Master Thesis
International Business and Management (MSc)
Co-evolutions of PV Industry and its National Innovation
System: a comparative analysis of China, Germany and Japan
Kaiyun Li S2762420
12-06-2015
Supervisor: Dr. Rudi De Vries
Co-evolutions of PV Industry and its National Innovation
System: a comparative analysis of China, Germany and Japan
University of Groningen
12-06-2015
Abstract
Photovoltaic (PV) industry is increasingly becoming one of the key sectors in many countries during last three decades due to the risen awareness of the environmental protection. China, Germany and Japan have become global leaders in PV market. Institutional contexts, particularly the national innovation system (NIS), where the institutional factors interplay with each other, plays an important role in influencing the development of PV industry. within NIS, the industries are likely to co-evolve the institutions. This paper aims at exploring whether co-evolutions take place between PV industry and its NIS in the contexts of China, Germany and Japan. Their market as well as technological performances are compared to indentify to what extent the co-evolutions improve or constraint the economic peroformances of PV industry.
Abstract ... 2
1 Introduction ... 5
1.1 Empirical background ... 5
1.1.1 An overview of the PV industry and its institutions ... 5
1.1.2 PV industries and institutions in China, Germany and Japan ... 5
1.2 Theoretical perspective ... 6
1.3 Problem indication & Research question ... 8
2 Theoretical framework ... 10
2.1 The combination of theories ... 10
2.2 Co-evolutionary framework ... 10
2.2.1 Evolution and co-evolution ... 10
2.2.2 Co-evolutionary framework and multi-level co-evolution researches... 11
2.3 Institutional theory and national innovation system ... 13
2.3.1 Institutional perspective ... 13
2.3.2 National innovation system... 13
2.4 The development of emerging industry across different national settings ... 16
2.5 Conceptual model ... 17
3 Methodology and data ... 19
4 Analysis... 22
4.1 Industry Introduction ... 22
4.1.1 Photovoltaics: typical products and technology ... 22
4.1.2 Success indicators of PV industry ... 24
4.2 The co-evolution between Japanese PV industry and Japanese NIS for PV industry ... 27
4.2.1 1954-1979 the emergence of Japanese PV industry and the formulation of NIS for PV industry of Japan ... 27
5-year project ... 31
4.2.4 2006- market expansion ... 33
4.3 The co-evolution between German PV industry and German NIS for PV industry ... 35
4.3.1 1970s – 1980s the emergence of German PV industry ... 36
4.3.2 1991- 1998 the co-evolution under the 100-roofs program ... 37
4.3.3 1998- market expansion ... 39
4.4 The evolution of China’s PV industry and China NIS for PV industry ... 41
4.4.1 1971 - 1990 the dawn of PV industry in China ... 41
4.4.2 1991- 2006 The international market expansion ... 41
4.4.3 2007– the domestic market expansion ... 43
6. Conclusions ... 52
7 Limitations ... 56
1 Introduction
1.1 Empirical background
1.1.1 An overview of the PV industry and its institutions
The world has been experiencing a profound and radical transformation of energy systems at the present stage on account of the potential shortage of fossil fuels. Given this reality, the utilization of renewable resources is subsequently promoted. Solar photovoltaics (PV) are becoming popular because it can not only offer extensive applications with fewer geographic restrictions but also generate electricity from sunlight directly with high conversion efficiencies (Pearce, 2002). PV industry, as a result, has experienced a phase of rapid development during the past thirty-plus years (Liu et al., 2011). The PV industry has not only developed a globalized industrial value chain, but also has grappled many advanced technologies. According to the EPIA report (2014), although PV industry is in the middle of a transition and faces challenges at this moment, the application of solar energy will continue to be a cheap and viable option over the next two decades and will also be the focus of research in many countries. In particular, it’s worth noting that national institutions are crucial determinants for the development and especially innovative initiatives of PV industries across different national settings.
1.1.2 PV industries and institutions in China, Germany and Japan
For Germany, this country proves that the transition of energy system from fossil fuels to clean energy is possible. In 2014, according to news from Renewables International and the Guardian, more than 74% of the electricity in Germany is clean energy and electricity generated by solar energy experienced a growth of around 34% in 2014 (Morris, 2014; Vidal, 2014). As a consequence, the PV industry in Germany has been become one of the key sectors of its economy in just a few decades. German PV industry’s high-level productivity and advanced technologies generate a significant export volume of high-tech PV products with high quality. It is worth mentioning that the development of German the PV industry heavily attributes to tailored policies from its government and the lobbying activities from the non-government related associations. In terms of its firms’ innovation performance, PV-related patents increased smoothly since 2000 (Zheng & Kammen, 2014).
Japan is one of the most resource-poor economies in the world. To resolve the shortage of fossil fuels, Japan has developed a consistent technology-push policy for its PV industry which stimulates innovation creation by stable R&D support and by the removal of regulatory barriers (Kimura & Suzuki, 2013). Globally, Japan not only sustains its leadership in PV industries but also surpassed the U.S and has become the world number one patent holding company in the PV field.
In a word, Germany and Japan are in a stronger position due to their mastery of advanced technologies in downstream products in comparison with China. To what extent the different institutional contexts of these three countries determine the diverse performances of the PV industries in China, Germany and Japan is the central question this thesis will focus on.
1.2 Theoretical perspective
2006; Murmann, 2013). In terms of institutions, it should be mentioned that institutional factors can work together to influence the development path of industry. From this sense, in this paper, a national innovation system (NIS) is introduced to represent the interconnectedness of institutional variables.NIS is defined by Nelson (1993, p4) as “a set of institutions whose interactions determine the innovative performance…of national firms”, which will be applied in this paper.
