business. But the arguments reflected the flow of news and arguments in favour of e-business that had started to spread in the media. Among the more common arguments repeated there was that elec-tronic business heralded in a “new economy” with properties and opportuni-ties that were entirely different from those of the “old economy.” 4 Companies in the new economy would be able to rapidly take over whole markets from incumbents, achieve unprecedented growth rates and reap profits that had never been seen in the old economy. Authors even offered “blue-prints” for e-business ventures that were supposed to be used to rapidly launch new profitable ventures. 5 The economists Shapiro and Varian attempted to iden-tify the “rules” of information-based competition. 6 It was not only investors that experienced the “irrational exuberance” that Alan Greenspan, Director of the Federal Reserve, warned of.

In The Transparent Market we based our argument on the assumption that the same factors of investments, cost, services and other competitive advantages, and profitability that had shaped existing markets would also determine the development of business on the Internet. Electronic business, of course, like many other technologies, offers a range of new competitive advantages, but the idea that a new economy would be formed with entirely new economic mechanisms seemed highly unlikely. We also believed that the Internet’s low barriers to entry would attract large numbers of investors


backing similar concepts, which in many cases would create fierce competi-tion on price instead of high profits.

Despite the fact that a lot of money was being invested in e-business ventures, and many knowledgeable people took part in the development and the debate, there was still a lack of understanding of the marketing and busi-ness aspects of new business development, and in particular of business on the Internet. This led to the development of the “Internet bubble,” which formed because of largely unrealistic assumptions about the growth rate and profitability of business on the Internet.

In 2000 and 2001 I participated as a consultant in more than one venture to launch broadband business concepts that were in development. These companies expected to become service providers and sell film and music, and take part in the sale of other goods and services as part of their offerings. As we now know, we can buy anything freely on the Internet without using the portals of service providers who package offerings and take care of payments. While service providers expected to be able to charge a fee for these services, some experts, at least, questioned the willingness of customers to make this possible on an open electronic network. Instead, broadband operators now encounter fierce competition from competitors offering similar services at rock-bottom prices. As already mentioned, it is not until companies start to offer products and services to real customers that they really find out which business models work and which do not.

However, there is always an opportunity to analyse the challenges of the different business situations and the successes and pitfalls of companies that have faced similar situations in other industries. While every business situ-ation is unique, many mistakes can be avoided just by letting experienced people do some basic analysis. Through market studies, customer surveys, and analysis of best practice in other industries, it is often possible to develop a very sound general picture of an emerging market. The product and service features that can lead to success must be developed based on experiments and customer interaction.

The experience of companies that have experimented with business models for renewable fuels and electric vehicle systems is very valuable and we need to consider it very carefully, as well as the experience of companies in other industries. We also need to analyse and understand the systems aspects of sustainable fuel systems, and the tremendous cost of building production systems and infrastructures for distribution. While it is difficult to foresee the details of the development, the optimal overall structures of the systems we need to build can already be identified. This argument will be substanti-ated further in the concluding chapter.

Market knowledge and orgware will mostly be developed by companies, but business strategies and marketing campaigns will also be examined by professors of business studies and their students who aspire to work in renewable energy areas in the future. Market orgware is often trans-ferred from one country and industry to another through the use of case studies written by consultants or business researchers at universities,


who focus on identifying the similarities and differences between indus-tries and business situations. Case studies are often written in order to apply useful experience from one situation to other, similar, situations. Such case studies help business decision-makers to find their way in the uncharted territories of new and emerging industries.

As I have already argued, politicians and others who are going to support development and make key decisions about regulations, financing and other issues need a certain level of business knowledge and market understanding.

Market orgware and a technical innovation system

As has been described above most of the literature on energy innovation focuses on technical issues. Even the reports by the American Energy Innovation Council and the book “Structuring an Energy Technology Revolution” by Professors Weiss and Bonvillian use mainly technical termi-nology. There is nevertheless a need for business analysis and business competence in order to identify the segments to target and to develop the systems functionality that will become required to satisfy the needs and requirements of those segments. Only by understanding in which areas we are likely to experience “market failures,” in the words of the Council, can we identify those where governments need to invest money, and only by analysing the growth potential of various segments and markets can we esti-mate the level of incentives needed in order to develop them. Furthermore, government-financed test projects will need to involve key companies, who are given the opportunity to implement some of the sustainable energy tech-nologies they have under development. These projects will inevitably build not only technical and systems competence: they must be founded on sound business, financial, and marketing principles. The financing of large-scale energy systems development and implementation will have to be driven by increased awareness and knowledge development in energy and fuels busi-ness areas. First of all, the prerequisite for any action along these lines must be the realization that many of the technologies and systems that are now being developed show low prospects of success without active promotion and support from governments. This includes the necessary building of knowledge in business matters.

This knowledge development may lead to the realization that, in addi-tion to technology development, business environments that favour clean energy systems in a way that is not the case today must also be developed. Governments need to create favourable market conditions for clean energy systems by preparing the ground for making them competitive against estab-lished energy technologies.

Some marketing orgware has already been built in companies that have positioned themselves to become leading players in sustainable


transportation areas. Without a doubt, large amounts of marketing orgware will have to be built in these areas in the next few years.

Financial orgware

To develop businesses in clean transportation sectors, large-scale financing of business development is required. Following the argu-ment of Romer that the more people who prospect for gold in an area, the more gold is found, it is highly probable that the more people who look for business opportunities in clean energy sectors, the more such opportunities are likely to be found. While it is easy to find investors who focus on investments in medical, biotech, IT, or other existing busi-ness sectors, it will be almost impossible, with a very small number of exceptions, to find investors who have spent a lot of time and resources analysing large-scale business opportunities in the areas of emerging transportation technologies and fuels. We can determine this from the small number of large-scale ventures in these areas.

During the development of new technologies, especially when a new product is launched, those technologies seem very expensive, and people gain the impression that this will remain the case for a long time. This means that most people are not likely to see the long-term business opportunities of new technologies. We can use as examples the views that are often attributed to two pioneers of computing, Thomas Watson Sr. and Kenneth Olsen, the founders of IBM and Digital Equipment. Watson said in the early days of computing that there was a global market for four computers, and Olsen famously argued in 1977 that there would never be a reason for anyone to have a computer at home.

Both these statements were based on a profound understanding of the computer industry and the technologies it was based on. The speakers’ opinions were based on their experience of the situation at the time. IBM and Digital were struggling with the restrictions imposed by main-frame computer technologies and the cost structures and development challenges that prevailed at the time. These pioneers also failed to see the technology and business breakthroughs that would open up new vistas for coming generations of computing companies.

It is easy to see that an inventor would have found it difficult to convince Watson to invest money in the development of standard-ized mainframe computers for large-scale production at a time when IBM was struggling to build the first bespoke computers. It would also have been difficult to get Olsen to invest in the development of a home computer, even though the technologies needed were in development when he expressed his view. Computers were simply too expensive, and


Olsen apparently failed to realize that they could become inexpensive enough for individuals or households to buy them. Even when Apple developed the Macintosh with low capacity, the more powerful and expensive Lisa was in development by the same company. Following surging sales after the launch, Macintosh sales dropped to only ten per cent of the sales budget in 1985. 7 This was largely due to the fact that the technologies that were used had low capacity while the cost of components was still too high. Despite the fact that Ken Olsen was one of the true pioneers of computing, who started Digital in 1957 and was in 1989 mentioned by Fortune magazine as one of the most successful American entrepreneurs of all time, Digital did not foresee the revolu-tion of personal computing. In 1998 Compaq acquired Digital, paying 9.6 billion dollars for the company.

One of the reasons it is often difficult for established companies to foresee unexpected developments in their own industries is that the challenges change over time as technologies and business environ-ments develop. Employees in existing companies are experts in existing technologies, while experts in the new technologies tend to still be in their late teens or early twenties when they start the companies that are going to challenge the incumbents. Due to the low price of computers and widespread access to computer technologies, young people can today become experts in areas that in previous decades were only avail-able to professionals.

To have seen opportunities for personal computers in 1977 it would have also been necessary to foresee the development of user interfaces that made the technologies easy for ordinary people to use. Visionaries would also have needed to finance systems integration for these new customer groups, as Steve Jobs and Steve Wozniak did with the first Apple computers.

The development of personal computers was based on the initiatives of a new generation of “computer wizards” who developed their skills and new applications in their spare time and in garages and bedrooms. To foresee the success of the personal computer it was also necessary to see how computers could be woven into the fabric of society. Visionaries had to see how everyday lives could be changed through developments in technology and applications, and the ensuing reduction of the cost of computers and computing as demand for processors, memory discs, Ethernet connections, monitors, and complete computers increased. These skills could not easily be developed within a company that was primarily selling mainframe computers to government buyers and large companies.


In the case of personal computers we all know now that what took computers into homes was the development of inexpensive personal computers, word processing, games, and the Internet. Now all kinds of “cloud-based” applications are driving development and making computing even less expensive. These developments, in combination with the switch, in businesses and large organizations, from main-frame computing to mini-computers, and personal computers through which employees can access business systems from anywhere in the world have all, together with technology development in a number of different areas, contributed to making computing a truly global driver of development.

The development of personal computers is fundamentally different from the development of sustainable transportation systems. As we will see below, Bill Gates had access to the most modern computer technolo-gies in high school. The young Steve Jobs and Steve Wozniak built the first Apple computer from inexpensive parts. Few young people have electric vehicle technologies to play with in their spare time. Because electric vehicles and other renewable fuel systems require large numbers of experts and substantial investment, project financing is necessary in order to drive development forward on a large scale.

A numbers game

Newcomers in a market pioneer new technologies and find business opportunities where incumbents fail to see them. This is perhaps not surprising. Development is a “numbers game.” In order for a few indi-viduals to win on the football pools, at the race track, or in business, many people have to try, and sometimes the winners in business, as well as in other fields, are unexpected. The journalist Malcolm Gladwell has written the book Outliers – The Story of Success 8 about the factors that determine success in business, music, sports, and other areas where hours and hours of training are necessary in order to succeed.

In his book, Gladwell questions whether exceptional talent plays an important role in success. Instead, he puts success down to a combi-nation of individuals being at the right place at the right time with the determination and drive to succeed and learn new skills. Gladwell argues that individuals need 10,000 hours of practice in order to become “experts” in a field. He has studied successful people like Bill Gates, Mozart, and the Beatles, and found that all of them enjoyed the advantage of particular circumstances that gave them the opportunity to accumulate 10,000 hours of practice early in their careers in areas where at the time there was little competition.


Bill Gates and some of his friends developed their computer skills at the Lakeside School, which in 1968 made an unusually visionary investment in an ASR-33 Teletype computer connected to a mainframe in Seattle on a time-share basis. This made it possible to do program-ming continuously without the waiting times that were experienced by most other computer users at the time. The technology for time-share was invented in 1965, so there were not many similar installations in the world, and the ASR-33 was based on the technologies that would become standard in the personal computer industry. At that time Gates was thirteen and the expensive computer time that had to be bought for him and his friends was financed by their parents and by a club at Lakeside called the “Mothers Club.” A company, C-Cube, offered Gates and his friends the opportunity to test the company’s programs in exchange for free programming time. C-Cube went bankrupt and the boys were contacted by another company called Information Sciences Incorporated, which provided them with free computer time in exchange for work on the company’s program to automate company payrolls. In one seven-month period in 1971, Gladwell explains, the boys ran up 1,575 hours of computer time, which amounts to eight hours per day, seven days per week. Gates spent nights and weekends at the computer and learned the new technologies before most other children of his age. It is easy to see that he may have been one of the few teenagers in the world who had programmed for 10,000 hours before the age of twenty, using the most recent computer technologies.

At the same time, elsewhere the world, there were other teenagers who spent as much time as possible programming, but few would have had the opportunities of Bill Gates and his friends. Much later, IBM was looking for a company that could program its new operating system for their personal computer. Gates and his team at Microsoft were contacted and got the order, and who would have been better placed to exploit this opportunity to its full potential? We may however, assume that even without the order from IBM, Gates and his team would have been able to do very well in the computer business, based on their unique skills and long experience.

The Beatles also had a unique opportunity when they accepted the offer to play in a Hamburg club. Through contacts many bands from Liverpool were offered gigs in Hamburg clubs at this time. The Beatles made their first tour to Hamburg in 1960 and they made five such tours until 1962. While other bands got an opportunity to play in front of audiences for an hour at a time one or two nights per week, the Beatles played between five and ten hours every night. During the first two


trips to Hamburg they played for 106 and 92 nights respectively. On their third trip they played a total of 172 hours in 48 nights. The audi-ences were primarily Germans, and music was not their main interest. This presented a significant challenge to the Beatles who had to try harder, and, as Gladwell explains, became more confident in their abili-ties and tighter as a group. When they made their first tour of the US in 1964 they had thousands of hours of playing in front of audiences behind them, in addition to all the hours spent practising since the first meeting between John Lennon and Paul McCartney in 1957.

Of all the people who tried to develop skills in personal computer programming and all the teenagers across the world who formed rock and pop bands in the late fifties and early sixties, few had the opportu-nities for practice like those enjoyed by the team around Bill Gates and the members of the Beatles. These examples represent the tips of their respective “icebergs” of skilled people in two different areas. Gladwell’s analysis shows how those who happen to have an initial advantage develop better skills and are exposed to bigger challenges, get more time to practise in demanding environments, and invest more time in what they do than competitors. Those people who get off to a better start continue to increase the distance from their less successful competitors, who get to spend less time practising on less demanding tasks and in less glamorous and challenging situations.

For successful businesses to emerge, much time must be dedicated by a large number of people with business experience or ambitions. All of this has to be financed. The early assignments of Gates and his friends did not pay very well, and it was not primarily in order to earn large sums of money that bands from Liverpool went to Hamburg to play. While these and many other success stories are to some extent built on chance, such as the opportunity to practise new skills or gain experi-ence from using new technologies, this book is about the need to build whole environments in clean fuel technologies and transport systems that are favourable to the emergence of successful business ventures, and a key factor in the creation of favourable environments is the availability of financial resources for purposes other than technology development. As argued above, this cannot be expected to happen if only a small number of people with primarily technical backgrounds turn their interests to further technology development. Instead, we need large numbers of investors and financial analysts, together with marketing experts and other business people, to turn their attention to business opportunities in emerging energy sectors. Only through large-scale financing can “icebergs” be created, consisting of large numbers


of practitioners, upon whose peaks companies like Apple, Microsoft, or the Beatles might emerge.

Business financing is a set of skills that are developed over time, to a large extent sector by sector, and the reason why there are so many new business ventures in pharmaceuticals, IT, and other areas is that there are many business-oriented people who develop business concepts, and a number of investors with different specialties and skills to whom they can pitch their business ideas.

The mobile phone visionary

In the 1980s Östen Mäkitalo was Director of the Swedish telecoms research institute Radiolaboratoriet (The Radio Laboratory), which had been founded in 1975 by the Swedish national telecoms operator Televerket (now a part of the company Telia Sonera). Televerket had for a long time been working closely together with Ericsson, directing the development of new telecoms technologies. Mäkitalo realized that most of the technologies required for a mobile phone network already existed and could be integrated to build a public mobile telephony system. He drew up an idea for such a system that could be offered to companies and to the public, which would be operated by Televerket. Operating a telecom monopoly he also realized that Televerket would have the financial strength to build a mobile phone network.

Establishing the system on a national basis, which would be necessary in order to attract early users, would require huge investment in the develop-ment of the system, the building of antennas for mobile telephony across Sweden, and the sale of these services, along with the phone handsets, to companies. At this time batteries were large, and phones, with their batteries, weighed several kilograms. The price of the phones and the cost of calls would be high.

The first NMT system was launched in 1981 and Televerket was the first company in the world to launch a fully fledged system for the commercial market. The NMT technology was built on a network of stations with longer-range communication capacity than the later technology standards, which made the network less expensive to build: a national system could be based on a smaller number of communication nodes.

In the same year Sweden’s competing telephone operator, Comviq, launched a system of its own. In 1988, seven years after the launch of the systems, Comviq had 10,000 subscribers and Televerket had 170,000, a substantial number in a country of only eight million people.

Early adopters were organizations like bus companies, taxi businesses, and company sales representatives. Bus companies mounted phones in buses in order to be able to redirect drivers to new customers on their way back from a tour. Even a few more billable hours per month for a bus justified the cost of installing a phone and paying for the monthly subscription and calls. As I started to work as a traffic manager with a coach tour operator we carried the heavy phones with us in the early mornings and late evenings when


coaches picked up passengers and when passengers came back from their tours around Europe. For example, if a bus failed to turn up in a remote city at 4.15 a.m. as passengers were waiting to get on their bus to Rome, we would have to book a taxi, or redirect the bus that had failed to pick up the passen-gers. This saved the company substantial amounts of money on complaints and train fares to enable passengers who had been left behind to catch up with their tours.

This example illustrates the importance of combining a visionary systems investment with one or a number of target markets, where substantial revenue streams can rapidly be created, because these investments, being ahead of the rest of the world in the emerging field of mobile telephony, created a widespread cluster of companies and technical and market exper-tise at universities and research institutes. The success of mobile telephony in Sweden has developed support for this technology among politicians and government agencies. One of the areas of innovation where small compa-nies and development projects now receive substantial amounts of financial support from government agencies is the telecoms sector. The government and other sources fund national business incubators to identify promising business ventures and help finance their start-up.

In 2000, at the peak of the Internet boom, both Wired and Time Magazine ranked the Kista area, north of Stockholm, the centre of innovation in the telecom industry in Sweden, the hottest area for development in ICT in the world after Silicon Valley. This might not have happened if Östen Mäkitalo in the late 1970s had not championed the development of the world’s first commercial network for mobile telephony in Sweden.

The visionary thinking that marks the work of Mäkitalo and other innovators takes development from the technology development phase into that of commercialization. The entrepreneurship involved in devel-oping a business concept and driving it to fruition by gaining support for the idea among a large number of key decision-makers in a complex business and political system is certainly no mean feat. Technologies for mobile telephony were not initially developed with private citizens or professionals in mind as end-users, but for users in emergency organiza-tions and the military. The technologies were expensive and not devel-oped to the level of user-friendliness that we expect from consumer electronics.

Nevertheless Mäkitalo saw the opportunity and, against the odds, managed to persuade his colleagues and superiors to invest in the first public system for mobile telephony. Similarly, we now have access to all the technologies we need in order to create the transportation systems of the future, but in most cases, and with few exceptions, we lack the visionaries who can develop these systems into the future “cash cows” of the transportation sector.


The vision of an oil-free transportation system

In 2007 one of the directors of the leading supplier of business systems SAP, Shai Agassi, was invited to participate at a conference held to develop break-through ideas for a better world. In one of the workshops participants were asked to develop a business idea that could contribute to making the world a better place. Agassi and his team at the conference developed the idea of a system of electric vehicles that could be charged using electricity produced from renewable sources, such as wind power and solar cells. After the conference he started to investigate the state of technology devel-opment in the areas relevant to electric vehicles and found that the key tech-nologies were already present. With his high-level experience from the IT industry he was able to see that it would even be possible to develop and integrate the necessary systems in an attempt to launch an electric vehicle system on a large scale. He contacted one of his acquaintances, the New York-based manager of the venture capital firm Maniv Investments, Michael Granoff, who soon started to gather financing for the launch of the new company Better Place. By the end of 2011 Granoff had managed to create a consortium of investors who have put 700 million dollars in the venture.

Better Place has identified the range of electric vehicles as an important factor in the development of the business model of this company. An electric vehicle has a range of 130 kilometres. After emptying the battery it takes eight hours to re-charge. Better Place is focusing on taking a strong position with customers who drive long distances and are willing to carry the cost of doing this. As pilot markets Better Place has selected Denmark and Israel, two small countries. The company has also invested in a system in the Canberra region in Australia. As part of its business offering, Better Place is building a network of battery-switch stations that will allow customers to switch to a fully charged battery on longer trips. Although only some three per cent of Danish drivers drive more than 50 kilometres a day, Better Place believes that the need to offer complete mobility within these countries is so important that it justifies the investment in 20 battery-switch stations across Denmark.

The telecommunications and electric mobility case studies above are examples of the type of financial vision that needs to be developed in many business areas. To get more people to identify opportunities and promote the various activities that will become necessary we need to create the knowledge and orgware in companies, in the financial community, among politicians, and in the public sector agencies that support technology and business development. To transform trans-portation and energy systems on a global scale many people need to participate in creating opportunities. The development of the business models that can form the basis for growth in renewable fuels sectors is crucial, as is the development of an understanding within the financial


community of the business opportunities that will start to open up. To transform transportation and fuel systems on a large scale, however, there is also a need for politicians and government administrators to become involved. While many of the ideas presented in this book may be new to people in politics and government there is a need to learn rapidly about the business aspects of emerging transportation systems and start to prepare for the decisions that will be required to finance this development.

Political orgware

Denmark is a country without substantial natural resources. In 1976 the Danish government, in its energy plan, decided to embark on a strategy that would reduce its dependence on fossil fuels for electricity produc-tion. Howard Geller has studied this development and describes it in his book “Energy Revolution.” 9 Early in the development of wind power the Danish government developed a strategy to develop and promote wind power on the national, regional and municipal levels. From 1976 to 1996 they spent 75 million dollars on R&D and testing: about ten per cent of the country’s energy budget. From 1979 the government offered a 30 per cent subsidy for investment in wind turbines. This subsidy was in place until 1989. By then the cost and efficiency of wind turbines had increased enough to make it competitive against other forms of energy. The support then was changed to a law that demanded that utilities purchase output from wind turbines for 85 per cent of the retail price for electricity. At the same time a tax on fossil fuels was put in place, and wind power producers also received a subsidy of 3.8 cents per kWh from the subsidy pool.

According to Geller, wind power was already supplying 15 per cent of Danish power and the cost-effectiveness and competitiveness of wind turbines has improved dramatically. Through the jobs created and the exports generated these technologies also contribute significantly to the Danish economy. In 2001 about 50 per cent of all wind turbines that were installed worldwide were made in Denmark. While this share has decreased due to increasing competition, the Danish wind turbine producer Vestas is still the global leader in this industry.

In order to create support for wind power the Danish government has promoted ownership of wind turbines by local guilds and cooperatives. Around the year 2000 about 100,000 Danish families, in a country of 5.5 million people, owned shares in wind turbines; these owners were represented by the Danish Wind Turbine Owners Association, which


has a strong voice in legislative issues related to the Danish wind power industry.

As the above account of the Danish development of wind power illustrates, strong knowledge of and support for the wind effort has been built in many areas of Danish society. The government has not simply introduced a subsidy for investments in wind technology. The support program and incentives has, throughout the development, been adapted to the changing circumstances of the situation. As Geller puts it, “Financial incentives were modified over time as technologies matured, but this was done without compromising the orderly expan-sion of the wind power market. Also, strong political support for the program was generated by building an industry base and involving a large number of citizens in project ownership.”

Denmark is now about to take the next step on this path. With a share of electricity production from wind that has now reached 20 per cent the country has hit the ceiling. Due to the intermittent nature of wind power, substantial resources must be retained for the produc-tion of electricity when there is no wind. In the case of Denmark, this power source is mainly coal. The only way to further increase the share of wind energy in the mix would be to introduce a storage facility for electricity. With the introduction of a technology for this the share of wind energy could be increased to some 50 per cent. 10 How this could be achieved we will come back to below.

This example illustrates the importance of political and public knowl-edge and orgware. The development of wind power in Denmark has obviously not been driven by a few business geniuses. Through the process of research, investments, and business development into wind turbines Denmark has built an awareness throughout the country of the advantages of wind power. The government programs, subsidies, and the focus on wind power that have been created have developed a business and financial environment favourable to the development of competitive companies in the wind power industry. Wind power is now as important in Danish business life as bacon, butter, and beer, and this has developed an understanding of the advantages of wind power and how it is produced, distributed, as well as its limitations. This knowledge is strong at all levels of Danish politics. Furthermore, as illustrated by the example, many people understand the limitations of wind power, and the need to store electricity in order to further expand this impor-tant sector of the Danish economy. Through the early investments in wind power development Denmark has built knowledge and orgware


that provides an ideal platform on which electric vehicle technologies, smart grids, and other related innovations can be exploited.

In countries that have not yet focused as much on renewable energy as Denmark, neither people in general nor politicians are likely to possess the understanding of renewable fuels systems that is necessary to make decisions about large-scale investments in these areas. Politicians as well as private investors tend to be risk-averse and avoid uncertainty. But the need to introduce renewable fuels or electric vehicle systems on a large scale is becoming increasingly pressing as oil-producing coun-tries now struggle to maintain high production levels, and as the risk of prolonged political conflicts present a threat to the political balance in oil-producing countries. Unless we start to transform energy systems on a large scale we may face a pressing situation in which oil prices are increasing while reduced volumes are being produced.

In a discussion with the one of the key promoters of bio-fuels in Sweden, the author of this book asked what is primarily needed in order to drive the implementation of biogas in Sweden in the next few years. The director replied that one of the most important things is more knowledge about biogas in all corners of society. Despite more than a decade of expansion in the field very few people are doing research in biogas, and there is a particular lack of people researching the business and systems integration aspects. There are also few politicians nation-ally, regionally, and locally who understand what needs to be done to promote the development of biogas in this country. The large-scale investments in wind power in Denmark, and substantial amounts of trial and error, have built this knowledge over a period of 35 years. Now we are facing the challenge of transforming energy systems over the next decade and we rapidly need to build the substantial orgware in various areas that will make this possible.

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Until now most projects within areas of renewable fuels, electric vehicles and other emerging energy-related technology areas have been small and local. Projects have focused on building the competence and other resources to put in place “demonstrators” of new technologies, such as a biogas production plant in combination with a number of buses run on gas. In some cases projects have grown beyond the demonstrator stage, as in the case of biogas in Sweden, where regional governments have set a goal of converting their whole fleets of buses and other vehicles to biogas within the next few years.

Some renewable energy technologies, such as heat pumps, wind power, plug-in hybrids, and district heating do not depend on the development of national systems or systems that cover several nations in order to grow. District heating systems are by nature local and regional, and there is no need to develop national systems or in other ways increase the value of district heating to users. With biogas, electric vehicles, and other fuel systems, geographic coverage is very important. Even if most people go on longer journeys only a few times every year, the opportu-nity to do this is important to car owners. This makes the geographical aspect of orgware very important. In some places, national orgware may be an issue of competence-building and lobbying. In others there is a need for standardization, systems integration, and customer offer-ings on a national or international scale. Travellers’ ability to use mobile phones in other countries is an important advantage. Borderless fuel systems for cars and trucks are likely to become a necessity if renewable fuels are to penetrate markets.

Unfortunately, the focus on local and regional projects has led to the belief among many people that the entire traffic system of a country can be converted on the basis of local and regional initiatives. As mentioned

8 Geographical Aspects of Orgware


above, the members of the “transition” movement focus on local and regional change initiatives, which are not likely to drive energy systems transformation on a large scale, as we will see from the discussion that follows.

Local “orgware”

The example of district heating

Investments in district heating systems began in several European countries in the early decades of the twentieth century. District heating is a cost- and energy-efficient way to heat cities; it consists essentially of large boilers in one place, with heat distributed via hot-water or steam pipes throughout a city. Many of the technologies involved are mature. At the heart of the system is a boiler, which may be fuelled with anything from oil or gas to bio-fuels and waste. In many countries municipalities and heating companies have changed from fossil fuels to waste incineration and bio-fuels.

Initiatives to invest in district heating have largely been local, and systems have been developed step-by-step on a local basis. Systems have usually been installed first in city centres from where they have spread out to supply heat to suburbs and industrial areas. In many countries, indus-tries have also been connected to the systems in order to supply surplus heat thereby reducing the need for additional sources of heat production.

Due to the local nature of these systems and the relatively straightfor-ward technologies represented by boilers, pumps, pipes, and substations that transfer the heat from the district heating pipes into the heating systems of houses, the associated orgware has for a long time largely remained local. Even financing the investments in the expansion of these systems has largely been local, and subsidized by municipalities.

Relatively recently, through the deregulation of energy markets, the fall of the Iron Curtain and the opening up of the economies of Eastern and Central Europe to private investments, a number of utility companies have started to build multinational businesses in the district heating sector. This opens up the opportunity to build national and international competence and orgware in district heating, but does not necessarily increase the scope of district heating systems. Such systems are still developed in close cooperation between municipalities and the utility companies that own and operate them.

Technology development and the development of the companies that supply district heating technologies have for a long time been driven by demand in national and international markets.

Geographical Aspects of Orgware 91

In the past decades information technologies and development in other areas, such as the need to transform the large district heating systems in the countries of Eastern and Central Europe, have led to the development of substantial orgware resources for business and tech-nology development and lobbying on the regional, national, and inter-national levels.

Biogas and natural gas as vehicle fuels

In Germany and Sweden, biogas projects have been initiated locally, and their use expanded incrementally, like district heating. Many efforts have been initiated based on the ambition to make use of locally available biological waste and the gas has been used to produce heat and power in district heating and cogeneration plants. In Sweden it has been refined for use as a fuel in local bus systems, and sold on a small scale to private car owners through public filling stations.

This has created substantial technical knowledge about biogas in many municipalities and in local and regional bus companies. Due to the fact that these supply systems have to a large extent been propri-etary, and the companies have not operated extensively in markets for private customers, financing and business development have also been developed for the needs of local or regional business environments. The risk of these ventures has been low due to the existence of captive markets of local users owned or appointed by the municipalities.

Electric vehicles

Until now most electric vehicles have been small cars used by drivers who drive locally. A number of vehicles have also been bought by companies and organizations wanting to establish an environmental profile for themselves; many have not been driven very much. The number of electric vehicles in Sweden amounts to less than 400 regis-tered vehicles by the end of 2011, out of a total of 4.2 million cars in the whole country. While the number of electric vehicles in other countries amounts to considerably more than 400, we are still talking about very small numbers. With the government’s goal of creating fossil-free trans-portation systems in Sweden by 2030, and a median life of a car of more than fifteen years, we are seriously behind schedule.

Until now most electric vehicles have not been the type of family cars with which most people are familiar, but some car manufacturers now market models of electric cars that are as large and as comfortable as petrol-fuelled cars. Theoretically they can be used like any traditional car, except that the battery’s range is only 130 km, and it takes eight


hours to charge. With the use of rapid charging technology this time can be brought down to 30 minutes to charge the battery to 80 per cent of its capacity. A rapid charging station costs more than ten thousand euro, while a station for regular charging at home or at work amounts to a few hundred to one thousand euro, depending on its functionality.

