Managing tensions between ecological
and economic values: insights from the
renewable energy market
Master’s Thesis
MSc International Business and Management
Kim van Velde
S2182173
June, 2018
2 DETAILS
Name: Kim van Velde
Programme: MSc. International Business and Management Student number: S2182173
Email: K.V.van.Velde@student.rug.nl
Supervisor: Dr. Miriam M. Wilhelm Email: M.M.Wilhelm@rug.nl Co-Assessor: Dr. Viacheslav Iurkov Email: V.Iurkov@rug.nl
University: University of Groningen
Faculty: Faculty of Economics and Business Netelbosje 2
9747 AE Groningen
List of Tables
All tables were produced by the author of this research.
Table 1: Case characteristics P. 21
3 ABSTRACT
Renewable energy suppliers are environmental enterprises, that deal with environmental and economic values. These enterprises create and capture value, while protecting the natural environment and reducing environmental pollution. However, the environmental and economic values can appear to be contradictory, leading to internal tensions. If the tensions are not managed properly, mission drift or low financial performance could occur. This study suggests environmental enterprises perceive the same tensions as social enterprises, and apply various response strategies. The degree of tension influences the selection of responses.
Key words: renewable energy suppliers, energy market, environmental entrepreneurship, tension, environmental mission, economic values
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TABLE OF CONTENTS
Introduction ... 5
Literature review ... 7
The Dutch energy market and current barriers to sustainable change ... 7
The emergence of environmental entrepreneurship in the energy market ... 10
Drivers and barriers of environmental entrepreneurship ... 12
Managing tensions between ecological and economic logics ... 15
Research design ... 19 Methodology ... 19 Case selection ... 20 Data collection ... 21 Data analysis ... 21 Findings ... 22
Within case analysis ... 22
Cross-case analysis ... 30
Discussion ... 35
Conclusion ... 38
Limitations ... 38
Recommendations for future research ... 38
References ... 39
Appendices ... 44
Appendix I Energy suppliers in the Netherlands ... 44
Appendix II Energy production ... 45
Appendix III Energy suppliers ... 46
Appendix IV Interview ... 47
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INTRODUCTION
Global climate change is one of the major challenges worldwide in the 21st century. The increasing amount of greenhouse gases such as CO2 or CH4 released in our atmosphere have a significant effect on global warming. The rising sea levels, increase in floods, draughts, and changing intensity of heat waves are examples of the changing climate. One major cause for climate change is the rapidly increasing consumption of fossil fuels to meet our current energy demands (Panwar et al., 2011). The traditional fossil fuel energy sources are based on oil, coal and natural gas. The transition to a renewable energy system will reduce the impact on the environment, improve health and create economic opportunities (Akella et al., 2009). The severity of these global challenges lead to an increasing interest in environmental entrepreneurship, which combines ecological with economic goals (Hockerts & Wüstenhagen, 2010).
Environmental enterprises are not only focused on financial sustainability, but especially on environmental sustainability. Brehmer et al. (2018) defines environmentally sustainable enterprises as those that create and capture value, while protecting the natural environment and reducing environmental pollution, and thus increase energy, material, and/or water efficiency relatively more than their peer organizations. Environmental enterprises in the energy sector are focusing on renewable energy sources. These sources include solar, wind, biomass, hydropower, geothermal and marine energies (Panwar et al., 2011).
The goals of protecting the natural environment and reducing environmental pollution are deeply rooted in the values of environmental enterprises. However, to balance the enhancement of environmental wealth and the need of profits is often difficult. The accountability of the organization models raises multiple concerns at different beneficiaries (Choi & Majumdar, 2014). Santos et al. (2015) suggest that environmental enterprises may have difficulties in reaching financial sustainability, and that they are fragile organizations. Organizations that prioritize environmental performance over financial performance and do not ensure their financial sustainability, find it difficult to survive in their markets (Santos et al., 2015).
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of organizations with sustainable business models that successfully operate in commercial markets and simultaneously achieve their environmental goals (Hahn et al., 2018).
Moreover, in the energy sector, the commercialization of sustainable energy technologies is one of the biggest challenges in the field of renewable energy, partly due to sceptical consumers, lack of sales infrastructure or lack of regulatory framework. Other difficulties are the competition with matured, competent and cost effective technologies from incumbents with high economies of scale, where renewables are more small-scale and dispersed (Balachandra et al., 2010). The pitfall for environmental entrepreneurs is the prioritization of commercial activities to generate revenues in order to survive in this difficult market, instead of ecological activities. Therefore, mission drift can occur (Ebrahim et al., 2014). This leads eventually to the dominance of one logic over the other, and losing the dual focus on environmental and economic values (Smith et al., 2012). Entrepreneurs could emphasize the mission’s expansion and success to the detriment of the commercial viability as well, leading to financial ruin (Smith et al., 2013).
The aim of this research is to get more insight in how decision makers in environmental enterprises operating in the energy market perceive and manage the tensions from balancing economic and environmental values. Therefore, the research question is as follows.
How do environmental enterprises in the energy market perceive and manage the tensions between economic and environmental values?
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LITERATURE REVIEW
The Dutch energy market and current barriers to sustainable change
The Dutch electricity market has developed over the years. In 1989, the Electricity Law was adopted and separated production from distribution, introducing the market mechanism. After several mergers, the four energy suppliers Essent, Eneco, Delta and Nuon dominated the market. In 1998 a new Electricity Law was developed and the market mechanism extended to consumers, big users were able to choose their supplier, followed by households in 2004 (Verbong & Geels, 2007). Consumers are able to choose their preferred supplier and type of contract. In the Netherlands, consumers can choose between ‘green energy’ and ‘grey energy’ (Mulder & Zomer, 2016).
The Netherlands has many activities since the 1970s to implement and develop renewable options. In 1995, the policy goals in The Third Energy White Paper were to have 10% renewable energy by 2020 (Verbong & Geels, 2007) and the Dutch electricity system was one of the first to have transition management as policy objective in the fourth National Environmental Policy Plan in 2001 (Bosman et al., 2014). However, in 2016, the share of renewables in the Netherlands was so low, that the country ended at the bottom three in comparison with the rest of Europe (Eurostat, 2016). The Dutch economy is characterized by a slow and tedious energy transition, and by large investments in the fossil fuel system. The Netherlands performs poorly in terms of the energy transition (Smink et al., 2015). The share of sustainable energy in 2017 is 13.8% of the total electricity production, versus 12.5% in 2016. Wind energy accounted for 60% of the production, biomass for almost 30%, solar panels for around 13% and hydropower only for 0.5% (CBS, 2018).