Bell and Figueiredo (2010) classify institutions into three dimensions: macro (regimes consisting of complex public policy), meso (the political and bureaucratic structures) and knowledge-based institutions (research institutes and universities). An innovation system is the collective system where institutions like innovative organizations, policies, the legal framework and the research infrastructure etc. interplay with each other to generate incentives for innovation performance. The theory of NIS was first raised by Freeman (1989) and advanced by researchers like Lundvall (1992), Nelson (1993) and Edquist (2010). Edquist (2010) discussed NIS both from broad and narrow perspectives. From a narrow view, NIS only includes firms and research institutions. From a broader perspective, it includes all the knowledge transfer processes and innovation initiatives within a country, regardless of where these actions occur (Edquist, 2010).NIS heavily influences the development of industries, noting that the dynamics of emerging industries are largely attributable to technology transfer and the doings of the actors (Edquist, 1997).Besides, firms can also offer feedback to supporting policies purposefully and strategically from a co-evolutionary point of view (Murmann, 2013).In this thesis, the evolution of the NIS is outlined and analyzed to identify the differences of NIS between three countries (China, German, and Japan) and thus further help us understand the reasons of the diverse levels of industrial performance.
also depict the different characteristics of innovation performance. Getting back to the idea from the torchbearer of evolution economics, the economist Joseph Schumpeter stated that innovation, accompanied with technological changes and improvements, contains two aspects: the commercialization of a new invention and the diffusion of these innovations to the market. From this point of view, innovation is created and diffused within the co-evolution of industry with its institutions, but it has different path dependencies across different national settings. Therefore, in this thesis, the co-evolutionary perspective and NIS theory will be combined to study the co-evolutionary processes of the PV industries in China, Germany and Japan.
1.3 Problem indication & Research question
From the empirical and theoretical background, we can notice that China, Germany and Japan have different innovation performance in PV industries, which could be caused by differences in their national innovation systems, and by the influence of firms on institutional arrangements and changes. The main question that will be handled in this study is: Are there any co-evolutions of PV industries in China, Japan and Germany How can co-evolution of institutions with PV industries, especially the influences from national innovation systems on PV industries, explain differences in performance in the PV industries of China, Japan and Germany?
Based on the main question, three sub-questions are raised:
(1) Which institutional and technological actors contribute to the emergence, development and expansion of PV industries and their markets in these three countries and how do they differ? (2) What are the differences in R&D related efforts and how do these differences encourage or constraint the knowledge transfer and industrial development in these three countries? How do market incentives push the diffusion of the PV markets?
(3) Can the co-evolution theories explain the differences in performance of PV industries in China, Germany and Japan?
2 Theoretical framework 2.1 The combination of theories
This paper is based on co-evolutionary theory, institutional theory and national innovation system theory. Nelson (2002) and Pelikan (2003) combine theco-evolutionary perspective and the institutional view into co-evolutionary research. The co-evolutionary perspective in this thesis is used to observe the co-evolutionary processes between the institutional actors and industries of China, Germany and Japan, and to investigate the path dependencies of these three industries. Institutional theory and NIS theory together take a further look at how diverse institutional elements that change jointly shape the industry and thus generate different innovation performance among countries.
2.2 Co-evolutionary framework 2.2.1 Evolution and co-evolution
Evolution theory started with Darwinism in the field of biological realm. Economists like Veblen and later Schumpeter were inspired by the ideas of applying the evolutionary concept to economic development research (Garrouste & Ioannides, 2001). In the late 20th century, Nelson and Winter (1982), by their momentous book "An Evolutionary Theory of Economic Change", gave a new and lasting momentum to evolution economics. Basically, the evolutionary literature suggests the technological changes are the essential economic power for the formulation of industrial paradigm.
effects”. Murmann (2003) and Malerba (2006) urge a rigid and precise definition for co-evolution. Murmann (2003, p22) suggests “Two evolving populations co-evolve if and only if they both have a significant casual impact on each other’s ability to persist. ”It implies that only the interconnectedness that shapes the adaptability of the “interactors” can promote co-evolution. This thesis follows the definition of co-evolution from Murmann (2003).
2.2.2 Co-evolutionary framework and multi-level co-evolution researches
Scholars like McKelvey (1997), Lewin and Volberda (1999), and Lewin et al. (1999) have advanced the co-evolution concept as a framework for approaching dynamics within, and interactions between, organizational adaptation and environmental selection. Following the ideas of Nelson and Winter (1982) and Aldrich (1999), Lewin and Volberda (1999) hold that the variation- selection- retention (VSR) process is the basic descriptive instrument and the core of the analysis framework of general co-evolution research. The VSR model refers to the standard co-evolutionary regime that focuses on the evolution of different populations. In the selection process, the ill-adapted organizations are eliminated. During the retention phase, the organizations that are left stabilize. At the same time, Lewin and Koza (2001) contribute to the improvement of the co-evolutionary approach, primarily the formation and improvement of the theoretical model. According to Lewin and his colleagues(Lewin & Volberda, 1999; Lewin et al, 1999; Lewin & Koza, 2001), within a macro environment, institutional factors play an important role in shaping possibilities of co-evolution in organizations. Meanwhile, firm-level behaviors and strategies can also influence institutions in a purposeful way.
and institutions indeed can co-evolve with each other (Nelson, 1994, 1995; Van de Ven, & Garud, 1994). Murmann (2003) links the dynamics of three populations: technology, institutions and industry with each other and subsequently explores the interrelationship between synthetic dye industry, national institutions, and technology in Germany, American and Britain from 1857 to 1914. He notes that the main reason behind the German success inthe dye industry is the co-evolution between the national education system and the good protection of property rights developed by the German government.
When different populations are involved in co-evolutionary research, multi-level analysis makes most sense. Firm level co-evolution studies usually focus on how firm abilities co-evolve with firms’ institutional or/ and industrial contexts. Meso-level studies take a look at co-evolutions of industrial or regional level dynamics with changes of institutions or technologies. On a macro level, the co-evolution between general social forces and populations like organizations and institutions is investigated. These dimensions are often combined in a co-evolutionary research in order to explore the interdependence, dynamics and interactions between micro, meso and macro level. Put simply, this also implies that many non-linear relationships exist between different populations, and different levels of factors should be taken into account when carrying out co-evolutionary research. E.g. Matias et al. (2013) approach the co-evolutionary process between institutional elements and technological capabilities at a company level within the Brazilian bio-ethanol industry for three decades via macro, meso and micro dimensions. Similarly, the research from Baum and Singh (1994)takes a look at the co-evolution within and between organizations, populations and communities.
According to Lewin and Volberda (1999), five major requirements are to be fulfilled when carrying out co-evolutionary research.
1) Multi-levelness: co-evolution occurs at multiple levels. Co-evolution within the firm and macro-level co-evolution (firm with its niche) happen together.
1999, p275).
3) Nonlinearity: multidirectional causalities also implies nonlinear relationships and between populations.