This may lead us to believe that electric vehicles will continue to be used for short trips, and that we primarily need to develop local orgware in this area for the time being. Yet most car owners are used to virtually unlimited mobility, and it may be difficult to find large enough segments of buyers that are willing to purchase electric vehi-cles, given this limitation. At present we don’t know, but we need to find out quickly.

Car pooling

In discussions of sustainable technologies with many experts the idea has often been put forward that car pools with a number of different types of vehicles will be the model for the future. According to the proponents of such systems, electric vehicles, due to their very high energy efficiency, would be the preferred alternatives for shorter trips, and there would be gas vehicles or hybrids for longer trips, and vans for times when members need to transport things.

This alternative is sometimes mentioned with emphasis, as if the large-scale growth of such car pools is inevitable. Examples are mentioned of car pools that have been in operation in many cities for a number of years.

While the growth of these systems is possible, it may not be certain, or even probable, that they will grow to their full potential without extensive marketing of the concepts. Existing car pools may be attractive to people who are strong supporters of sustainability, who have infrequent need of a car, or who live in an area where a car pool is already in operation. There may be a large potential to increase the number of car pools, and the total number of vehicles on offer, but this may not be realized without more information about peak oil, sustainability, and the need to implement renewable fuels on a large scale.

Regional orgware

District heating

In the case of district heating and biogas, local orgware has in some countries “percolated up” to the regional level as politicians and admin-istrative bodies have realized the importance and potential of these technologies for sustainability and for the energy and fuel supply of the future. This has led regional governments to take an interest in these technology areas and start projects and build resources in the hope that


regional projects and strong regional players can take a leading role in energy systems transformation.


In Sweden regional and local bus transportation systems are mainly managed by transportation administrators run by regional govern-ments that contract bus operators. In this situation the implemen-tation of biogas, electric vehicles, or other renewable fuels becomes the task of the regional authorities in cooperation with bus opera-tors. The large-scale transformation of transportation to renewable fuels becomes an issue for regional, as well as local, governments. The business situations, however, remain similar to those faced by municipalities.

The orgware that is developed in this type of system is largely tech-nical and the business situations is straightforward. The systems inte-gration and business development is also relatively straightforward compared to the business knowledge and systems that will become necessary in order to roll out large-scale fuel systems that are supposed to capture substantial shares of national markets. We still know very little about how to sway customer preferences and purchasing behav-iours in favour of renewable fuels on a large scale and on national and international markets.

Electric vehicles

With the limited range of electric vehicles, the creation of regional transport systems based on electric vehicles may be the way forward. It may be possible to identify companies, organizations, and households that use cars for short- and medium-range transportation and target them with offerings of electric vehicles and subscriptions to electric vehicle systems. This type of effort forms part of many projects in the field of electric vehicles, and it will produce valuable information about the viability of regional electric vehicle systems. Among the projects worth watching are the E-Laad project in the Netherlands, a project in Amsterdam that involves Vattenfall and local partners, and projects in many large city regions in Europe and other parts of the world. The Better Place ventures in Denmark and Israel have a strong element of involving local and regional players, but also build national infrastruc-tures of battery switching-stations.

In the heavy vehicles area there are several types of operators that run transportation systems along highly predictable routes. Examples include operators of bus systems and waste management companies,


and there are probably a number of other segments within the trans-portation and distribution industries where vehicle routes are highly predictable.

Heavy vehicles, predictable patterns of use

The importance of identifying the most attractive market segments in order to develop business offerings that add value to the most demanding customers has already been stressed. Volvo, the global leader in the heavy truck industry, and the second-largest producer of buses, has carefully selected operators of local bus systems as the target customers for its new line of electric buses.

Buses on city routes often operate from early in the morning to late at night, and on some routes they are used on a 24/7 basis. This creates an ideal opportunity to save fuel and reduce the impact on the environment. Furthermore, buses, as opposed to most other vehicles, drive along highly predictable routes. This creates an ideal situation for the introduction of a system for inductive charging. City buses will need automatic, frequent, reli-able, and rapid charging at the end points of a route.

In order to weigh in the important factor of fuel savings the EU has devel-oped a new unit of measurement, the “Environmental Life Cycle Cost,” meas-ured as a monetary value over the life of the vehicle. Volvo has compared its various types of vehicles using this measure, and found that the Volvo 7700 plug-in hybrid bus, currently in the testing phase, offers an Environmental Life Cycle Cost only one-third that of the biogas version of the same vehicle. This new measure, which will be used in future to evaluate vehicles, puts a heavier emphasis on energy efficiency and substantially reduces the impor-tance of emissions.

In terms of range, the equivalent of five litres of diesel (50 kWh) provides a range of 10 km when used in the diesel version. The biogas bus, which at present is less fuel efficient due to the very high efficiency of the diesel engine, offers 7.7 km. The hybrid offers a range of 14.2 km and the plug-in hybrid one of 25 km on the same amount of energy. The range of the fully electric versions that are in development is expected to be 34–44 km. With improvements in electric vehicles there is an opportunity to increasingly change over from trains to buses. Buses are ten times more cost-efficient than rail, due primarily to the lower cost of infrastructure and vehicles.

The primary alternative to rail is called Bus Rapid Transit systems that are already in operation in many cities in South America and Asia. These systems provide buses with their own lanes, free of other traffic. These systems are 30 per cent faster, have 30 per cent lower emissions, and are 50 per cent safer than traditional bus systems.

This is a key example of the importance of segmenting the markets for clean energy technologies in order to identify the segments that obtain the highest value from an innovation, and for the same reason are willing to pay more for the new technology than other segments. As already mentioned, electric buses are not only a very attractive alternative, but the predictability of bus routes means that the charging infrastructure can be built much more


cheaply than for either trucks or cars, where a large number of charging installations are needed.

However, electric buses represent a new technology which is more expensive and will remain so for a number of years. To achieve rapid high penetration of electric buses incentives will be needed, but it is likely to be substantially more efficient from an economic point of view to subsidize investments in those systems than it would be to achieve the same level of environmental benefits and cost savings by subsidizing households who buy an electric vehicle to use as a small second car in which to drive to work every day. The cost of electricity for driving an electric or hybrid car is substantially lower than the cost of petrol, but this may not mean that a car owner will be prepared to pay significantly more to buy a car that offers a range of only 130 km. The cost of electricity is only some two or three eurocents per kilometre, the exact price depending on the local cost of electricity.

This is not to say that governments must choose one or the other alterna-tive. To reduce consumption of fossil fuels as much as we need to do over the next decades we probably have to do both. We, as a society, need to improve our understanding of markets, different types of customers, and the volume of savings that can be made by the alternatives in order to develop the strate-gies we will need.

National “orgware”

District heating

In the case of district heating, orgware has existed for a long time on the national level in the form of technology suppliers that have developed and sold technologies on national and international markets. There are also long-established district heating associations formed in order to promote the expansion and improvement of district heating in national political arenas and organize competence exchange and research on a national level.

In the past few decades the opportunity to improve the efficiency of district heating by simulation and digital control systems has opened up markets for IT-based companies that offer simulation tools and elec-tronic control systems that improve the efficiency of district heating systems. These technologies naturally have global market potential.

As efforts to promote the expansion and improvement of district heating in Europe have increased, and financing for European projects has been made available by a number of EU programmes, the develop-ment of national orgware has been strengthened. It is primarily national district heating associations, universities and technical institutes, and large national and international organizations and companies that participate in projects, and provide and develop the competence and the resources.


While district heating has been developed in many countries in Northern and Central Europe based on incremental investments in systems over a very long period of time, the situation is different in countries like the UK, Spain, and Ireland, where district heating has been introduced recently. In these countries, houses, offices, and indus-tries are already heated by modern, but much less efficient, heating systems. Investments in new district heating systems have to compete with investments in other heating alternatives that have already been made, and that have been in use for a long time. The situation is signifi-cantly different from that in countries that have already embraced district heating on a large scale and have built their systems over a long period of time.

There are several strong arguments that can be brought forward in favour of district heating, such as energy efficiency, environmental friendliness, and the opportunity to use waste or bio-fuels in the energy mix on a large scale. In countries where district heating does not yet have a strong foothold, such as the UK, it is still not an “easy sell.”

In countries where district heating has only a small share, there may be a need for the creation of national orgware to promote these systems. In countries in which district heating already has a strong position, there is a need to develop knowledge about the future challenges of district heating on a national basis and to inform politicians, admin-istrators, experts, and the general public about the activities that will become necessary to develop existing systems further.

In order to start development in countries where district heating is still weak there may also be a need for financing schemes that may be partly sponsored by the government or by government-financed lobby organizations that promote the implementation of district heating in more municipalities.

Introducing district heating in Swansea

The municipality of Swansea in South Wales has appointed a team of Swedish consultants to analyse the opportunities for reducing the cost of heating and the level of emissions by building a district heating system. As a first step, three different opportunities to build networks have been identified. One is the connection of three buildings to an existing boiler run by the munici-pality. This boiler has spare capacity to heat the three buildings with the support of existing gas boilers.

In a later phase a system may be built along the waterfront in Singleton connecting the Singleton Hospital, Swansea University, and the Welsh National Pool. This network may later become connected to the central


network. A further development is possible in the Morriston area, where a network could connect the Morriston Hospital, the Driver and Vehicle Licensing Agency, Morriston Comprehensive School, and Felindre Industrial Development Area.

The investments in the first phase of construction of the system amount to several million pounds, the exact amount depending on the alternative chosen to start with. This sum cannot be financed by municipality funding; instead, external financing will be required.

The report was financed by the Swedish government together with the Welsh Government’s Regeneration Area programme. It compares the oppor-tunities in Swansea to the results achieved in the Swedish city of Växjö where the consumption of fossil fuels was reduced by 30 per cent between 1993 and 2006, and where the savings on emissions of carbon dioxide are approaching 50 per cent.

Many cities in Sweden produce heat in large waste incinerators close to city centres and in the middle of district heating networks. There is strong support for these solutions and the technologies used emit very little in terms of odours or other emissions. In countries where district heating is not yet as widespread there is often a fear that waste incineration will cause inconvenience to the public, and incineration plants need to be located miles away from built areas, with high cost and heat loss along the distribution as an unfortunate consequence.

This case study illustrates the need to build several types of knowledge and orgware related to district heating in countries where district heating is not yet in widespread use. Apart from the technical aspects there is a need for competence development among decision-makers, financing solutions, and competence development among investors about the prospects of district heating. There is also a need to develop understanding and acceptance by the general public of the advantages of district heating and the opportunities for using waste as a fuel. A large part of this competence and orgware should be developed locally, but there are issues relating to analysis, technology devel-opment and systems integration, and financing that need to be developed at a national or international level.


Transportation systems are by definition large scale and have to work over large areas. Present systems for the production and use of biogas have mainly been confined to local or regional environments where decision-makers can gather all the key players in the project and develop an agreement about the goals, stages of the project, and the price of fuel and other resources in the future “market.” The biogas produced has been sold only to a limited extent through public gas filling stations to private customers or as volumes of gas delivered directly to transport companies on a market basis.

If biogas and natural gas are to be used as vehicle fuels on a large scale, the overall system and its various sub-systems will need to be developed


on a national scale, and national systems will need to be integrated in international networks. In many countries national distribution networks for gas were built long ago to supply gas for the heating of homes and industries, and for other gas-based applications. The access to this large-scale distribution network for gas represents a substantial advantage for the implementation of gas as a fuel for vehicles, which does not apply to countries where such networks do not exist.

Wherever the use of gas on a large scale is being considered, there is the alternative of using gas to produce heat and electricity in cogen-eration plants, the electricity produced being increasingly used to fuel electric vehicles or plug-in hybrids. This seems in many cases to be an attractive and energy-efficient proposition.

The distribution issue arises whichever renewable fuel is selected as the primary alternative, but in the selection of electric vehicles a large share of the necessary distribution infrastructure is already in place.

Natural gas and biogas

Natural gas is a fossil fuel that can be used for transportation in combination with biogas. Although natural gas is not a renewable fuel, the emissions of carbon dioxide it produces are substantially lower than those of petrol and diesel. Because in several countries natural gas is used in combination with biogas for different purposes, which is also an example of the introduction of an entirely new fuel for transportation, it is relevant to discuss it in this context. It is relevant both as an example of a complex and large-scale busi-ness challenge and as a component of the new transportation systems that are being built.

Electric vehicles

National governments will need to keep a keen eye on electric vehicle projects in order to build an understanding of how these systems are going to work on a national level. Only some of the commercial players involved in projects in this area today seem to expect these invest-ments to turn a profit in the short term. Instead at least some of the sub-systems, such as the development of a charging infrastructure and the operation of the IT platforms for clearing payments and providing other systems information, are likely to need subsidy for a significant period of time in order to become viable.

The challenge of building viable national or regional systems for electric vehicles may in countries that already have such systems for gas distribution be substantially bigger than in the case of gas. This is


not necessarily due to higher cost, but to issues related to the develop-ment of viable business models for long-range transportation. With a maximum range of 130 km per charge it is currently not clear whether national networks in large countries can be built without substan-tial government incentives. Nevertheless there is a need to develop sustainable business models for electric vehicle systems that will enable companies to get a return on their investments. Due to the low cost of charging at home this is a challenge that needs to be taken seri-ously both by companies with an ambition to launch electric vehicle systems, and by politicians who expect electric cars to become part of the solution to the problem of energy systems transformation. The size of different prospective market segments needs to be analysed and the growth potential under various circumstances needs to be identified and debated.

Successful approaches to financing and business concepts are likely to be copied from one market to another and successful operators of electric vehicle systems will try to implement their solutions in several national or regional markets as rapidly as possible. The challenge in this sector is not that of achieving geographic coverage of charging posts. It is that of developing successful and viable business and financing models for broad market penetration of electric vehicles.

Electric vehicles in Paris – Autolib’

Following the success of the bicycle rental scheme “Vélib’” that allows customers access to more than 20,000 bicycles in Paris, which has been copied by other cities, the city of Paris is now building an electric vehicle rental programme “Autolib’.”

The Mayor of Paris, Bertrand Delanoë, and others who support the Autolib’ project, has set the goal of making 2000 electric vehicles available for short-term rental in Paris and 2000, with additional vehicles available in two dozen suburbs 1 . The small vehicles offer a range of 250 km and renting them for 30 minutes costs between four and eight euro. The original plans involve the construction of 1400 self-service rental and re-charging stations around Paris. The investors have put a total of 235 million euro into the project: 35 million by the city of Paris and 200 million by the Bollore Group. 2 By the end of 2012 the project will have made 3000 vehicles and 1000 charging posts available. 3 The small cars used by the project are made by the Italian company Pininfarina.

The Autolib’ service is not intended to compete with car rental companies, but is primarily designed to attract short-term rental customers for trips from one rental and charging station to another.


International “orgware”

District heating

As mentioned before, district heating systems are mainly local, or, in some cases, regional. Some companies are operating district heating systems in a number of countries, such as the Finnish company Fortum, the Swedish Vattenfall, and the French Dalkia. These companies are also present in Germany, Poland and the Baltic states. These inter-national companies are also developing new business offerings, such as district cooling, which may increase the demand for the services offered through district heating systems in the summer, and provide an opportunity to replace the electricity used for air conditioning and other cooling technologies.

International orgware is represented by the development, manage-ment, and financial resources of international companies that develop technology, operate systems, and provide services. International orgware is also present in the project management and lobby organiza-tions of European associations such as the Brussels-based Euroheat & Power, and is used by technical and business experts in district heating at universities.

Decision-making related to district heating to a large extent still takes place in municipalities and in regional governments. The rapid devel-opment of international orgware does not seem as critical in district heating as in transportation, where the transportation systems them-selves are of a cross-border nature.

Biogas and natural gas for transportation

Many transport systems are international and vehicles have to be able to travel between countries. Furthermore, the companies that develop and produce trucks and cars do this for an international market, as do the companies that develop and market fuels, and other technologies that are used in fuel and transportation systems, such as production technologies for renewable fuels and distribution and logistics systems. Volvo, the global leader in the heavy truck industry, has for a number of years emphasized the need for international agreements about the fuels to be used in the future in different parts of the world. The efficient fuel and transportation systems of the future must be based on a limited number of renewable fuels that will be available in parallel, just as diesel and petrol are now available at all fuel stations. Hybrid buses and trucks are already available, but Volvo is also looking at the opportunity to introduce trucks and buses that use biogas, DME, or other renewable


fuels on a large scale. Gas buses are in use in Sweden and India, but other potentially renewable fuels are not used for heavy commercial vehicles. Although engines that use vehicle gas are at present not as energy-efficient as diesel engines, we may have to introduce gas or other renewable fuels on a large scale in the years to come. With a reduced supply of oil we will probably have to use as much as possible of the raw materials that can be used to produce fuels. Electricity is probably the most energy-efficient alternative for cars, light trucks, and buses on city routes, but for heavy trucks and long distance coach tours the capacity of batteries will for a long time be insufficient and it will be difficult or impossible to build charging infrastructures dense enough to cater to the needs of heavy vehicles.

A few renewable fuels may become the de facto standards of the trans-portation industry of the future, and international financial, political, and market-related orgware in these sectors will develop as a conse-quence of increasingly international business activities in these areas. This would probably represent a slower and more expensive way of developing renewable fuels systems than if countries were to make high-level agreements about fuels that could be implemented in a structured way and on a large scale. Considering the difficulties we have already identified in connection with the establishment of national systems, the growth of international transportation systems based exclusively on market-driven development seems highly unlikely.

In order to make decisions about which future systems to build on a large scale, analyses and plans have to be made. These analyses would be similar to those that preceded the auctions for licenses to establish third generation networks for mobile telephony (3G), but would have to be started without the knowledge that has been created by the establish-ment of first and second generation networks. While this may consti-tute an additional difficulty, it will not be insurmountable.

Electric vehicles

The distribution and use of electricity can be made more efficient through the use of smart grid technologies, based on a combination of relatively simple technologies and advanced IT solutions, but there will still be a need to standardize features such as sockets and cables. At present many alternatives exist, but although significant activities have been started in order to standardize electric vehicle technologies in various markets, but the development of national and international standards must still be driven forward. In the United States the stand-ardization organization ANSI (American National Standards Institute)


has formed the Electric Vehicle Standards Panel (EVSP), which is respon-sible for standardization in electric vehicle technologies. In addition to this there are voluntary initiatives between vehicle makers to stand-ardize charging technologies so that vehicles of different makes can be charged using the same technologies. In a press release of October 2011 seven auto makers (Audi, BMW, Daimler, Volkswagen, Ford, General Motors, and Porsche) announced an agreement to make all electric vehicle models use the same charging technologies, including the same charging equipment, a single charging protocol for electronic commu-nication between the equipment and the vehicle, and a similar fast charging system.

Paying for power

Several different ways to pay for the charging of electric vehicles already exist and different companies position themselves with their payment models. Utilities companies aim to make customers pay for the charging of their elec-tric vehicles through their utility bills. Mobile phone companies have for a long time planned to make mobile phones the preferred means of making small payments, and companies like Better Place plan to charge subscribers via monthly bills.

The CEO of Renault and Nissan, Carlos Ghosn, estimates that electrical vehicles may account for ten per cent of total car sales by 2020. 4 The electric vehicle market is expected to turn over several billion euro and the payments for electricity represent a highly interesting stream of revenue for players with ambitions to become niche players in financial markets.

Through a number of case studies that highlight important and prom-ising emerging energy technologies we will identify the role of orgware, systems integration, and business development. We will also take a look at the business environments that need to be created to enable emerging energy systems ventures to grow rapidly and become profitable.

Part II

Emerging Energy Systems – Sustainable Business Models

105

9 Business Situations

A critical phase for most ventures

The most difficult phase in the life of a new technology or business venture is the growth phase from technical testing and small-scale systems introduction to large-scale viability. The decisions that are made during this early phase to a large extent determine the basis, or lack of it, for the long-term viability of these systems.

In addition to this general remark we also, for the purpose of our discussion, need to distinguish between two typical types of situation:

The future of a country, or of the global economy as a whole, does 1. not depend on the success of a particular set of technologies. The future of a country, or of the global economy as a whole, depends 2. on the success of a particular set of technologies.

In the case of sustainable transportation systems neither single nations nor the global economy are likely to fare well without the successful introduction of a small number of renewable fuels, and technologies that improve energy efficiency. We therefore need to direct our atten-tion not only to the development of new technologies in general, but to the successful development of a range of technologies in clean energy and fuels areas.

It is often the case that technology development, in its early phases, requires relatively low levels of financing, compared to the later phases of application development, systems integration, and commercializa-tion. The process from the point where a technology becomes available as a working prototype to its full commercialization often requires a hundred times the financing required by the development of the proto-type itself. This is the reason for the conclusion drawn by Weiss and


Bonvillian: that there is no incentive for companies in the emerging industries to make investments in large-scale system tests using their shareholders’ money. Large-scale system tests often require several hundred million dollars of financing of what are high-risk ventures, because, while the cost of developing prototypes of, for example, elec-tric vehicles and charging posts may be high, large-scale system tests involve the purchase of hundreds of vehicles and charging posts, as in the case of the Autolib’ system in and around Paris. In addition, invest-ments must be made in payment systems and perhaps in systems that manage the charging of vehicles.

Four types of business situations

In their book Blue Ocean Strategy 1 Kim and Mauborgne argue that companies need to develop strong offerings that set them apart from mainstream companies in existing industries. In industries where many established companies compete on price it is usually very difficult for a newcomer to establish itself and make a profit. In the following section we will develop a framework for distinguishing between different types of business situation in order to identify the types of resources that are necessary for the successful introduction of new business concepts.

In some respects there are important differences between one situ-ation and another. In some industries a large number of small- or medium-sized companies successfully compete. Other industries are completely dominated by global incumbents. Others are characterized by a mix of both. Small companies sometimes manage to compete in industries that are dominated by global firms. Experienced business experts understand the possibilities and challenges of the various situ-ations. Discussions with sustainability experts have convinced me that there is a need for many people who work with sustainability to under-stand the properties of various business situations better in order to determine the probability that large-scale systems will be implemented based on market factors. In what follows we will look at a number of different situations that we will label “impossible,” “complex,” “chal-lenging,” or “straightforward.”

The principles of business strategy that have been discussed above have been developed to enable investors and companies to distinguish between business opportunities and likely failures. These principles also provide guidelines for strategy development for companies that decide to enter an industry. The relationship between these four business situ-ations can be expressed by the following graph.

Business Situations 107

Impossible

There are industries in which financial strength and size are necessary in order to compete. In the drug industry the cost and risk of performing tests to get a drug approved by the Federal Drug Administration of the US cannot be taken on by small companies. Drug testing requires large teams of highly trained professionals from a number of different disciplines. The process takes five to ten years from start to finish, and the company cannot earn revenues on a new drug until it has been approved by the FDA. When this has been achieved, the drug needs to be marketed globally to create revenues rapidly, so as to pay back the investment before generic drugs enter the market. Only companies with very large financial resources have the strength to invest in drug development.

There are also many industries where the opportunities to differ-entiate products are limited, and where very large investments in production plants are necessary in order to compete. Examples are the pulp and other paper-related industries and basic chemicals that are produced and sold in very large volumes. Many other industries also offer substantial advantages of scale, and it is almost impossible for new entrants to develop a foothold in this type of market in the absence of a technical innovation that offers a distinctive opportunity for small-scale competitors.

Impossible

ComplexChallenging

Straight-forward

A visual model of the relationship between different types of business situations.


The Innovator’s Dilemma

In his 1997 book The Innovator’s Dilemma 2 Professor Clayton M. Christensen of Harvard describes how new, inexpensive, and initially inferior technolo-gies initiate “disruptive” developments in established industries. Such tech-nologies can sometimes create opportunities for new entrants to change entire business sectors. He cites as an example the technologies for personal computers (PCs) that were first used in the home computers developed by Commodore, Atari, and other companies in the early 1980s. These were seen by the computer experts of the time as inferior products due to their low capacity. They were not competitive against IBM or other mainframes. Home computers used small 5.25-inch floppy discs for storage and the “infe-rior” disc drives were made with inexpensive standard components. The more expensive 8-inch disc drives could not be afforded by most users of home computers. As home computers developed into PCs and the technolo-gies they were based on were improved, PC technologies became the new standard of the computer industry, and many established companies, such as Digital Equipment Corporation, which did not succeed with the transi-tion from mainframes to PCs, were acquired by competitors that were better positioned. This is an example of a disruptive transformation of an industry by a technology that was once inferior in a number of ways.

In a similar fashion, but in a completely different industry, the dominance of large steel companies with very large blast furnaces was broken when the new technology of “mini mills” was developed; these could form the basis of networks of small and customer-focused mills using recycled steel as an important raw material. The company Nucor has now successfully been running mini mills since the mid 1960s and has become the second-largest steel producer of the United States, and one of the most profitable. Nucor has recently brought even smaller mills, called micro mills, into production.

In the event of the development of a new technology that is substantially cheaper, and initially often inferior compared to existing alternatives, the market positions of companies can become greatly altered. This is not only true in high-tech industries, although these have been some of the primary arenas for the emergence of technologies that reduce cost and improve effectiveness.

Although disruptive technologies make it possible to create businesses with new competitive advantages, companies that invest in the development of products or systems based on these technologies do not automatically become profitable. Disruptive technologies sometimes change impossible business situations into complex or challenging ones, two possibilities that will be discussed below. Most ventures still fail, and it is only those with the best strategies and business models that manage to become companies that make a lasting impact on national or global markets.

Complex

Many business situations are complex. They may be based on a relatively simple innovation, but in addition to the innovation itself a number of


additional skills and resources must be developed if the venture is to become profitable and grow in the market. Companies that manage to create sets of unique skills can maintain strong positions over decades. The complexity of the system constituted by these skills and resources may create an advantage that turns out to be sustainable over time.

Furniture vs. fashion

IKEA is probably one of the world’s best examples of a complex business model that creates sustainable competitive advantage. The combination of a “clock-making” entrepreneur and a business environment that allows companies to build product lines that are developed over decades, instead of seasons, have contributed to building a very successful company with a complex business model that is hard to copy. In the fashion industry, with its seasonal variations, it seems more difficult to build equally sustainable advantages.

The founder of IKEA, Ingvar Kamprad, developed the idea of self-assembly furniture in the 1950s. He started by designing simple shelves and tables for Swedish households, and built his first store in Älmhult in Southern Sweden, close to where he was born. Due to their simple design and the fact that they were sold as self-assembly items, the products were inexpensive and people could bring them home themselves.

From its humble beginnings IKEA expanded. A new and larger store was founded in the Stockholm area in 1965 and further stores were established in Copenhagen in 1969; the first store outside Scandinavia was opened in Zürich, Switzerland in 1973. Soon new IKEA stores were established in Germany, Australia, and Austria.

Ingvar Kamprad, one of the world’s most successful entrepreneurs, was never happy with what he had managed to achieve. He and his growing number of employees continued to develop new furniture items for the product line and designers not only worked to make the furniture more attractive and up-market by improving design, but also innovated with new tools to make assembly easier and the furniture more stable and durable. In the 1980s IKEA complemented its relatively simple designs with designs that were more fashionable and up-market.

Over the years IKEA has experimented with designs and the company now offers hundreds of items of furniture that sell well year in and year out, and they can continuously develop the product line based on decades of experience of what customers want. In parallel with this development, the company has also developed production methods, packaging, logistics, store design, and a host of other aspects of its business.

Taken together, this range of products, and the system of production, logis-tics, marketing, and sales have made IKEA the largest furniture retailer in the world. Compare this to another Swedish company in the fashion industry, H&M, which also runs a global network of stores.

H&M’s designers are as competent and its logistics and other systems as elaborate as those of IKEA, and it spends as much in many other areas as


well. But H&M has a number of more or less equal competitors in the global market. Quite recently, for example, the Spanish company Zara has emerged as a new competitor with innovative concepts for design, production and logistics, based on the lean production philosophy.

While IKEA is able to maintain a large portion of its product line year after year, and constantly improve every aspect of it, H&M has to design four new lines of fashion every year, one for every season. The company never knows exactly what customers are going to want in the coming season. The relative stability of products that, in the case of IKEA, is combined with sustained innovation in a number of business areas seems to offer a unique set of circumstances that enable IKEA to develop and maintain substantial competitive advantage. The time IKEA has had at its disposal to develop and perfect its system without the emergence of significant competitors, in combination with the relatively long product life-cycles of the furniture industry, may have been the critical factors behind its unprecedented success in an otherwise highly competitive consumer industry.

These case examples illustrate how complexity is increased over decades in companies. The gradual development of product lines and design, produc-tion and logistics systems that form the resources of companies sometimes contribute to making existing industries increasingly complex and difficult for newcomers to compete in. In cases where the same or similar products have prevailed over a long time it becomes very difficult for new entrants to become competitive on a broad basis and on a large scale.

In many ways, the existing transportation systems that are dominated by diesel- and petrol-fuelled vehicles are in a similar position to that occupied by IKEA in the furniture industry. Through the long-term dominance of diesel- and petrol-fuelled vehicles these technologies have developed into highly competitive systems of technologies and companies that dominate vehicle and fuel markets.

Many modern businesses are complex, and require elaborate systems solutions, large investments, and cooperation and partnerships between companies in order to build competitive business models and strategies. While self-assembly furniture and fashion are indus-tries where the high level of complexity is less than obvious to the average customer, the complexity of technology-based systems may be easier to recognize. This represents a challenge for new entrants. The introduction of electric vehicles in bus or waste management systems may be a complex challenge. The successful introduction of large-scale electric vehicle systems in large countries like Germany, the United Kingdom, or Sweden may without strong government support be almost impossible. In these situations the alternative of plug-in hybrids may provide a more likely path toward success in the short term.


As has already been mentioned, the period in the development of a business where it is most critical to address these issues of complexity and work out solutions to them is usually the start-up and early growth periods. If a particular technology fails in the eyes of the public or inves-tors it is difficult to rebuild confidence. In order to attract capital, keep investors happy, and communicate a convincing story to customers so that they feel secure enough to invest, the stability of the offering needs to be clear. The category of customers called “innovators” is small and, as Moore argues in “Crossing the Chasm,” many technology ventures fail because companies fail to make the transition from attracting innovators to growing in the segment of early adopters. In order to attract the “early adopters” and later the “early majority,” systems and business models have to reach a substantial degree of stability and user friendliness.

Challenging

Many business situations are challenging without being extremely complex. A large number of companies are facing competition from larger and better established competitors that primarily compete on price. The authors of the book Blue Ocean Strategy describe this situa-tion as the challenge of creating “blue oceans,” where the company’s offering becomes an alternative to existing offerings, rather than a head-on competitor. Alternative offerings offer customers unique value for money, and the companies behind them do not have to use price as the primary factor to persuade customers. These alternatives do not have to be “inferior” or “disruptive” in the sense described by Christensen in order to succeed. There are situations where more expensive alternatives win large market shares and change entire markets. To do this, they need to offer unique customer value that is not offered by competitors.