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only 10% of the total electricity supplied in the Netherlands is actually produced using renewable energy sources. The net import of GOs shows an fast increasing trend, while the Dutch green-electricity production has increased slowly. Hence, the GOs are mainly used as a marketing instrument of energy suppliers, instead of a policy instrument to increase RES production (Mulder & Zomer, 2016).
Furthermore, sustainability transitions, such as the energy transition, tend to be slow and difficult, due to the stability of the regime. Powerful regime actors are threatened by the process of change, because the innovations with significant sustainability gains tend to be disruptive instead of incremental. New entrants introduce most innovations that deviate from existing practices. Incumbents try to promote their interests, often at expense of the new technology (Smink et al., 2015). This phenomenon occurs in the energy market. Incumbent energy companies in general defend the status quo against challengers. The dominant response is that energy companies exist to provide reliable and affordable energy, which excludes the promoting of renewable energy sources, which might not be reliable or affordable (yet) (Heiskanen et al., 2018). Recent studies conclude that the lagging behind of the Netherlands is caused by a strong fossil fuel regime in which incumbents play a dominant role. They mainly promote the ’greening’ of the fossil fuel-based system instead of more radical transition (Loorbach et al., 2014).
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2013). A major reason is that incumbents have organizational structures for the utility-side projects, such as coal and gas power plants, but lack business models for small-scale renewable electricity generation (Richter, 2013). Renewables are more dispersed and often small-scale, due to the low capacity in comparison with fossil fuel plants (Balachandra et al., 2010). One coal power plant generates on average 1,000MW, however, one technological advanced windmill produces 8MW (Wise, 2017). Incumbents still invest in utility-side energy projects with large amounts of MW generation at one place, and favor these large-scale over small-scale projects (Richter, 2013), instead of fundamentally rethinking the energy market model as it exists (Loorbach et al., 2014). Dutch incumbents do in general not consider the adaptation of decentralized production in their current business model (Loorbach et al., 2014).
Another large reason why changing their business model is such a challenge, is that the energy suppliers are responsible for meeting the energy demand at every time of the day (Schenk et al., 2007). The demand follows a daily pattern, with peaks in the morning and evening, a small decline during the day and a low demand at night. The electricity production can be divided in three types of load, the base, peak and mid load. The base load is continuously producing, the mid load starts in the morning and shuts down at night and the peak load covers the peaks in demand. There are different kind of power plants developed to meet the different demand at a certain time. Steam-turbine power plants for example need a great amount of time to heat up and are therefore used as base load. Gas turbines need more expensive fuels and are less efficient, however, their start-up time is very short. Therefore, they are usually used during peak hours (Schenk et al., 2007). The consequences of adding more renewables to the mix, is the difficulty of the mismatch between production and energy demand, due to the dependence on the weather conditions, especially with wind and solar energy. This leads to more peak production and less base load production, and a less-efficient fuel combustion (Schenk et al., 2007).
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However, an energy industry transformation is in its initial phase characterized by sustainability initiatives from first movers. The next phase is that some pioneering incumbents follow the entrepreneurs, and include their initiatives into their mainstream distribution channels and only after these developments and potential competitive threats from these ‘green’ businesses will the mainstream market slowly transform (Hockerts & Würstenhagen, 2010). Due to the slow energy transition in the Dutch energy market and the reluctance of the incumbents to change, it can be concluded that the market is still in the first phase of transformation and relies on the new sustainable initiatives as first movers in the energy transition. The necessary, disruptive innovations are more likely to come for entrepreneurs who address environmental challenges and simultaneously meet economic challenges (Cohen & Winn, 2007). Their competitive threat to incumbents will eventually lead to a sustainable transformation of the mainstream market (Hockerts & Würstenhagen, 2010).
The emergence of environmental entrepreneurship in the energy market
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Environmental entrepreneurship has similarities with social and sustainable entrepreneurship (Belz & Binder, 2017). Both socially and environmentally conscious individuals fulfil a vital role in society, offering solutions to complex societal problems that are unsuccessfully addressed, overlooked or ignored by incumbent businesses, civil society organizations or governments (Hoogendoorn, 2017). However, there are some differences (Belz & Binder, 2017; Hoogendoorn, 2017). Social entrepreneurships has mostly a focus on a double bottom line of economic and social goals (Belz & Binder, 2017). Social entrepreneurs aim to create social benefits by addressing societal problems, often in a not-for-profit context (Hoogendoorn, 2017). Environmental entrepreneurship aspires to the double bottom line of ecological and economic goals (Belz & Binder, 2017), aiming to recover our ecosystems or to protect our natural environment, in a for-profit context, combining economic and environmental value creation (Hoogendoorn, 2017). Sustainable entrepreneurs explicitly focus on the whole triple bottom line (Belz & Binder, 2017; Hoogendoorn, 2017). These entrepreneurs have the commitment to create social and environmental value, and simultaneously create economic value (Belz & Binder, 2017; Hoogendoorn, 2017; Davies & Chambers, 2018)
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operations (Hahn et al., 2018). The definition of a business model is ‘the rationale of how an organization creates, delivers and capture value’ (Franca et al., 2017; Richter, 2013; Davies & Chamber, 2018).
Two general renewable energy business models are identified in the literature. The
utility-side renewable energy business model has the value proposition of bulk generation of electricity
and has a rather centralized character. The electricity is delivered to the customer via the conventional value chain (Richter, 2013). To illustrate, a Dutch coal power plant for example, generates on average 1,000MW of electricity (Wise, 2017). This one coal power plant delivers the energy to the grid, and households or businesses receive the electricity from the grid. A large wind farm or biomass plant follows the same path, with adding the electricity to the grid, where all the households of the Netherlands receive their electricity from.