4) Positive feedback: from a viewpoint of interactive feedback, “the unidirectional view of cause-and effect relationships gives way to a recursive bidirectional view of mutual causality.” (Lewin and Volberda, 1999, p257)
5) Path and History Dependence: path dependence might promote or hinder firms’ adaption process.
2.3 Institutional theory and national innovation system 2.3.1 Institutional perspective
Economic activities are socially embedded (Solow, 1985).North (1990, p3) defines institutions as “the rules of game”. When broadening this definition, Edquist and Johnson (1997, p188) state that institutions are “sets of common habits, routines, established practices, rules, or laws that regulate the relations and interactions between individuals and groups”. Both formal rules like regulations and informal rules like norms and values evolve over time and have an impact on the “game” (North, 1990, p3), which further implies that institutional factors shape firm abilities. From this point of view, it can be inferred that institutional elements play an important role in shaping innovation ability and organizational learning ability within a firm. Institutions may impede or prompt adaption to a changing environment. Factors like changes or radical transformations in an institutional context, the extent to which one country can take advantage of its institutions and interactions of different institutional variables, are all involved in influencing firm-level innovation accumulation and knowledge creation.
2.3.2 National innovation system
Freeman (1987) maintains that the rapid rise of Japan can not only be credited to the technological innovation but is also attributable to the institutional and organizational innovations. In a nutshell, the evolution of NIS plays an important role in the success of Japanese industrialization. This theory has later been developed by Nelson (1993). He defined NIS as “a set of institutions whose interactions determine the innovative performance…of national firms” (Nelson 1993, p4). The study of another contributor of the founding of NIS , Lundvall (1992), highlights the role played by user-producer interaction and especially the interfaces between actors in the learning process. Freeman (1987), Nelson (1993) and Lundvall (1992) each summarize several key actors in the NIS.
The framework of NIS created by Freeman (1987):
The key actors stressed by Nelson (1993):
Lundvall (1992) focuses on the following issues: 1) the role played by policy
makers in influencing research on generic technologies and transformation of economic structure;
2) the combination of
technological importation and research within firms;
3) how education, training, and social innovation influence innovation generation;
4) The industrial structure which can facilitate the exchange of information between firms.
1) internal organizations within firms;
2) the role of industrial structure;
3) the role of public sectors;
4) the role of financial sectors;
5) the role of universities and research institutes.
1) who are responsible for R&D activities;
2) which institutions are charged of financing activities;
3) corporate features; 4) the role of key sectors; 5) the role of universities and research institutes;
6) the role of policies.
In this paper, by combining the above research results of NIS theory, chief elements within NIS which capture the main features of institutions and PV technologies will be identified and filtered to adapt to this context. Governmental organizations, lobbying associations, PV producers, national education system and markets at home and abroad are the main actors within NIS which will be identified and discussed. Marigo et al. (2008), by adopting the NIS framework, identify the different technological and institutional actors and relations of the NIS for the PV industry in the UK and in China, and evaluate the extent to which these actors promote or constrain the technological improvement and the market diffusion of PV technology in the two countries. This paper will be based on their work but chooses the contexts of China, Japan and Germany as the research objectives.
2.4 The development of emerging industry across different national settings
A co-evolutionary perspective has been applied to a variety of industries, ranging from the financial services industry to the fashion industry.
developed countries, haven't built up fully regulated markets. Unstable institutions with uncertainty and changes also offer opportunities for analysis. Furthermore, co-evolution dynamics are sector-specific (Malerba, 2006). Therefore, the study of the PV industry is worth carrying out. Wind power industry, one of the energy industries, was studied by Pacheco et al. (2011). But in that article, social movement is the only institutional factor selected by the authors, and time span is also in the distant past.
In terms of the adoption of comparative research, identifying which sets of institutional factors have a larger impact on the co-evolution processes in different national settings can help to explore the reasons why a certain NIS can be relatively successful in this industry and thus offer some practical and theoretical implications, just like what Murmann (2013) did in his research of synthetic dye industry. Back to this thesis, although China, Japan and Germany are all industrial leaders to some degree, they indeed have totally diverse performance profiles and strategy formulations. The institutional environment in these countries, especially the actors and relationships within the NIS for PV industry are quite different. Observing the development path of PV industries in different nations will help policy makers identify the priorities of current plans and notify the potential constraints.
2.5 Conceptual model
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Governmental institutions Knowledge Facilitators Influence Innovators Investment Market
Figure 2. the conceptual model
This conceptual model is based on the framework by Marigo et al. (2008). To be specific, the lobbying groups work as the facilitator to coordinate the interactions between the actors (see figure 2).The firms and the national education system are the network’s innovators which manage to promote knowledge diffusion and technological breakthroughs. The question marks refer to whether there is co-evolution taking place within the NIS of PV industry. The arrows each indicate the flows of the knowledge, investment and influence. Only the most important relations will be present in the analysis part. When the relationships are far more important than others, the arrows will be thicker.
Governmental institutions
Non-governmental associations
National education system
Firms Firms
3 Methodology and data
Getting back to the model built by Lewin and Volberda (1999), which was already mentioned in the theoretical framework, five major requirements- multi-levelness, multidirectional causalities, nonlinearity, positive feedback, and path and history dependence– were introduced in a detailed way. However, there are several minimal standards of the co-evolutionary study. The first one is that along historical period of time should be selected where changes and especially vital historical events take place. It also suggests a longitudinal study. The second one is that organization adaptation should be investigated in a historical context where firms co-evolve with their environment. Multidirectional Causalities, Path and History Dependence, and Nonlinearity which were already explained above should be taken into account. Besides, the institutions system as well as elements of the macro environment like political, economic and social variables change jointly and affect the firms.
The basic requirements of NIS should also be considered. Along historical period of time is necessary. The variables within national systems are already named in the conceptual model section. The measurement will be explained in the following paragraph.
performance of a certain country is mainly pulled by innovation creation or largely pushed by market demand will be discussed. In all, both qualitative methods and quantitative methods are needed in this paper. However, qualitative methods are the chief methods adopted in this thesis. Since the relationships between populations and environments have characteristics like nonlinearity and multidirectional causalities and multi-levelness, a historical approach with descriptive data is needed.