Most of the business situations described by the authors of Blue Ocean Strategy are not complex like the challenges of establishing system based offerings. They do not primarily involve putting together offerings based on the combination of a number of technologies and sub-systems into a complete customer-focusing system. These challenges are about identifying the situations where there is an opportunity to create new and unique customer value against a set of relatively similar competi-tors, and charge a premium price for the value added.

Examples in the book range from relatively straightforward inno-vations in the gym and hairdressing industries to the more complex development of the IKEA concept, which for the purposes of this book has been labelled a complex situation.


A good apple

Apple is an example of a company that has faced and conquered a sequence of challenging business situations under sometimes seemingly impossible circumstances. In his biography of Steve Jobs, published in 2011, Walter Isaacson describes Jobs’ philosophy of development. 3 When the company began, Apple competed against personal computers in an emerging market. The Mac quickly became the preferred choice for many people who found its graphic interface more attractive and easier to use than the interfaces of personal computers at that time. By targeting desktop publishing, Apple gained a foothold among people with high demands for usability, who valued the computer’s simplicity. Apple also targeted the education market by selling computers to students at a discount, many of whom would become decision-makers in companies and government organizations. Apple grew very rapidly from the introduction of the Apple II until the early 1990s; during a period of turmoil in the mid 1980s Steve Jobs resigned and a new managing director, John Sculley, was recruited from Pepsi. However, in 1993 Sculley resigned from Apple, and Jobs came back in 1997, first as an “advisor” and later, reinstated as CEO. After some years of declining sales volumes the more expensive Mac faced a tremendous challenge to win market share once more against PCs. In 1998 Apple launched an unexpected innovation, the stylish iMac. Two weeks after its introduction it became the second best-selling computer in the US market. In October of 1998 Apple announced its first profitable year since 1995. The genius of Steve Jobs has not only revolutionized the computer industry by introducing the graphical interface, and paving the way for home computers. The iPod has sold billions of units and has revolutionized the way people listen to music. Through its simple and easy-to-use design, the iPod, together with the on-line music service iTunes, has become the gadget that has created a market for music downloads, and made music available for people on the move. When Apple took on this challenge they set up in competition against both the traditional media for music distribution, such as CDs, and new formats like MP3 – and won! In the case of the iPhone Apple took on the challenge of mobile telephony, creating a telephone that was more user-friendly, but also more expensive than many of the alternatives. Again, Apple targeted a market of demanding customers who were willing to pay a premium price – and succeeded! With the launch of the iPad the company again created a market almost from scratch, developing a product that was not widely in use at the time. This once more created a new standard. Followers copied the design and offered similar products at a lower price.

Steve Jobs and Apple created a sequence of products that represent exam-ples of tremendous business challenges in terms of creative onslaughts on markets held by much larger and more powerful competitors.

Steve Jobs achieved his successes in a number of highly challenging busi-ness environments. He made a fortune early in his career, also making


a strong name for himself, and managed to attract highly competent business partners and employees. All of these resources were important later as he took on challenge upon challenge.

Straightforward

Some companies enjoy the advantage of operating profitably in rela-tively straightforward industries. These may be industries where even small companies with modest resources can grow a business and enjoy modest or substantial business advantages that are sustainable over time.

In some cases this type of business may become very profitable. Due to limited competition and the sometimes small-scale business oppor-tunities, companies in straightforward businesses often do not build large resources for the analysis of strategies, pricing alternatives, or business development. The typical mechanical engineering company or plastics moulding firm that works as a sub-supplier to a number of customers is representative of companies in straightforward industries. So are many local shops or other small-scale retail or wholesale concepts where the owners have not developed the complex business systems, supply chains, or business models of IKEA or H&M.

As we will see later, some of the successful introductions of sustain-able energy technologies, such as district heating and the early projects in the biogas area, have been developed in straightforward business situations. When we evaluate these successes it is important to remind ourselves that more challenging tasks will have to be faced in future in order to succeed with global energy transformation.

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In this chapter we are going to look closely at a number of emerging challenges in the sustainable fuel and technology industries, and in other energy-related industries that are likely to have a substantial impact on the volumes and types of energy that we use.

We will look at some of the challenges of systems integration, marketing, the development of viable business models, financing, and the prospects for achieving market-driven growth in these sectors over the next decade. In some areas, such as “Green ICT,” the prospects for market-driven growth seem excellent, and there is little need for government incentives or large-scale project management activities. In the areas of electric vehicles or transport systems based on gas, on the other hand, it seems highly unlikely that large-scale transformation will become a reality without active and competent government support of the type that has brought Denmark to the forefront in wind turbines.

As I have already shown, this type of support is only possible in combination with the development of knowledge and orgware in the relevant areas. The purpose of the case studies is to highlight some trends, opportunities, challenges, and business ventures. As well as describing the challenges of business development, I will also set out the need for orgware in support of this development.

Electric vehicle systems – a “unique” business challenge

The large-scale introduction of electric vehicle systems, or other renew-able fuel systems, presents a challenge that is in many ways unique from a business perspective. Firstly, as in the case of all new transpor-tation systems based on sustainable technologies, an electric vehicle system needs to be competitive almost from day one against existing

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transportation systems. This is a very tough challenge, and something that could not be expected for a system based on a set of new tech-nologies. Existing technologies are well adapted to customer needs, cost-effective and highly competitive because they have been tried and tested, and because the design of vehicles, the efficiency of technologies, and all other aspects of these systems have been developed over decades of gradual improvements. The number of people who work with electric vehicle technologies, vehicles, systems, and the components of these vehicles and systems is comparatively small. We know this because the number of electric vehicles in use in the world is small, and the efforts to promote and sell vehicles and systems are also small in comparison. This means that the number of people who can live off the revenues in this development phase is very small.

Secondly, an important aspect of this challenge is the range of electric vehicles, which is currently some 130 km for the majority of vehicles. As we all know, through years of use of petrol-fuelled vehicles, people have come to expect that the ownership of a car will provide them with unlimited mobility, enabling them to go anywhere at any time. In addi-tion to the limited range and the charging required in order to drive longer distances, enabling large number of owners to charge vehicles at home and at work at a low cost represents a challenge for compa-nies that plan to build electric vehicle systems that depend on public charging infrastructures.

All these factors, and probably more, add up to making it hard for new transportation systems, with new technologies, to compete with existing ones.

As a further challenge specific to electric vehicles there is the require-ment for electric car owners to be able to charge their vehicles at home. This may seem like an attractive proposition for all parties, since all households already have access to electricity and cars are usually parked at the home over night and sometimes during the day. Electric vehicles can also be charged at the owner’s place of work. These two charging locations will together meet most of the mobility needs of even the most demanding customers, those who own their vehicles. The relatively rare occasions for most people when they go further than 130 km in a day will not be covered by these arrangements. According to studies made by Better Place 97 per cent of all trips by car in Denmark are shorter than 50 km per day and only a fraction of one per cent of travellers drive longer than the maximum range of a battery in one day.

The requirements for a public charging infrastructure are therefore relatively limited, which might seem to be a good thing. In fact, it


represents a potential problem for operators of electric vehicle systems, because in order to offer free mobility, a charging infrastructure will have to be built, and for this to be financially viable over the long term, there will have to be significant numbers of customers willing to pay for the service. With only a limited need for charging in public places, the substantial investments required in the charging infrastructure will not be profitable. There are already projects running which aim to develop charging infrastructures, but it is difficult to see a commercial case for many of them. Many are financed from public sources and involve strong companies with aspirations to become players in the emerging electric vehicle sector.

One company reported that a charging post at a prime location in one of Europe’s capitals had been used 500 times for charging during the summer and autumn of 2011, and the revenues from this charging activity were so small that they could not cover the cost of building infrastructures. This says something about the prospects for less attrac-tive locations.

This lack of a business case for development may present a problem not only when it comes to building a system based on existing tech-nologies. In order for operators of electric vehicle systems to be able to purchase future technologies for induction charging or rapid charging of cars owned by households, they will have to attract customers who will pay for the infrastructure, not just the electricity used. Achieving this is likely to be difficult, as many customers can charge their vehicles at home. The development of business models – or if the business envi-ronment for the introduction of electric vehicle systems seems impos-sible for market forces to handle – the development of strong schemes for government support to build and operate attractive infrastructures for electric mobility may be a key feature of the sustainability of these ventures.

Rapid charging and induction charging

Using an electric socket at home it takes about eight hours to fully charge an electric vehicle battery. This is the technology that is currently used for most charging posts that are installed at home, at work, and in public places. Sockets are based on “conductive charging,” which means that there is a physical connection between the charging poles of the vehicle and the charging post.

Another technology for rapid charging has been developed recently, also based on conductive charging, which can charge a battery up to 70 to 80 per


cent of its capacity in about 30 minutes. Building a facility for rapid charging costs about 10,000 euro.

Another technology currently in development is “inductive charging,” which is “wireless” charging. Inductive charging can be provided through the use of charging equipment in roads, or at charging stations. The latter has been tested for electric buses, using inductive charging facilities at each end of a route. This is a further step in the development of electric vehicle systems, and will remove the need to charge batteries when they are parked. Inductive charging is likely over time to reduce battery capacity needs, and perhaps over the long term eliminate the need for batteries altogether.

Nevertheless, with the opportunity to charge batteries at home the puzzle of how to pay for the induction charging infrastructure may remain. How to get customers to pay the cost of a service that they can usually receive very cheaply at home? After all, this is not like a restaurant, which offers several added-value features in comparison with eating at home. These are not present in the case of charging electric vehicles, where the most conven-ient place for most people to charge will be at home.

Is this a challenge similar to that offered by the construction of railways, telephone networks, and power systems a century ago? Will large-scale govern-ment intervention become necessary for electric vehicle systems to take a large share of the transportation market, or are there segments of this market that can be attracted to electric vehicle alternatives even with limited subsidies?

On the other hand, companies that operate electric vehicle networks want the use of these networks to grow as quickly as possible, and the ability of the managers of utility companies and other systems, or sub-systems, to offer charging for the cost of the electricity alone may seem like an attractive proposition in the short term. The alternative of adding a substantial subscription fee to get customers to pay for the infrastructure seems like an effective way of reducing interest in elec-tric vehicles, unless the service is comparable to the services offered by existing transportation and fuels systems.

There a number of projects worldwide in which a large number of charging posts will be erected in urban areas. In two projects in the Netherlands, more than a thousand charging posts will be installed all over the country. In one of these, the E-Laad project, customers are initially given free subscriptions in order to build the market. The system also includes the development and installation of an ICT systems plat-form that will function as a clearing house for payments between utilities companies, as well as keeping track of which charging posts are occu-pied and which are free, administering forward bookings of charging posts, and guiding vehicle owners to the posts they have booked.

Systems consisting of charging posts and software in combination are considered by many experts to be necessary over time in order to


offer electric mobility services on a large scale. Some of these systems also control the charging, so that they can mainly use power at off-peak hours. The systems will need to be maintained, operated, and sold. All of these services have to be paid for, and the business models for electric vehicle systems developed. Currently billions of dollars are invested in the marketing and sales of petrol and diesel systems and vehicles. One aspect of this is the advertising that is done for cars and trucks; another is the visibility of the systems in terms of vehicles, petrol stations, and the role models offered by famous users of these vehicles on film and television. It seems fair to assume that the marketing aspects of electric vehicle and renewable fuel systems in competition with fossil fuels will need further investigation over the next few years.

Projects similar to the E-Laad project are running in many places, but the one million dollar question remains unanswered: How to get vehicle owners to pay for the infrastructure on a large scale? And how to help operators make a profit from these investments so that they can invest in future generations of technology, such as inductive charging, as these become available?

Based on what we know about the global peak in oil production and the impending increase in oil prices, in combination with decreasing volumes, it is in the best interest of all of us that these systems are built and rapidly come into widespread use. Given the circumstances that have already been described, and the continuing need to rapidly introduce alternatives to oil-based fuels on a large scale, this challenge may be hard for private companies to meet in the short term. The opti-mism that is signalled by the projects that are currently being started may turn out to be premature. Even if many successful businesses have been built through experimentation with different models, it is often difficult to get customers to pay for services that they don’t use very frequently.

After all, it can be argued, people who don’t have cars use road networks when they go by bus or taxi, and they enjoy the benefit of those networks when they purchase goods and services. Goods are transported on our roads, and the same is true for service employees who use roads to go to customers to offer their services as plumbers, carpenters, or cleaners. Similarly, electric vehicle systems can be seen to provide a public good in excess of the value that they bring to the people who use them: they reduce dependence of our society on oil, something that we will understand better in the near future.


Market segmentation

In a number of ways the value to society of the growth of electric vehicle systems will increase as more miles are driven in electric vehicles. Similarly, the ability to charge for the use of electric vehicle infrastructure and invest money in its improvement increases the more these infrastructures are used.

While electric vehicles may seem more attractive to users who primarily drive short distances locally, these increases seem to apply generally. We need to identify the various market segments of vehicle users and the critical factors so as to target marketing and sales efforts at the relevant customer groups.

There are at least two alternatives for the positioning of electric vehicles in the mass market:

− As an alternative for families that have two vehicles, or for users who only drive short distances locally.

− As a premium alternative for demanding users who are willing to pay for unlimited mobility in systems that are competitive with petrol- and diesel-based systems.

There are more alternatives when it comes to smaller segments of the trans-portation market:

− Developing electric vehicle systems for short journeys, as Autolib’ does in Paris.

− Selling systems to taxi companies and other users who drive long distances and have the opportunity to charge regularly.

− Installing systems for buses and other vehicles that drive along predictable routes.

− Promoting electric vehicles for service providers like plumbers, mainte-nance people, day-care workers who care for elderly people at home, and other similar categories of drivers who travel within a region with rela-tively long stops along the route that allow for charging.

In order to promote electric vehicle systems and get them to take a substan-tial share of our transportation needs it is most likely that focused promo-tion campaigns will become necessary. Some environmentalists may want to demonstrate their commitment by purchasing an electric vehicle. The price of a new car ranges from 20,000 euro for smaller alternatives to 30,000 euro or more for larger vehicles. Even the keenest environmentalist will be cautious about buying a car that may not offer the expected advantages, or where the maintenance of infrastructures may be in danger due to low profits.

The business models of telecom operators

So far the business models of players in electric vehicle industries have focused on selling vehicles, charging posts or the other components of


the systems, or on the sale of electricity at home, at work, or via charging posts in cities. But ICT systems are likely to play key roles in this sector in the future. This is already the case in the area of smart grids, which will be discussed in more detail below. In many of the systems that are already in place, an IT system or a platform for information exchange is at the core of the venture. This, for example, facilitates “roaming:” charging vehicles at posts that belong to suppliers of electric vehicle services other than the one that the customer has a subscription with. Systems are also designed to provide information about which charging posts are currently free, and which are occupied, and provide other services within the system.

In the telecoms industry, operators sell subscriptions to the customers who use their services. The vast infrastructure of commu-nications towers, servers, and software, as well as the employees that run the companies, has to be paid for. Customers, of course, pay for all of this via their phone bills or as they pay for services via pre-paid cards.

Within this general framework operators have different strategies. All charge for the use of the systems and infrastructure, but some companies charge premium prices and others price their services at a lower level and also run their operations more cheaply. Free services are offered in many ICT niches, such as the IP telephony offered by Skype.

In the case of Spotify, for instance, the cost of each listener can be covered by a few minutes of advertising every hour; in the case of subscription newspapers, the subscriber pays a part of the cost of producing and distributing the newspaper, and advertisers pay the largest share. The publishers of free newspapers have reduced the cost of producing the material and simplified distribution to the point at which advertisers can carry the whole cost. In the case of Skype, the opportunity to sell additional services to a few hundred million users globally justifies the free provision of the basic service of IP telephony, which can be provided at a very low cost per call anyway.

The conclusion, based on experience, is that viable business models for the different roles occupied by the players in electric vehicle systems are unlikely to emerge as long as companies start to provide charging and systems access for the price of the electricity only. Business models need to be developed based on analysis and market experiments. In situations where “market failures” may be expected, governments need to step in and subsidize or finance investments in order to kick-start the process.


The role of plug-in hybrids

Plug-in hybrids represent an alternative to electric vehicles and offer the advantages of reduced oil dependence without the need to invest in a system for public charging. Since the majority of car owners drive less than 50 km per day most drivers can use the electric drive for most trips. The range of the electric battery is in most cases lower than for electric vehicles. For the Toyota Prius it is as low as 23 km, but considering the relatively low average driving distance of most drivers, this will only matter for a few potential customers and for the average person on days when they drive an unusually long distance. Many plug-in hybrids offer longer battery ranges. The Volvo V60 offers 50 km and the Chevrolet Volt can travel 60 km on the electric battery.

Once the battery is exhausted a petrol or diesel engine kicks in, and provides unlimited range, just like an ordinary car. The drawback of this alternative compared to electric vehicles is that the car needs to be equipped with both an electric system and a traditional engine, which requires space, and increases both its weight and its price. Because hybrids will not need expensive investments in national or regional charging infrastructures, with the associated difficulty of developing sustainable business models for those in large countries, the extra cost of an engine may prove to be an attractive way of financing unlimited mobility.

As the capacity of electric vehicle batteries increases, the range of the vehi-cles in electric mode will gradually increase as well, and all-electric vehicles are likely to become increasingly attractive.

The large-scale growth of plug-in hybrids may develop into a way for the automotive industry to leap-frog the initial phase of having to build seam-less systems for public charging, using rapid charging technologies. Instead, drivers can charge their vehicles at home and at work and companies, such as hotels, restaurants, stores, and other places where people stop by for a few hours, may offer charging opportunities as a service. With plug-in hybrids, however, these opportunities will not be critical for the functioning of the system.

Plug-in hybrid solutions can be rolled out incrementally, one vehicle at a time. As there is no need to make risky investments in complex systems, there is likewise no need to build resources for decision-making, business development, or financing solutions for these systems. The requirement for political orgware will be less. Instead, the main difference to existing trans-port will be the use of electricity to fuel vehicles, which will create new busi-ness for utilities companies, and a growing market for hybrids.

If plug-in hybrids become the preferred alternative for most customers who occasionally want to drive long distances, fully electric vehicles may be an alternative for drivers who only drive within a city or a metropolitan area. Electric vehicles may also be an interesting alternative for families as a second car used for short trips, complementing a plug-in hybrid or tradi-tional petrol or diesel car for longer journeys.

In many large countries, the large-scale introduction of plug-in hybrids would probably be substantially less complex and risky than the introduction


of electric vehicle systems. The need for systems solutions is reduced, as is the need for governments to invest in the large-scale implementation of electric vehicle systems; instead, their role is to create incentives for households and companies to purchase vehicles.

The varying need for orgware for the introduction of different new technologies and systems represents genuine differences in cost and complexity. As noted already, there are significant systems and business differences between the paths of implementing electric vehicle systems and fleets of plug-in hybrids. The analysis of alternative systems and business models can reveal cost-effective solutions that may be preferred to more risky and capital- and knowledge-intensive alternatives.

From this perspective, orgware may explain why relatively little is happening in terms of energy systems transformation in situations where a certain type of orgware is absent. It may distinguish between alternatives that are likely to require large amounts of orgware for polit-ical decision-making, technology, systems, and business development, and financing, compared to alternatives that are likely to require less of these resources.

To take the analysis of the business opportunities in the electric vehicle sector one step further, we are now going to look at the main generic business models that can be developed by players with different ambitions.

Business model: systems operator

A number of generic business models are possible for systems opera-tors. One is the option of a government-financed operation paid for through taxes or through fees that are charged to the users as they use the services. In Sweden the government agency Banverket runs the tracks, the stations and all the control systems necessary to monitor and control services on the railways. Travellers pay for these systems and for the services of Banverket as part of their train tickets. A similar model is applied to the financing of the road networks in most coun-tries, but these are usually financed via taxes. All domestic transport systems operators and vehicle owners use the same road network and pay for it through their taxes. Increasingly parts of the network are operated by businesses and become toll roads, as in Germany, Austria, and Switzerland, and foreign users of the road networks pay towards this through their toll payments.

Governments could also appoint private companies to provide systems services and either auction licences if they are considered sufficiently


attractive, or meet all or part of the entire cost of providing these serv-ices. This happened in many countries with third-generation mobile phone systems.

The systems operator role can also be taken by private companies that see a long-term business opportunity in the development of these serv-ices, as in the case of Better Place. Companies can invest in systems for the provision of services, and customers, including publically owned transportation companies, can become pilot customers. In many situa-tions there is a close cooperation between private companies and public authorities, as in the case of Autolib’, for example, between private investors and the Paris authorities.

The model applied in each country may be determined by geograph-ical conditions, the attractiveness of these markets for investors in the short and long term, and other considerations made by governments and private investors.

Obstacles to growth

While many technologies and business offerings that have been launched in recent decades have grown very rapidly, it is unlikely that electric vehicles or the use of electric vehicle systems will do so on a global basis. In developed countries between five and six per cent of all cars and light trucks are replaced by new vehicles each year, and the rate of replacement is even lower when it comes to heavy trucks. Electric vehicles represent a new and relatively expensive alternative and the production resources for these vehicle models are still compar-atively small. The sales of electric vehicles certainly need to expand rapidly, but this will be from a very low level. To make rapid expansion possible, strong demand needs to be created, and a country wishing to develop an electric vehicle sector will need to create, within substantial segments of the transportation sector, business environments that are favourable to electric vehicle systems.

The limited production capacity for electric vehicles at present creates a risk that countries with particularly unfavourable environments for electric vehicle systems will receive very few vehicles, and that the development in these countries will lag behind the leaders.

Apart from the small numbers of electric vehicles produced, another obstacle to sustainable growth and to the development of sound busi-ness models could be the expectations of customers that once they purchase a vehicle they will only need to pay for electricity. At later points in the development, advanced systems for payments and systems services and balancing of charging are likely to become necessary, and


new charging technologies and infrastructures will have to be intro-duced, and this is not likely to happen unless customers pay for them. This will reduce the competitiveness of systems in the early phases, which presents us with a “Catch 22” situation. If users are not asked to pay for the use of the capital-intensive infrastructure or systems for charging, this may drive the growth of electric vehicle ownership up to a point, but it is uncertain whether growth under these circumstances can be sustained.

If paid-for infrastructure and systems services cannot be created, it is unlikely that these systems will be marketed so as to compete with petrol and diesel vehicles for the attention of customers.

We may believe that the issue of electric vehicles is so important that at some point the government, utilities companies, vehicle producers, or large retail firms will step in and save the day, but this may take time, or it may not happen at all. The best way to drive the decision-making process forward may be the development of knowledge on the part of key deci-sion-makers and a start to building the orgware that will be necessary to develop business environments favourable to electric vehicle systems.

A win-win-win situation

The founder of the US company Better Place, Shai Agassi, identified electric vehicle systems as a primary growth opportunity of the future and a way to make the world a better place. This company has targeted two national markets, Denmark and Israel, as its pilot countries and will launch national electric vehicle systems there in early 2012. In order to pave the way for a successful launch, Better Place went to considerable lengths to create a win-win-win situation for the country, the users of electric vehicles, and the company itself. As mentioned earlier, the Better Place venture has attracted 700 million dollars in investments from a consortium of investors. A total of 103 million euro has been invested in the launch in Denmark.

The first step was to analyse the business opportunities in a number of countries in order to identify the markets that are most attractive for Better Place. Both Denmark and Israel are small countries. In these markets the company can offer unlimited mobility through a network of battery switching stations. In Denmark the company built 14 stations ahead of its launch in early 2012, and a total of 20 will be in operation by the end of the year. It will take three minutes to switch a discharged battery to a fully charged one. This provides customers with unlimited range within Denmark and is expected to make the system an attractive alternative for customers who drive long distances and who are willing to pay for services. Customers who sign up with Better Place pay per kilometre and the price declines with distance, so customers who drive many kilometres per year pay less for a given trip. The price is competitive with the cost of driving a petrol or diesel vehicle.


There has been a large interest among customers and about 1100 pre-orders have been signed by customers who want to receive the first vehicles. At present the car on offer is the Renault Fluence electric car, in which the battery replaced through a hatch underneath the car.

In Denmark, wind power already supplies 20 per cent of the power used nationally, but this has now hit a ceiling and the output of wind power cannot be increased, because of its intermittent nature. If it were possible to store power produced during the hours of peak production and low usage and use it during peak hours, the share of wind power could increase to about 50 per cent 1 . A fleet of 200,000 electric vehicles by 2025 in combina-tion with a number of spare batteries waiting at battery switch stations could constitute such a storage facility. It may even be worthwhile for the Danish government, or local or regional governments, to subsidize the purchase of electric vehicles and the subscription cost in order to make this system more affordable, not only to create an opportunity to expand wind power, but also to avoid building new cogeneration power plants. At present the Danish government already subsidizes electric vehicles, because another important factor in Better Place’s choice of Denmark as a pilot market has been the fact that it imposes the world’s highest tax on fossil-fuel vehicles. Electric vehi-cles are tax-exempt until 2013.

The electric batteries that are not installed in vehicles but are being charged at battery switch stations represent an additional storage resource. In addi-tion, the batteries that have been used in the system, but have deteriorated so that they no longer provide the range of new batteries, can be saved and used for power storage for a number of further years.

As mentioned above, Denmark has for 40 years backed the development of its wind turbine industry. The establishment of wind farms across the country has made Vestas the world’s leading manufacturer of large wind turbines. Now Denmark is planning to embark on the next step of its wind energy strategy and make investments in electric vehicles its number one priority in the transportation sector. Better Place is working to get compa-nies, municipalities, and regional and national governments to sign up for its services, and they also market the concept to individual households.

One of the advantages for customers is that Better Place will own the batteries. This means that the company will be able to phase in new gener-ations of batteries with higher capacity as they become available, and customers do not have to put their purchase of an electric vehicle on hold while they are waiting for the next generation of batteries that may provide more mileage. They can purchase an electric vehicle, sign up with Better Place, and let the company worry about the issue of battery development.

All in all Better Place’s business model and its cooperation with the Danish authorities on the national and local levels represent a visionary approach that may offset the initial cost disadvantages of electric vehicle systems.

In addition to the above project a small-scale test environment for smart grids and electric vehicles is to be built on the island of Bornholm, which has 40,000 inhabitants. This project is called Edison and the idea is to build a test environment that can later become extended to the whole of Denmark.


Business model: vehicle supplier

The business model of the vehicle supplier might seem relatively straight-forward, not unlike the business models of manufacturers of fossil-fuel vehicles. Presumably these companies will produce and sell electric vehicles just as car makers have always done. Whatever the success of electric vehicle infrastructures, vehicle manufacturers can sell cars to customers who visit showrooms. Each brand of vehicles may position its electric vehicles as they do the other vehicles in their range, and price them on the basis of the cost of production of the initially lower volumes that are in demand. The more aggressive vehicle suppliers may also decide to “subsidize” electric vehicles by pricing them below cost, in the hope of achieving more rapid growth and carving out a larger market share.

If the interest in electric vehicles does not grow as rapidly as expected, vehicle manufacturers may simply expand production resources more slowly and put the development of new models on the back-burner. The number of electric vehicles in society is bound to grow in the coming years, regardless of how they are promoted, priced, or whether they are supported by well managed and maintained infrastructures. But what rate of growth will be achieved? At present the rate of growth is high, but from a low level. Incentives, in combination with the positioning of vehicles and systems, will determine the rate of growth and the degree of penetration of the overall vehicle markets that electric vehi-cles achieve. Ultimately, the rate at which we are going to reduce our dependence on oil through the introduction of vehicles and systems for electric mobility will be determined by the incentives that support the different renewable fuel systems.

Business model: profile supporter

Many companies and organizations declare their willingness to carry the torch for electric vehicle systems. Many do so to position themselves as future-oriented and green. Supermarket chains and hotels communi-cate their plans to install charging posts outside their stores and hotels and electric utilities companies profile themselves by investing in elec-tric vehicle infrastructure and systems. In many countries, municipali-ties take a leading role.

Along with these investments there may be no intention to take a long-term role in the electric vehicle industry or invest in the long-term development of a market. The current wave of profile investments may instead give the impression that the electric vehicle sector is booming,


though many of the players only have short-term goals. They may not be prepared for the eventuality that these investments fail to trigger the sustainable development of a new industry and the development of viable business models in the next few years.

Few companies can afford their brand names to be associated with technologies or systems that fail to make a profit and meet growth expectations from the general public, whether realistic or not. If elec-tric vehicles fail to take hold, the technology may be seen as a dead end, or even a failure, and if that happens it may become very difficult to regain public support. Optimism, even when unwarranted, is often a good thing, but we need to develop realistic business cases in order to mobilize the financing and other resources required for these ventures. We also need to take the necessary steps to finance the development of these systems and turn them into viable business ventures.

Business model: sub-system specialist

The experience of being a sub-system operator – operating a part of the infrastructure, such as charging posts – is likely to be a very different according to whether the main systems company takes responsibility for the marketing and operations of the entire system, or not. In the absence of a systems operator for the overall system it is likely to become difficult for sub-system operators to establish themselves and thrive in their niches.

The long-term success of any sub-system operator will depend on the success of the system as a whole, and the probability that this is going to flourish will increase dramatically if viable business models are rapidly developed for the most important roles in these systems.

Orgware development

As was suggested above, the focus at present is on the development of knowledge and resources in technology areas. This is to some extent logical, because in order to develop technologies and integrate systems, companies have to spend a lot of money on technology and these large sums need to be wisely spent. In the absence of sustainable business models, the development of fully fledged business organizations with marketing, sales, professional purchasing departments and mainte-nance may seem to be a luxury that fledgling ventures in the electric vehicle sector cannot afford. It may be difficult to make profits and start to build attractive offerings and business-oriented organizations without substantial resources in these areas.


Weiss and Bonvillian argue that, in order for large-scale pilot systems for renewable energy to be built, government-financed institutions must be put in place that cover at least part of the investment. In the case of Denmark, the large share of wind power in the energy mix, in combi-nation with an interest by the Danish government to continue growth in this area, represents a third factor that supports the electric vehicle system. The professors also argue that there is a need for a government agency that will work towards the development of production methods and technologies that will be required if new energy technologies are to become more competitive. In addition to these important suggestions, their proposal for an ARPA-E agency for translational technology devel-opment and their suggestions that efforts to attract talent and new ideas in energy areas should be supported are also worth taking seriously. Based on the analysis and the case studies above all of these aspects seem relevant, and all point in the direction of large-scale development of orgware in marketing, financing, and political systems.