Customer-side renewable energy business model comprises energy generation in a decentral way, via small-scale systems close to the point of consumption, for example solar panels on the roofs of houses or a micro-wind turbine nearby, where the electricity is directly used, or the electricity is added to the grid, and the turnover from the generated kWh will be subtracted from the owner’s yearly invoice. Main technologies for this application are micro-wind turbines, micro-combined heat and power systems, and solar photovoltaic systems. These small-scale systems have a different position in the value chain and the production delivery and consumption of electricity have a very different logic (Richter, 2013).
Drivers and barriers of environmental entrepreneurship
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Replacing fossil fuels for renewable energy sources in the electricity sector could provide the basis for achieving mass reductions in the CO2 emissions (Eleftheriadis & Anagnostopoulou, 2015) and is key measure to fight resource depletion and climate change (Richter, 2013). The public becomes more aware of these issues as well, and the demand for renewable and sustainable products and services is increasing (Engelken et al., 2016). Renewable energy companies enter the market niche of renewables, because they expect to have competitive advantage, due to their strong sustainability mission (Hockerts & Wüstenhagen, 2010). The management’s belief of outperforming its competitors by introducing an environmental strategy and implement this strategy have impact as well (Gast et al., 2017).
Furthermore, renewable energies provide various opportunities for society and the energy market. The first opportunity is the socioeconomic development. Sustainable energies can lead to income generation, new employment opportunities, education quality and increasing health.
Energy access is the second opportunity. Small and stand-alone renewable energies can meet
the energy demand of local communities, in cheaper and cleaner ways, which is especially helpful in developing countries. The third opportunity is energy security. Energy security is the secured supply of energy, without disruptions and uncertainty can threaten the functioning of the economy. Renewable energies lower the dependence on fossil fuels and diversify the supply options. Climate change mitigation is one of the most important drivers for the demand of renewable energies. Renewable energies lower the emissions and have a positive impact on air pollution and health (Sen & Ganguly, 2017).
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changing approaches (Engelken et al., 2016). Therefore, environmental enterprises may not be able to grow as much as other ventures with sufficient financing (Gast et al., 2017).
There are specific market barriers as well. A barrier is the lack of knowledge and available information about customers and markets for renewables (Engelken et al., 2016). It can be challenging to convince the public to buy a green product or service. Customers do often not fully grasp the benefits of green products or services in comparison with the traditional ones, especially intangible ones like green electricity (Gast et al., 2017). Rising energy prices could even result in customers switching back to the cheapest provider (Verbong & Geels, 2007). The alignment of ecological goals with values sought by particular customer groups are a key activity in the development of a double bottom line solution (Belz & Binder, 2017). The renewable energy models face though competition from existing technologies and they have to show more performance and cost effectiveness (Engelken et al., 2016). Furthermore, incumbents are risk averse and may not recognize the business opportunities from this ongoing energy transition, thus have an interest in maintaining the status quo. Finally, renewables have a low energy density compared to that of fossil fuels (Engelken et al., 2016). Even the local demand can be too high to meet with local renewable sources and renewables may vary with seasonal variation. These power levels may be insufficient for large industrial requirements, leading to dependency on fossil fuels (Sen & Ganguly, 2017).
Other barriers appear due to the fact that environmental enterprises exploit opportunities in markets characterized by failure and imperfection (Gast et al., 2017; Hoogendoorn, 2017; Dean & McMullen, 2007; Cohen & Winn, 2007; Bergset, 2015). Environmental entrepreneurs create and improve markets through the motivation of government action, the dissemination of information, the reduction of transaction costs, and the development of property rights and economic institutions. They can profit from the economic value created while enhancing ecological sustainability and reducing environmental degradation (Dean & McMullen, 2007). However, these market imperfections can still impact the profit levels, even though these enterprises are generally for-profit or strive to be financially self-sufficient (Bergset, 2015).
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reduce degradation of the environment by reducing transaction costs associated with relevant externalities (Dean & McMullen, 2007). Thirdly, pricing mechanisms work imperfectly and
monopoly power exists in markets. Natural resources are not infinitely, and are undervalued
and underpriced (Cohen & Winn, 2007). Opportunities for environmental entrepreneurs are overcoming the market power of incumbent firms (Dean & McMullen, 2007). Furthermore, entrepreneurs can influence government intervention by motivating changes to taxes, subsidies, and other government incentive structures (Dean & McMullen, 2007). Lastly, information is not perfectly distributed. Firms are not capable of acquiring perfect information about markets and resources, process it and make perfect strategic decisions (Cohen & Winn, 2007). This
imperfect information gives opportunities in discovering demand and supply conditions
unknown by other actors and through informing customers of green products and services (Dean & McMullen, 2007).
Managing tensions between ecological and economic logics
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researched empirically in this particular field. Social entrepreneurs create social benefits by addressing societal problems, often in a not-for-profit context, whereas environmental entrepreneurs aim to recover our ecosystems or to protect our natural environment, in a for-profit context (Hoogendoorn, 2017). The main emphasis is on the link between economic and ecological goals, while social aspects are rather complementary (Belz & Binder, 2017). The tensions in environmental enterprises might differ from tensions in social enterprises, due to the different contexts.
The tensions can be categorized as performing, organizing, belonging and learning (Smith et al., 2013). The tensions manifest themselves in three main areas, the mission, human resources and the output (Siegner et al., 2018). When organizations strive to address inconsistent demands across multiple stakeholders or seek conflicting and varied goals,
performing tensions surface. These tensions emerge from divergent outcomes such as goals,
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et al., 2013). The pursuit of various, often conflicting goals with different time horizons can cause tensions (Siegner et al., 2018). The environmental mission requires a long-time horizon and growth can threaten or increase the environmental mission impact. Environmental mission outcomes often require a long-term horizon, whereas financially outcomes such as costs, revenues and profit can easily be measured in the short-term. Business venture success can come from short-term gains and the environmental mission can constrain growth (Smith et al., 2013).
There are several organizational responses to these tensions from competing logics.