The quantitative analysis is a widely applied instrument within economic research. Quantitative techniques always possess properties like precision, objectivity and logicality. The result of quantitative research thus more reflect the external reality (Tacq, 2011). However, this study will adopt a type of quantitative method which focuses more on descriptive data, since macro, meso and micro variables all interplay in one analysis. The descriptive data are collected for the analysis of chief success indicators about PV industrial performance. Compared with mathematical methods, qualitative approaches are the major instruments adopted in this paper. The qualitative method focuses on the records of dynamics of historical conditions and development path, which applies to the co-evolutionary approach(Thomas, 2004). For example, Ronald Coase and Douglass North, the two most representative scholars of institutional economics, successfully apply qualitative approaches in their studies. However qualitative research that relies more on secondary literature also has some disadvantages (Hennink et al, 2010).The analysis processes and the results of qualitative research are basically expressed in words, but the words are not as accurate and objective as the quantitative outcomes. Apart from that, sometimes the information collected is not complete and the authors’ expertise and adjustment also affect the final results. Therefore, largely relying on the qualitative methods and especially choosing secondary literature indeed has some limitations. Therefore, as mentioned before, descriptive data will be added into this analysis to eliminate as much ambiguity and one-sidedness as possible.
processes will be introduced with a qualitative approach. Major policies, programs and similar historical events will be depicted. The time spans chosen are different and the periods rely on countries’ diverse conditions. For China, 1970-2014 will be selected; for Germany the time span discussed is 1970 to 2014; and for Japan, the main analysis will focus on the time span from 1953to 2014. Data about numbers of firms are available in related national reports and academic articles.
4 Analysis
4.1 Industry Introduction
4.1.1 Photovoltaics: typical products and technology
To cite a definition, Photovoltaics is the technology that use a photovoltaic power generation system made by solar cells to convert sunlight into electricity (Solarbuzz, 2007). Solar cells, PV components, and solar power generation system are the major solar products (see figure 3). Solar cells, the core components of general PV products, are used to realize photo-electricity transformation. In the current stage, the most widely used raw material of solar cells is silicon, since other alternative materials like rare metals are either scarce or have adverse influence on the environment. The thin-film has become another popular raw material in recent years. Organic materials for PV products currently occur at the leading edge of research. The two most common types of silicon solar cells are made from mono-crystalline and poly-crystalline silicon. The crystalline silicon technologies account for more than 80% of the photovoltaics international market (Solarbuzz, 2007). Mono-crystalline silicon cells can convert a considerable section of the sunlight into electricity by the efficiency of around 25% in laboratory circumstances (Solarserver, 2007). Poly-crystalline silicon technologies cannot achieve such high efficiency rates, but they are less costly. The converting rate of thin-film cells is half of that of silicon cells. Besides, due to the lack of silicon, after 2010, the growth rate of silicon solar cells has slowed down. The thin film solar cell, despite only covering 10% market share, has become the key of research and development. Thin film technologies have recently realized huge decreases in costs. The scientists currently are also moving ahead with the researches on new materials, especially organic materials. Organic PV is based on thin-film but has higher efficiency in electricity converting. In figure 4, different technological maturities indicate different levels of market penetration.
Photovoltaics can be applied in many fields: rural electrification, the power generation system on the city construction, power stations in desert areas, and satellite applications etc. The “New Sunshine Program” in Japan in 1993 and the1,000-roofs program in Germany are the key national programs that aim to spread on-grid PV systems. However, currently, China only has several demonstration projects in a few cities. The detailed information about those programs will be explained in the analysis section.
Figure 3. Three main PV products
Poly/Mono Silicon PV Primary Thin-film PV medium Thin-film PV High efficiency Thin-film PV Organic PV R&D Demonstration Pre-commercial Supported Fully commercial Commercial
Figure 4. Technological maturity and market penetration based on different PV technologies
Solar cell Solar
components
Solar power system
Source: adapted from Foxon et at., 2005
4.1.2 Success indicators of PV industry
The dawn of PV industry was marked by the creation of the first solar cell in the middle of the last century. In the 1970s, the explosion of an energy crisis woke people up and created awareness about conventional energy resources being nonrenewable and limited. To ensure the energy supply and national security, a number of governments initiated the PV research. Since 1990, due to factors like forceful appeal to CO2 emission reduction, major advance in technologies, and especially the rapid decrease of costs, PV industries have been developing at an amazing speed. According to figure 5, the cumulative installed PV capability has increased almost 100 times in 14 years,. The average annual growth rate of the last 14 years is 44%. Besides, until 2014, PV covered at least 1% of the world electricity generation (Breznitz, 2014). The PV installed capacity refers to the maximum capacity which a PV system can operate at (Meinhardt& Cramer, 2000). Watt is the normal measurement. Million watt (MW) is applied in this paper.
Figure 5. the evolution of global annual installations 2000-2013 Source: Data are collected from IEA PVPS statistics reports
introduced for the comparison of industrial performance of China, Germany and Japan, in order to get a general impression of the evolution processes of these industries.
1) PV cumulative installed capacities
Figure 6 shows that PV cumulative installed capabilities have significantly increased in China, Germany and Japan in the last decade. The cumulative installed capability of PV industry of Germany has increased faster than that of China and Japan, especially after 2007. Besides, more than 7% of electricity in Germany is generated from solar power and Germany also ranks among the top 3 countries who have more electricity demand with PV than average. For China, although it is the largest PV exporter in the world after 2007 (see figure 7), solar energy is not the main electricity supply. For Japan, the growth rate of cumulative installed capability has been stable during the last decade. After 2012, both China and Japan accelerated their rate of expansion of PV installations.
2) Global market shares
Regarding the global market shares, China, as the latecomers, has surpassed Japan and Germany after 2007.The year of 2007 is also a turning point that the loss of market shares of Japan seems to be gradually acquired by China. According to Xie and Li (2012), Chinese PV products indeed have a market impact on Japan and Germany. (see figure 7)
3) R&D achievements
Figure 6. PV cumulative installed capacities (MW) in China, Germany and Japan 2005-2014 Source: Data are collected from IEA PVPS statistics reports
Figure 7. PV global market shares in China, Germany and Japan 2000-2010 Sources: adapted from Zheng (2012)
Figure 8. patent applications in China, Germany and Japan 2000-2010 Source: adapted from Zheng &Kammen (2013)
4.2 The co-evolution between Japanese PV industry and Japanese NIS for PV industry More than 80% of the fossil fuels depend on import in Japan during last three decades. This figure even reaches 88% in 2014, according to the 2015 energy white paper of Japan. Therefore, Japanese policy makers have to make efforts to find alternative energies to meet the demand of power-hungry industries. Solar energy becomes a proper choice for Japan since it is very much available in the country. As a consequence, the development of the PV industry has become one of the key national projects in Japan and it gained many achievements during more than five decades.