Systems for biogas and natural gas

Challenges similar to those of electric vehicles also exist in the area of gas. Whether we are talking of systems using natural gas, biogas, or a combination of these, the investments will be huge, and it is not until these systems arrive at a minimal level of completion that they are likely to attract large numbers of customers as petrol- and diesel-based systems do today.

Most of the arguments put forward in the previous section are also relevant for gas, with the important addition that while electric vehicle systems demand investments in charging infrastructure and electronic information systems, gas systems require infrastructures for the physical distribution and dispensing of gas. In the case of biogas, a network of large-scale production resources for gas and for the purification of gas to be used as a fuel for vehicles is also required. In the case of natural gas there is a need for refineries, ships, pipelines, and terminals for the recep-tion and storage of large volumes of gas in each market. The initial invest-ments in these systems are likely to be higher than those required for electric vehicle systems, excluding the investment required in the expan-sion of electricity production and distribution to cater to provide for the growing numbers of electric vehicles, or further investment in smart grid technologies to reduce the need for additional production capacity.

Regardless of how we compare these alternatives, the implementation of gas as a vehicle fuel on a large scale will require very large investments.


Natural gas, biogas, and DME

There are at least three types of gas that can be used as fuels for transpor-tation systems. The two most commonly discussed are natural gas and biogas, and the third, less well-known alternative, is dimethyl ether, or DME.

Both natural gas and biogas consist of methane. Natural gas is produced by extraction from subterranean sources, similar to oil, and often in the same locations. Where there is oil there is also natural gas. Natural gas is also avail-able in large amounts in places where there is no or little oil.

Biogas is produced from biological waste, such as household waste, sludge from water purification plants, agricultural waste, or waste from the food industry. Although waste from these sources is available in substan-tial volumes this is not nearly enough to cover the transportation needs of modern society. Forestry waste and straw can also be used to produce biogas. Some of the technologies required to make this possible remain to be devel-oped or perfected.

Because both gases consist of methane, natural gas and biogas can be distributed in the same systems, and this is already done in some countries, such as Germany and Sweden.

The gas DME has been identified by Volvo as a highly efficient fuel that can be produced from biological raw materials, waste, or fossil fuels, including coal. 2 The development of vehicles for this gas is being pursued by Volvo, the global leader in the heavy truck industry.

Two different approaches

Different countries take different approaches to the introduction of gas-fuelled vehicles. Germany plans for a future where biogas will be used in combination with natural gas. Natural gas will remain the dominant fuel in the mix for the foreseeable future. Sweden focuses on biogas, and green politicians are reluctant to subsidize the construction of a system of pipelines for the distribution of biogas because it might be used for the distribution of natural gas as well.

In addition to the different national approaches there is the issue of the systems that need to be put in place to implement gas on a large scale. The systems requirements depend on whether the strategy is based on natural gas, biogas, or a combination of both. In any case the introduction of a new fuel that is expected to take a substantial share of the market for fuels involves very large investments in systems for production, distribution, and sales. On top of all the technical invest-ments, very large investments in business development are required, and the creation of large companies that sell gas as a fuel. This means the creation of entirely new business sectors that need the support of universities, government agencies, and municipalities in order to grow


and prosper. Some of this orgware needs to be created ahead of other developments, in order to start the process.

This section will outline the alternative systems solutions that are possible and the strategies, viability and business challenges of each of these. We identify generic models that countries apply in their approach to the introduction of gas as a fuel for vehicles. We also discuss the busi-ness challenges and possible business models related to each growth model.

Distribution models

Gas can be transported on trucks, compressed in flasks, or in liquid containers in chilled form. It can also be transported in systems of pipelines. The choice of distribution alternative is anything but trivial, because systems for truck transportation are less capital-intensive but may be more costly to operate as volumes grow. Only limited volumes of gas can be transported in one truck-load and the driver represents a cost that is not present in the case of pipeline transportation.

A truck loading chilled liquid gas can load five times as much gas as a truck transporting compressed gas in flasks. Because fewer vehicles and trips are required, liquid gas seems to be the more viable alternative for truck transportation. For countries that aim to introduce gas as a fuel on a large scale, pipelines represent the long-term solution, and in many countries this type of system is already in place. Truck transporta-tion may be an appropriate long-term solution in countries and regions where volumes are expected to remain small.

Natural gas can be imported in large volumes, provided there is access to a gas terminal with sufficient capacity. If the system is to be built primarily on biogas it will take longer until the volumes increase to the levels needed to justify the building of a pipeline.

Growth model I: mainly biogas

In Sweden a number of investments have been made in small and medium-sized production facilities for biogas. This gas has so far been used in combination with natural gas to fuel local and regional bus systems, and on its own as a fuel for cogeneration of heat and power. In this way most of the biogas has been produced by municipalities or companies owned by them and sold to captive customers within the same municipality. In total, some 85 TWh of oil is used in the country to fuel transportation, and in 2011 the volume of biogas available for the transportation sector was less than one TWh.


The cost of running a car on vehicle gas in Sweden is about 20 per cent lower than petrol. This difference, however, is probably determined more by the price of natural gas than by the production cost of biogas. A market for the large-scale trading of biogas has yet to become estab-lished, since this fuel is primarily used for public transportation and is to a large extent produced by companies owned by municipalities.

The industry association for gas companies, Energigas Sverige, has now set a goal of increasing the production and use of biogas to 14.5 TWh per year by 2020; the volume used for transportation will be between eight and nine TWh per year. Needless to say, this will require very large increases in the production capacity for gas. The biogas will be produced using raw materials from a number of sources in addition to those used today – mostly sludge from water purification plants and biological waste from households, agriculture, and industry. Some of these readily accessible sources have already been almost exhausted and in order to reach the growth objectives biogas producers will increas-ingly need to tap sources like agricultural and forestry by-products and waste.

The Swedish government wants the country to build its expansion plan on biogas only. The government is not willing to support invest-ments in a pipeline for gas distribution in the most densely populated areas because it could be used for natural gas in addition to biogas. Natural gas is an unattractive alternative mainly because of the risk of again becoming dependent on an imported fuel, this time primarily from Russia.

A system primarily for biogas – quite an undertaking for a small country

Sweden has taken a leading role in the use of biogas as a fuel for vehi-cles. In a few countries biogas is used to fuel buses. Some countries, such as Germany, increasingly use it for cars. In Sweden there are municipali-ties where a majority of buses and other vehicles are fuelled by biogas, and there are production plants and fuelling stations across the country. Several municipalities and regions have set a goal of fuelling their entire vehicle fleet with biogas by 2020 or earlier. In 2011, the amount of gas used as a fuel for vehicles for the first time exceeded the amount used for other purposes, such as heating and production of electricity in plants for the combined produc-tion of heat and power.

Biogas is used in combination with natural gas in the gas distribution network. In 2011 AGA inaugurated a terminal for the import of liquid natural gas (LNG) in Nynäshamn south of Stockholm. This has a storage capacity of 20,000 cubic metres. At present there is a system of gas pipelines along the


west coast from Malmö in the south to Stenungsund north of Gothenburg, which makes for cost- and energy-efficient distribution of gas in an area with more than two million of Sweden’s 9.5 million people.

In order to dramatically expand the production and use of biogas to meet the goals set by Energigas Sverige, the following sub-systems need to be expanded and co-ordinated to form an integrated national system:

− The expansion of production and refining capacity to 14.5 TWh produc-tion and 8–9 TWh refined gas using a combination of fermented and gasi-fied biogas. The latter uses wood as the raw material and the processes for full-scale production have not yet been tested. The first semi-commercial production unit is now (2012) under construction in Gothenburg. This production structure will require investments at the level of 1.5 to 2 billion euro.

− The development of distribution systems for gas based either on liquid gas in tank trucks or a system of pipelines. A decision has been made by the industry to invest in a system based on liquid gas and truck transporta-tion. Later, as volumes increase, the pipeline system may be expanded. A backbone system of pipelines connecting the major cities within 200 km of Stockholm in a new network, and the cities in the south-east of Sweden with the existing pipeline in the south-west, would require investments of around 350–450 million euro. The most economically efficient alternative for large-scale expansion would be to plan for a pipeline from an early stage. A pipeline, however, requires large volumes of gas from the beginning, which is not likely to be available in a system in which natural gas will not be allowed.

− In addition to investment in a pipeline there will be a need for truck-based distribution in less densely populated areas. Five times more trucks will be needed for compressed gas than for liquid gas, so a number of companies have decided to develop a system for the distribution of liquid gas. As gas volumes increase, the number of trucks will become large, the actual number depending on the production structure as well as the volumes. Assuming that at least 4 TWh out of the 8–9 that will be used in 2020 will have to be distributed by truck, liquid gas distribution may require 250 trucks nation-wide. This investment, in addition to the those required to receive liquid gas at filling stations, may mean an additional 50–100 million euro.

− At present there are slightly more than 130 public fuel stations for gas in operation in Sweden. In addition to these there are 45 larger depots for heavy vehicles. In order to build a denser network of fuel stations to cater to gas car owners throughout Sweden, 400 public filling stations may be needed by 2020. In addition to these, 150 depots for heavy vehicles may be needed, which would require investments of some 0.5 billion euro.

− In order to create demand for these gas volumes, the fleet of gas vehicles must be expanded from fewer than 40,000 to around 250,000 vehicles by 2020. Heavy vehicles are, according to Energigas Sverige, likely to use the largest share of the gas. At present, gas-fuelled trucks are at an early stage of developmen. At present the Swedish government offers a 4,500 euro incentive for buyers of low emission cars. This will be granted for 5,000 vehicles from early 2012.


− Due to the higher price of gas vehicles compared to petrol, investment must be made in the creation of a strong market demand for gas vehicles, which can offset the price disadvantage. The initial incentive may have to be continued further into the future, but the amount may be reduced along the way as more people come to appreciate the advantages of gas, and as the number of filling stations and other service functions increase. We may estimate that, in order to reach the target number of vehicles, each vehicle may need a subsidy of 1,000 euro, which amounts to a total subsidy of 250 million euro. There may be ways to reduce the need for subsidies, for instance by marketing the idea of a fossil-free society and presenting biogas vehicles as a way of accomplishing this. It is highly prob-able that some of both will be necessary to achieve the level of transforma-tion that is discussed in this book.

− In addition to this, the association Energigas Sverige argues that an incen-tive of 0.025 euro per kWh will be required in order to start the wave of investments in the gas sector mentioned above. The organization suggests that a tax be added to petrol and diesel, biofuels remaining tax-free.

Altogether the level of investment necessary in order to get all the compo-nents of a biogas system in place in Sweden may be somewhere in the area of three billion Euro, a significant amount for investors in a small country.

One of the key challenges may be to step up the development from today’s small- or medium-scale production units aimed at markets of local and largely captive customers to the development of a national integrated system that primarily targets individual car owners and commercial transportation companies.

There is also the fact that knowledge about the biogas business, and an interest in this business area, is concentrated in the companies and munic-ipalities that have participated in the development of the largely local or regional markets consisting of municipalities, their biogas producing waste management companies, and bus companies that are contracted by the municipalities themselves or by regional public transportation companies. In addition to these centres of competence there is primarily technical research at a number of universities and research institutes. The majority of the people who in the next decade are going to buy the 250,000 biogas vehicles, and the people who are going to work in the new business sector of biogas production, distribution and sales, still know very little about biogas, or why it would be a better choice than ethanol, diesel, or electric vehicles.

Furthermore, most of the politicians and public sector administrators who will make the decisions crucial to the development of biogas, production units, vehicles, fuel stations, or any other renewable fuel, know very little about any of these topics. Countries need to devote a substantial sum of money to the training of those who will actively participate in the develop-ment of the biogas systems and the creation of biogas as a new major business sector.

An alternative opportunity is entering the debate. This is the option of using gas to produce electricity and heat, focusing primarily on the introduc-tion of electric vehicles and plug-in hybrids on a large scale. This reduces the need to build a new infrastructure for the distribution of gas and to introduce


different types of vehicle. Due to the high energy efficiency of electric vehi-cles, this seems like an attractive alternative.

Based on the discussion of the development of biogas above, the determina-tion of politicians to keep natural gas out of distribution networks should be seriously questioned. To put forward arguments about the actual roll-out of large-scale systems politicians would need at least a minimal understanding of the economic and business factors at work, and the issues arising in each case. We cannot wait to complete the very high-level analysis started by the author of this book until the issue of a large-scale system for the distribution of biogas in a country has been resolved. Roll-out plans at some level of detail must form an important part of the discussion from an early stage and politi-cians and others who participate in the debate must take into account the consequences of their proposed policies.

Growth model II: mainly natural gas with increasing volumes of biogas

In November 2011 Germany inaugurated a new pipeline across the Baltic Sea, called Northstream, which will supply the country with natural gas from Russia. Until now the German government has subsi-dized investments in small-scale production units for biogas. The new pipeline will supply almost half the German consumption of gas, 55 billion cubic metres per year, or 5.5 TWh.

In Germany gas is mainly used for heating and cogeneration of heat and electricity. The first gas filling station for vehicles was opened in 2006, and the volumes used for transportation are still very small. Gas is already distributed throughout Germany to heating plants, industrial users and households via a network of high- and low-pressure pipes. The high-pressure network measures 50,000 km and the low-pressure network that serves end-users measures 370,000 km, according to the German Gas Association.

With two basic components of the network already in place, namely the large scale supply of gas and a widespread distribution network, the expansion of biogas becomes a matter of increasing the number of vehicles and filling stations for gas. In 2011 the number of gas vehicles in Germany was only twice that in Sweden, or between 70,000 and 80,000, but the number of filling stations, according to the German gas media service Gibgas.de, was already 900. This indicates a strong rate of expansion, since the first filling station in Germany was built ten years later than the first station in Sweden.

The remaining component that needs to be expanded in Germany is the number of vehicles. The task of doing this seems relatively simple, compared to Sweden, and the investment decisions may be less complex.


The German government has also set a goal of a supply of 6 TWh of biogas into the gas system by 2020. The current volume is 0.2 TWh. In addition to this, biogas supplies about 1.5 per cent of German elec-tricity, in total some 10 TWh, and a substantial amount of heat for district heating. Biogas is produced in 6,000 mostly small production units located close to users, burning the gas for heat and electricity production.

Due to the scale advantages of purification, which will become necessary in order to supply gas to the distribution network, most of the present plants are judged to be too small to deliver purified gas. Thus the German authorities face a situation that is different from that in Sweden. There is a distribution network and filling stations, large volumes of gas are already produced and used for the production of heat and electricity, but the production structure of small units is not optimal for the large-scale production of purified gas.

The alternatives for changing the production structure to production units of a larger scale will be:

Building a network of new, larger, production units. 1. Subsidizing the expansion of existing units, which have already been 2. established based on generous government subsidies. Pooling volumes of raw biogas from small production units through 3. pipelines to a network of large purification plants.

The way forward is currently a matter of debate in Germany. Compared to Sweden, Germany has a substantially shorter route to its goal. In addition to the three alternatives above there is a fourth, which does not involve the distribution and use of biogas as a fuel for vehicles. Raw biogas produced in small- and large-scale production units can increas-ingly be used locally in plants for the combined generation of heat and power, as it already is today. The electricity can then be distributed on national grids and be used for electric vehicles and other purposes. This would reduce the need to invest in capacity to upgrade biogas to vehicle fuel, instead directing the investment to smart grid technologies, and improving the efficiency of electricity production, distribution and use. Electric vehicles are significantly more fuel-efficient than gas engines, which help to make this an attractive alternative. In fact, biogas used to produce electricity provides almost twice as much mileage as biogas used as vehicle gas. The heat generated is a bonus, which can be used for heating by producers located close to district heating systems, or close to single industries or installations that are large users of heat.


In terms of orgware there is also a large difference. Due to the exist-ence of a large-scale distribution network and a large number of fuelling stations in Germany, substantial orgware has already been developed in the gas area. A number of large companies already do business on a large scale in the gas sector. Knowledge has also been developed in the political system, due to decisions about and preparations for large-scale subsidies for the establishment of biogas production and the use of biogas for the production of heat and electricity. The decision to build the Northstream pipeline has also created substantial political “orgware,” which, incidentally, has spilled over a little to build some competence in Sweden, because of the need to obtain environmental permission to run the pipeline through the Baltic Sea. This has forced some Swedish politicians and administrators to learn about the implica-tions of building large-scale pipelines for importing natural gas.

Efficient production of ethanol, biogas and other biofuels in connection with raw materials issues

In order to make the picture even more complex and complete we need to recognize that there are a number of alternative biofuels that can be used on a large, or larger, scale. The account below of new developments for the production structures for ethanol, and the resource situation, only serves to highlight the importance of taking new developments and aspects into account. Ethanol has been criticized for its low net energy contribution when produced in traditional systems of agricul-ture and plants. New and improved production methods and the use of rapidly growing plants and trees is gradually changing this picture. In “The Party’s Over,” published in 2003, Richard Heinberg referred to a study that indicated a negative net energy gain from ethanol produc-tion. In a study published in 2002 by the US Department of Agriculture, Shapouri, Duffield, and Wang calculated the net energy gain of ethanol produced from corn as 1.34, meaning that the amount of energy derived from the ethanol was 34 per cent greater than the energy input. 3 In an article of 2008, Science Daily reported that ethanol produced from switchgrass provides a net energy gain of 5.40, exceeding previous esti-mates for the same plant by 93 per cent. 4 The study was carried out by researchers from the University of Nebraska at Lincoln.

Many countries that already mix five per cent ethanol into all petrol sold consider that the proportion can be increased to ten per cent. At present ethanol is primarily produced in dedicated ethanol plants. New production facilities are planned in which it will be produced in


combination with biogas. Such a plant is estimated to produce between three and four times more energy per unit of raw material than a plant producing ethanol only. This provides an opportunity to increase the efficiency of biofuel production. The Norwegian company Nordisk Etanol & Biogas is planning to start production in one such plant for large-scale production of biofuels in the south of Sweden.

With respect to the use of grain for the production of biofuels, the issue of competition with the use of grain for food has been debated, especially the danger that the use of grain for fuel purposes will reduce volumes available as food and increase the price of grain, depriving poor countries of food. More recent analyses indicate that there are substan-tial opportunities to increase grain production, even in European coun-tries such as the Baltic states and Ukraine. It has been estimated by experts that if farming in the Baltic states were run as efficiently as in Germany, the UK, or Sweden, these countries could quadruple their harvests from the existing amount of agricultural land. The scale of the opportunity to increase production in the vast country of Ukraine is unknown, but is estimated to be very large. Despite this opportu-nity, technology transfer and financing of the necessary investments are unlikely to happen automatically as oil prices increase. Instead, huge investments in equipment and systems will have to be made, but above all, the orgware necessary for this type of massive transfer of technology and farming methods will have to be created if this alterna-tive is chosen.

Key issues related to biofuels

There are a number of issues related to biofuels. Production solu-tions in development promise a substantially higher energy output than is delivered by traditional production methods and it is possible to substantially increase grain production in some countries. This is prerequisite if ethanol and other biofuels are to become competitive. With these methods in use it may be possible and economically viable to use increased volumes of grain or other plants for energy purposes, without significant competition with the use of grain as food.

There are, however, no free lunches in large-scale energy transforma-tion. While grain may be used, and it may be possible to grow larger quantities of grain in a number of countries in the world, this will also require investments in new production equipment and methods, training of farmers, and the development of more efficient systems for the logistics that will be necessary in order to bring grain or ethanol to markets across Europe.


Research at present seems to focus on isolated issues, and it is diffi-cult to find researchers who attempt to build an overall picture of the alternatives available. These alternative solutions are truly systemic. New plants are required for the production of biofuels, and it may be necessary to grow new varieties of plants on a large scale. New fuels are also required for transportation, which means increasing the amount of biofuels that are blended into petrol, or installing new fuel systems on a large scale, including investments in fleets of vehicles that can use the new fuels.

Orgware development

We have discussed the new electric vehicle and gas systems that various countries are starting to implement. The implications of these are largely national, related to investments in new systems, the collection of substrates and related logistics, and the need for new infrastructures on a local, regional, and national level. In this case , as well as in the cases of electricity and biogas, there is a need for large-scale investments to secure the supply of transportation fuels. To drive transformation forward on a large scale, countries need to decide which fuels to use, how they are going to be produced and distributed, and what transfor-mations of vehicle fleets will become necessary. As in the cases above, the business systems, the companies, and in some cases even the neces-sary technologies and products required to build complete systems, do not yet exist.

Improvements in agriculture in countries with potential for expan-sion would involve the development of new orgware in a number of cooperating countries and companies. The competence and orgware needed to design and finance production systems and supply chains, and orgware related to efficient farming, would all need to be built. This would, however, involve much more than training farmers. It would also include large-scale investments in new equipment, and the devel-opment of storage and logistics systems, and the companies to operate these, for the grain produced in these countries.

It is relatively clear that the large-scale transformation of energy systems will not only be a matter of technology development, and it will not be sufficient for politicians and civil servants to focus on supporting the transformation and leave business development to the market. If modern society is serious about energy systems transfor-mation we need to take seriously all the relevant aspects of this chal-lenge. This may be painful, since business aspects are sometimes more complex and multifaceted than technology issues; the analysis above


indicates that there are a number of alternative solutions that need to be studied and analysed in parallel in order to identify the most prom-ising alternatives.

The role of energy savings

In addition to technology development and the implementation of clean energy systems there will be a need to save energy. This can be done through the implementation of new energy-saving technologies and lighter materials, such as the introduction of composite as a light-weight alternative to aluminium in shipbuilding and Green ICT tech-nologies; these will be discussed below. Another alternative is the use of energy-saving practices, such as changing practices in the transpor-tation sector in order to run transportation systems with higher load-factor and fewer empty return runs.

All these alternatives offer opportunities to save energy and fuel, but they also involve investment and the development of competence and orgware. To implement new practices in the transportation sector, employees will require training for new routines, and business systems changing to reflect new principles for keeping stock and planning trans-portation. Saving energy is generally less costly than developing addi-tional production capacity, but this may not apply to all situations. In the case of transforming existing energy systems to clean alternatives, savings and the development of renewable fuels on a large scale are both likely to be necessary. This is due to the expectation that oil volumes will start to decline in the future. However, if the demand for energy is reduced as much as possible, less new capacity would be required.

It will be important to prioritize activities and investments. Some savings opportunities may have very large potential and it may be seen as important for governments to finance programmes in these areas. In other cases the savings may not justify the resources spent and it may be better to spend on alternatives that provide larger benefits. It could be the role of government-financed programmes to help identify savings opportunities with high potential and promote these, and advise against the spending of resources on less promising alternatives.

Orgware development

There is a need for companies and governments to cooperate to iden-tify savings opportunities with large potential that can be achieved at a reasonable cost and develop programmes to pursue such opportunities.


Through thousands of transformation programmes in companies and government organizations it has been found that companies who have little experience of change projects tend to underestimate the resources that will be necessary to actually achieve ambitious transfor-mation goals. Transformation requires information activities on a scale that is probably unexpected by many, including analysis, discussions, further analysis, transformation activities, information and discussion about remaining activities. Companies such as General Electric, IBM, and Ericsson that are experienced in these areas spend more resources on change management in each project and run fewer projects overall. It is usually considered wise to set realistic goals for each step in the project and allow organizations to adapt to new routines and business processes.

The same general principles apply to the case of large-scale energy systems transformation. This is not likely to succeed by involving a few people in the development of prototypes or small-scale product tests or systems implementations. The goal is to achieve large-scale transforma-tions. It may then be wise to select a small number of prioritized areas for transformation, and assign substantial resources to make sure that these efforts are successful, rather than spreading resources across a large number of smaller programmes in the hope that a lot will be achieved at low cost. Experiences can be derived from examples of earlier large-scale transformation efforts, such as the implementation of wind power in Denmark and the transformation of heating in Sweden.

In the case of global energy transformation there will be a differ-ence in scale and scope. These efforts are going to be larger and involve more people from different companies and organizations than change projects in individual companies, or in the cases of energy transforma-tion mentioned. It is therefore reasonable to assume that the manage-ment resources that will be required will also be very large.

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Smart grids

The increased use of plug-in hybrids and electric vehicles will over time create a new area of demand for electricity, which will increase as the number of vehicles increases. The development of the electricity grid is in many ways a nexus for the whole process of global energy transformation, one that will have long-term implications and high levels of complexity. I will not go into this area in depth, but it is worth outlining some of its key features and the choices that are relevant to the reasoning in this book.

Existing grids have been built to facilitate the transmission of large volumes of power from a small number of large-scale power plants to a large number of users. This one-way system has been built as a series of large-scale systems that have historically been organized as “silos,” with clearly defined interfaces between the different sub-systems. These sub-systems are production, transmission, distribution, customer services and metering, and usage. Over recent decades ICT technology has to varying degrees been introduced to improve the visibility of the various parts of the grids and users from the perspective of power companies. While it is possible for Internet service providers to identify individual computers used to access services or download files, the same level of visibility has not yet been reached on power grids. In countries with the most advanced grids, electric utilities can monitor sections on the distribution grids, and automatically read meters. The two-way commu-nication that is possible on the Internet between single producers and users has, however, not yet been achieved on power grids.

According to Dr. Peter Fox-Penner, the author of the book SMART Power – Climate Change, the Smart Grid, and the Future of Electric Utilities , 1

11 Smart Grids and New and Visionary Materials Technologies


the challenge that lies ahead of utilities and, indirectly, ahead of devel-oped societies, is tremendous both in terms of the complexity of the decisions and the investments that will be necessary. A number of opportunities that are discussed in this book must be factored into deci-sions about the future development of smart grids:

− The development of multiple sites of small- and medium-scale produc-tion, often set up by customers who produce energy for their own use and want to sell the excess power to utilities.

− The opportunity to store electricity on a large scale in car batteries, as thermal energy in water tanks, in the form of hydrogen in fuel cells, and for customers to use stored energy, or energy from the grid, at different times and for different purposes.

− The ability to introduce new pricing mechanisms, such as prices that change by the hour or minute as the cost of electricity production fluctuates and as different sources of production supply different amounts of energy.

− The intelligent control of electricity use through timers or intelligent devices that can defer consumption to times when there are excess amounts of electricity produced by renewable sources, and when power is less expensive.

− The introduction of new energy-efficient technologies such as LED lighting and variable speed electric motors that can dramati-cally reduce the need for power for some of society’s most energy-consuming applications over the next few decades.

Investments in power plants and transmission and distribution systems are expected to last for decades. The complex issues related to invest-ments in smart-grid technologies are therefore critical for most coun-tries. The intelligent application of smart grids and power-saving technologies may dramatically reduce the need for new power genera-tion capacity. The challenges and opportunities depend on the existing situation in each country.

Fox-Penner argues that both the commercial and the regulatory aspects of energy systems development must be made in the context of a stagnant, or even reduced, demand for electricity in the future. Until now, investments in power grids have predominantly been made to accommodate to increasing demand, and they have been paid back through the opportunity to sell more electricity. More recently, power-saving services provided by utilities have been justified by reducing the need to build new capacity. With regard to the developments mentioned

Smart Grids and New and Visionary Materials Technologies 143

above, the opportunities to sell more electricity may be limited, and one of the goals of smart-grid development is to eliminate or reduce the peaks in demand, when the price of electricity soars. At the same time we should expect consumers to increase their power production for household needs, and that they will increasingly use new energy-efficient technologies.

If this scenario of consumers producing their own energy, storing energy produced at points of low demand and low prices, and increas-ingly adapting their use of power to price fluctuations materializes, it is likely to lead to diminishing revenues for utilities. Thus companies may find it difficult to invest in many of the smart-grid technologies that are, or will become, available in the future.

Nevertheless, the further development of smart grids in order to make these developments possible will be important for the future develop-ment of society.

Orgware development

Which sectors of society will have the incentive to finance the large-scale investments in different smart-grid technologies that will be required in order to enable these developments? Also, which devel-opments will be necessary, and which savings opportunities can be achieved at comparatively low cost? Where will the different aspects of grid intelligence be located?

These are some of the questions that will need to be answered on a country-by country basis to enable the use of smart grids and reduce power consumption, and to make increasing amounts of electricity available to fuel growing fleets of electric vehicles. Some aspects of these issues are relatively straightforward. Customers can schedule part of their energy consumption in cheap periods simply by using timers to control the heating of water, cooling of freezers and fridges, and other activities that can be deferred to times of power surplus and lower prices. Similar opportunities exist in some industries. When customers invest, the business model is straightforward and the cost is borne by the party who reaps the benefit. This will also be the case when customers make larger investments in smart home technologies or LED lighting to reduce their energy bills.

For some companies, the business model for developing smart-grid technologies is also relatively straight forward. The business model of Better Place as a whole is complex, but involves a component of smart-grid technology that enables the charging of batteries when there is a surplus of power from renewable sources. This system also manages


the charging of each vehicle battery so that each car is charged to the level necessary for the next drive entered by the driver into the control system before leaving the vehicle. The development of this system is financed as part of the Better Place concept and thus represents a rela-tively straightforward investment in a systems component. The payback of this investment and the cost of operating it will be recovered from the customers of Better Place, who also benefit from the service by receiving free mobility within the country, or region, where Better Place operates. Overall, Better Place will benefit from the system through lower power prices.

In addition to these opportunities there will be situations where savings in electricity can reduce the need to build new capacity. This can happen when investments in the grid are necessary for the benefit of society at large, and may ultimately result in decreasing sales of power, or if large investments are made with the result that revenues remain stable. In such cases an investment may be desirable for society at large, but there may be no incentive for utilities to carry it out; it may even be financially impossible.

While there seems to be no shortage of orgware in the areas of power generation, transmission, and distribution, there is a need in many areas of society to build knowledge about this emerging situation. The existing basis of knowledge and orgware is substantially better developed in the area of grid technologies than in many of the other areas discussed in this book, and the works of authors such as Fox-Penner and Weiss and Bonvillian represent important new additions to the existing pool of knowledge. From the perspective of this book, a natural next step for each country may be to carry out an analysis of development requirements for smart grids similar to that carried out Weiss and Bonvillian for energy technologies in general. This analysis takes into account existing orgware for energy systems development, and identifies organizational gaps and mechanisms that will be required to drive development forward. It seems relatively clear that new competence and orgware needs to be developed along the lines indicated by Fox-Penner. This analysis becomes especially important in relation to the development of plans for the introduction of electric vehicles and plug-in hybrids.

Composite ships

The naval shipyard of Kockums in the town of Karlskrona in Southern Sweden has supplied ships to the Swedish navy for 320 years. Over the past 45 years this company, in cooperation with the navy, has developed


unique competence in the building of composite ships. The company has supplied six ships of the Visby Class of coastal corvettes, of which the first was launched in 2000.