Integration or combination refers to strategies that allow finding solutions to tensions that serve
both the environmental logic and the market logic (Siegner et al., 2018). Organizations enact a combination of activities drawn from each competing logic (Pache & Santos, 2013). Organizations can compromise by finding an acceptable balance between the conflicting expectations from different logics (Pache & Santos, 2013). Thirdly, acceptance, where tensions are recognized, but the paradox of conflicting goals is left open in a conscious effort to wait for future opportunities to reconcile it (Siegner et al., 2018). Integration, compromise and acceptance are skills necessary for managing the tensions of competing logics effectively. These strategies embrace competing logics rather than rejecting or resisting it. Acceptance provides a vital foundation for minimizing conflicts and mindfully seek alternatives. Integration and compromise offer the possibility for creative, new solutions to emerge (Smith et al., 2012).
Separation consists of dealing with inconsistent demands by separating two ends of a tension
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quantifiable and short-term oriented over those that are more ambiguous, uncertain, qualitative and long-term oriented. Quantifiable metrics offer focus and clarity instead of uncertainty and ambiguity, leading to commitment to strategic action and fostering collective trust (Smith et al., 2013). Losing sight of the sustainable mission is also referred to as mission drift. In order to financially sustain their operations, environmental enterprises depend on commercially generated revenue, which allows them to survive. Mission drift occurs when commercial activities are prioritized over the ecological activities (Ebrahim et al., 2014). Organizational growth could threaten the impact of the environmental mission as well, as factors that facilitate the environmental mission in small enterprises diminish with size. In particular, the effect of the founder’s values, local ties and communal trust-building all contribute to the mission of smaller enterprises (Smith et al., 2013). However, the commitment and passion of environmental entrepreneurs can lead to dominance of the environmental mission. Environmental enterprises are often created because of a deep commitment to the environmental mission, which provides focus, motivation and critical inspiration. These entrepreneurs sometimes emphasize the mission’s expansion and success to the detriment of the commercial viability, leading to financial ruin (Smith et al., 2013).
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RESEARCH DESIGN
The literature discusses the business models and tensions between economic and environmental values of environmental entrepreneurs in the Dutch energy market. How the actors perceive and manage tensions will be analyzed through an in-depth study using case studies.
Methodology
The case study is used as a research strategy, to understand the dynamics present within single settings (Eisenhardt, 1989). There are several considerations whether a case study design should be used (Yin, 2003). First, the aim of the study is to answer why and how questions. Secondly, the contextual conditions are considered to be relevant to the phenomenon under the study. Furthermore, the behavior of those involved in the study cannot be influenced and lastly, the boundaries between the context and the phenomenon are not clear (Yin, 2003). This research uses a case study design, because the central research question is a ‘how’ question; how actors in the Dutch energy market perceive and manage tensions. Moreover, the energy market is a very specific context, due to the intangible nature of the product and the previous public ownership. The conditions related to this context are considered to be relevant for the perceived tensions.
Case studies can involve multiple or single cases. Moreover, case studies can have multiple levels of analyses within a single study (Eisenhardt, 1989). This research utilizes multiple cases in order to enable a horizontal comparison between these cases, which is considered to be reliable and robust. (Baxter & Jack, 2008). This allows the studying of similarities and differences in how renewable energy suppliers perceive and manage tensions.
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the different tensions between economic and ecological values in the context of the Dutch energy market.
Case selection
The cases are selected based on the sustainable ranking, see Appendix I. This study investigates the tensions within environmental enterprises in the energy market. Electricity is a non-tangible product, and different types of electricity cannot be distinguished. All producers deliver to the same Dutch energy grid. The only distinction which can be made, is whether electricity originates from fossil fueled or renewable production sites. Renewables are defined as electricity generation from wind mills, solar panels or biomass plants. The companies which strongly adhere to ecological values, and therefore classify as environmental enterprises, have renewable instead of fossil fuel production.
The criteria used by Wise (2017) are described as investments made in renewable electricity production, the production of renewable electricity, purchase policies and the delivering of renewable electricity. Only energy suppliers that are considered to be first movers - having few or no production sites using fossil fuel sources - are selected for this study. The energy suppliers have been evaluated by four independent organizations, WISE, Greenpeace, Natuur&Milieu and the Consumentenbond. Due to the changes in the Dutch energy market, the rankings are regularly updated. The overview in Appendix I has been created in 2017 (Wise, 2017). Nine companies in the Dutch energy market are considered to be first movers in the sustainable ranking.
Three companies are selected based on their size, regarding the number of employees and customers. The companies are either small, medium or large, to ensure diversity in the case selection. Other considerations were the differences in organizational structures and foundation of the organizations. One of the cases is originally founded as a NGO, one as a start-up and one started their sustainable mission after the liberalization of the Dutch market. See table 1 for the characteristics of the three different cases.
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Case 1 Case 2 Case 3
Number of employees 15 240 3,500
Number of customers 2,500 130,000 2,000,000
Foundation year 2011 2014 1998
Regional scope Groningen Nationwide Nationwide
Foundation Started as an NGO with volunteers, and became a company later on
Started with three original founders and funding from different investors
Started as a publicly owned organization, and after the
liberalization investments were made in renewable energies
Structure Board, Director, three different departments
3 Directors,
departments, and the sales offices
CEO and CFO, Board of Directors, Staff, and Business Units
Role of interviewees R1: Manager Business management R2: Employee Business management R1: Office manager Groningen R2: Sales coach Groningen R1: Manager M&A, former manager Strategy R2: Manager Communications
Table 1. Case characteristics
Data collection
All interviews were semi-structured. The full questionnaire can be found in Appendix IV. The questionnaire covered themes such as general information, customers, mission, financial goals, partners, environment and future. The semi-structured nature allowed an in-depth inquiry into certain subjects and created room for the interviewee to speak freely. The interviews were all face-to-face, and the data was audio recorded and fully transcribed afterwards.