4.2.1 1954-1979 the emergence of Japanese PV industry and the formulation of NIS for PV industry of Japan
1958(Solarsystem-history.com, 2015). From a micro level, only a few entrepreneurs started the programs in the commercialization of PV cells after 1958, because these technologies were still expensive and immature to set up the mass production of large scale household applications. Some Japanese zaibatsu launched in-house R&D about technologies like mono-crystalline silicon and thin-film technologies (Mitsubishi Institute, 2011). It’s interesting to note that every firm has its own research target for single technology without any conflict among the private firms even if they are private (Mitsubishi Institute, 2011).Only after 1963, mono-crystalline solar cells started the mass production (Mitsubishi Institute, 2011). The general institutional context of Japan could be a possible stimulus. However, the solar products were still limited for special purposes and the efforts were focused on fundamental research. (see figure 9)
After one year of the first Oil Crisis in 1973, to meet the demand of energy, the Ministry of Trade and Industry (METI), a subsidiary of Japan’s Ministry of Economy, proposed the famous “Sunshine Project”. One of its aims was that a certain proportion of energy supply should be originated from solar energy. The national institute of Industrial Science and Technology (NIIST) was the national research institute supported by METI to promote the introduction of new PV technologies and PV R&D activities (Mitsubishi Institute, 2011). (NIS for PV industry see figure 9)
Fimrs
Figure 9. NIS for PV industry of Japan during 1954-1979
4.2.2 1980-1993co-evolutions under the “Sunshine Project”
The second Oil Crisis in 1979 and the arisen consciousness in environmental protection stimulated a new round of PV research. In response to this crisis, “Oil Alternative Energy Law” was enacted and a new organization: the New Energy Development Organization (NEDO), was specially established to push the related activities for development of renewable energy (Industrial development institute, 2014). NEDO, also regarded as an important actor of NIS for Japanese PV industry, was the initiator who proposed the R&D subsidies and launched demonstration projects under “Sunshine Project”. In regard of R&D investment, a Special Account was opened and legislated into that law to collect funding from the revenue of increased tax of conventional fuels. Since then, the total investment in “Sunshine Project” and particularly the weightings of PV R&D projects had experienced a fast growing period (Mitsubishi Institute, 2011). With regard to demonstration projects, it was suggested the market was directly created by the policy makers. Except for “Oil Alternative Energy Law”, the Civil law included some clauses about the residential PV applications during this period, which was an important stimulus for the PV applied research and enlarging application of solar system(Mitsubishi Institute, 2011). Solar cells made from ploy-crystalline silicon were the research priority in that stage(Mitsubishi Institute, 2011) (NIS for PV industry, see figure 10). Besides, several demand-push policies were also formulated under “Sunshine Project”.
Ministry of Economy,
Trade and Industry (METI) National research Institutes (NIIST) Domestic market Niche application market Firms Ministry of International
On a micro level, the strong and diverse governmental support partly came from private firms’ lobbying, since the existing zaibatsu were dissatisfied with PV’s niche market and wanted to realize commercialization and gain more market shares. Owing to the market creation by the government, another 31companies, both large and small, entered the PV industry during these period, which were stimulated by the R&D subsidies as well as the national goal of the use and expansion of solar power applications (Mitsubishi Institute, 2011).In the late 1980’s, a number of large PV producers established the Japan Photovoltaic Energy Association (JPEA), an industry coalition group, through which they intensified their lobbying activities against the government around the period of 1990 (Kimura&Suzuki, 2006).At the same time, around six universities started to initiate R&D activities since 1980 (Mitsubishi Institute, 2011).
Satellite field
(MITI)
N
Figure 10. NIS for PV industry of Japan during 1980-1993
4.2.3 1994-2006 Co-evolutions under the “New Sunshine Project” and the NEDO 5-year project
It’s similar that, in this stage, certain macro factors were still the impetus for the development of the PV industry in Japan. The reduction of carbon dioxide emission was one of the themes of environmental protection. The discussion in the international conference in Toronto, Canada, and later the United Nations Framework Convention on Climate Change (UNFCCC), both of which urged the environmental protection, promoted the exploration of new energy. Against this background, Japanese PV industry experienced a new round of development.
Late 1993, the “New Sunshine Program”, an expansion and compensation of “Sunshine Program”, was kicked-off to continue the development of renewable energy in Japan (Yamasachi. 1994). This program consisted of three main guidelines and two of them were related to PV industry in Japan: 1) the implementation of technological innovation; 2) the
National research Institutes (NIIST)
Research institutes Ministry of Economy,
Trade and Industry (METI)
The Ministry of International Trade and Industry (MITI)
Oil Alternative Energy Law Special Account
Special Account New Energy Development Organization (NEDO)
collaboration with neighboring countries in PV industries. The first project focused on learning from the experience of foreign countries, which implies that MITI, an important actor of NIS for PV industry in Japan, had an impact on the innovation creation through knowledge transfer. For the second project, the Japanese government encouraged collaboration with its neighbors in fundamental research to work together in the technological innovation in PV fields. (see figure 11)
The “New Sunshine Program” successfully concluded in 2000. The NEDO 5-year project just started right after it to continue to execute similar policies. It’s worth noting that 5 laws were published to ensure the process of the PV industrial development.
A number of achievements were gained in this stage. In regard of technological gains, several advanced PV technologies were mastered. It should be mentioned that in this stage, the priorities of the R&D research moved from fundamental research to applied research. A large proportion of the patents are obtained by the Zaibatsu. With regard to market creation, this period witnessed a big increase in market size, especially the residential PV deployment. “700 Roofs Program” launched in late 1993, a sub program under “New Sunshine Program”, and the considerable PV subsidies for individual installation attracted a large number of PV firms to organize mass-production lines for residential PV systems.