This line of projects for the navy has given Kockums unique knowl-edge in the field of composite shipbuilding. Composite ships are made from carbon fibre, a very light and robust material, ideally suited for the construction of fast ferries and workboats for wind farms along the coasts. Composite ships have a lower life cycle cost than aluminium ships, because of their lower energy consumption and very low mainte-nance costs; the energy production costs for the material itself are also substantially less than for aluminium. The cost savings over ten years of use of a composite ship compared to an aluminium one can amount to as much as the entire purchase price of the vessel. This indicates the level of competitive advantage of ships built using composite.

Composite ships open up new and unique possibilities for the ship-ping industry, especially in the case of the rapidly growing market in workboats for wind farms. Over the next twenty years several hundred new wind farms are planned along the coasts of Europe, involving the construction of thousands of new wind turbines. The construction and maintenance of these farms will demand a large number of workboats for the transportation of personnel and material to the turbines.

Furthermore, additional levels built from composite can be added to existing cargo ships and ferries, increasing their capacity and energy efficiency. In addition to these existing opportunities, entirely new transportation systems can be developed along the coasts, consisting of light transportation vessels that replace or complement the current transportation of goods by truck. Light composite transport vessels could load and unload cargo in harbours close to city centres that cannot be accessed by heavier steel cargo ships. This is another area that will require large investments in ships, but also demands the develop-ment of orgware.

Opportunities in new transportation systems at sea

The new technology of composite shipbuilding is at present only avail-able for fast ferries and workboats, but larger vessels will be developed in the next few years. There is a substantial opportunity for the intro-duction of as many new vessels as possible of this lightweight variety and also for the replacement by composite ships of existing aluminium vessels reaching the end of their economic lives.

Composite structures can also be added to both existing and new transport ships and large ferries. The advantages of composite structures


are so large from the point of view of energy consumption that they offer the potential to reduce the payback period of a ship, and increase revenue and profit.

Further uses for composite

Composite can also be used instead of steel and concrete in various industrial and construction-related applications. As the production cost of composite products is reduced it becomes not only technically possible but also increasingly affordable to use composite in new areas. Carbon fibre was first introduced for spacecraft and aircraft, due to the critical need to reduce weight.

As its production cost decreased, carbon fibre has become widely used in high-end sports equipment and other premium product areas that require robustness and light weight. Now it is making its way into the auto industry, again starting with high-end models and sports vehicles. It has been used for several years for race car components. Following experiments conducted by the Swedish navy, Kockums, and suppliers of carbon fibre materials, which have led to its use in the six-vessel Visby series, it is now ready for commercialization in the area of ferries and workboats.

These composite marine vessel projects represent the type of govern-ment-financed research and development that is described by Professor Ruttan in “Is War Necessary for Economic Growth?” His answer is that war may not be necessary, but government-financed development programmes are, in order to develop new general-purpose technologies. Weiss and Bonvillian also argue that such programmes will become necessary in order to develop and implement sustainable transportation systems on a large scale. It has taken thirty years to develop composite ships into commercial products, and it will take another decade or more for this technology to penetrate the shipping market fully.

Which further uses of composite do we need to start to develop now, if they are to be ready within the next one or two decades? We may assume that the development by Kockums in the shipbuilding industry will pave the way for the development in other application areas, which is why it may not take as long to develop further applications.

Orgware development

The use of composite in shipbuilding is only one example of a new material that will almost revolutionize an industry. Composite can be used in a number of other areas of construction, and can replace heavier and more energy-consuming materials such as aluminium, steel, and


concrete. The energy consumption related to the production and use of these materials is well-known, but the opportunities for replacing them by a new material whose production is becoming industrial and less costly as production volumes increase are not.

The opportunities offered by composites need to be understood, and the way forward in this field to be charted. Composite should perhaps become a standard in some application areas, or information about the material and its opportunities could be spread to potential users, and evaluated in government-financed research programmes, with the aim of bringing it into use on a large scale in the next decade.

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Strategies for making even better use of district heating

District heating is already used on a large scale in several countries in Europe. The Brussels based organization Euroheat & Power has devel-oped strategies for expanding the use of district heating across Europe and making existing systems more efficient. Euroheat & Power has cate-gorized countries according to the nature of their challenges in district heating. This is the most advanced example of strategy development for large-scale energy systems transformation that I have been able to identify.

The following categories of countries have been identified, according to the set of challenges they face:

− Countries that should focus on refurbishing their district heating systems. These countries already use district heating on a large scale, but the systems are old and in need of improvement (Croatia, the Czech Republic, Lithuania, and Romania).

− Countries that should focus on consolidating their systems. These countries use district heating on a large scale and systems, are modern and function well. Further improvements are possible in order to consolidate the role of district heating and increase the country’s contributions to an energy-efficient society (Denmark, Finland, and Sweden).

− Countries that should focus on expanding the proportion of district heating in the mix of heating solutions. In these countries, district heating supplies around 15–20 per cent of heating needs, and there is substantial potential for expansion (France, Germany, Italy, and Norway).

12 Development Opportunities for Well-Established Technologies

Development Opportunities for Well-Established Technologies 149

− Countries where there is currently almost no district heating, which should focus on new development of such systems (Ireland, Spain, and the UK).

Needless to say, similar categorizations could also be made according to development opportunities in other areas. Categories of countries with, for example, existing systems for gas distribution, or with a certain level of development in their power grids, could be identi-fied and different sets of strategic opportunities identified for each category.

Opportunities in district heating

District heating offers a number of advantages over other heating solu-tions. Well developed district heating systems are energy efficient; they can make use of excess heat from industries, produce heat through the incineration of waste, using biogas or natural gas as a complementary fuel. Because of its efficient treatment of exhaust gases, district heating provides energy in an environmentally friendly way.

The advantages of district heating become easier to understand as systems grow. As they grow larger they extend to all parts of a city and it becomes relatively inexpensive to, for instance, connect networks to industries that can provide excess heat from their industrial processes to the systems. In the city of Malmö in southern Sweden, which has 300,000 inhabitants, the district heating network provides heat and hot water to 90 per cent of households and 70 per cent of the heat is produced from renewable energy sources.

When the first parts of a district heating network are built, such as in the project in Swansea described above, only a few buildings enjoy the benefits and only a few people need to build knowledge about the technology. Improvements of existing district heating systems require large investments. Investments in power plants that are now often built as combined heat and power plants to replace old power plants are very large, as are investments in pipes in major areas. Vattenfall, a large utilities company, majority-owned by the Swedish government, is investing in the construction of three new production units, two outside Stockholm and one outside Helsinki, with a total investment of 110 million euro.

Expansion of district heating is therefore a long-term issue. While large investments are made all the time in production plants and distribution pipes, the expansion and improvements are steady but slow.


Orgware development

The need for orgware varies according to the category a country belongs to. In countries that are going to refurbish their heating systems there is a need to build knowledge about modern technologies and their use among high-level decision-makers in municipalities and district heating companies. The Baltic states and the countries of Central Europe also need to develop knowledge about markets, segmenting, and pricing, and how to adapt systems and services to market conditions. In coun-tries where systems require consolidation, improvements can be made at the level of details. New combined heat and power plants replace old boilers. Municipalities can consider connecting local systems to regional ones. In Sweden there is a debate going on about third-party access to networks to introduce competition between suppliers of heat, strengthen the position of the customer, and, hopefully, reduce prices. District cooling can also be launched and expanded. This is an alternative to electric air conditioning systems, and introduces an opportunity to use the heat from waste incineration, and create revenues from the systems in the summer as well as in the winter. These are examples of a range of improvements, whose suitability depends on the particular situation. In Germany the population is expected to shrink over the coming decades, so systems will have to be adapted to this development.

Countries that, according to Euroheat & Power, should focus on expanding district heating, need to work out strategies for doing this. District heating is a relatively straightforward business with limited risk. Revenues over a decade can be calculated based on the number of households and other customers, and expected outdoor temperatures can be used to calculate the volume of heat sold over a period of years. Here, decision-makers and customers possess relatively well developed knowledge about systems and their various business aspects.

In countries such as the UK where district heating is still very little used, knowledge is not well developed. In the case of Swansea described earlier, an analysis of the first steps in the implementation has been performed by consultants from Sweden. Decision-makers in countries where district heating is not in widespread use have limited knowledge about this new heating source and financing solutions need to be devel-oped, as well as expertise on the part of the consultants who calculate and design systems.

Green ICT

In 2007 the consulting company Gartner Group, a specialist in the anal-ysis of the development of markets for information and communication


technology (ICT), announced that “Green IT” would become one of the ten most important priorities for chief information officers (CIOs) in the next decade. The concept of green ICT has since developed and prolifer-ated. Experts now think of green ICT primarily in two contexts:

− Greening of ICT − Greening by ICT

Greening of ICT involves reducing the energy and emissions footprint of ICT in society as a whole. Greening by ICT involves the use of ICT to reduce energy consumption and emissions in areas where these technol-ogies are used, which is almost everywhere. ICT has already been used for these purposes for a long time, but the cost of applying computer technologies is gradually reducing, and these diverse activities are now being collected under one conceptual umbrella.

There may be a third sense of green ICT, to do with using ICT solu-tions for visualizing energy savings opportunities to make previously invisible and abstract aspects of energy consumption easier for users of energy to understand and identify.

The greening of ICT

Most service companies have a relatively small energy and climate footprint within their own business. Compared to heavy industries operating furnaces or mills for the production of steel or paper pulp that use as much energy as a small city, service companies primarily run a network of offices with office lighting, computers, copiers, and coffee machines. In addition they may use cars or delivery trucks to deliver goods or send service representatives to customers. The energy consumption of these companies may seem very small compared to that of companies producing steel, machinery, paper, or food.

However, if all these energy-using activities are added together, they represent a significant amount of energy. According to Gartner Group, the electricity used to power ICT applications represents more than two per cent of global emissions of carbon dioxide. This is the same amount as the entire airline industry. This was the original reason for green ICT appearing on Gartner’s list of priorities for CIOs. Due to the steadily increasing volumes of information that is stored in servers all over the world, the need for storage space is rapidly increasing. Another contributing factor is the inefficient storage principles used by computers. At present documents that are e-mailed to a large number of users are stored on the computers of all the recipients and linked to their accounts on company servers in data centres. A more efficient


alternative would be to send the link to a document to a number of recipients and allow them all to access it from the same storage loca-tion. New systems that require less storage space in servers worldwide are being developed by companies such as Compuverde in southern Sweden, which has developed a system for the energy-efficient storage of data that reduces energy consumption by 50 per cent and reduces the investment needs in computer centres by 75 per cent (in comparison to solutions developed by the leading brands of computer hardware) by using energy-efficient standard components such as disk drives and servers.

This is an important savings opportunity which, if used everywhere, would dramatically reduce the energy consumption of data centres. The company datacenterknowledge.com 1 has investigated the number of servers owned by the largest operators of servers in the world, and estimates that there are at least 14 companies that operate more than 50,000 servers each. The company that is probably the largest user of servers, Google, may have as many as 900,000. The ten largest owners of servers may have almost two million servers between them.

Soon after the initial interest in the area of Green IT developed by Gartner Group the level of interest dipped again. Personal computers are the aspect of ICT that is visible to most users, but an increasing share of the energy used for ICT powers the huge data centres that house servers. These provide the computing power for companies’ IT infrastructures, with business systems containing customer, supply chain, and product databases, systems for internal administration, and all the other systems that modern companies use on a large scale.

Many of the largest owners of servers are firms that provide online services such as Facebook. This company has commissioned the construction of its first data centre in Europe, which will contain more than 100,000 servers, and will be built as the first of three planned centres in Luleå in the north of Sweden. The location has been chosen because the cold climate secures access to naturally cold water for cooling all year round. The size of the hall will be 28,000 square metres, the equivalent of five football grounds. Needless to say, these centres require very large amounts of electricity. The centre in Luleå will use almost as much energy as the large steel production plant SSAB, located in the same city.

Public interest in green IT waned after the initial surge because reducing the carbon footprint was seen by some equipment suppliers primarily as a matter of choosing the most modern and energy-efficient servers from the product ranges of computer companies. The life of a


server is about five years. Gartner argues that a centre older than seven years is obsolete, but experts claim that there are data centres older than that. The servers installed by Facebook in Luleå will be changed for more modern alternatives every three years, on a rotating schedule. Such a rapid turnover of hardware should ensure that companies can optimize energy efficiency without anyone, except a few IT managers in large companies, having to think about the issue.

The case of green ICT is an example of a situation where market-based activities could drive energy transformation without the need for knowledge or orgware on a large scale in the part of users or the political community. This may be broadly true, but, as is often the case, the picture has turned out to be slightly more complex. One aspect is the age of data centres, and the opportunity to improve energy use. The launch of storage solutions that demand less space and make better use of server capacity will also contribute to energy improvements.

A further issue is that of cooling. Many companies argue that they have optimized cooling by the use of “free cooling” which uses natu-rally cold water from lakes or rivers to cool data centres. The energy effi-ciency of cooling solutions is described by a key figure, the PUE-number (Power Usage Effectiveness), defined as the total amount of energy used by all the equipment installed in the data centre divided by the power used by the IT applications themselves.

The Nordic telecoms operator TeliaSonera has developed a highly energy-efficient cooling system based on free cooling. This has been in use in telecom switching stations across Sweden since 1994 and is now used in the data centres run by TeliaSonera. In total there are 1500 units in use throughout Sweden. The system is now to be marketed globally by the company See Cooling. The latest installation of the system in the most modern server hall has been carefully monitored by researchers from the Royal Institute of Technology in Stockholm and it has been found to provide a PUE over the long term of 1.12. Competing solutions that use older technology boast PUEs of 1.5. The difference between these systems may seem small, but the See Cooling solution is effec-tively four times more efficient than most other cooling technologies in the market. It uses only 25 per cent of the energy for cooling of the best alternatives. The See Cooling system uses free cooling in combination with a layout of the data centres that creates optimal cooling efficiency and an energy-efficient way of “pouring” out the cool air into the server halls.

The energy savings in a large data centre with 1 MW of installed processing capacity, where the See Cooling system can be applied,


amount to a total of 2,300 MWh every year compared to the best tradi-tional solutions with a PUE of 1.35, and represent a saving of some 4,900 MWh compared to the average existing data centre with a PUE of 1.8. The energy saved by the average data centre corresponds to the amount used annually by 190 one-family houses, and by about 90 houses in the case of the most energy-efficient of the competing alternatives.

According to industry experts about 150 data centres are built each year in Sweden alone, a country with 9.5 million people. If their average size is an installed processing capacity of 0.25 MW, one quarter of the calculated size in the example above, the See Cooling technology, if it were installed in all the centres built every year, could save the equiva-lent of the energy used by 5,000 homes. Installed over ten years the amount saved would be equivalent to the energy used by 50,000 homes, or more than two per cent of Sweden’s total of 1.6 million houses. 2

In the words of the innovator behind See Cooling, Svante Enlund, “I’ve put every effort into making this system the most energy efficient in the world. Each energy resource used is utilized to its full potential. On cold days we use the energy-efficient resource of “free cooling” until this resource is exhausted. When the outside temperature is slightly warmer and there is a need for additional cooling we use a geothermal pump for additional capacity. Only on the hottest days of the summer do we use compressors. Even the inside of the See Cooling unit has a tremendous finish. My sailing background has taught me the impor-tance of smooth surfaces in order to minimize turbulence inside the cooler, and shave a few extra per cent off the energy bill.”

There are several advantages offered by the See Cooling solution: 3

− Superior energy efficiency that for a large data centre like that described above generates savings of up to one million euro per year, depending on the price of energy and the comparison system.

− No need to build an elevated floor, which reduces the time taken to building the data centre, and its cost.

− Greater effectiveness, making it possible to build data centres with an “energy density” of up to 50 kW per square metres. This means that more servers can be packed into a particular space using See Cooling compared to competing solutions.

− Greater reliability than traditional solutions due to UPS-fed cooling system.

In order for this cooling solution to contribute as much as possible to the reduction of global energy needs, it should become the preferred


solution for the cooling of as many data centres as possible. Data centres that already exist can be fitted with new cooling equipment when they are refurbished and the server technology is changed.

If the See Cooling and Compuverde solutions were used in combina-tion, which they may be in the future, the energy consumption of data centres will be more than halved.

Greening by ICT

There are numerous aspects of greening by ICT. The opportunities range from reducing energy consumption by using ICT to manage transport systems and by using electronic services instead of hardware, documents, or CDs, using ICT in chips embedded in cars, trucks, and machinery to improve the energy efficiency of vehicles and machines. This trend has long been known as dematerialization, which includes anything from using an answering service on the phone network instead of buying an answering machine, to having films, computer programs, games, books, and letters from the IRS and other authorities delivered electronically instead of as physical CDs, DVDs, books, or documents bought in stores or delivered in the mail.

The savings that can be made by such means have, according to experts, been estimated at a total of 15–20 per cent of global emis-sions of carbon dioxide. This figure is higher than the total emissions and energy use of global ICT, but the activities producing realize these savings are more diverse than those related to greening of ICT. The complexity of this area underscores the point that there is no “silver bullet” that will help humanity to reduce energy consumption across the board within a few years. Perhaps the label “Greening by ICT” can help prioritize improvements in the different areas based on expected results and investment needs.

In a report from 2005, the WWF, in cooperation with ETNO, 4 argued that the replacement of between five and thirty per cent of European business travel by teleconferencing would reduce CO 2 emissions by between 5.5 and 33 million tonnes. If ten million customers submit their annual tax statements via e-government services this would save 10,000 tonnes of CO 2 emissions. These improvements, however, also come at a cost. The solutions must be developed and “marketed” to citizens. Discussions with sustainability experts indicate that many people think that “we only need to tell people to use these oppor-tunities,” but experience indicates that large-scale transformation is usually not that simple. Most people see this when it is explained to them, but it still seems to be a general perception that necessary and


logical changes will happen of their own accord, as the opportunities become available.

“Telling people,” especially when it comes to telling large numbers of people, comes at a cost. We may call this information, marketing, or the “sales” of general ideas or particular systems. In addition to the “telling” there may also be a need to make sufficient resources available for investments in green alternatives. Each change that society would like to achieve will have to be planned and carefully communicated to large numbers of people. Messages need to be repeated over and over again, and there is a need for systems that make behaviour changes easier, such as in the case of recycling, where systems of bins for different types of packaging, newspapers, and other types of waste simplify the sorting of waste materials and easier to remember. In spite of the relative simplicity of waste recycling, however, not all waste is sorted and recycled in the right way. “Telling people” could be done through advertising, infomer-cials, newspaper articles or other means. All of this information mate-rial, whether it has to do with information about the advantages of green ICT, electric vehicles, or biofuels, must be produced. The people who do this have to be paid. Advertising space will be required, or time spent persuading newspaper editors, journalists, or other people in the media to make increasing amounts of space available for articles about electric vehicles and other clean energy technologies.

Greening by ICT – the life-cycle assessment of construction projects

One example of an opportunity to save energy and improve a number of environmental aspects of construction projects has been developed by the company Åkej in southern Sweden.

A construction project involves hundreds of materials and construction and transportation activities that all, together with the energy consumption of the building once it is in use, and the energy used in the recycling phase, contribute to energy efficiency, or lack of it. Each construction material or system in the building is made from certain raw materials, certain production processes are used, and materials and components are transported between production steps. The complexity of analysing the total energy consump-tion of construction materials, projects, and the buildings themselves over their lifetimes has made it difficult to develop a holistic approach to sustain-ability in the construction industry. There are already guidelines for energy consumption in the usage phase and lists of materials that are particularly harmful to the environment, but overall, very little has changed in terms of construction principles and choice of materials, despite the existence of new and energy-efficient alternatives. This is partly due to the complexity of the issues and the ensuing difficulty of developing clear principles and guide-lines for energy-efficient construction principles and buildings.


Examples of efficiency improvements in buildings

The dominant insulation materials in most countries are mineral wool and plastic-based materials. Mineral wool insulation is produced in a process that requires more than 5,000 kWh of electricity per tonne of material. Materials made from wood fibre are gaining market share in many countries, but from a very low level. These show comparable insulation performance, but require only 45 kWh of electricity per tonne.

Even in Sweden, where investments in triple-glazing windows have been subsidized by the government for decades, there is still substantial room for improvement. Most of the apartment buildings and houses built before 1990, a total of some 1.5 million, still have windows with double glazing. The energy leakage from a window is given by its U-factor, and the U-factor of many of these double-glazed windows is 2.8. Triple-glazed windows installed before 1990 often have a U-factor of about 1.8. New triple-glazed windows have a U-factor of 1.0 to 1.2. This means that new windows leak only one third of the energy of older windows. Using new technology for renovating windows it is even possible to renovate the windows of old houses and main-tain their unique exterior. The cost of changing windows to modern alter-natives is paid back in only a few years. These opportunities exist in many commercial buildings as well as in private houses.

The company Åkej together with the Swedish Environmental Institute (IVL) has now developed the analysis tool Anavitor, which can be used to analyse the energy consumption of an entire construction project from the production of raw materials and construction materials, through the usage phase, to the recycling phase. This new approach opens up oppor-tunities to identify the materials that require the most energy and relate such issues to all other aspects, such as the building’s energy consump-tion in the usage phase. Using Anavitor it is possible to optimize both the cost and the energy efficiency of buildings. The advantages of using cellulose-based insulation, new triple-glazed windows, and other improvements can be weighed against other opportunities. The cost and energy consumption of each alternative configuration of the building can be calculated. This will make it possible to reduce the overall energy consumption of buildings, and improve many other environmental aspects too. It will be possible to break from the past and develop and implement completely new best practices in the construction industry.

Simulation and control systems – the case of Noda

A different type of improvement opportunity facilitated by an IT solution is offered by the company Noda, which has developed an intelligent solution


for the control of the energy consumption of district heating. The system offers real-estate companies the opportunity to reduce the cost of heating their offices and apartment buildings. Normally, heat use in a building peaks as people come home from work in the afternoon and start to cook, use hot water, and shower. The system, which can be applied in individual buildings or for whole districts, controls and manages the heating so that peaks in usage are avoided.

The system increases heat use ahead of an expected peak reducing the need to heat the buildings during the peak when domestic hot water is used for a number of other purposes, and thus reduces the heating cost by 15–20 per cent. The general system can be adapted to the particular needs of individual companies or housing solutions. The pay-back time for the investment in a system from Noda is only a few years, and sales are rapidly picking up.

Visualizing energy savings

There is a third general area of savings offered by ICT. The possibilities of visualizing energy savings may have greater potential than antici-pated. There are many opportunities do this, especially with the intro-duction of smart grid technologies.

The organization TCO Development installed equipment to monitor energy use in an office building in Stockholm. The simple measure of making energy use visible to employees rapidly reduced energy use in the building by 30 per cent. The savings were mainly achieved by turning off equipment that did not need to run continuously, such as the power supply to adjustable desks, printers, copiers, and coffee machines. When they saw the effects of continuous energy consumption on the overall level of energy use, people started to identify points of use and tried to systematically eliminate unnecessarily high consumption.

Part III

The Development of Knowledge and Orgware

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13 Development of a Visual Model and Decision-Making Method

To facilitate the development of the knowledge, understanding, and orgware that will be necessary in order to drive energy transformation forward, a visual model that will be helpful for analysis, simulation, and decision-making will be needed. The model proposed below organ-izes knowledge about the various aspects of energy improvement and expresses it visually, to make it easily accessible for everyone who aspires to play a role in the development. At present nobody has a complete picture of what needs to be done, what it will cost in terms of invest-ments or man-hours, or how companies or individuals must change their work practices or lifestyles to achieve the overall set of goals that governments and organizations have started to formulate.

We have very little knowledge of how different opportunities to reduce energy consumption relate to each other in terms of savings potential, investment, and cost. Throughout this book we have been discussing different approaches and the assumptions they are based on. Now it is time to develop some of the tools that we will need in order to analyse and visualize the overall goal and the different activities that we need to initiate in order to reach those goals.

The model is structured as a “decision-tree” that can be further devel-oped over time. It can be structured to include all the relevant improve-ment alternatives and systems approaches. By building this information and making it available on the Internet for particular countries and sectors, and by gradually developing its contents and structure, we can build a global database for energy transformation. The tree structure can be graphically presented and provide opportunities to drill down into the data to find details. In addition to data, texts presenting argu-ments and conclusions can be added as well as general information


about each alternative. Needless to say, any country can use the same approach to build viable energy policies for the future.

Due to insufficient information the details of this model cannot be completed at present, but its overall structure can be illustrated. At the top level, savings and investments for all prioritized alternatives can be added up to a grand total. The second level identifies, on the left, the contribution of new energy from sustainable energy systems that provide increasing amounts of energy as these technologies come into wide-spread use. The figures on the right show the aggregated savings from the savings alternatives. On the third level, energy volumes and savings for each technology or system are shown. Left of centre are the contributions of new energy systems, and to the right are savings alternatives.

Different savings and new energy systems are not all the same. We need to distinguish between additions of transportation fuels and savings from technologies that provide savings of transportation fuels and added amounts of electricity and electricity savings. These different energy resources are related, but at present savings on electricity cannot be used immediately for transportation, because we don’t have enough electric vehicles and other prerequisites for the development of large-scale electric vehicle transportation systems. The details of how different

2015:Savings

Savings

Investment

InvestmentSavings Investment

2020:

2030:2025:

2015:2020:

2030:2025:

2015:2020:

2030:2025:

Savings

Electricvehicles

For each alternative

Investment

2015:2020:

2030:2025:

Gasfuels Ethanol Etc

Contribution from:New systems

implementation

Contribution from:Energy saving

technologies andpractices

Energy andtransportation

transformation goal

Composite-based

shippingsystems

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Greeningof ICT

Greeningby ICT

Renewable Fuels and Savings Data Structure

Development of a Visual Model and Decision-Making Method 163

technologies and savings relate to each other in the model will need to be worked out and developed as the model is adopted and used.

In addition to the overall figures presented above the model can be developed to include the following information; new information cate-gories can also be gradually added:

− Aggregate information and key figures − Business models and case studies − Sub-systems information and key figures − Supply of primary energy resources and competition between solu-

tions for primary energy

For high-level decision makers a set of key figures, such as those above, can be presented. Users with an interest in details can drill down and find more detailed information about alternatives.

The model could be owned and updated by a national agency in each country, or by a supranational organization that develops this high-level view for a number of countries. A calculation similar to that suggested here was made by Volvo as a basis for the brochure “Climate Issues in Focus.” In this booklet the company compared seven different fuels for trucks and buses, and engine solutions, based on a number of criteria, and calculated an overall score to prioritize the alternatives. The presentation in the booklet differs from that suggested here in a number of points. Firstly, the data used to calculate each alternative were not shown: only the scores were presented. Secondly, the scores were calculated for each fuel on an overall “international” level. As has been argued above, the circumstances surrounding the implementation of each energy system or fuel differs from one country to another, and the model need to be adapted for the implementation of each system, technology, or fuel in each country.

164

At this point it suffices to say that the primary orgware needs are different for different energy-using systems and sectors of the economy. Orgware development needs to focus on:

− Resources for the development of overall strategies for systems inte-gration, financing, and large-scale energy systems transformation.

− Resources for supranational collaboration. − Financing and management of the development of technologies

necessary to achieve the overall goals. Some of these, as indicated by the first report published by the American Energy Innovation Council, may not be developed at all if reliance is placed on market-driven transformation alone 1 .

− Resources for business development and marketing of prioritized alternatives.

− Increasing resources for the systems integration and implementa-tion of the most promising alternatives, which includes reducing investments in technologies and systems solutions that are not prioritized.

− Resources for managing programmes and projects towards ambitious goals.

Not likely to be finished any time soon

There will be no point where technology development is finished and business development can naturally take over. Engineers and other participants in technology development projects will not unanimously stand up and declare that they are finished. Technology development, partly or wholly financed by governments, can continue for ever without

14 The Role of Orgware in Energy Systems Transformation

The Role of Orgware in Energy Systems Transformation 165

the establishment of businesses based on that developments. In the absence of work on viable business models, a whole world of technology experts, politicians and high-level decision-makers are likely to wonder why so little in terms of energy transformation is happening, despite all the money that has been invested in technology development.

Within the present framework, even if the early generations of technology are not integrated into large-scale systems, development is likely to continue in the form of work on minor issues or on next-generation technologies. “Normal science,” in Kuhn’s terminology, is a “mopping-up exercise.” This “mopping-up” process has already been started as technologies such as rapid charging and inductive charging are under development although electric vehicle systems based on regular charging are not yet being implemented on a large scale. It is not until large-scale systems implementation and business develop-ment begins that we are likely to identify the issues that really need to be solved in order to implement sustainable transport systems on a large scale.

Furthermore, the prices of vehicles, charging posts, biogas produc-tion units, and pipelines are unlikely to decline, because of continued research into technical details. Substantial cost reduction takes place as larger volumes of products are produced, or through development projects whose explicit aim is to develop new production technologies and production systems. If we continue as we are at present, it will be almost as difficult to start up many of the systems-based services ten years from now as it is today, and we may continue to make minor advances. Some ventures are likely to succeed, but the rapid and large-scale penetration of renewable fuels and electric vehicles in a large number of countries is not very likely.

The only way to establish large-scale systems all over the world, and find out how to create successful business models, is to develop an environment that is favourable to business using sustainable energy technologies. Only a few of the technologies discussed in this book are already competitive on a completely commercial basis and on a large scale. One of these is the technology of composite ferries, workboats and superstructures. Another is technologies related to Green ICT solu-tions. This is due to the very large savings on energy, maintenance and fuel that are possible in these industries by replacing existing technolo-gies, and, in the case of Green ICT, the increased capacity offered by every new generation of computer technology. Green ICT solutions simply continue the experience curve that has been followed by ICT technologies for decades.


New technologies that need to become integrated into new systems solutions nearly always, due to the rate of cost reduction along experience curve that depends on the accumulated production volumes, experience numerous disadvantages compared to existing alternatives.

A matter of probability

We cannot build our hopes for the future on a series of highly improbable occurrences. unlikely few geniuses with unusual visionary, financial, and perhaps organizational powers may appear in energy-related areas. We cannot expect to see hundreds of human beings who combine the political and diplomatic strengths of Gandhi with the business acumen of Bill Gates and Steve Jobs appearing around the world to unite energy transformation forces on a non-profit and voluntary basis.

Companies, even those with some resources to enable them to drive large-scale energy systems transformation, face strong demands from shareholders for profits, both short- and long-term. Many individual managers may realize that very large investments need to be made, but they will also realize that the challenge of global energy transforma-tion is very large and complex. At present, as has been concluded by Weiss and Bonvillian, neither companies nor individuals can muster the financial strength or take a sufficiently long-term view to drive this development.