Data analysis
22 FINDINGS Within case analysis
Case 1
The organization was founded seven years ago, as a cooperation of volunteers, who lived in the same neighborhood in Groningen. They installed solar panels on their roofs to provide themselves with renewable energy, and soon realized they could help other neighbors with making their home sustainable, by sharing information and experiences. To finance their activities, they started a cooperation. Over the years, the organization has significantly grown and started hiring people four years ago. Currently, the organization has 15 paid employees and 2,500 customers, or what they refer to as ‘members’. The founders still have an active role in the organization, as board member or as lead link, a kind of director position. The board consists of six people, who are all volunteers, and most of them are founders of the initiative. The organization offers several services and products. They own a few renewable energy production sites, such as a solar panel park with 7,770 solar panels in the region of Groningen. The local, renewable energy is offered to regional consumers. Another service they provide, is aiding local people in the development of decentralized, small scale energy production in the region. Furthermore, governmental parties and other organizations hire them for their expertise in improving sustainability or developing small scale energy production. Their mission is to:
‘… ensure that everyone can participate in making Groningen sustainable. We help in a
concrete way with saving, producing and using renewable energy. In that way, we invest together in a sustainable Groningen and a better world. Energy will be greener and owned by ourselves.’(Case 1, R2)
The mission and values of the organization are considered as crucial. A project will be abandoned if it does not align with the values, according to the employees. However, this was not always the case a few years ago, as one respondent explained.
‘A lot of traditional organizations have the opinion, that the one that pays decides. (…)
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There was a general feeling of a weak position relative to potential partners, in terms of financial resources and size. This led to a low confidence level of the employees, especially during negotiations with partners. Some activities did not entirely comply with their mission.
‘It is about the intention of people. Do they really want us to help them become more
sustainable, or do they want something on their website that they did something.’ (Case 1, R1)
A lot of incidents were related to public relations. Articles in papers or other forms of communication of a project have been highly influenced by partners. The organization has grown in the past few years, resulting in a stronger position during negotiations. Employees engage in discussions when the partner’s actions do not comply with their mission. Some partners withdrew from collaboration, something they could not afford in the past.
One respondent mentioned the implementation of the management style of ‘holocracy’, which facilitates the focus on the environmental core values. Holocracy is a self-management practice, and has been developed over a decade ago. The practice is not very common in the Netherlands. Zappos, a subsidiary of Amazon, is one example of a company that implemented holocracy. This management style does not include formal hierarchy or departments, but ‘circles’. Case 1 has developed three different circles, namely: communication, business management and projects. Instead of job descriptions, employees are assigned to different roles. Roles are defined around work instead of people, and employees often fulfill multiple roles. The roles do not include tasks, but several responsibilities. The salaries are based on the amount of roles and responsibilities. The aim is to involve everyone in the organization in decision making and include their different perspectives, such as for example finance, communication or IT. All voices are equally heard, regardless to the duration of employment.
The organization has become profitable over the years, even though the focus was on achieving the environmental mission and not on making profit. The profits are all fully invested in new projects, that aim at the development of more renewable energy production or marketing campaigns. The financial goals are all set with an x percent above break-even. The growth in profit has led to still ongoing tensions about certain investments.
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The discussion concerns the remuneration of employees, in particular whether this should be increased or not, because the organization is growing quite rapidly. Some previously arranged benefits are pension plans and organic lunches in the office. There is strong resistance from some of the employees to increase salaries, which are low compared with competitors. As payment should not be based on performance, it is not seen as the right motivation. Furthermore, the current cash flow is not sufficient to accommodate everyone with a raise. The insufficient finances intensify the discussion, due to the complications of how and when to implement the raise. Everyone should have an equal voice in the discussion regarding the low salaries. As employees can fulfill multiple roles from different circles, and are not assigned to specific departments, a clear opposing group could not be identified. The aim is to solve the problem by discussing every scenario and eventually reach a consensus on the matter. Linked to this issue is the long-term goal of talent recruitment.
‘When you want talent in your organization, you have to pay a lot. I mean a decent wage’
(Case 1, R1)
The short-term decision of holding off the raise in salaries, could have long-term consequences. At the moment, the organization is still able to attract highly motivated employees, who value the sustainable mission and opportunities for individual development more than their salary. However, one respondent with several roles in business management, raised concerns regarding future resignations, when employees have the need for more financial stability, which cannot be obtained with the current salaries. It will be difficult to attract new, motivated people with the current salaries. Another internal discussion is how much of the finances should be spent on marketing.
‘I, in the role of marketer, think that the office should look nice. For the customers and the
image.’ (Case 1, R1)
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badges and on sustainable paper, instead of large amounts, which is more cost effective. There was a general sense of responsibility to make all choices in the most environmentally sustainable way, as they should be a role model.
Other tensions are currently present in the organization, due to the need to professionalize. There is no established financial system with bookkeeping, clear stream of information or key performance indicators.
‘The organization is maturing, so you notice there is more need for clarity, concerning
finance, KPI’s and metrics. Which is not there yet.’ (Case 1, R2)
Key metrics are efficiency of projects, information about the employees, working hours per project, how many new customers are brought in and financial metrics. Up to now, it was all based on trust and previous annual reports. There is a large amount of knowledge present in the organization, however, nothing is documented in a structured way. One respondent observed this is at the expense of efficiency. These uncertainties lead to tensions within the organization, especially between the board and the employees. The board members are not present in the day-to-day activities, and without proper metrics, plans or financial system that are documented regularly, it is difficult for them to evaluate the performance of the company. Besides the concerns of the board, some employees in the roles of finance and business management acknowledged the problem as well, as they recently encountered increasing difficulties in evaluating projects and developing new project plans. There are developments in this area, with plans for implementing a new financial system.
Case 2
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where customers are linked to local, renewable energy producers. An average producer is able to provide electricity for approximately 100 households. The organization does not add a margin to the price per kWh. The local producer is therefore able to increase their price and still be competitive in the energy market. The organization earns its turnover from the monthly fixed subscription fee. The downside of this idealistic view is the low turnover per customer in comparison with their competitors, who have additional earnings per kWh next to the monthly subscription fee. The mission of the organization is:
‘To accelerate the energy transition, towards 100% renewable energy’ (Case 2, R2)
Their goal is not to establish the energy transition themselves, but to be a competitive threat to the incumbents, in order to force them to invest more in renewable energy sources. Another way to accelerate the energy transition is to create awareness amongst consumers, regarding the current low percentage of renewables in the Dutch energy mix and the effects of climate change.
A large tension within the organization is the financial performance. The company has not been able to reach a break-even point in revenues and costs. There has been an emphasis on maximizing the success of the environmental mission and increasing awareness, without taking the expenses into account. The organization has the highest costs per customer in comparison with the competition. The investors of the company increased pressure to be profitable, because they cover the yearly losses. Therefore, a new chief of finance was recently hired, to cut costs and reach the financial goal of making profit in the upcoming year. Furthermore, multiple sales offices with low performance have been closed and several layers of managers are severed from the organizational structure. The values of the organization are transparency, impact, positive, ambitious and inventive. However, the recent focus is on reaching financial stability, and less on making impact in the energy market.