Figure 11. NIS for PV industry of Japan during 1994-2006
4.2.4 2006- market expansion
The subsidies for the PV producers, which began in the first stage,and the subsidies for the consumers, which began in the second stage were stopped by Ministry of Finance (MOF) and MITI in 2005 because the Japanese government was criticized for providing too much support. Critics were that the government interfered with the market rules and ignored the market mechanisms. Without subsidies from the government, the net-metering program is the only channel of subsidy support for PV deployment. It suggests that in this stage, the non-official organizations led by the large private PV producers played a major role in influencing the PV business. The idea behind this is that the market mechanisms started to overpass the policy-oriented mechanism in the PV industry. Back to the main economic background of Japan, since the mid-1990s, market liberation and deregulation became the main trend of the
National research institutes
Research institutes Ministry of Economy,
Trade and Industry (METI)
The Ministry of International Trade and Industry (MITI)
Oil Alternative Energy Law Special Account
Special Account New Energy Development Organization (NEDO)
economy (Bayoumi, 2001). The automatic industry as well as many other industries followed this trend, and the PV industry could not make an exception. But the reduction of governmental supports reminded the scholars of sustainability issues of the PV industry. From 2009, the intense competition from China and European countries in the international market has become one of the incentives for reintroduction of the subsidy for residential PV deployment (Mitsubishi Institute, 2011).
In general, the NIS for PV industry of Japan is nearly finalized and stabilized. Although the role of large producers like Mitsubishi and Toshiba cannot be ignored, during this stage, scholars have become another influential actors within the NIS. More universities joined PV research and more research papers were published. (see figure 12)
Figure 12. NIS for PV industry of Japan during 2006-2009 (under the ) Note: NIS after 2009 is the same with NIS during 1994-2006
4.3 The co-evolution between German PV industry and German NIS for PV industry Germany is the leading country in European PV markets, as well as one of the important players on a worldwide level. It has a large domestic market since the consumption of electricity generated by solar energy against the overall electricity has already reached 7% in 2014, which overpasses numerous countries, since 1% is the average rate worldwide (IEA, 2014). Besides, Germany is also a big exporter to the rest of the world. The electricity generated by PV energy in Germany is transmitted and provided throughout whole Europe. Germany is one of the innovators both in the technology and policy-formulation of the global PV markets, whose PV technologies have been applied by many competitors and governmental policies have become a paradigm for many countries(MacDougall, 2014).
National research institutes
Research institutes Ministry of Economy,
Trade and Industry (METI)
The Ministry of International Trade and Industry (MITI)
Oil Alternative Energy Law Special Account
Special Account New Energy Development Organization (NEDO)
4.3.1 1970s – 1980s the emergence of German PV industry
Under the first Oil Crisis in 1973, the accelerated increase of oil prices put pressure on a variety of German industries since Germany was the country that had a history of heavily relying on fossil resources such as the industries based on Ruhr region. Besides, the public and the environmental activists launched the anti-nuclear campaigns to advocate the refusal of the nuclear energy sector. At this time, the exploitation of alternative energies except nuclear energy were put on the agenda and PV industry, since then, started to enter the public’s view. At the same time the government started to pay attention to this industry.
After the second oil crisis in 1979, the government started to formulate the elaborate strategies of the PV industry(Fuchs&Wassermann, 2012). The federal ministry of research and technology (BMBT) led the first PV supporting program to finance the PV development (Fuchs&Wassermann, 2012). In the 1980s, due to advocacy from the environmental activists and support from the government, a range of research institutes were set up(Fuchs&Wassermann, 2012). Some universities started the PV related research in specialized physics departments. Later, national research institutes only targeting the PV field were built up and in a few universities, specialized photovoltaics departments were created. The formulation of these research and educational institutions were still attributable to both the facilitating groups and the government (Fuchs&Wassermann, 2012). (see figure 13)
Figure 13. NIS for PV industry of Germany during 1970s and 1980s
4.3.2 1991- 1998 the co-evolution under the 100-roofs program
During this period, a surge of PV industrial associations came up, aiming at technological development, commercialization of PV related products and advocacy of political support. In 1991,the “Feed-in law, a long term program that described a mechanism requiring utilities to remunerate energy of renewable sources that was fed into the grid, was published because of the lobby activities from a range of facilitation groups” (Fuchs&Wassermann, 2012, p19). It was the first time that a strong market mechanism was brought into the PV markets and the feed-in law was a milestone in the development. Although the pass of feed-ins law could be credited as a profound event for the success story of the PV industry, in this stage it was not fully useful since research and production activities of fossil energy were still the priorities of the ministry of economics(Fuchs&Wassermann, 2012).
During the earlier 1990s, the 1,000-roofs program was launched under the feed-in law to act as a niche strategy to first explore the domestic market (Solarbuzz, 2007). Accompanied with this program, the advocacy groups also gave out the social survey about the special needs and potential users of PV energy (Chowdhury et al, 2014). The governmental investment in R&D
ministry of research and technology (BMBT) Environmental groups Research institutes (ISE, etc.) Universities German association for Solar Energy
Firms
(AEG-Telefunken and Siemens Solar)
provided strong financial support for technological development and improvement. As a result, the new energy sector started to attract much attention because of the achievements of that program. However, although another program, which was also supported by the ministry of economics, followed the 1,000-roofs program to continue the exploration of niche market in the PV market(Fuchs&Wassermann, 2012). The governmental support in policies and funds declined considerably before 1998 due to the lack of support from the new governing parties(Fuchs&Wassermann, 2012). (see figure 14)
From a firm level, Siemens, as a globally competitive cell producer, focused on the PV market in America. Another large corporation RWE-Schott Solar, started to explore the domestic market under the 1000-roofs program (Fuchs&Wassermann, 2012).