The decision-makers who have the power to shift probability in a major way in favour of success in these areas are governments. Both prominent business people, such as the members of the American Energy Innovation Council, and professors, such as Charles Weiss and William Bonvillian, who have studied these challenges, have come to the conclu-sion that companies and markets left to themselves will not be able to finance all the very large investments that will be necessary. To take all the steps needed to develop the systems for clean energy that increasing numbers of people expect in the near future there is a need for project management, high-level decisions, and government subsidies and incen-tives. The systems to support development and create environments that are favourable to successful investments in new energy systems must be built by decision-makers, visionary politicians, and officials who under-stand the nature of these challenges and who work within the organiza-tions and systems that support this development.

Two areas of investment that have not been focal points as has the development of energy technologies are the integration of technologies


into customer- and market-oriented systems and the development of strong and viable business models that can justify investment in their large-scale implementation.

These activities are capital-intensive, complex, and demanding in terms of high-level visions and systems ideas for the long-term future. Systems implementation will demand substantially more capital than the development of the component technologies that has been the focus up until now. One key factor that must be one of the next steps in global energy transformation is the development of a broad base of knowledge in society about the various challenges that await us, and of the tools that governments, companies, and individuals need to apply in a coordinated fashion. While governments may have one of the most important roles in this development it cannot be undertaken and successfully carried through without the cooperation of other parties in society, such as universities, businesses, and households.

Orgware – the key

An environment that is favourable to this type of investment needs to be supported and “permeated” by the various forms of orgware at different levels that have been discussed above. Knowledge developed by single individuals or small organizations with a particular interest in energy and transport systems transformation is not going to drive the paradigm shift that will be necessary. Different forms of orgware will have to be developed on a large scale, depending on the technologies, systems, and types of development that we want to promote. Not all of the necessary orgware will have to be created immediately: it will evolve over time as experience is accumulated and new technologies and business models are developed. Nevertheless, at an early point the development of orgware has to be sparked by decision-makers. This is no stranger than the fact that space technology, or any of the other technologies analysed by Ruttan, was not developed and commercial-ized based on private initiatives. Some business situations are simply too complex, or perhaps altogether impossible, to be mastered by market-driven forces alone.

Microsoft, Apple, Google, and Skype were not developed by business geniuses working in isolation, but by visionaries who in several ways enjoyed strong support from environments that were highly favour-able to and understanding of what they were doing. They were able to recruit people with knowledge of the business, technology and systems aspects of the businesses they tried to create. Those who invested in


these ventures took calculated risks based on a deep understanding of how business is pursued in these industries. In most of the sustainable energy areas there are few who can see how sustainable business models can be developed under the current circumstances. There is no orgware, whether in private companies or public organizations, supporting sensible decisions in most of the above business areas, and the systems investments need in most cases to be larger than private firms can be expected to make on their own at this early stage.

Not now!

In a period of financial austerity like the present it may be seen as diffi-cult to introduce the idea of increasing investments in clean energy areas. The United States embarked on the Apollo programme in the 1960s during a period of substantially more favourable economic condi-tions. How can we expect governments to set aside increasingly large amounts of money for the purpose of energy systems transformation, when they are already struggling to balance budgets?

Two of the answers have already been mentioned. First, as will be indicated in the concluding chapter, very large sums of money can be saved by applying a strategic approach to global energy transformation. Second, the American Energy Innovation Council argues that energy is critical both to economic development and to the daily lives of citi-zens, and that financing clean energy systems needs to be seen as an investment rather than as a cost. We cannot in a modern society post-pone investments in new transportation systems and other sustainable energy solutions because we are experiencing a temporary low point in the business cycle.

Furthermore, the development of national strategies for energy systems transformation that was suggested in “Global Energy Transformation” and that has been elaborated above will lead to a focus on driving a smaller number of initiatives forward at a higher pace than at present. Governments and other investors are currently funding the develop-ment of numerous energy technologies, based on the hope that the market will identify the viable alternatives. This leads to continued investments in technologies and solutions that are not likely to be used on a large scale. With the development of energy systems and business orgware we will be able to focus on the development of the technologies and solutions that are most likely to become used in the systems that we plan for the future. By developing visions of the future and strate-gies and plans to achieve them we will be able to shift financing from


less promising to more promising alternatives, and increase investment in them.

By developing the business models and financing solutions for the systems and the business investments that will be necessary we will also be able to identify the paths of development and implementation that will be less costly and more efficient for society. We will be able to identify the shortest and the most economically favourable route from the present situation to a future situation where whole sectors of the economy can make a profit from clean energy technologies.

There are also questions about changes to the framework of economic policies. In order to reduce the burden on society of the investments that have to be made in the future the Nobel Prize winning economist Paul Krugman suggested, in the autumn of 2011, that governments switch to more Keynesian economic principles. Professor Krugman suggests that in the present situation of large national debts and fiscal deficits governments could apply more expansionary financial policies that would trigger only moderate increases in inflation. In the 1970s and 80s, government debts were slowly but surely eradicated by inflation. This could make the burdens caused by increasing investments in global energy transformation easier for nations to carry. The development and implementation of new sustainable transportation and energy systems on a large scale would represent the type of “public works” programmes that he favours. Changes would be required in the economic policies of the Eurozone countries. High spending by individual countries, such as Greece, while others keep to more restrictive spending regimes, would not have the desired effects.

Krugman argues that the financial problems facing nations all over the world are similar to the “depression economics” that nations were facing in the 1930s, and that many intelligent and experienced managers of central banks and government ministers are making mistakes similar to those that exacerbated problems during the Great Depression. At that time governments and central banks resorted to economic policies based on low levels of public spending in order to balance budgets.

We noted above that there seem to be no free lunches in energy transformation. All large-scale and systematic transformation activities require resources and budgets. Krugman argues that the opposite is true in economics, and that economists and politicians should explore the opportunities offered by Keynesian economic doctrines:

“Depression economics, however, is the study of situations where there is a free lunch, if we can only figure out how to get our hands


on it, because there are unemployed resources that could be put to work. The true scarcity in Keynes’ world – and ours – was therefore not of resources, or even of virtue, but of understanding.” 2

In 2011, Krugman argued on his blog “The Conscience of a Liberal” that if humanity were facing the threat of alien invasion and we needed to develop and implement new technology in order to meet this threat, we could finance this and put more people to work by using moder-ately inflationary economic policies. Ruttan argued that the only factor that has made it possible for governments to mobilize the financial resources to develop general-purpose technologies on a large scale in the past, as in the case of the six technology examples he put forward, has been war or the threat of war. Krugman’s example, introducing aliens into the picture, is reminiscent of the thought experiment put forward by Keynes, seen by many as the greatest economist of the twen-tieth century. Keynes argued that if governments were to bury bottles filled with banknotes in disused coalmines and allow companies to dig them up again, this could put an end to unemployment and increase the wealth of the community. 3

This may remind us of the fact that economics is a trade, similar in at least one respect to carpentry and business strategy consulting. In all of these, different tools need to be applied in different propor-tions at various times in order to fix the general problem at hand. For a carpenter, the general problem may be to build or repair a house; for a business consultant it may be to develop a viable business model and strategy for a company; for governments and central banks the general problem may not primarily be one of balancing budgets in the short term, but for creating a viable future for the people of this planet. For this to happen, both governments and the general public need to realize the deep truth implied by Krugman’s argument . Policy choices may have to be adapted to the general economic situation and develop-ment needs in different areas, rather than applying the same general principles to be applied across the board at all times. Repeating historic mistakes may not be the best way to learn from experience.

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It is no exaggeration that politicians, business people, and the general public need to radically adapt their picture of the future and the way forward. The paradigm that still forms the basis of economic policies and business plans seems to be based on the assumption that the future can be tackled by laissez-faire policies and business strategies based on the idea of “business as usual.” Even if many individuals, organizations and companies argue that we need to transform energy systems on a large scale, and change many other aspects of society related to our use of energy, there is no sign of an approaching paradigm shift in the way we perceive the future and its opportunities. In the debate that is going on there are few signs that politicians or people expect us to experience a very large wave of investments in new energy systems or in new energy-saving technologies. Instead, most people seem to believe that the market will finance the entire energy systems transformation and that the investments will be relatively small. Compare the reply of the Swedish energy and IT minister to the question from MP Krister Örnfjäder, asserting that the Swedish government has determined that the country will be independent of fossil fuels by 2030, without any indication that this is going to require very large investments in the implementation of new transport systems. Discussions with experts from different camps related to energy transformation over the past three years reveal, however, that the details of different groups of peoples’ expectations differ greatly.

Paradigm shifts do not announce their arrival in advance. The mechanics may be more like those of an avalanche. The structural prerequisite for the avalanche is formed under the surface of the snow, out of sight, and the avalanche is suddenly set off by unexpected sounds or movements in the area that cause the masses of snow to start moving.

15 Doing the Right Thing


We experienced the social developments of the uprisings in the Eastern Bloc that caused the Iron Curtain to fall, and later caused the fall of the Soviet Union. The structural prerequisites had been formed out of sight, and a series of unexpected events set the process in motion.

Now, individuals are picking up new ideas, and some are waiting for the paradigm shift to start and set global energy transformation in motion. In addition to unexpected events, the conscious activities of influential individuals or the concerted activities of a larger number of initiated people can start the process. In order to start up activities we will need to open up public debate, and try to understand and discuss issues related to policy and strategy development. This may not be an easy task and we will need a number of tools for doing it. Many of these tools can be summed up in terms of creating the necessary competence and orgware in society.

The big picture

The details now need to be assembled into a coherent view. The analyt-ical and visual model presented above is one tool for illustrating the overall challenges and the different solutions that need to be, or may be, combined to achieve large-scale energy systems transformation.

Throughout this book I have shown that there are a number of compe-tences that need to be developed, and areas, such as systems integration and business development, that have not yet been addressed. National governments in many countries must take a long hard look at the big picture of innovation systems in energy systems areas, as professors Weiss and Bonvillian have done for the US, and identify the institu-tional gaps that need to be filled. While the works that have been cited in this book address these issues using technical language, arguing, for example, that the large-scale implementation of systems will require finance, the need for the development of business competence should also be made explicit. National strategies and plans based on the anal-yses that are going to be performed are also required.

At present only a few people are working to develop structural ideas for energy systems transformation. Most of them are working within compa-nies that are trying to find market space for their ventures in electric vehicles, gas as a vehicle fuel, smart grids, or other new systems and tech-nologies that address energy systems issues. Some are high-level business people, such as the members of the American Energy Innovation Council, and a few are university professors, such as Weiss and Bonvillian. There are few independent players with an understanding of the challenges

Doing the Right Thing 173

of energy systems transformation who can be employed to develop and organize work in the sectors of society that need to be built.

In other parts of society there is an abundance of public sector orgware, and this is matched by the much larger volumes of orgware in private companies. In Sweden the present government, led by Prime Minister Fredrik Reinfeldt, has saved large amounts of taxpayers’ money by reor-ganizing a number of government authorities and agencies. Since this government took office in 2006 it has reorganized large portions of the national administration. The new agency “Transportstyrelsen” (The Transport Agency) was formed in 2009 through the merger and reor-ganization of an entire sector of government transport-related agen-cies. At the same time the new agency “Tillväxtverket” was formed as a key organization in the Swedish innovation system. This was formed through the merger of two previous authorities and a partial reorgani-zation of a number of other agencies.

The present government has built its financial policies on fiscal restraint, which has made Sweden a role model in Europe and in the world at large. It has not so far directed its interest towards energy systems transformation, or the creation of orgware in this area, except that it has followed the directives of the EU and set slightly unrealistic transformation goals and implemented subsidies on a low level.

The high-level innovation system in Sweden consists of the agen-cies Tillväxtverket, which is responsible for promoting growth within existing business, Vinnova, responsible for promoting innovations, and the Energy Agency (Energymyndigheten), whose brief is the devel-opment of new energy technologies. The foundation KK-Stiftelsen finances education and training activities in future growth sectors. Seemingly there is ample orgware in the Swedish government system for the promotion of innovations, including those in the energy area. None of these organizations is, however, responsible for the building of resources for large-scale energy systems transformation in the way that is suggested in this book, or for the analysis of how this can be achieved. As one example of the lack of resource building in this area, the Energy Agency recently published a national strategy for the large-scale introduction of biogas. It concluded that in the present framework of regulations and subsidies, the volume of biogas for vehicles could be expected to increase to a level of about one TWh. The strategy report did not discuss how to go beyond this figure in order to reach the 14.5 TWh that the Energy Gas Association for Sweden has set as a goal for 2020. Another example is a new programme for the financing of tech-nology innovation aimed toward society’s challenges. In November


2011, Vinnova selected 84 projects that received financing of 80,000 euro each for the first phase, to develop project ideas that in later phases would require financing of several million euro. None of the projects selected for financing in the first phase was aimed at large-scale energy systems transformation on a national or regional level. A few were related to energy challenges, but none involved large scale transforma-tion efforts or large-scale systems implementations. The projects all mainly addressed challenges related to technology or product devel-opment. Two of the projects that received financing had the theme of making clothes from wood: a development of cellulose-based clothing materials that certainly has long-term potential. It is not, however, likely to contribute any volumes of new energy to Sweden or to the world in the next decade.

Nevertheless, these reorganizations of Swedish government agencies are examples of government activities aimed at taking a view of the roles that the government of a developed country should take on. Some of these roles are universally seen as the tasks of a modern government; others are subject to different types of solutions in different countries and political contexts. In most cases, however, there is little debate that the roles in question need to be filled in some way, and financed from either public or private sources.

This book is all about the need to see the big picture of global energy transformation and identify the tasks that must be performed by either public organizations or private companies or associations. We also need to identify the various ways in which the development of the necessary systems and businesses can be financed, how strong businesses can be built, and identify how ways governments are likely to need to support or drive development. There is no bias here in favour of government intervention, but instead a strong emphasis that the market should be left to finance investments in all areas where this is highly probable. The role of the government investments and programme management, as described here, is to identify areas where that probability is low, in some cases perhaps as low as zero, and undertake activities to increase the probability of success. Another way of putting this is to say that governments should identify areas of probable market failure and devise programmes to support the market in performing its job.

As in all such situations it will become clear that not all investments that are seen as necessary from one or another perspective can be financed. No government, not even one using Keynesian policies to their full potential, has access to infinite resources or the capacity to employ people to do everything that we wish. Substantial and sufficient


resources must be focused on driving the most promising and cost-effec-tive programmes forward at high speed. We cannot at short notice reor-ganize the entire economy to build resources in hundreds of different areas or build local or regional production systems where changes to existing systems are more cost effective. Priorities will have to be set. Large sums of money will have to be allocated to some areas, while financing for other activities may have to be reduced or cut entirely.

This process of prioritization is captured by the term “change manage-ment.” Large-scale transformation is also a stepwise process. Some steps need to, and can be, taken immediately. Other steps can be left until later. The idea is to identify the final goals, and through the method of “back-casting” identify the steps to be taken immediately so as to reach those goals. With an overall picture available, companies and govern-ments can start to make decisions. One of the reasons why not even companies that are committed to taking a leading role in the develop-ment of new energy systems delay their investments is the high level of uncertainty in many clean energy areas as to what rules and standards will apply to them in the future.

As in any emerging business area we cannot expect to attain a high level of certainty about business, or what exactly will be needed in the support of emerging systems and businesses. We can, however, develop a picture of the probable routes of development, and prepare scenarios outlining the developments we would like to realize. Whatever our plans, development will to a large extent be based on experimentation by creative individuals and companies working in different energy-related areas. Creative people with sufficient financing will start ventures and develop sustainable businesses once business development takes off on a large scale. Again, governments need to develop market conditions that are favourable to large-scale investments in these new technologies, and most probably finance many of the innovation and implementation projects that are required, as suggested by Weiss and Bonvillian. Government actions should be based on analyses of what needs to be done and the activities that need support.

The more detailed picture – clean energy and energy-efficient areas

We have already discussed a number of areas that are related in several ways to the introduction of renewable energy technologies or energy-efficient systems. In the case of district heating the position is one of different levels of maturity in different countries and regions, and in the case of the greening of ICT we are looking at a development that


largely come about through incremental and market-driven change. In other areas we must expect to implement entirely new systems on a large scale, and these systems must rapidly become competitive with existing alternatives.

It seems that success would be almost impossible to achieve in some of these business situations, or ventures will have to be led by venture capitalists and business managers equipped with extreme business and organizational genius. Even with these factors in place, due to the cost disadvantages that players face in many emerging industries, growth is likely to be slow. To implement new energy systems that can rapidly reduce our dependence on oil, we need these systems to grow rapidly and create attractive arenas for investors, business managers, and talented individuals. As we have seen through some tentative examples, there seems to be little or no focus among agencies that promote innovation or identify opportunities in the job markets of the future, to support or identify opportunities in large-scale energy systems transformation. Despite the debate about energy that has been going on for decades, energy transformation does not seem to take the role in people’s minds that we need it to take for these endeavours to become successful.

In this section we will present tables illustrating the need to develop competence and orgware of different types and at different levels of society and business. These different types of orgware can be organized and financed in different ways, depending on the business and political culture of countries, industries, and regions. Needless to say, the tables are only our first attempts to identify the necessary resources, and will probably need to be revised many times as we go forward with this devel-opment. There is also the stepwise aspect of development to consider. The resources must be developed gradually and over time, which is one more reason for starting immediately. In many areas, however, develop-ment will have to be kick-started to get the process going.

Under each heading below, some of the key challenges or characteris-tics of each fuel or clean energy alternative is presented. In the accom-panying table key aspects of orgware for each alternative is presented. Orgware needs to be built to facilitate decision-making and promotion of the various technologies. In some cases, such as plug-in hybrids, the orgware needs are limited; in such cases, decision-making can to a large extent be driven through existing companies, industries, and political structures.

Electric vehicle orgware

One of the key features of the launch of electric vehicles is the need for systems for charging and various control functions related to the


interface between electric vehicle systems and the power grid. These systems need to be financed and marketed; they may be national (Denmark), regional (Paris), or local (hybrid bus lines). There is also an opportunity for incremental growth through the sales of vehicles not related to those systems. This would have to primarily be targeted at users who drive short distances; alternatively, a range of electric vehi-cles could be offered through car pools complemented by petrol and diesel vehicles for long-distance trips.

Plug-in hybrids orgware

With plug-in hybrids there is no absolute need for systems offering charging opportunities. Hybrid vehicles offer free mobility through the petrol or diesel engines installed in each car. Public charging infrastruc-tures can offer increased mobility using the electric motor. Overall, the orgware needs will be substantially smaller if society focuses on hybrid vehicles rather than investing in large-scale national and regional elec-tric vehicle systems.

Biogas systems orgware

Biogas systems have been started in some countries in the form of units for small-scale production and use as a fuel for cogeneration of heat and power, or as a vehicle fuel in combination with natural gas. In order to expand the use of biogas and turn it into a vehicle fuel on a large scale,

Technical orgware

Market orgware

Political orgware

Financing orgware

Supranational orgware

Systems integration

Global systems marketing

Global expansion plans and standardisation

Global systems financing

National orgware

Systems integration

National systems marketing

National expansion plans and standardisation

National systems financing

Regional orgwareSystems integration

Regional systems marketing

Regional expansion plans

Regional systems financing

Local orgwareSystems integration

Local systems marketing

Local expansion plans

Local systems financing

Electric vehicle orgware template


Technical orgware

Market orgware

Political orgware

Financing orgware


IVehicle and components development

Vehicle marketing and sustainability communnication

Promotion of hybrid vehicles

Financing of vehicle development

National orgware

Vehicle and components development

Vehicle marketing and sustainability communication

Subsidies of hybrid vehicles

Financing of expansion of vehicle fleet

Regional orgware




Local orgware




Plug-in hybrids orgware template

Technical orgware

Market orgware

Political orgware

Financing orgware


Build internatioanl demand

International agreements

International business development and financing

National orgware

Systems integration

Build national demand

National systems + components, raw materials, production, distribution, sales

National systems business development and financing

Regional orgware

Systems integration

Systems marketing

Regional systems + components, raw materials, production, distribution, sales

Regional systems business development and financing

Local orgware

Systems integration

Systems marketing

Local systems + components, raw materials, production, distribution, sales

Local systems business development and financing

Biogas systems orgware template


there is a need for correspondingly large-scale structures for raw mate-rials supply, production, distribution, and sales. Biogas may be used in combination with natural gas in these systems to secure supply and make biogas more reliable and attractive as a fuel alternative.

Biogas can also be used in order to produce heat and power on a large scale to supply a growing fleet of electric vehicles with electricity.

Natural gas systems orgware

Natural gas can be used on its own or in combination with biogas as a vehicle fuel.

It can also be used to produce heat and power on a large scale to supply a growing fleet of electric vehicles with electricity.

Technical orgware

Market orgware

Political orgware

Financing orgware


International agreements

Global companies’ business development and financing

National orgware

Systems integration

National marketing

Decisions supporting national systems development

National systems operators financing

Regional orgware

Regional systems constructions and maintenance

Regional marketing

Regional support for national systems

Regional players financing of distribution and sales

Local orgware

Local systems construction and maintenance

Local marketing

Local support for national systems

Local players’ financing of distribution and sales

Natural gas systems orgware template

District heating orgware

District heating is a technology that is primarily applied in local and regional systems. A great deal of technical, market, political, and financial orgware is required on local and regional levels. National


and supranational orgware can be developed to develop technologies, support and promote systems implementation, and finance local and regional endeavours.

Smart grids orgware

In order to utilize smart grid technologies to their full potential, we need to develop a high-level understanding of the potential of the technologies themselves, and the opportunities that will be offered by new energy-saving technologies, such as LED lighting, and distrib-uted generation technologies, such as CHP, small- and large-scale wind power, and photovoltaics. We should also investigate how the increased use of electric vehicles and plug-in hybrids will affect energy consump-tion. Based on this analysis there is a need for strategies and plans for the implementation of smart grids and other technologies. We will also require to explore the new regulatory frameworks and models for financing of smart grid technologies that are not likely to be financed by markets alone.

Technical orgware

Market orgware

Political orgware Financing orgware


International research and technology development

Sales and marketing by international operators

International lobby organizations

Financing of international operators

National orgware

National research

Sales and marketing by national operators

National lobby organizations

Financing of national operators

Regional orgware

Regional operator’s technical competence

Sales and marketing of regional operators

Political support for regional district heating ventures

Financing of regional operators

Local orgware

Local operator’s technical competence

Sales and marketing of local operators

Political support for local district heating ventures

Financing of local operators

District heating orgware template


Greening of ICT orgware

Most transformation activities under this heading can be driven by market forces and there is little need for governments to engage in the creation of favourable market conditions. Green ICT development to a large extent builds on existing ICT experience. There may be a need for global or national certification of energy-efficient IT solu-tions, such as those for computer screens that have been developed by

Technical orgware

Market orgware

Political orgware

Financing orgware


Technology and product development

Possibly new models for power sales and marketing

Support of whole spectrum of smart grid technologies

Financing of research and development

National orgware

Techonology and product research and development


New or renewed regulatory frameworks for power production, distribution and sales

Financing of large scale application of technologies

Regional orgware

Implementation and use


Regional decision making for smart grid technologies based on emerging frameworks


Local orgware



Local decision making for smart grid technologies based on emerging frameworks


Smart grids orgware template


TCO Development. Since the beginning of 2011 the Swedish Standards Institute, SIS, has driven the development of guidelines for sustainable IT use. These guidelines are developed in cooperation with leading Swedish and foreign IT companies, and the resulting standards and guidelines may be adopted by other countries when the process is finished. This is an example of the type of orgware that can support market-driven development in this area.

Technical orgware

Market orgware

Political orgware

Financing orgware



Global sales and marketing

Standardization and certification of green ICT

Financing of global companies and users

National orgware

Technology and product research and development

National sales and marketing

Political support of green ICT, national lobbying, certification

Financing of national companies and users

Regional orgware


Regional sales and marketing

Public sector use of green ICT

Financing of regional companies and users

Local orgware


Local sales and marketing

Public sector use of green ICT


Greening of ICT orgware template


Greening by ICT orgware

Greening by ICT is an umbrella concept covering a range of very diverse technologies applied in all areas of society. We need to identify the most promising technologies and solutions and drive their implementa-tion forward.

Technical orgware

Market orgware

Political orgware

Financing orgware



Global sales and marketing

Identification and promotion of most promising solutions


National orgware

Technology and product research and development

National sales and marketing


Financing of national companies and users

Regional orgware


Regional sales and marketing



Local orgware


Local sales and marketing



Greening by ICT orgware template


Composite and new materials orgware

In this area, we need strategies for new application areas and drive development in these areas forward, as well as orgware to support this process.

Technical orgware

Market orgware

Political orgware

Financing orgware


Global materials and technology development

Global sales and materials marketing

Supranational application development programs


National orgware

National materials and technology development

National product and materials marketing

National application development programs

Financing of national application development programs, companies and users

Regional orgware

Regional application development programs

Financing of regional application development programs, companies and users

Local orgware

Local application development programs

Financing of local application development programs, companies and users

Composite and new materials orgware

185

Training

“I believe that this country should commit itself before this decade is out to landing a man on the Moon and returning him safely to the earth. No single space project in this period will be more impressive to mankind or more important for the long range exploration of space, and none will be so difficult or expensive to accomplish.”

With these words, expressed in a speech to the US Congress on 25th May 1961, President John F. Kennedy started the Apollo program. This involved not only the beginning of a very large programme with all that that involves in terms of planning and execution of various project activities. He also turned the attention of large numbers of people in the United States to the various challenges that needed to be tackled.

Two-and-a-half years before this speech, President Eisenhower had formed the Space Task Group, consisting of 45 engineers who were assigned the task of exploring the challenges of a space programme, supported by a number of other people in government organizations and universities, but the number of people involved was still relatively small.

With the creation of the Apollo program a large number of develop-ment activities were financed that induced companies and individuals beyond the core groups of scientists to turn their attention to these areas. The project involved the development of a spacecraft, including a rocket and a manned capsule, a launch ramp, a building for the construction of the rockets, a vehicle for transporting the rocket from the building site to the launch ramp, and the computers and software necessary for controlling the flights and communicating with the crew. On a more detailed level, all the different component technologies had

16 Important Aspects of Change Management


to be developed, such as the propulsion systems for the rocket and the capsule, heat shields for the capsule, landing gear, suits for the astro-nauts, and computer systems and software technologies.

Above all, these technologies had to be integrated into working systems with all the necessary functionality. It has been estimated that a total of 400,000 individuals were involved in this programme from start to finish. 1 A very large number of people were thus trained in areas related to the space programme, who developed experience in their fields that in many cases could be exploited in later projects, or in space technology-related business ventures as these began to be spun off from the companies involved in the space programme. The Apollo program developed an entirely new sector in American society and business, one that could not be equalled in any other country.

The point of this account of the Apollo program is to draw the read-er’s attention to the need to train large numbers of individuals in the various areas of renewable fuel systems and to develop the organizations and businesses that will be necessary to finance growth and offer the services that will be required. As in the Apollo program, expertise will be required in a number of different areas, including technology and application development, systems integration, real-estate and construc-tion services, business development, sales, maintenance, and many other specialized tasks. Training needs will depend on which technolo-gies we choose to focus on and which types of systems and sub-systems we decide to build. The comparison with the Apollo program indicates that there will be a role for government and numerous roles for compa-nies, not that the dividing line between public and private sector inter-ests or investments must be drawn in a similar place. Nor does it imply that the structure or management mechanisms used must be the same or similar.

Initially there will be no standardized training programmes. These will need to be developed as we embark on the various paths of devel-opment. Initially the contents of this and similar books and mate-rial should be communicated to decision-makers. The insight that there are different types of business situations, some of which may be virtually impossible for the market to tackle on its own needs to be communicated. This, together with the need for different types of orgware to create growth in various areas must be explained. Some case studies and details should be included to whet the appetite for more information.

As programmes and projects progress, training courses for different purposes will be developed and universities, training companies, and

Important Aspects of Change Management 187

other types of school will start to offer courses on these subjects. Over time, training efforts will become more structured and professional.

Change management

One of the reasons why we need to build orgware resources is that change, even transformational activities that all participants see as logical or necessary, requires large resources to drive it forward. This has been noted and taken into account by large companies and public organizations that in recent decades have developed and communi-cated new strategies, or installed new computer systems, hoping that employees will be able to see how to use them and act according to the intentions of top management without substantial guidance. Many organizations have found that people need a lot of support to develop new business processes and routines and implement them across companies.

Organizations such as General Electric that are experienced in change assign large resources to driving change forward by analysing the new and improved ways of working, and supporting employees in their adoption of new routines and work practices. In many cases change programmes in large organizations involve teams of dozens of external consultants who support the organization in all areas of the change programme. The whole idea of change management is based on the fact that people who stand at the fore and take the lead have much more information about the direction and details of the transforma-tion than those who participate at a later stage. Leaders who have been working for months or years on the development of new ideas often do not realize that they have been through a process of learning that the newcomers have not had the opportunity to experience. They see opportunities and the path forward more clearly. The need to inform and communicate is therefore usually much greater than the leaders initially expect.

A similar approach is likely to be needed in the case of large-scale energy systems transformation. At present, government-financed organ-izations in countries’ innovation systems take on the role of facilitators of technology development by financing or co-financing development projects in the hope that they will deliver valuable results. As Weiss and Bonvillian indicated in their analysis of the future innovation system for energy in the United States, government agencies that are going to drive global energy transformation will have to work in a goal-oriented fashion.


One of the key tasks of project managers in change management projects is to ensure that all activities that are necessary in order to reach a change goal are taken care of and executed according to plan. It would make little sense to build a network of production plants for biogas across a country if no company or organization ensured that a distribution system of commensurate capacity was already in place or built at the same time. This need for a systems approach is one of the reasons why companies postpone investments in sustainable energy technology. As has already been mentioned, in many cases players are simply not certain that another player will invest in the other parts of the system that will become necessary for success.

In the highly complex situations that involve the introduction of new systems and investments that may be beyond the individual capacity even of large companies, it may be very difficult to get a large-scale transformation process started. In such situations it may be necessary to manage developments in more detail. This can be done in a variety of ways.

In the Apollo program NASA maintained tight control of all issues related to systems integration. In their invitations to tender they speci-fied their requirements in great details, as well as the interfaces to other parts of the system, and the dates the various deliverables were required. NASA maintained control of systems integration and the final execu-tion of the programme.

In the case of the 3G-licenses that have been auctioned in many countries, government agencies specified the capacity and coverage of the systems and left the task of systems integration and the develop-ment of business models to the telephone operators themselves. These operators have in their turn assigned the responsibility for sub-systems or tasks within the system to sub-contractors.

These are two alternative ways of managing the process that have been applied by governments in order to ensure success. There are prob-ably others.