‘To really make a difference, we have to be profitable at a certain point, also concerning
the investors.’ (Case 2, R1)
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sales offices across the country are already shut down, to focus on the large cities such as Rotterdam, Amsterdam and Groningen. The fixed subscription fee has been increased for the variable and one year contracts as well, to increase the turnover per customer.
Another measure to improve financial performance is the decrease of hourly wages of sales employees to minimum wages, as well as an increase in bonus per contract to provide an incentive for more effective sales. Employee management has become more strict as well, with low performing individuals being laid off more easily than currently is the case. The respondent raised the concern that this focus on making profit and high sales targets could damage the values of transparency and positivity. The high pressure on performance for the employees could result in the focus on sales, accompanied by withholding information or negative pressure. Similar problems occurred in the past, and the company had received several complaints a few years ago. The cost cutting measures are recently implemented, so the impact is still unknown. These short-term goals could have impact on the long-term goals, such as customer loyalty and image building. In order to minimize this threat to the mission, they aim to hire people who show strong affinity with the sustainability goals, even though they have no sales experience. The company provides multiple training sessions to practice and learn field marketing.
‘We hire people that have a strong sustainable mindset, otherwise it will be difficult to sell
our product.’ (Case 2, R2)
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long term, this limitation on the available small, renewable producers may be problematic for further growth of the organization.
Case 3
Case 3 already existed before the liberalization of the Dutch market. It was a publicly owned company, and during the liberalization they were forced by the government to split transportation and production, and change to private ownership. However, they did not agree and started a lawsuit against the Dutch government. Until this day, they still have public shareholders. At first, the company did not have a focus on renewables at all. During the liberalization, a new CEO was appointed. He observed that unlike the other three original energy companies, they did not have assets in fossil fueled energy production. His vision was that renewable energies are the future, not fossil fuels. They invested in their own renewable energy production sites. The ongoing lawsuit allowed the company to remain publicly owned, and the cash flows from Dutch cities made the organization robust and facilitated the investments in renewable energies. Their current assets are a biomass plant, multiple windmill parks and rooftop installations of solar panels on other companies’ buildings. However, they own some less sustainable gas power plants as well. The company considers gas to be a necessary transition fuel to balance the fluctuating production of renewables.
‘Everything we do is sustainable, however, sometimes you need to make decisions between
finance and sustainability.’ (Case 3, R1)
The CEO created a mission for the company, and it remained the same ever since. The mission is ‘renewable energy from everyone’. The sustainable goal is not expressed in the percentage of renewable energy in the Dutch energy mix, but in reducing the carbon footprint of customers. The company has a strong focus on profitability next to sustainability. New projects or investments are based on their sustainability, however, the return on investment (ROI) is equally important. They could invest more in developing renewable energy sites, but most available projects have a low ROI. Therefore, there is a between investing all money at once and increasing the amount of renewable energy in the total energy mix, or being more selective in projects to maximize ROI.
‘Finding good, profitable projects is more difficult than finding money at the moment.(…)
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Other challenges are changes in the cost structure. All production sites are currently centralized and one respondent stated the difficulty of finding new business cases in decentralized production. However, they expect decentralized solutions for renewable energies to be an important aspect of the Dutch energy market in the future. Collaborations are a potential solution.
‘I think we were one of the first to acknowledge that you have to do things in a more
decentral way, and have to involve people. We are still struggling how we will exactly achieve that.’ (Case 3, R1)
As an illustration, the installation department specialized in the maintenance of regular boilers, aiming for highest cost efficiency. This is organized with the aim of highest cost efficiency. With this mentality, they did not attract dynamic, flexible employees. The respondent stated it would be a major and expensive challenge to incorporate new sustainable technologies, such as a heat pump, and re-educate the installation mechanics. In general, all employees are hired based on their education, working background and skills. Even though employees do not necessarily have a strong affinity with sustainability, they have attracted more employees over the years who deliberately chose the company for the focus on sustainability. A slow change of the workforce is observed over the years. ‘Right wing’ minded employees were slowly replaced by ‘left wing’ people.
‘I do not think they chose the company with the idea to save the world, but that they like to work for a company with a positive product. So they are not really idealists.’ (Case 3, R2)
Other tensions arise in partnerships with other companies. They approach the organization for some sustainable project, however, the costs have to be as low as possible. They expect the prices of renewables to be at the same level as non-sustainable products.
‘It is for their own image, or because they want to deliver a product that says 100%
sustainable produced.’ (Case 3, R1)
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support the mission and the reason why the company exists, namely to lower carbon emissions. However, the shareholders and CEO did not reach an agreement, and the CEO recently resigned. The return on investment of their capital employed is low in comparison with other, fossil fuel based utilities. One respondent raised the concern regarding the high possibility of a new owner who wants to increase the efficiency, and will cut costs and change corporate culture. Another possibility is the integration of the company in a large, international incumbent with fossil fuels. These developments could lead to a major mission drift and abandonment of the company’s values.
Cross-case analysis
In order to compare the similarities and differences between the cases in terms of tensions they experience and how they respond, the following section includes a cross-case analysis. Table 2 gives an overview of the tensions and responses of the three different cases, with corresponding quotes.
The tensions are classified as low, medium or high. Tensions which hinder the day-to-day activities of the organization and have long-term consequences are labeled as high. Tensions that are acknowledged to cause challenges in the near future, but have no significant impact yet, are labeled as medium. Tensions are classified as low if they do not hinder day-to-day operations and if their long-term impact is uncertain.
Tension Quotes Response Quotes Case 1 Organizing
Medium
We have had major financial growth. (…) The organization is maturing, so you notice there is more need for clarity, concerning finance, KPI’s and metrics. Which is not there yet.
Integration A new system will be implemented, to convert all incoming and outgoing cash flows in financial administration similar to regular companies.
Performing Low
It is about the intention of people. Do they really want us to help them become more sustainable, or do they want something on their website that they did something. (…) Sometimes, the mission was a bit lost. (…) You reach a point of idealism versus business.