In all, it was a coalition of local politicians, the Green party, researchers, environmental societies, and business associations, that managed to influence the federal government to improve and enhance its innovation policy for photovoltaics during this stage (Fuchs&Wassermann, 2012). ministry of research and technology (BMBT) ministry of economics Environmental groups Associations for Solar energy/ other renewable energies Research institutes (ISE, etc.) universities Firms (AEG-Telefunken and Siemens Solar)
International Market
domestic Market
Figure 14. NIS for PV industry of Germany during 1991 to 1998
4.3.3 1998- market expansion
During this period, the Kyoto protocol and the increased environmental concern gave an impetus for the development of renewable resources in Germany. But the increased support was still mainly attributable to the changes of its institutional regime and especially the lobby activities from the groups. The parties who supported the PV development came to power from 1998 and since then the PV industry presented more possibilities (Fuchs&Wassermann, 2012). The facilitation groups grasped this chance and launched a new round of lobbying activities. Through their lobbies, The ministry of environment become another important actor within NIS for the German PV industry and initiated the institutionalization of the photovoltaics advocacy coalition within the centre of political power (Fuchs&Wassermann, 2012). The expansion of a PV development related network was also the reconfiguration for the whole energy sector of Germany. This networks become more complete, which largely facilitated the knowledge transfer and innovation creation. (see figure 15)
The development of the PV industry in Germany was also under change because of the institutional factors of the European Union (EU). During this time, the deregulation process was encouraged by the EU (Wollmann, 2007). The development and reconfiguration of energy sectors in EU countries benefited a lot from this deregulation(Wollmann, 2007). To be specific, the deregulation meant that the fossil energy, nuclear energy and related industries, which were traditionally protected by the central political powers in different EU countries, enjoyed less governmental leanings afterwards (Wollmann, 2007).
Sources Act (EEG) was published because of lobbies. Both the 100,000-roofs program and the EEG ensured and stabilized the market demands. Apart from the domestic market, the international market has been prosperous since Germany is one of the largest PV producers in the world, but it is still under the threat from the exporters of the developing countries who have more advantages in costs.
On a firm level, during this stage, the market is not dominated by a few large corporations. The small and medium start-ups quickly grasp the chance of 100,000-roofs program and EEG law. They are listed on Frankfurt stock exchange, which offers them a stable investment.
Figure 15. NIS for PV industry of Germany during 1998- ministry of research and technology (BMBT) ministry of economics Associations for Solar energy/ other renewable eneries Research institutes (ISE, etc.) universities Firms (AEG-Telefunken and Siemens Solar)
4.4 The evolution of China’s PV industry and China NIS for PV industry
In the last two decades, the PV industry in China has reached a high growth rate and has obtained considerable achievements. Since 2007, China has become the largest producer and exporter in global markets. The development of PV industry in China is also put on the first place by the Chinese government since it is one of Chinese leading industries who has large competitiveness on a worldwide level (Li, 2009).
4.4.1 1971 - 1990 the dawn of PV industry in China
The earliest research in the PV field was about the technology of solar cells which were needed in the artificial satellite during the 1970s in China (Li, 2009). This was caused by the threat of potential war. But after the successfully manufactured PV cells for satellite, the R&D in the PV field in China experienced a long blank from 1985 to 1990, when the manufacturing equipment for solar cells all needed to be imported from America (Shen, 2013). During that time, the governmental support was mainly focused on a few demonstration projects in some provinces (Shen, 2013).
From a firm level, a few firms engaged in the production of non-crystalline PV cells through purchased or second-hand equipment. The mass production did not start yet. The PV field could not be seen as an industry, neither could the NIS.
Figure 16. NIS for PV industry of China during 1971 -1990
4.4.2 1991- 2006 The international market expansion
Since 1991, the major PV producers started to carry out the R&D activities in PV technologies and these R&D activities were still largely relying on the national institutes and governmental support (Li, 2009). However, at that time, technologies in China were below average and the
The state council of China
development of hydro power was the main priority during this period. The PV sector did not attract much attention from the government.
In terms of the development of PV technologies, part of the manufacturing equipment still depended on import and only a few of the basic and simple equipment could be manufactured in China (Shen, 2013). Until 2001, one of the Chinese PV producers first mastered the technology of mono crystal and another PV producer started up a solar cell manufacturing production line. Until 2006, the PV cell manufacturing production line became common among Chinese PV producers (Shen, 2013).
After 2000, driven by the huge global market demand, plenty of firms entered this industry to conduct the production activities. During 2003 to 2006, there appeared a large demand in the global market of PV cells and a large proportion of the demand was triggered by the EEG act of Germany and the renewable policies of the EU(Shen, 2013). The state council of China published a 5-year plan for the development of the PV industry but did not pay much attention to the coordination of PV industry, which planted the seeds for the crisis in PV industry. To be specific, the large demand and subsequent huge profits of the global PV market attracted too many small and medium sized firms to surge to this industry, which resulted in industrial saturation and the waste of resources. Until 2007, China already had around 600 firms and 30 institutes and universities working in the PV industry. In 2007, China became the largest PV production country in the world (Li, 2009).
In all, it could be maintained that the NIS for PV industry of China is not formulated yet. Therefore, in this stage, the role of the NIS of the PV industry of China was to incur diffusion of knowledge of the technologies. The governments were hardly concerned with innovation activities for advanced technologies. Since the political environment is much different from the European countries and Japan, it is hard to see any association to launch lobby activities in China because of the restrictions by the Law. But it is also interesting to see that the PV industry in China during this period was exposed to the market mechanism (Zhao, 2009). The government had little effect on the PV industry unilaterally and the firms did not give any feedback to influence the government. The macro political environment were the main factor.
Figure 12. NIS for PV industry of China during 1991-2006
4.4.3 2007– the domestic market expansion
In 2006, the renewable law was passed on and developed in China, which incorporated some strategies from the tariff law and EEG of Germany, and gave an impetus to the domestic market. The National Development and Reform Commission (DRNC)in China, which is the major policy-making institution for the PV industry, launched a range of programs for addressing the lack of electricity in the southwestern areas of China through subsidies and price reduction. The local governments have been influential in leading and financing these programs. The rural electrification has also been supported by international organizations like the World Bank. Research institutes like Deutsche Gesellschaft für Technische Zusammenarbeit - GTZ from the
Firms Investments from
the public (local and global) The state council
of China
industrialized countries provided considerable assistance for the technological improvement in China (Shen, 2013). They offer training programs to help China cultivate the PV engineers.
The Chinese PV Association was founded in 2007, however, this organization does not make any important contribution except the publish of general news and general reports.
From a firm level, the firms have grown up and they invested around 10% of their revenues on in-house R&D activities (Li, 2009). In this stage, the gradually matured industry eliminated some firms through intense competition. Besides, some large private corporations such as Huawei, the largest mobile manufacturer in China, have entered the PV sector to gain a market share. The admittance of these large firms who have more innovation creation abilities refreshes the NIS for the PV industry in China. Other state-owned company also managed to acquire near-collapsed firms, which also drove innovation in the PV industry, since they have a higher level research ability.