Studies and trend reports

An increasing but still quite small stream of high-level analyses and studies indicates the need to drive global energy transformation forward and transform energy systems on a large scale. This means that an increasing number of experts and key decision-makers recognize the need to go beyond technology development to systems integration and


business development. The financial and business aspects of energy systems should receive more attention and focus and the issues related to these need to be explained and analysed in detail.

This development is already starting to some extent, but more analysts of and experts in the concrete activities that are required need to turn their attention to the management, organization, and business aspects of energy transformation. The present book is one example of the effort to identify some of the details that will be necessary in order to trans-form energy systems.

How do we get jobs in emerging clean energy systems and energy transformation sectors featured in the lists of “Jobs of the Future?”

One of the methods that we could use is to study the development and develop a set of coherent scenarios for the future, and base a number of further studies and trend reports on these scenarios. One possible basis for the scenarios can be found in this book. Further analyses are likely to support conclusions made here while some will be proven wrong. One important aspect is that studies need to be developed based on similar sets of assumptions and conclusions of this effort and based on the best knowledge available.

One of the assumptions that need to become a permanent aspect of studies of energy systems transformation is that the development and implementation of clean energy systems on a large scale is going to require large-scale resources. Some of the conclusions that seem rele-vant are that competent people will need to be recruited in a number of different areas and that these large scale transformation programmes will present a challenge for the economy. These are reasonable assump-tions and conclusions based on the observations put forward in this book. A number of further assumptions and conclusions can be derived from them.

Stories and information

One key question is how governments are going to inform both the actual participants and the general public about the general direction of development. Even if we would like as many tasks as possible to be driven by the market, governments or their agencies are the only bodies that can take on the task of providing almost definitive answers about the future development of energy sectors. This book is an example of an attempt by an individual to make sense of some of the develop-ments that we observe in the global economy. Nevertheless, neither


the present author, nor Volvo, General Electric, Gartner Group, or any other consulting company could hope to be able to use analysis to find out which alternatives will be developed into large-scale systems. Only governments possess the resources to drive this development and secure access to sufficient energy resources in the future, so governments are going to shape this development in a way that is not the case at present in ICT or any other mature technology sector. Governments can choose to shape development either through their involvement in various ways, or through their lack of it. In the early phases of development of ICT, however, governments, and in particular the US Government, had the power to make or break certain technologies and paths of develop-ment. Only our elected governments can tell us how the future will look from an energy and economic standpoint and only governments in cooperation can develop the supranational systems structures that we are going to need in the future to replace existing fossil fuel systems for transportation.

This information can then be used in various ways by market-based players to develop products and do business in other ways. Many argue that we need to carry out large-scale energy transformation on a large scale, but few seem to be able to picture the process, or the end result. When we watch television or go to movies we are given the impression that our present lifestyles will prevail for long into the future. There are few signs in films, books, or television programmes of individuals or societies who are struggling with the difficult issues connected to global energy transformation. The only sign of change seems to be a few thrillers based on the disasters caused by climate change.

Storytelling has been described as an important tool used by leaders to get their ideas across to people in organizations and to society in general. Stories provide personalized and vivid accounts of compli-cated developments and arguments. They engage and evoke pictures in people’s minds and present interesting contexts rather than dry, fact-based arguments. The authors Anette Simmons and Doug Lippman have written a number of books about storytelling as a leadership tool. They argue convincingly in favour of the use of stories to communi-cate complex or sensitive issues, as well as personal experiences and commitments.

This book includes a few examples of stories that illustrate some of the situations that people will face during the period of energy systems transformation that is ahead of us. Stories can be humorous, thrilling, or just realistic.


Who will be the story-tellers?

In all previous eras there have emerged not only political leaders but also artists and authors who have captured the spirit of the times and written or filmed enduring epics. Examples of authors who have captured the imaginations of whole generations and whose works are now read as classics are F. Scott Fitzgerald, Jack Kerouac, Robert M. Pirsig, and Harold Pinter. These are authors who have written about new trends in politics, philosophy, and society and created imaginary characters who led their lives in a way that was unknown to previous generations, or who struggled with questions that were relevant to the development of the society of their times.

There are also numerous examples of authors who have written stories about characters who have been eager to learn the ways of an emerging class, or to describe a way of life in situations that most readers would not have the opportunity to experience first-hand. Among these we may include authors like the Brontë sisters, the German authors in the “Bildungsroman” style (educational novels) who described, for instance, the lifestyles and manners of the upper class or the emerging middle class of the late nineteenth century. There is also a host of authors who write about contemporary society and describe the relationships between people, how they work, and how they go about their lives.

We may even see soap operas and other works produced purely for entertainment purposes as presenting aspects of present-day society in a semi-realistic fashion. Even though we know that there is no-one exactly like J. R. Ewing or the other members of the Ewing family of Dallas, we may safely assume that the type of life that these people lead, the homes they occupy, and the vehicles they drive have some relevance as a description of wealthy Americans of the south. In a similar way the British series Emmerdale captures a number of aspects of British rural life.

In his classic movie “Modern Times” Charlie Chaplin showed how his tramp character coped with the modern industrialized world. The movie has become a classic and it underscores the fact that the works of great geniuses do not have to depict a development through rose-tinted spectacles. While we all hope that the development that lies ahead of us will bring a more prosperous future for us all, we should also realize that in a number of ways we may need to struggle in order to attain this.

The point here is that, despite the strong political support for the transformation of society to new energy-efficient lifestyles, these


new aspects of life do not seem to have captured the imaginations of film-makers or authors. Although this is said to be the type of society we all need to embrace in the near future, people who try to adopt such a lifestyle merely appear as quaint minor characters in a thriller or a comedy. There are few realistic stories about societies that have adapted, or are about to adapt, to a new situation of energy systems transformation.

Surely the challenges involved in this transformation are thrilling or interesting enough for creative people to write books and make films about them? At least, for many people, the transformation to a new way of life and a society that develops values that are embedded in these emerging lifestyles is not likely to become real or tangible until impor-tant aspects of these new realities become the topics of modern fiction dramas, thrillers, and comedies.

The most cost-effective way to support the creation of orgware in sectors related to clean energy systems would probably be to make movies and write books to spread the vision of a fossil-free society in a multitude of ways. In exciting novels and films the compelling argu-ments, the business potential, the possible conflicts, the courageous heroes, and the evil villains may be portrayed, and we can engage in a debate about this development based on vivid images of how this whole development might work out, or how it might fail. If well executed, the production cost of these films and works of literature will pay for them-selves through the revenue that they create for the makers.

Big picture stories

We need stories that tell people about the general direction of develop-ment in the energy area in the near future. People need to understand why large-scale transformation will be necessary and why certain paths should be selected.

We may not realize this at present, but renewable energy is soon likely to be a hyped-up business arena much as Internet business was ten years ago. Companies with all kinds of business models are likely to appear and try to get investors to finance their proposals. If this happens it will be important for governments to develop a clear path and decide which new fuels and technologies to go for, because in the end it is likely to be government decisions that will make or break many of the emerging ventures. The most important aspect of business development will be the ability of a company to develop products that become the standards


of the future. There is a need for stories that describe this high-level process.

An exciting story

The global economy and political arena are under increasing strain as the oil-producing countries try to take advantage of the emerging situation of declining oil volumes. The President of the United States is managing a tightly knit team of key politicians, managers of leading companies, and scientists along with Prime Ministers and presidents of some friendly states that are collaborating in order to avoid a financial and social disaster. The team is in frequent contact with a number of centres of activity in business, society and politics and there is a sense of urgency and turmoil in the air. A number of countries are also trying to collaborate closely with the core group. Some global centres have unexpectedly decided to join forces with the United States in the fight to regain control of developing events. Other countries that have decided to take sides against the United States, some unexpectedly, and led by politicians who hope to achieve a better future for their people by setting out on their own, trying different strategies for survival.

At the beginning of the film, as the audience starts to get a grip on the situation, one of the managers of the core team comes up with an idea that he believes is going to calm the situation down. He had formerly been opposed to efforts to find a way towards a reduced dependence on fossil fuels for the United States. But after a discussion one evening with one of his thoughtful friends – a school teacher and philosophy scholar – he decides to break with the worn-out ideals of his peers in industry, instead, embarking on the path of uniting American and international business people to form a formidably resourceful force for the transformation of business and society in order to create a new type of society based on energy efficiency and sustainability ...

Early one morning, the manager calls the President and asks for a personal meeting during which he presents his idea and asks for permission to form a core team that could work on the task of rapidly developing a strategy and a plan for the transformation of society. This team does not primarily consist of existing “pillars of society” such as business and political leaders, but of a somewhat unlikely set of individuals, who, as the story unfolds, turn out to embody unexpected resources and capacities.

For this is a race against time. Unless the team, led jointly by the brilliantly developing character of the school teacher and the ex-wife of the manager, manages to get the main players in society and the economy to cooperate, total collapse is threatened. In a number of revealing scenes in which some


of the key members of the change team meet with leaders of core groups, the audience realizes that all the core groups, and many of the individual repre-sentatives, have hidden agendas, and that only a true leadership genius can get society to embark on a path of transformation and development.

The quest for a new energy-efficient society requires a new set of values, new forms of co-operation, new institutions and new political agendas. People are lurking in the background, waiting for the President and the leaders of the transformation team to make mistakes that the incumbent groups can use to thwart the fragile project. 2

It is also important for people who trade on the stock markets to spot business opportunities that are straightforward and that can be successful based on incremental investments, such as the shift towards green ICT. However, it may be necessary to adopt even straightforward technologies more rapidly in order to speed up the process of reducing our dependence on fossil fuels, and in this case the change manage-ment required may change from straightforward to challenging. As governments start to make decisions that create more favourable market conditions for investments in clean energy systems it is important that market analysts and financing experts develop the necessary under-standing of clean energy opportunities in order to develop business concepts and models, and finance their implementation.

There is a need to depict all types of situations, not only the high-level challenges, but also the struggles to make businesses work in the new business areas that are emerging. Some important aspects of these new business situations can be conveyed through stories that can become books and films.

The big picture will differ between countries

There will clearly be large differences in the opportunities and choices available in different countries. The path a country takes will depend on its resource base, its existing technologies and energy systems, its geographical size, population density, and its political climate.

The investments that the Danish government and Danish compa-nies have already made in wind energy systems, the small size of the country, and the high taxes it imposes on petrol and diesel vehicles create a seemingly ideal platform for the introduction of an electric vehicle system with national coverage. Neighbouring Sweden, different in all these respects, is likely to offer a bigger challenge both for the introduction of electric vehicles and other renewable fuel solutions. France has a high dependence on nuclear power, so will face a different


situation from Germany that has a large share of coal in its energy mix for electricity production.

The US, with its vast areas of farmland and mountainous areas between densely populated urban areas scattered across the country, represents another unique situation. The US is the western country that has the greatest experience of mobilizing resources on a very large scale for the solution of major national technology and business chal-lenges. In my earlier book “Global Energy Transformation” I analysed the transformation of US industry to war production during the Second World War, the Marshall Plan, and the Apollo program. With its 300 million people forming the largest unified tax and financing base in the western world, this country has, time after time, demon-strated its ability to successfully take on huge financial and business challenges.

In Asia, China, now wealthy and resourceful, is already mobilizing its financial and political resources in support of a large-scale effort to become the global leader in green technologies. China aims to become a large exporter in all areas of green technologies, and is thus moving along the experience curves of the different technologies at a pace that may make it difficult for other countries to catch up.

The experience curve is unforgiving. Advantages in experience and learning gained by entering an industry or a technology area at an early stage cannot be negotiated away. The experience curve might be a theo-retical construct, and difficult for people to intuitively understand, but it is real in the same way that political power, another abstract concept, is real. A company or country that has produced a hundred thousand electric vehicles will have a long-term advantage over companies and countries that are just getting started.

While this is a difficult subject, and not one that many people will read about in a book like this, it would be possible to develop the technology battles, and business efforts into a number of fascinating stories.

Details – technology and business areas

We also need to spread the understanding of the tricky choices that will have to be made in different technology areas. Many of these will be similar to the battle between Macintosh computers and PCs. Sometimes a number of different alternative technologies, designs, and systems will exist alongside one another. At other times the competition between alternatives is likely to result in a small number of alternatives that


succeed, with other technologies and systems falling by the wayside. The most promising technologies can be identified in advance and time and money can be saved by applying the ideas put forward in this book.

We need a range of new fuel solutions and technologies, and to make the best possible use of the natural resources and raw materials at our disposal, but it will be impossible to develop all the possible technolo-gies into fully fledged systems. Also people in positions who do not expect to become involved in this effort will need to understand the differences between the opportunities related to electric vehicles, biogas, smart grids, and wind and solar power, and how they relate to one another.

Informing people may not be a difficult problem. If we develop one or a number of scenarios conveying an overview of energy transfor-mation and vividly illustrate these views in films and literature, we should inspire many individuals to develop more detailed views of particular technology areas and situations. Through this process a number of ‘supertalents’ are likely to find their ways into a number of energy-related areas. It is probably the lack of debate about large-scale energy systems transformation that has led to a lack of interest in this area. Once a number of people start to debate these issues, the level of interest is likely to increase.

Renewable energy technologies, and the systems solutions based on them, seem a little difficult to grasp, probably because no author has taken upon himself the task of popularizing this material. No researcher, journalist, or author has developed a big picture view in which a number of new technologies and systems work together to form a society with well designed infrastructures based on renewable fuels. Instead, some of those who have written about “peak oil” have described the challenge as almost impossible, and others have described energy technology and climate change as primarily technological challenges. And these have all been works of non-fiction.

Financing

Sooner or later energy transformation is likely to present large-scale busi-ness opportunities and we need to understand that the transformation will not succeed unless we manage to mobilize financial resources and competence on a large scale. A prerequisite for this will be the ability of companies to make a profit from these ventures.


Our present transport systems and the global industry structures that make large-scale transportation necessary are very capital-intensive. The rebuilding of large parts of these systems will need clever sources of finance, some of which have been mentioned in this book; other opportunities will be needed later in the change process.

The most attractive and sustainable alternative will be the market-based model, where investments can be made and paid back in a few years without the intervention of governments or planned activities. The complexity and magnitude of the efforts required will mean that this will not be the only model, and it is not likely to be the model that in the end “saves the day” for the large-scale success of renewable fuels technologies. As has been frequently argued in this book, many types of government investments, subsidies, and other incentives will be needed. Governments will also have to finance a substantial share of the development of regional, national and supranational orgware that will constitute innovation systems in different energy areas.

Sustainability interest groups of the world – unite!

One of the difficulties that seems to hold back the development of sustainability is the existence of widely differing ideas about how a sustainable society can be achieved. The approach suggested in the present book is based on the idea that market-driven change is the goal, but this must be supported by government investments and programme management in areas where the market is not likely to do the job. A further issue is that of a secure energy supply for the mainte-nance of an affluent society and for our ability to invest in sustainable technologies.

One of the purposes of this book is to show that we need to work out the paths of transformation in some detail in order to identify the opportunities of the market, as well as its limitations; this may require government involvement. While pluralism and a diversity of ideas is an engine for development in a democratic society, strict adherence to idealistic ideas that are unlikely to be realized, due to fundamental problems and contradictions within the idea complexes themselves, should be identified and treated head-on at an early stage.

This book has attempted to develop a unified framework for thought and action that most proponents of sustainability will find congenial. It acknowledges that many things can be achieved on a local level by engaged individuals. The market is seen as the primary driver of


transformation, but the book also acknowledges, because the magni-tude and complexity of the challenges, the high probability of market failures and an ensuing need for governments to contribute. Many systems transformation activities should be driven forward with a national or supranational perspective in mind. While this book by no means provides a complete picture, I hope that it can offer a starting point for constructive cooperation around key issues.

199

At this point all the clues have been presented to the reader and it is possible to piece together an idea of the optimal strategy for large-scale energy systems transformation for a particular country. The reader may want to spend a few minutes pondering this challenge or continue immediately to a solution that seems to provide optimal energy and financial efficiency. First we look at the current approach and then one based on a number of high-profile technologies. Going a bit further, the third alternative seems to make the best use of our limited resources.

The present technology focus in sustainable energy areas may have served us well in the past, but we need to rapidly build business compe-tence and orgware in finance and marketing; political decision-makers need to be able to make sound decisions, not only from a technology standpoint. This is not just to develop new business in the most tech-nically complex areas. It is primarily a matter of prioritizing the most relevant and cost-effective activities, which also require the least expen-sive and capital-intensive technologies and have the highest probability of success.

The investment needs for the different approaches below differ by tens of billions of euro, which should make the choice of approach and systems structures a matter of intense debate in the near future.

At present the sustainability debate is largely focused on technically complex areas. This may be because these areas will be the most difficult and demanding, both from a technical and from a business and polit-ical perspective. Opportunities that are less complex and demanding may not receive the attention that they should. Saving energy by simple

17 Conclusion – Billions Can Be Saved, and the Probability of Success Can Be Increased


means will be significantly less costly and demanding of investment and competence development, compared to investing in new capacity for power generation or for the building of resources for the production and distribution of renewable fuels. Focusing on the development and implementation of new technologies based on straightforward business models will offer a much higher probability of success than investment in business models for new technologies that are almost impossible, or at least highly complex and challenging.

This is not to say that we can succeed with business transformation using low-tech solutions, or straightforward business models, but to improve the prospects of success we need to use the less costly and straightforward alternatives to their maximum, so that we can focus investment on some of the most promising of the more complex and challenging alternatives. This is simple and powerful logic, similar to the one that has been successfully applied by Svante Enlund, the innovator behind the See Cooling system for data centres described above.

For reasons that are discussed above, it may be possible to reach a 50 per cent penetration of fossil-free technologies by 2030. The goal of 100 per cent is likely to prove too costly, too demanding of capital investment, and too challenging from a change management perspec-tive. The level of success depends on the level of diligence with which the simple principles above are applied. If countries choose solutions that are almost impossible to achieve, or technologies that are highly capital intensive, without combining these efforts with low-cost savings measures, progress will be very difficult and costly. Countries will need to develop strategies for global energy transformation that facilitate a transfer to renewable fuels and a society with lower energy consump-tion overall.

We may now take a closer look at the alternatives available to the government and companies of a country. For the sake of simplicity, and because we have already used it as an example in several cases, we select Sweden, a small country with nine million people. Each country needs to carry out a similar exercise to that outlined below; and at the end of this chapter there is a discussion of what is country-specific and what is generally applicable in this example. We set the rough goal of achieving 50 per cent fossil-free transportation systems by 2030. Due to the peak in oil production and the expectation that oil will become substan-tially more expensive and produced in smaller volumes we focus on the transformation of transport systems, and the implications this may have for power consumption.

Conclusion 201

Baseline

Sweden uses about 85 TWh of oil for transportation and the country’s total power production in a year amounts to 130 TWh, divided 50/50 between hydroelectric power and nuclear energy. The ten nuclear reac-tors that supply some 65 TWh per year came into use between 1972 and 1985, which means that several have been in use for more than 30 years. Many experts estimate that these reactors can be used for 50 years, but within that time-frame we have to count on a need to build substantial new capacity for power generation, or invest large amounts of money in the refurbishment of existing reactors, if this is even realistic.

In the past increased needs for transportation in a growing economy have increased the demand for oil by 1.5 per cent every year. The continuation of this curve would involve an increase by about 20 per cent by 2030 to roughly 100 TWh. Electric vehicles are substantially more energy-efficient than petrol and diesel ones, offering about three to four times more mileage to each kWh. In a fleet consisting of electric vehicles only, Sweden’s current transportation needs could be covered by 30 TWh of electricity, perhaps less. For reasons that have been discussed above, a complete transformation to fossil-free fuels, such as electricity in the case of Sweden, is not realistic.

Currently, biogas engines are approximately 20 per cent less fuel-efficient than diesels. Both these and other technologies are likely to become more efficient and cost-effective in the future. This develop-ment generally follows the principle of the experience curve, explained in the text.

Current approach

The current approach involves little in terms of strategy development and planning. No attempt has been made to identify the most prom-ising or cost-effective technologies or alternatives for large-scale energy transformation in a single country or on a global scale. Technologies are primarily compared according to their technical merits, or to the present cost of fuels and vehicles, without regard to the expected rate of decline along the experience curve.

Using the current approach for the period up to 2030 we will see dramatic increases in the use of renewable technologies, but the increase is likely to be slow and uneven, and is likely to come at an exorbitant cost in terms of technology development and investments in the implemen-tation of systems. This is because of the high risk of many of the highly


complex and challenging ventures within sustainable energy sectors, and the likely failures of many of the attempts. Without conscious and planned integration of cost and energy-efficient systems societies are likely to arrive at suboptimal solutions that are not very competitive with diesel and petrol use, and that will thus require large-scale incen-tives even to reach moderate levels of penetration and success.

Using the current approach, many countries might achieve 15 to 20 per cent penetration of renewable fuels.

Strategy alternative 1: focus primarily on high-profile technologies

The approach that seems to be advocated by many of the proponents of renewable fuels systems and new technologies focuses on the large-scale implementation of a number of high-profile technology complexes, such as electric vehicle systems, biogas, or smart grid technologies.

We will very probably need to make use of some of these technolo-gies. The combinations are likely to differ substantially between coun-tries. Based on the general idea that we will need to transform transport systems to renewable fuels and electricity we may very roughly put some figures on the need to build these systems. With the aim that biogas should fuel 25 per cent of Swedish transportation by 2030, and the same for electricity, we should anticipate a need, due to the lower efficiency of gas engines, for at least 30 TWh of biogas and 8 TWh of electricity for transportation by 2030. Instead of using the biogas for transportation directly it would be possible to use it to produce power, but we are basing our calculations here on a combination of gas and electric vehicles. This involves the construction of two new infrastruc-tures for the distribution of gas and the charging of electric vehicles.

The investments needed in Sweden in order to build a system for production and distribution of biogas for vehicles, and pay for the intro-duction of vehicles, are likely to be between five and seven billion euro, depending on the structure of production, the use of technologies, the choice of substrates and raw materials, and the need to subsidize vehi-cles. At present the debate does not focus on capital needs or the cost of alternative approaches, so there are no comprehensive calculations available.

Investments in electric vehicle systems are even more difficult to esti-mate, due to the largely unknown possibility of developing demand for electric vehicles, and the need to invest in charging systems. We know that by 2030 batteries will provide longer range for electric vehicles,

Conclusion 203

but we know little about the shape of this curve of development, since investments in battery development and the further development of other technologies related to electric vehicles are likely to increase as electric vehicles penetrate the market. If market penetration is slow, technology development is likely to be slow as well. If the Swedish government were to set aside two or three billion euro for the develop-ment of regional and national electric vehicle systems, we still don’t know what level of penetration would be achieved.

We could focus on investments in establishing and growing electric vehicle systems in niche markets, such as local bus lines, local rental systems in large cities, like Autolib’ in Paris, and the establishment of car pools that offer a range of different vehicles, but it is uncer-tain how rapidly these could gain market share, how much of the oil currently used would be replaced, and how much subsidy would have to be set aside in order to sell large numbers of vehicles and build the systems.

During the same period Sweden would need to invest in systems for the renewable production of electricity to replace existing nuclear plants, and to cover the increasing electricity needs of industry, house-holds, and service companies and organizations. We may assume that new energy-efficient technologies in ICT will replace existing alterna-tives on a market-driven basis and that we will not need to include this in our discussion. In total, whatever technological choices are made, there will be a need to invest several billion euro in the replacement of existing power production and in the expansion of electricity use.

Strategy alternative 2: focus primarily on cost-effective and straightforward alternatives

Savings and small straightforward investments

We have already established that it is substantially more cost-effective to save energy rather than building new resources for energy production. Investments in energy-saving technologies can also be straightforward because the person or company that invests is also the one who will enjoy the advantages of lower energy consumption. As has been indi-cated by tests in Stockholm, the opportunity to make energy consump-tion visible through ICT solutions may reduce energy consumption in offices by as much as 30 per cent. Savings are possible on electricity use in other areas of society as well. From this perspective the opportunity to switch off appliances in stand-by may represent a substantial saving in terms of investments for society over the next decades.


In addition to this example the opportunity to defer the bulk of our water heating and the cooling of freezers and fridges to times during the night or day when the demand for electricity is low is likely to substantially cut consumption peaks. This can be achieved through the use of simple timers, visualization equipment that can be purchased for a few hundred euros by individual households, and the implementa-tion of power rates that change during the day as demand fluctuates. The opportunity to store hot water at 200 or 300 degrees in pressurized tanks would further add to the opportunity to store energy from times of peak production of wind and solar power. Investments in equipment to enable variable rates to be charged are already in progress in many utility companies, and in some countries, such as the UK, these princi-ples have already been in use for decades.

It has been estimated that simple measures, such as if people heated only the water they actually need when they make tea, or boil water for other purposes, additional volumes of energy could be saved during hours of peak demand. The use of equipment that makes it easier for people to estimate the volume of water needed each time, or other simple energy-saving methods, may be very efficient ways of reducing the need to build new power-generating capacity.

For all of the above there would be a need to introduce incentives, such as variable charging, and run information campaigns on a broad basis in society, in combination with making relatively small and focused investments in new technology that could be financed via straightfor-ward business models.

In addition to this, we can encourage the use of LED lighting, which uses only a fraction of the electricity used by existing lighting solu-tions, increase the use of frequency-controlled electric motors and other power-saving technologies, including smart building technologies that facilitate the control of electricity use in homes and commercial build-ings. In these cases countries ought to focus on cost-effective technolo-gies with large long-term savings potential per euro of investment.

None of the above would solve the need to develop new transporta-tion fuels, but it would reduce the need to build new capacity for elec-tricity generation, and rapidly make increasing volumes of electricity available for transportation.

Low-cost measures could be implemented to reduce transport needs, without affecting people’s quality of life. One would be to increase the fill-rate of transportation, so that the space in trucks is used more effi-ciently. This may require increased storage space at production plants

Conclusion 205

and at other points in production and logistics systems, but on a long-term basis it would be substantially more cost-effective than increasing the production and distribution resources for renewable energy sources like biogas or electricity.

There is also an opportunity to increase the share of goods and produce that is produced and sold locally. Bread, beverages, cereals, milk, yoghurt, and cheese are products that are transported long distances. Without thinking, people may regularly buy goods that are produced far away and transported long distances instead of buying brands of bread, cereals, milk, or other products that are already produced nearby and sold at a similar price. If stores simply organized displays so that all locally produced products were easy to spot, this might change consumption habits, just as the visualization of electricity consump-tion may induce people to scrutinize all their electrical appliances.

Making locally produced goods clearly identifiable, whether bread from a large bakery next door, or beer from a global brewery giant that happens to be located in the region, would be like marking environmen-tally friendly detergents with sustainability signs. This is not a matter of interfering with the market, but a way of catering to the emerging new preferences of customers, and accommodating patterns of consumption to the changing circumstances of society. The former owner of the super-market Focus in Lund in southern Sweden has become regionally famous because, in the 1980s, he covered part of the shelves carrying detergents and washing powder with plastic so that customers could more easily identify the environmentally friendly alternatives. Companies that want to meet this challenge can establish local production plants in more regions and close to local markets, just as, in the 1980s, producers of detergents and other chemical products adapted their formulas to the emerging environmental preferences of consumers.

Overall, measures such as the above may reduce the need for power production by as much as 20 to 25 per cent. In any country it may be possible to accommodate the increased needs for electricity for trans-portation on a large scale. Simple savings in the transport sector may reduce the need for transport fuels so that energy demand remains stable at 85 TWh per year, even with a normal level of economic growth.

Sustainable transport opportunities

In addition to energy and fuel savings the need will remain to develop and implement sustainable fuels and energy technologies on a large scale. The need for new capacity will be dramatically reduced through


the savings measures, which, compared to the two previous approaches, will save billions of euro for any country.

The chief way of achieving rapid growth of renewable fuels systems without large-scale systems investments, may be the expansion of hybrid vehicle fleets. Incentives will be required to make these vehicles competitive with petrol and diesel ones, but the business and incentive models that will be required to support this implementation will be straightforward compared to the complex systems-based alternatives of electric and biogas vehicles.

If we assume that some 30 TWh of biogas can be produced in a country the size of Sweden, this may be used either to produce heat and power in cogeneration plants or to directly fuel gas vehicles. If 40 per cent of the energy is converted to power, this would still be enough to power more than one-third of Swedish vehicles, providing substantial volumes of heat as an additional by-product.

The cost of this alternative for society as a whole will be substantially lower than the previous alternatives. Not all the measures mentioned in this chapter need to be introduced, but the reader may view it as a collection of suggestions that can be applied, depending on the situa-tion in each country. Even if we cannot calculate the investment and cost exactly we can indicate the level of savings, which overall may reach ten billion euro or more over the period up to 2030:

Substantial savings in electricity can be achieved through relatively 1. small and straightforward investments. Savings that can be achieved through small investments may reach 20 to 25 per cent, which in Sweden amounts to 30 to 35 TWh per year. This will reduce the need to replace much of the capacity for electricity production that will be lost as nuclear power plants are taken out of operation. The invest-ment in a nuclear plant, or the equivalent in wind power, amounts to several billion euro. As a comparison, the UK has 23 nuclear plants that supply 25 per cent of the country’s electricity. Investments in biogas can be reduced substantially if electric vehicles 2. or hybrids are selected as the primary alternatives. As long as hybrids are driven in electric mode these vehicles are as energy-efficient as electric vehicles. Hybrid vehicles would reduce the need to make large and risky invest-3. ments in electric vehicle systems for charging and offer an opportu-nity to jump-start the large-scale implementation of renewable fuels by rapidly increasing the number of plug-in hybrids. If 50% fossil-free transportation could be achieved through the 4. introduction of hybrid and electric vehicles, we may assume that

Conclusion 207

the incentives needed in order to increase demand for these types of vehicles would be similar to those needed to promote gas vehicles.

The opportunity to save ten billion euro or more over the next two decades is substantial, but we still don’t know if the choice of alter-native presented here represents the most attractive or realistic one. I have tried to show that there is a need to develop competence and orgware in areas related to systems integration, business development, and financing. These resources need to be developed now, before large scale investment programmes in renewable fuel areas are started, and countries embark on developments that would be difficult or costly to reverse.

The present author would be happy to participate in further develop-ment of strategies for large-scale energy transformation, but we need to add more resources. Due to the lack of financing for initiatives in the areas discussed in this book, these ideas have been developed without financing and on a voluntary basis.

What is country-specific?

Electric vehicles are always substantially more energy-efficient than diesel and petrol alternatives. Hybrid vehicles do not require national or regional charging infrastructures in order to provide unlimited mobility. There are, however, important differences in terms of infra-structure that strongly influence the choice of energy transformation strategies. Some countries, such as Sweden, have power grids that are more stable than others. The cost of upgrading grids so that they can handle smart grid applications varies, as does the cost of upgrading grids to cater to large-scale electric vehicle fleets.