Integration People think organizations with a high level of idealism cannot be business oriented. That is not true. We will engage in a discussion when the other party does not act in an ethical way. (…) We always have to compromise, however, not regarding our core sustainable values.
Learning Medium
An internal discussion, is whether people can benefit from the fact that we are growing. We have ridiculous low wages when you look at the energy sector. (…) When you want talent in your organization, you have to pay a lot. I mean a decent wage.
Acceptance We firstly provide internal developments in the area of security, such as pension plans, and the question of a raise will be discussed later on. (…) We do not have the financial resources yet to provide everyone with the possibility of a raise.
Case 2 Organizing High
There is a focus on the amount of customers, however, increasing the awareness is a success as well. (…)
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In the first few years, we organized all kind of activities to increase impact without looking at the costs.
layers of managers are taken out. (…) Multiple sales offices with low performance are closed. (…) A new financial director is hired to manage the costs.
Performing High
It has to be profitable for the investors. (…) Two large investors are banks, so their focus is definitely on return on investments. (…) One of the banks made substantial
investments to cover the losses.
Separation We have had a period of investment and start-up, it is time to scale-up, so we have to become profitable.
Learning High
It comes from our idealistic view, we do not want to make profit of the energy consumption. (…) We have the highest costs per customer in comparison with the competition. (…) To really make a difference, we have to be profitable at a certain point.
Separation The goal for this year is for the first time to make profit. After that, we will evaluate how to really continue. (…) There are several aspects where we will integrate cost cutting measures.
Case 3 Organizing Medium
Tensions have occurred since the CEO expected to have some control regarding the new ownership, so they would support their mission. (…) Someone could say I integrate the company in my own fossil fuel portfolio, destroying value. (…) A loss in mission, vision and culture could occur. (…) Eventually, you want shareholders who support the strategy.
Decoupling The shareholders and CEO did not reach a consensus, so the CEO resigned a month ago. (…) The upcoming year is very important, the company will be sold and receive new ownership.
Performing Low
Businesses approach us for sustainable projects, however, they expect it to be low cost. There is always some tension between the two. (…) People expect to buy sustainable products for the same price as non-sustainable. (…) It is for their own image, or because they want to deliver a product that says 100% sustainable produced.
Decoupling The balance is not specifically between sustainability and the price. If we do not engage in a partnership, we did not agree on the price.
Learning Low
Low
I think we were one of the first to acknowledge that you have to do things in a more decentral way, and have to involve people. We are still struggling how we will exactly achieve that. (…) In the long-term, it is necessary to have a role in decentral production, however, it is very costly and uncertain in the short-term.
Everything we do is sustainable, however, sometimes you need to make decisions between finance and sustainability. (…) There is a tension between investing all the profit at once or being selective in choosing your projects.
Acceptance
Decoupling
We have trouble with our current cost structure to find new business cases in decentral production. (…) We are trying, but we are not very successful, however, so are our big competitors. (…) It is difficult to predict how we will make a profit of decentral production and partnering.
Finding good, profitable projects is more difficult than finding money at the moment. (…) The availability of projects is just smaller than our ambition. (…) A good project is one that has an acceptable return on investment and a low risk profile. (…) A project with a 3% return on investment is very low for the long-term.
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The similarities between the cases are the tensions they experienced. Organizing, performing and learning tensions occurred in all cases. None of the cases showed belonging tensions. The employees of Case 1 and 2 are hired for their sustainable mindset and therefore identify themselves strongly with the mission. There are no subgroups that identify with the business venture. In Case 3, the employees identify more with the business venture and see the mission as a complementary good. There are no tensions between subgroups that identify more with the mission or the business venture. The response strategies however vary.
Organizing tensions emerge in organizational cultures, practices, structures and processes (Smith et al., 2013). Case 1 has grown substantially in the past few years. The amount of projects increased as well as the size of the projects. In terms of sustainable goals, the activities and projects comply. However, clear structures and processes are not present. There is no system for recording the finances, and key performance metrics are not used. Therefore, it is difficult to predict how many working hours, what kind of time frame and how much money is needed for a project. The uncertainty of the organizational economic structures and processes lead to tensions between the board and the employees of the organization. Case 1 implemented the strategy of ‘integrating’ for their organizing tensions. The need for more key performance indicators and a financial system is recognized, and the practices are currently implemented to achieve a new level of professionalism, and balance sustainability with profitability. Case 2 has been focusing on practices to increase the success and impact of the environmental mission, regardless the expenses. Measures for managing the cost structure have been implemented, although tensions are still present. The emphasis is on finding an acceptable balance, therefore the compromise strategy is applied. Case 3 shows tensions between the shareholders and the top of the organization. The CEO insisted on having control of the potential buyers of the company, in order to preserve the mission and culture of the organization. However, the shareholders want to sell to the highest bidder, in order to receive the maximum payout for their shares. This tension resulted in the resignation of the CEO. The decoupling strategy is applied, because the economic values are prioritized, and they symbolically comply with the environmental mission.
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their mission. Eventually, the economic benefits of partnerships were prioritized over the environmental mission, causing a small mission drift. However, the organization is obligated to achieve their environmental goals regarding the other stakeholders. New organizational practices are adopted to avoid another mission drift. Partnerships are managed with strict guidelines. They found an acceptable balance between the conflicting expectations and therefore used the compromise strategy. Case 2 has increasing internal tensions, caused by the pressure of investors. The organization has a low financial performance and one investor covers the yearly losses. The two major investors are banks, expecting a certain return on investment. However, customers and employees support activities in maximizing the success of the environmental mission. They separated the two ends of the tension in a temporal way. The focus is almost completely on gaining financial stability, rather than focusing on their mission. After reaching the break-even point, they will continue to aim for an optimal balance between the mission and finances. Case 3 has similar performing tensions as Case 1, due to several partnerships. Tensions arise during price negotiations, when partners demand sustainable products to be similarly priced as non-sustainable products. Decoupling is when one logic is symbolically met, while the implemented practices are actually from the other logic (Pache & Santos, 2013). In this case, they advocate to be completely sustainable. However, the practices seem to be mainly focused on increasing return on investments.