The state council of China
National institutes
International market
Firms Investments from
5 Discussions
Japan Germany China
1950s And 1960s
Macro forces:
The invention of first PV cells; Intense political environment Meso forces: Governmental forces: general national organizations, national research institute Micro forces: The zaibatsu / / 1970s Macro forces: Oil Crisis Meso forces: Governmental institutions were found. national research institute Micro forces: The zaibatsu Macro forces: Oil Crisis anti-nuclear campaigns International market Meso forces: Governmental
institutions were found. national education system (institutes& universities) lobbying groups (associations) Micro forces: Large PV producers Macro forces: Intense political environment Meso forces:
State council of China National research institute
1980s Macro forces: Oil Crisis Meso forces:
Governmental institutions were found
Funding sources were added by government national education system (institutes& universities) Micro forces: The zaibatsu
More firms, especially the small and medium sized firms joined the PV industry. 1990s Macro forces: 1) Oil Crisis 2) International market 3) Domestic market Meso forces: Governmental
institutions were found. national education system (institutes& universities) lobbying groups (associations) Micro forces: Macro forces: Global market Meso forces:
State council of China National research institute Micro forces:
Figure 18. Major co-evolutions in Japan, Germany and China
The success indicators and the analysis of NIS evolutions will be put together to identify the characteristics of co-evolutions between PV industries and the NIS networks, and to understand the differences of the path dependencies in the PV industries in China, Germany and Japan.
In Japan’s case (see figure 18 ), the factors from macro-level, meso level and micro level all impact the co-evolution of the PV industry. The impact of forces on different levels is nearly the same. For Japan, the macro environment has much impact on its PV industry during its entire development, compared with China and Germany. The reason could be the limited natural resources in that country. The two Oil Crises therefore largely promoted the emergence and development of the PV industry. As a small, and not wholly independent
Both small-and medium-sized firms 2000s and after- wards Macro forces: Oil Crisis 1) Deregulation of the economics 2) Competition from other countries in international market Meso forces: Governmental institutions were found
Funding sources were added by government national education system (institutes& universities) lobbying groups
(associations) Micro forces: The zaibatsu
More firms, especially the small and medium sized firms joined PV industry.
Macro forces: 4) Oil Crisis 5) International market 6) Domestic market 7) Institutionalchanges in the EU Meso forces: Governmental
institutions were found. national education system (institutes& universities) lobbying groups (associations) Micro forces: Both small-and medium-sized Macro forces: Global market Meso forces:
State council of China National research institute Universities
Micro forces:
country around 1950s, the macro political environment, as another macro force, pushed the powerful Japanese central policy makers to initiate research on PV cells for satellites and navy. That could be the reason why Japan started its PV industry around ten years before Germany and China. It also implies that the macro forces are the key impetus for industry evolution. Another significant feature of Japan’s PV industry is that there are clear signs that the PV producers co-evolve with government choices. During 1950s and 1960s, the zaibatsu were the chief companies who started PV in-house R&D research and PV production. According to the report by XXX, each private PV enterprise focused on one type of PV technology and they did not have any intersections in technologies. It implies that there is government control behind the work distribution of the major firms. The zaibatsu are the typical Japanese large companies who have close relationships with the central government. We can speculate that the firms should also offer feedback to the government. The fast development of the PV industry under the “Sunshine Program” in the second stage was partly caused by the macro changes about the first Oil Crisis. The small-scaled volume production of PV products in private firms also provided possibilities for the implementation of the “Sunshine Program” which mainly focused on the spread of PV household applications. To make it clear, the context changes and the firms’ efforts together promote the spread of PV installations. The programs initiated by the government then helped with the expansion of the domestic market. Factors in different levels echo with each other. During 1953 to 1973, the co-evolution of the PV industry already began to take shape.
diversity, intensity and thus innovation creation of R&D research. In a nutshell, the actors within the NIS interplayed with each other in a more complicated way. Until then, the forces of the evolution and co-evolution have been basically completed.
The next stage of the development of Japanese PV industry almost follows the path of the former development. In the later path of the PV industry in Japan, only some smaller changes occurred. The first one is the formal cooperation in fundamental research with foreign countries, one type of macro force, started to influence PV industry evolution. Apart from that, the government affected the industry by setting up programs and by publishing laws and the firms conversely influenced government policies by controlling prices. When the extension of the programs exceeded the demand of the market, both the firms and the non-governmental associations started to criticize the government and appeal for new policies. Under this condition, the co-evolution between the firms and the government occurs. In Japan’s case, the major character is that the variables in the NIS are relatively active and the path dependency takes place in the later development process.
launched considerable lobbying activities to keep persuading governments to support the PV industry. Their lobbying activities were quite successful in that the government initiated a series of programs to expand the household PV installations, which thus promoted the enlargement of domestic PV market. The firms benefited from the lobbying activities and the governmental subsidies and thus had more motivation for innovation creation. They not only held their positions in the global market and but also chose to exploit the national market. The co-evolution of the German PV industry took place and the later activities of this industry almost followed this path.
Later, the lobbying groups were not restricted to lobbying activities targeting at gaining subsidies, but they also did social research to explore the special demands and future users of the PV market. Under this condition, more firms joined the PV market. When the governments saw the prosperity of this market, a 1,000-roof program emerged in response to the needs of times. Later, because lobbying associations were so ambitious and not satisfied with merely influencing the rebuilding of institutional frames and policy programs through the outside of political institutions, they launched a new round of lobbying activities aiming at more support. As a response, a 100,000-roof program turned up. The co-evolution of this industry goes on well since then. The path dependency of this industry almost stabilizes. The 1000-roofs program was renewed and expanded to the 100,000-roofs programs in 1999 with the help of lobbying activities by the coalitions, suggesting the government indeed received appeal from the firms and associations gave feedback. It also implies that the domestic market was largely expanded and the PV development became a national strategy instead of a local and experimental demonstration.
6. Conclusions
In general, the industries co-evolve with the institutional elements within NIS both in Japan and in Germany. While the co-evolutions did not take place in the PV industry in China. The co-evolutionary processes are different in Japan and in Germany.