The production of electricity from biogas will be more advantageous in countries and regions with well developed district heating networks that facilitate the distribution of heat from cogeneration plants. In contrast, countries with well developed networks for gas distribution will require less investment in order to implement national gas vehicle systems, as long as the size of plants for biogas production is relatively large, because of the advantages of scale in the upgrading of biogas to vehicle fuel quality.

It is also important to note that while hybrid vehicle fleets provide unlimited mobility internationally, gas vehicle owners from a country with a focus on gas alternatives will not be able to travel in countries without gas filling stations. The same will be true for owners of electric vehicles. In a neighbouring country without public charging infrastruc-ture, electric vehicles will be limited by the range of the battery. This


emphasizes the need for international agreements between countries regarding the strategies for global energy transformation.

Orgware needs

There is no need to develop business competence or orgware in order to continue with the current approach. Substantial volumes of orgware will, however, be necessary to develop business models for the large-scale implementation of electric vehicle and biogas systems. With a focus on hybrid vehicles and conversion of biogas to electricity and heat, the systems issues related to the introduction of new vehicle systems disappear. In this case orgware will be required to support the devel-opment and implementation of energy transformation strategies based on cost-effective and straightforward business models. This will have substantially smaller needs for systems integration, business develop-ment, financing, and political decision-making than the development of complex systems solutions in challenging business environments.

Comparing the three approaches that have been roughly outlined in this chapter, the approach of focusing on cost-effective and straightfor-ward solutions is preferable from all perspectives discussed:

− It is less capital intensive and costly, − it provides a substantially higher probability of success, − and it will require the development of less competence and orgware

for decision-making and administration.

It is by now well known that in order to build a house, a detailed drawing of all the aspects of the house is required. In the case of the design of the transportation systems of the future, we need to do the same. The cost of mistakes related to the design may amount to billions of euro; even more if we fail to design competitive systems that can form the basis for large-scale growth of sustainable energy and transport systems.

209

Notes

1 I Mean “Business!”

1 . Johansson, Leif (2005) European Challenge – How a manufacturer of commercial vehicles can contribute to sustainable development and sharpen competitive edge within the EU. Volvo Group publication.

2 . AB Volvo (2008) Climate Issues in Focus . Volvo Group publication, Göteborg, Sweden.

3 . International Energy Agency (2009) World Energy Outlook , IEA, Paris. 4 . Weiss, C. & Bonvillian, W. (2009) Structuring an Energy Technology Revolution ,

MIT Press, Cambridge, MA. 5 . Larsson, M. R. (2009) Global Energy Transformation , Palgrave Macmillan,

Basingstoke UK. 6 . Larsson, M. R. (2009) Overcoming Overuse, www.lulu.com. 7 . Fox-Penner, P. (2010) SMART Power – Climate Change, the Smart Grid, and the

Future of Electric Utilities , Island Press, Washington DC. 8 . Carvallo, A. & Cooper, J. (2011) The Advanced Smart Grid – Edge Power Driving

Sustainability , Artech House, Boston, MA. 9 . Geller, H. (2003) Energy Revolution – Policies for a Sustainable Future , Island

Press, Washington DC. 10 . Komor, P. (2004) Renewable Energy Policy , iUniverse, Lincoln, NE. 11 . Spiegel, E. & McArthur, N. (2009) Energy Shift , McGraw Hill, New York. 12 . Capehart, B. L. et al. (2006) Guide to Energy Management , The Fairmont Press,

Lilburn, GA. 13 . Boyle, G., ed. (2004) Renewable Energy – Power for a Sustainable Future , The

Open University, Oxford University Press, Oxford. 14 . Boyle et al. (2003) Energy Systems and Sustainability – Power for a Sustainable

Future , The Open University, Oxford University Press, Oxford. 15 . Worldwatch Institute (2007) Biofuels for Transport , Earthscan, London. 16 . Carson, I. & Vaitheeswaran, V. (2008) Zoom – The Global Race to Fuel the Car

of the Future , Penguin Books, London. 17 . Senge, P. et al. (2010) The Necessary Revolution – Working Together to Create a

Sustainable World , Broadway Books, New York. 18 . Heinberg, R. (2003) The Party’s Over , New Society Publishers, Gabriola Island

BC, Canada. 19 . Heinberg, R. (2004) Powerdown , New Society Publishers, Gabriola Island BC,

Canada. 20 . Deffeyes, K. (2001) Hubbert’s Peak , Hill and Wang, New York. 21 . Deffeyes, K. (2005) Beyond Oil – A View from Hubbert’s Peak , Hill and Wang,

New York. 22 . Simmons, M. R. (2005) Twilight in the Desert , Wiley, New York. 23 . Heinberg, R. (2006) The Oil Depletion Protocol , New Society Publishers,

Gabriola Island BC, Canada. 24 . Hopkins, R. (2008) The Transition Handbook , Chelsea Green, White River

Junction VT.

210 Notes

25 . Dobro, D. (1979) The strategy for organized technology in the light of hard-, soft-, and org-ware interaction, Long Range Planning , Volume 12, Issue 4, pp. 79–90.

26 . Dalhammar, C., Peck, P., Tojo, N., Mundaca, L. & Neij, L. (2009) Advancing Technology Transfer for Climate Change Mitigation , International Institute for Industrial Environmental Economics, Lund, Sweden.

2 The Need for Large-Scale Energy Systems Transformation

1 . Hirsch, R., Bezdek, R. & Wendling, R. (2005) Peaking of World Oil Production: Impacts, Mitigation and Risk Management, US Government.

2 . Heinberg, R. (2003) The Party’s Over, New Society Publishers, Gabriola Island BC, Canada, p. 156.

3 . Tainter, J. (1988) The Collapse of Complex Societies, Oxford University Press, Oxford.

3 Not Technology, but Orgware, Business, and Financing

1 . Dobro, D. (1979) The strategy for organized technology in the light of hard-, soft-, and org-ware interaction, Long Range Planning, Volume 12, Issue 4, pp. 79–90.

2 . Kuhn, T. (1962) The Structure of Scientific Revolutions, University of Chicago Press, Chicago IL.

3. Ferguson, N. (2012) Civilization, Penguin Books, London. 4 . This story originally appeared in Mats R. Larsson (with Mike Szimanski)

“Overcoming Overuse – Energy Transformation for a World Gone Fad.”

4 What Will Happen if We Fail?

1 . Tertzakian, P. (2005) A Thousand Barrels a Second, McGraw Hill, New York, pp. 62–63.

2 . Daly, H. (1996) Beyond Growth, Beacon Press, Boston MA. 3 . Douthwite, R. (1992) The Growth Illusion, New Society Publishers, Gabriola

Island BC, Canada. 4 . Jackson, T. (2011) Prosperity Without Growth, Routledge, London.

5 How to Identify Lack of Business Orgware

1 . Popper, K. (1959) The Logic of Scientific Discovery, Hutchinson, London. 2 . Isaacson, W. (2011) Steve Jobs, Little, Brown, New York. 3 . Ibid p. 240. 4 . Ibid pp. 146–147.

6 The Contents of Business Orgware?

1 . Ruttan, Vernon W. (2005) Is War Necessary for Economic Growth?, Norton, pp. 116–122.

Notes 211

2 . Weiss, C. & Bonvillian, W. B. (2009) Structuring an Energy Technology Revolution, The MIT Press, Cambridge.

3 . http://www.va.se/hallbarhet/arkiv-hallbarhet. 4 . Paulinyi, A. (1989). Industrielle Revolution vom Ursprung der modernen Technik.

Deutsches Museum, Hamburg. 5 . Moore, G. A. (2006) Crossing the Chasm, Collins Business, New York. 6 . Collinns, J. & Porras, J. (1994) Built to Last, Collins, New York. 7 . Johnson, C. A. (1982) MITI and the Japanese Miracle: The Growth of Industrial

Policy, 1925–1975, Stanford University Press, Stanford CA.

7 Four Categories of Orgware

1 . Isaacson, W. (2011) Steve Jobs, Little , Brown, New York. 2 . Moore, G. A. (2006) Crossing the Chasm , Collins Business, New York, p. 38. 3 . Larsson, M. & Lundberg, D. (1998) The Transparent Market , Palgrave

Macmillan, London. 4 . Kelly, K. (1999) New Rules for the New Economy – 10 Ways the Network Economy

is Changing Everything , Fourth Estate, London. 5 . Tapscott, D. (1998) Blueprint to the Digital Economy – Creating Wealth in the

Era of E-Business , McGraw-Hill, New York. 6 . Shapiro, C. & Varian, H. (1999) Information Rules , Harvard Business School

Press, Cambridge MA. 7 . Isaacson, W. (2011) Steve Jobs, Little , Brown, London, p. 195. 8 . Gladwell, M. (2008) Outliers – The Story of Success , Allen Lane, London. 9 . Geller, H. (2003) Energy Revolution – Policies for a Sustainable Future , Island

Press, Washington DC. 10 . Østergaard, J., Foosnæs, A., Xu, Z., Mondorf, T., Andersen, C., Holthusen,

S., Holm, T., Bendtsen, M. & Behnke, K. (2010) Electric Vehicles in Power Systems with 50% Wind Power Penetration: The Danish Case and the Edison Programme, ForskEl programme, contract no 2008–1–0224.

8 Geographical Aspects of Orgware

1 . Bloomberg Businessweek (7 August 2009) Autolib: Paris electric car-sharing plan.

2 . www.thesundaily.my/news162271 (30 September 2011) Bubble cars to provide jolt to Paris motoring.

3 . www.bbc.co.uk/news/world-europe-.15134136 (30 September 2011) Paris launches electric car-sharing scheme.

4 . www.bbc.co.uk/news/world-europe-.15134136 (30 September 2011) Paris launches electric car-sharing scheme.

9 Business Situations

1 . Kim, W. C. & Mauborgne, R. (2005) Blue Ocean Strategy , Harvard Business School Press, Cambridge MA.

2 . Christensen, C. M. (2011) The Innovator’s Dilemma , Harper Business, New York. 3 . Isaacson, W. (2011) Steve Jobs, Little , Brown, London.

212 Notes

10 Business Situations, Technologies, and Emerging Business Models

1 . Østergaard, J., Foosnæs, A., Xu, Z., Mondorf, T., Andersen, C., Holthusen, S., Holm, T., Bendtsen, M. & Behnke, K. (2010) Electric Vehicles in Power Systems with 50% Wind Power Penetration: The Danish Case and the Edison Programme, ForskEl programme, contract no 2008–1–0224.

2 . AB Volvo (2008) Climate Issues in Focus , Volvo Group publication, Göteborg. 3 . Shapouri, H., Duffield, J. A. & Wang, M. (2002) The Energy Balance of Corn

Ethanol – An Update , US Department of Energy, Washington DC. 4 . http://www.sciencedaily.com/releases/2008/01/080109110629.htm (2008)

Biofuel: Major Net Energy Gain From Switchgrass-Based Ethanol, Science Daily, 9 January.

11 Smart Grids and New and Visionary Materials Technologies

1 . Fox-Penner, P. (2010) SMART Power – Climate Change, the Smart Grid, and the Future of Electric Utilities, Island Press, Washington DC.

12 Development Opportunities for Well-Established Technologies

1 . http://www.datacenterknowledge.com/archives/2009/05/14/whos-got-the-most-web-servers/

2 . Statistics Sweden (Statistiska Centralbyrån) Statistics of households 2010. 3 . Royal Swedish Academy of Sciences (2005) Statements on Oil, Stockholm. 4 . WWF/ETNO – Saving the World @ the Speed of Light, Report circa 2005.

14 The Role of Orgware in Energy Systems Transformation

1 . American Energy Innovation Council (2010) A Business Plan For America’s Energy Future , Washington DC.

2 . Krugman, P. (2009) The Return of Depression Economics, and the Crisis of 2008 , W. W. Norton & Company, New York.

3 . Keynes, J. M. (1997) The General Theory of Employment, Interest, and Money , Prometheus Books, New York, p. 129.

16 Important Aspects of Change Management

1 . Murray, C. & Bly Cox, C. (2004) Apollo , South Mountain Books, Burkittsville. 2 . This story originally appeared in Mats R. Larsson (with Mike Szimanski)

“Overcoming Overuse – Energy Transformation for a World Gone Fad”.

213

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215

adoption curve, 66–7advantages of scale, 35advertising, as part of business

model, 51AGA, 131Agassi, Shai, 85, 124agricultural society, 14agriculture, 136–8American Energy Innovation

Council, 4, 61–3, 73, 77, 164, 166, 168, 172

American National Standards Institute (ANSI), 101–2

analysis of transformation opportunities, 6

Apollo programme, 168, 185–6Apple Computers, 12, 41, 64, 74, 79,

83, 111, 167ARPA-E, 55, 62ARPA Information Processing

Techniques Office, 53ARPANET, 52–3Assembler, 14Augustine, Norman, 61Autolib, 99, 119, 123automobile, 14

barriers to development and implementation, 44

Berners-Lee, Tim, 54batteries

for electric vehicles, 12range of, 91–2, 101, 121

battery-switching stations, 85, 93, 124Beatles, the, 80–2Better Place, 12, 47, 85, 102, 123,

124–5, 143bio-fuels, 90–1, 137biogas, 19–20, 91, 93, 97–8, 100–1,

129–38market for, 131–6role in transformation, 199–208

bipartisan Policy Center, 61

black swans, 38Blue Ocean Strategy, 106, 111Boeing, 68–70Bollore Group, 99Bonvillian, William, 4, 54–7, 60, 65,

77, 106, 128, 146, 166, 172Bornholm, 125Boyle, Godfrey, 6break-through applications, 47building materials, choice of, 156–7Built to Last, 68–70Burns, Ursula, 61business

-based view, 40case, 62challenges, complexity of, 22development, 3, 26, 31, 72, 172for electric vehicles, 23, 122–8environments favourable to electric

vehicles, 122ideas, 46, 56management theory, 3managers, knowledge of, 17models, 22–3, 44–59, 73, 76models for biogas, 130–6situations, 45, 76stability of, 111strategies, 45–6, 64–6, 70of telecom operators, 119

A Business Plan for America’s Energy Future, 61–2

Bus Rapid Transit, 94bus systems, 93–5

Capehart, Barney L., 5Carbo cat, 12carbon emissions, role of in climate

change, 17carbon fibre, 144–7carbon-fibre ships, 12cars, 11

number produced, 12pooling, 92

Index

216 Index

Carvallo, Andres, 5Catalyzing American Ingenuity: The

Role of Government, 62centers of excellence, 62ceteris paribus, 32challenging business situations,

45, 106change management, 27, 175, 185,

187–8charging infrastructures, 116charging of vehicles, 115–16Chevrolet Volt, 121China, 62Christensen, Clayton M., 108, 111Clean energy innovation, 62clean energy systems, 55clean fuels and energy systems, 43clean fuel technologies, 47climate change, 5, 6, 9, 41, 45

awareness of, 18Climate Issues in Focus, 4, 31, 163Climate Works Foundation, 61clock builders, 68–70, 109clusters, 70–1, 72cogeneration, 5, 98, 125collaboration gap, 56The Collapse of Complex Societies, 14Collins, Jim, 68–70combined heat and power, 5, 98,

149, 180commercial vehicles, number

produced, 12communication, 43, 56competence, 16, 44, 138, 176

organization of, 23Competitive Advantage, 65competitive advantage of IKEA, 110The Competitive Advantage of

Nations, 71competitive challenges, 25Competitive Strategy, 65complex business situations,

45, 106, 121complexity, 14composite, use of, 146–7composite ships, 144–6Compuverde, 152, 155Comviq, 83conductive charging, 116

Conscience of a Liberal, 170consequences of “Peak Oil,” 32–4construction principles, 156Cooper, John, 5Coordination, necessity of, 15, 33copper, use and recycling of, 10country specific aspects of

transformation, 207–8crises, four interrelated, 62Crossing the Chasm, 67, 74cult-like cultures, 70customer

base, 47categories, 66needs and value, 13, 23, 109, 111offerings, value of, 11-oriented systems, 73purchasing power of, 14using new technologies, 13willingness to pay, 46

Dalkia, 100Danish Wind Turbine Owners

Association, 86DARPA, 55–6data centres, 151–5decision makers

knowledge of, 17, 40, 54, 97, 124, 150

makers, role of, 167–8decision-making method, 161–3Dell, 12demonstration projects, scale of, 55Denmark, 20, 40, 47, 86–8,

124–5, 140depression economics, 169–70developing countries, 35diesel- and petrol-fuelled vehicles,

dominance of, 110Digital Equipment Corporation,

78–9, 108disruptive technologies, 108, 111distribution models, 130distribution systems, 12district cooling, 100, 150district heating, 5, 90–3, 95–7, 100,

148–50simulation and control systems,

157–8

Index 217

DME, 100, 129Dobrov, G.M., 6Doerr, John, 61Domain Name System, 53Douglas Aircraft, 70

E85, 11early adopters, 66, 111early majority, 66, 111e-business ventures, 46Ecomagination, 11Economic Advisory Panel, of

President Obama, 4economic growth, 20, 41economic policy, 169–70Edison, Thomas, 13, 68–9Edison project, 125Eisenhower, Dwight D., 185E-Laad project, 93, 117–18electric buses, 117electricity savings, 142–4electricity to fuel transportation, 35electric mobility, 47, 116electric vehicles, 12, 22, 91–5,

98–9, 101–2challenge of, 44limited range of, 91–5market penetration of, 20, 35, 99potential of, 40role in transformation, 199–208services, 47support for, 19systems, 22, 76, 85, 110, 114–19,

123, 124tax-exemption of, 47

electric Vehicle Standards Panel (EVSP), 102

electronic business, adoption of, 25, 75emissions, reduction of, 9, 41, 45Energigas Sverige, 131–4energy

consumption of buildings, 156management, 5savings, 139–40storage, 143supply, security of, 1, 9, 20, 42systems transformation, role of

orgware in, 164–70, 173technology revolution, 55

Energy Challenge Program, 62Energy Revolution, 86–8Energy Strategy Board, 62entanglement, of energy systems and

society, 17entrepreneurship, 26Environmental Life Cycle Cost, 94–5Ericsson, 12, 83, 140ethanol, 11, 136–8EU innovation programmes, 24Euroheat & Power, 100, 148–50experience curve, 59–60, 66, 165

Facebook, 46, 51, 152–3falsification as scientific method, 38fashion industries, 48Federal Drug Administration

(FDA), 106financial analysts, need of, 82financial austerity, 63financial calculations, 63financing

by governments, 174–5need of, 22, 66, 82, 97, 196–7prioritization of, 169training in, 56

Fortum, 100fossil-free transportation sector, 20, 133Fox-Penner, Peter, 5, 141–4free cooling, 153–5free newspapers, 120fuel saving technologies, 35

Gandhi, 26Gartner Group, 150–2gas

distribution and dispensing of, 128, 131–6

vehicles, market penetration of, 35, 89

Gates, Bill, 4, 61, 80–2Geller, Howard, 5, 86General Electric, 4, 11–12, 68, 140, 187general-purpose technologies,

9, 51–7, 71German Gas Association, 134German Government, 134Ghosn, Carlos, 20Gladwell, Malcolm, 80–3

218 Index

global economy, 34, 42global energy transformation

programmes and projects, 37prospects of, 32

Global Energy Transformation, book, 4, 27, 168, 195

global peak in oil production, 9, 16global supply chains, 34Gold prospecting, 56, 78Google, 12, 152, 167Gore, Al, 5government

agencies, 30-financed institutions, 128intervention, 15, 117, 174–5investments, 10, 50–7, 61, 120-owned companies, 48resources for decision-making, 190subsidies, 47, 77, 114, 120

Granoff, Michael, 85Great Depression, the, 169green ICT, 114, 150–8, 165greening

by ICT, 155–8of ICT, 151–5

growth opportunities, offered by development, 17

Hatt, Anna-Karin, 19–20Heavy vehicles, 93–5Heinberg, Richard, 6, 136H&M, 109–10, 113Holliday, Charles, 61Hotmail, 50hybrid buses, 100hybrid trucks, 100hybrid vehicles, 48hypotheses, strengthening of, 38

IBM, 12, 68, 78–9, 81, 108ICT systems platform, 117IKEA, 109, 111, 113, 140Immelt, Jeff, 4, 11, 61impossible business situations, 106improvements, systematic, 60incentives

packaging of, 56role in driving transformation,

199–208

An Inconvenient Truth, 5induction charging, 94, 116–17inferior technologies, 108, 111information, 43, 156information technology (IT), 45

government investment in, 50–4infrastructures, scale of, 52innovation and marketing, 67innovation systems, 17, 19, 71, 72,

187–8need for, 30, 45, 54–7

innovators, 67, 111The Innovator’s Dilemma, 108insulation materials, energy

consumption of, 157institutional gaps, 54–7institutions, supporting technology

development, 17, 54–7institutions and organizations, as

part of orgware, 16, 71integrated systems, 45international collaboration, 27, 31, 37International Energy Agency, 4international standardization, 30–1international transformation

efforts, 42Internet, 13, 15, 25, 80

communication, 52–4development of, 52–4services, 48, 50

Internet Corporation for Assigned Names and Numbers, 53

investmentsdearth of, 62in fuel and transportation systems,

11, 33–4, 119, 168in large-scale energy

transformation, 199–208size of, 39, 46

investorsknowledge of, 17, 97need of, 82

IP-telephony, 53iron curtain, fall of, 172Isaacson, Walter, 41, 112Israel, 124Is War Necessary for Economic Growth?,

10, 51–4, 146IT-industry, transformation of, 12

Index 219

jobcreation, 86markets, 34opportunities, 57–8

Jobs, Steve, 40–2, 64, 74, 79, 112Johansson, Leif, 4, 9, 31

Kamprad, Ingvar, 109Kennedy, John F., 185key customers, 63Keynesian economic doctrines,

169–70, 174Kim, W Chan, 106knowledge, 16, 22, 40, 44

about business models, 75Kockums, 144–5Komor, Paul, 5Krugman, Paul, 169–70Kuhn, Thomas S., 24–5

laissez-faire politics, 171large scale programmes, 9, 33Larsson, Mats, 13lean production philosophy

of Zara, 110LED lighting, 142–3, 180Lippman, Doug, 190local economies, 34–5local initiatives vs. large-scale

programmes, 38, 42, 89local production, 35The Logic of Scientific Discovery, 38logistics management, 47long-term government financing,

50–4long-term technology development

programmes, 44Lord Baden-Powell, 26Lucas Film, 41Lundberg, David, 13, 25

Macintosh, 41, 74, 79, 112Mäkitalo, Östen, 83–4Malmö district heating system, 149managed programmes and

projects, 9mandates for technology

deployment, 56Maniv Investments, 85

market-based growth, 45, 114directors, 44failures, 77, 120, 174, 198segmentation, 66, 94–5, 119understanding, 95

marketing, 64, 66–7of car pools, 92of energy saving

technologies, 155experts, 82of ideas, 156training in, 56

Marriott, 69Mauborgne, Renee, 106McArthur, Neil, 5McDonnell Douglas, 70Members of Parliament, knowledge

of, 17Merck, George W., 69messages, need of repetition, 156Microsoft, 12, 81, 83, 167MILNET, 53mini-mills, 108Minister of IT and Energy, 19Ministry of International Trade and

Industry (MITI), 71Mintzberg, Henry, 65mobile telephony, 30–1, 44–5,

48–51, 83–4Moore, Geoffrey A., 67Morris, Philip, 69

NASA, 188national transformation

efforts, 42natural gas, 91, 93, 97–8, 100–1,

128–9, 136Netherlands, the, 33, 93, 117new business models, 13, 106new business offers, 13new economy, 75new energy technologies, 128new fuels, market for, 129new materials, 45new production technologies and

systems, 165new products, launch of, 78new supply chains, 35

220 Index

new technologies, 13, 40, 49development of, 73, 78marketing of, 66–7

NeXT, 41Nike, 66Nissan, 20Noda, 157Nordisk Etanol & Biogas, 137Nordstrom, 69–70normal science, 24Northstream, 134–6Nucor, 108

Obama, Barack, 62oil

amount used, 12dependence on, 20, 33economy, 75production, risk of reduction of, 19replacement of in transportation

systems, 17use of, 10, 11

Olsen, Kenneth, 78–9Olson, Mancur, 71Outliers – The Story of Success, 80–3organizational learning, 6organized decision-making, 17orgware, 6, 16–31, 38, 44–102, 127,

164–70biofuels production, 137–8biogas, 91, 93, 97–8, 100, 177–8business, 21–31, 44–71, 122, 124district heating and cooling, 90,

92–3, 95, 100, 150, 179–80electric vehicle, 91, 93–5, 98–9,

101–2, 176–7energy savings, 139financing, 21, 44, 78–86, 122gas, 136greening by ICT, 183greening of ICT, 181–2local, 23market, 21, 44, 73–8national, 23, 95–9natural gas, 91, 93, 97–8, 100, 179new materials, 146–7, 184plug-in hybrids, 177–8political, 21, 86–8, 122regional, 23

smart grids, 143–4, 180–1supranational, 23, 100–2, 122technical, 20, 72–4transformation, 199–208

Örnfjäder, Krister, 19, 171Our Choice: A Plan to Solve the Climate

Crisis, 5Our use of energy, 2Overcoming Overuse, 5

packet switching, 53paradigm shift, 24–5Paris, electric vehicle system, 20The Party’s Over, 6, 136payment models, 102Peak Oil, 6, 9, 16

awareness of, 18consequences of, 32–4

personal computing, 79petrol-fuelled transportation,

competitiveness of, 59–60Philip Morris, 69Pininfarina, 99Pixar, 41planning, 9, 199–208plug-in hybrids, 48, 110, 121policy and strategy development, 172Popper, Karl, 38Porras, Jerry, 68–70Porter, Michael E, 65, 70–1Powerdown, 6power grid, first, 14power saving technologies, 142pricing mechanisms in electricity

market, 142production and logistics systems

complexity of, 109–10efficiency of, 3

production methods and technologies, 128

production systems, diversion of in wartime, 15

production volume, 59–60product life-cycle, 66–7profile supporter, 126programming, of computer games, 15project management, 15public good offered by transportation

systems, 118

Index 221

public works programmes, 169–70purchasing power, 14

Radiolaboratoriet, 83rapid charging, 116Rausing, Ruben, 14raw materials for biofuels, 136–8reality distortion field, 40–2regional economies, 34–5Reinfeldt, Fredrik, 173Renault, 20renewable energy, export of, 62renewable fuels, 35, 44, 76, 90–102

systems, attractiveness of, 51renewable power, 28return-on-investments, 99risk

aversity to, 50, 88high-risk ventures, 106levels of plug-in hybrids and

electric vehicle systems, 121reduction of, 46of various business models, 49

roaming, 120Romer, Paul, 56, 78Royal Institute of Technology, 57, 153Ruttan, Vernon W., 10, 51–4,

146, 170

scientific revolutions, 24–5scouts and guides, 23, 26Sculley, John, 112See Cooling, 153–5Sematech, 55service providers, specialization of, 30service to citizens, 49Simmons, Anette, 190Simmons, Matthew R., 6Skype, 46, 50–1, 53, 120, 167smart electric grids, 5, 141–4software, 16solar energy, 28Solso, Tim, 61Sony, 41, 57Space Task Group, 185specialization, 14Spiegel, Eric, 5split vision, 42Spotify, 50–1, 120

smart electricity grid, role in transformation, 199–208

standards, 30–1, 56, 78–9stories, 189–95storytelling, 189–95straightforward business situations,

45, 106, 113strategic planning, 65, 199–208strategies for district heating, 148–50The Structure of Scientific Revolutions,

24Structuring an Energy Technology

Revolution, 4, 54–7subscription newspapers, 120subsidies for investments, 87–8sub-systems operator, 50–1, 127supertalents, 57supply chain management, 48supply chains, geographic coverage

of, 35sustainability

development, 41interest groups, 197–8proponents of, 17

sustainable business models, 1, 2sustainable development of

systems, 127sustainable energy and transport

technologies, 17, 54–7sustainable transportation, 78Swansea district heating project,

97, 149Swedish Energy Agency, 173Swedish Environmental Institute, 157Swedish Government, 97systems

development, large-scale, 77integration, 22, 44–5, 73, 172introduction, 105operator, 48, 123solutions, 52structures, 11tests, large-scale, 106transformation, 9, 35, 39–43, 114,

175, 199–208

Tainter, Joseph, 14TCO Development, 158, 182TCP/IP, 53

222 Index

technologiesavailability of, 18proliferation of, 15user friendliness of, 13

technology developmentas basis for transformation, 105financing of, 16, 48, 52previous experiences of, 44resource requirements of, 72unpredictability of, 14

telecom operators, 119telecoms research, 83telecoms sector, 30–1teleconferencing, 155Televerket, 83Telia Sonera, 83, 153–5Tesla, 12Tetra Pak, 14timelines of programmes, 39time-share, 81time tellers, 68–70Tillväxtverket, 173Toyota Prius, 121training, 43, 133, 186transformation

of heating, 140large scale, 9, 35, 39–43,

114, 175of vehicle fleets, 138

transition, 6, 34, 90translational R&D, 55The Transparent Market, 13, 25,

75–6transportation, cost of, 35transportation fuels,

interrelationships between, 11

transportation systemscomplexity of, 20, 29cost effectiveness of, 59–60transformation of, 32

trucks, 10life of, 11

tyranny of the ‘or,’ 68–9

uncertaintyabout rules and standards, 175avoidance of, 88

unique selling points, 63unit cost of production, 59–60unlimited mobility, 115US Department of Agriculture, 136US Government, 52–7

Vattenfall, 100, 149Växjö, city of, 97Veckans Affärer, 57vehicles

average life of, 20cost of production of, 55gas in Sweden, 20renewable fuel, 12supplier, 126

venture capitalists, 44Vestas, 86, 125“vicious circle of status quo

behavior,” 62Vinnova, 173visual model, 161–3Volvo, 4, 31, 60, 100, 129, 163

Wal-Mart, 64waste incineration, 90, 96–7waste management companies, 93Watson, Thomas Sr., 68, 78–9Weiss, Charles, 4, 54–7, 60, 65, 77,

105, 128, 146, 166, 172Welsh Government Regeneration

Area Programme, 97wind power, 40, 47, 140

limitations of, 87share of in energy mix, 87

wind turbines, 86–8workboats for wind farms, 145World Wide Web, 53–4Wozniak, Steve, 79–80WWF, 155

Zara, 110

the business of global energy transformation: saving billions through sustainable models

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