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35 DISCUSSION
Smith et al. (2013) categorized tensions between ecological and economic logic as performing, organizing, belonging and learning. The findings of this research suggest environmental entrepreneurs operating in the energy market, experience performing, organizing and learning tensions, similar to social enterprises. The energy market provided a context where social aspects are rather complementary (Belz & Binder, 2017) and with a clear distinction between regular organizations and environmental enterprises. Electricity is either produced from renewables or fossil fuels. However, the complicated nature of the energy market could influence the perceived tension in environmental enterprises, due to the competition with matured, competent and cost effective technologies from incumbents with high economies of scale, whereas renewables are more small-scale and dispersed (Balachandra et al., 2010). Furthermore, the intangible aspect of the product complicates the understanding of the benefits of renewables, resulting in consumer scepticism (Gast et al., 2017). Another aspect contributing to consumer scepticism, are the Guarantees of Origin (GOs) that are mainly used as a marketing instrument of incumbents, instead of a policy instrument to increase RES production (Mulder & Zomer, 2016). It enables energy suppliers to sell green products and acquire a green image, whereas the renewable electricity is not produced in or physically delivered to the Netherlands. Furthermore, it is observed that environmental enterprises in the energy market developed new business models rather than new or improved renewable energy technologies to achieve both ecological and economic objectives and create competitive advantage. The degree of tensions and response strategies vary per organization. There are several responses, namely integration, compromise, acceptance, separation or decoupling (Siegner et al., 2018; Pache & Santos, 2013). This research suggests the degree of tension leads to specific response strategies.
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be a role model. However, major financial growth intensified the internal tension, as the need for clear financial performance, metrics and key performance indicators increased. Other challenges, such as talent recruitment are expected to increase with future organizational growth. The small, local nature of the enterprise allows them to embrace competing logics rather than reject them. Therefore, the challenges of these competing logics did not lead to high levels of tension, with large impacts on day-to-day operations. However, the tensions are profoundly enough for an active approach. Integration, compromise and acceptance are strategies to manage tensions effectively and find a synergy (Smith et al., 2012). The small, environmental enterprise applied integration and acceptance strategies to their internal tensions.
Proposition 1: Environmental enterprises with medium degree of tension, respond with integration or acceptance strategies.
The second case has grown significantly over the past few years and outgrew the characteristics of a small environmental enterprise. They operate nationwide and the founders have rather an executive than a managerial role, decreasing their influence throughout the whole organization. The nationwide level of operations decreases the advantages of local ties and communal trust-building. At first, the environmental entrepreneurs emphasized the mission’s expansion and success at the expense of financial stability. The focus of activities was on increasing impact, regardless the costs. The idealistic view on the revenue structure results in low returns per customer in comparison with competitors. The strong commitment to the environmental mission influences the hiring practices as well. However, the dominance of the environmental mission could lead to financial ruin (Smith et al., 2013). The challenges increased due to the low financial performance, leading to high levels of tension. The enterprise has not been able to achieve a financial break-even. The applied response strategy is separation, in line with their tendencies of choosing one logic over the other. The economic values and the environmental mission are separated over time, in order to achieve financial stability. However, this strategy risks losing dual focus and becoming either purely commercial or purely sustainable mission-oriented (Smith et al., 2012).
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Lastly, the third case is observed to be rather mature in comparison with the other cases. The mature stage prohibits supporting the environmental mission with local ties and communal trust-building, but facilitates an established financial performance. The enterprise is not created in consideration of a deep commitment to the environmental mission, but to gain competitive advantage. In contrary to the other cases, no strong idealistic views are observed throughout the organizational structure and hiring practices. The business model is quite similar to incumbents, with utility-side projects instead of decentralized production. Cash flows from public shareholders enabled major investments in large renewable production sites. The emphasize is on economic values, and quantifiable metrics that are clear, quantifiable and short-term oriented. Quantifiable metrics offer focus and clarity instead of uncertainty and ambiguity, leading to commitment to strategic action and fostering collective trust (Smith et al., 2013). However, the organization is ranked as first mover in the sustainability index of Wise (2017). This achievement originates in their unique start with public ownership. Major available cash flows and lack of fixed fossil fuel assets provided the opportunity to invest in large renewable production sites, distinguishing them from incumbents as well as other environmental entrepreneurs. This phenomenon only occurred due to the specific context of the energy market. The established financial performance and size of the organization provided a strong internal base with a low degree of tension. Only recent developments regarding the privatization caused some heightened challenges in maintaining their environmental mission, whereas their financial stability remains unchanged. The organization implemented a decoupling strategy. Their organizational structure including shareholders requires emphasis on the financial performance, resulting in symbolical compliance with the mission, while economic practices are implemented closer to their organizational goals. This could eventually result in the complete dominance of one logic over the other. The dual focus on environmental and economic logics would be lost (Smith et al., 2012).
38 CONCLUSION
This study was undertaken in order to investigate the tensions between environmental and economic values, studied in the context of the energy market. Renewable energy suppliers are environmental enterprises, that create and capture value, while protecting the natural environment and reducing environmental pollution. Tension between competing logics is likely to occur. Central to this research was the question: How do environmental enterprises in the
energy market perceive and manage the tensions between economic and environmental values?
The renewable energy sector is fraught with tensions due to competing ecological and commercial logics (York et al., 2016). The perception and management of tension is important, as the following paradoxes may make environmental enterprises highly fragile organizations and can even threaten their survival (Siegner et al., 2018). Data is collected from conducting two interviews with organizational members per case. A multiple case study was performed, with three different cases. All cases perceived the same kind of tensions, similar to social enterprises. However, their responses varied. Only one tried to find a synergy in order to have both values represented in the organization. The other two cases responded with separation or decoupling, prioritizing one logic over the other. The dominance of the environmental mission could lead to the detriment of the commercial viability (Smith et al., 2013), whereas a focus on economic values could lead to mission drift (Ebrahim et al., 2014).
Limitations
The limited amount of cases could cause problems for the generalizability of the results. Secondly, the energy market is a very specific context as environmental enterprises in other contexts may perceive and manage tensions differently. Furthermore, all cases experienced a transition period, which means the impacts of recent tensions and responses could not be observed due to the limited time frame of this study. Moreover, the tensions and responses may change over time.
Recommendations for future research
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