Energising Innovation: The Role of Global Innovation Alliances to Address Key Energy Challenges

By Laura Sacks

Laura attended the Y20 Turkey Summit in 2015, representing the UNSW Co-op Scholar Program. Laura is a Bachelor of Engineering student and previously worked as a strategy analyst at Deloitte. She is also the president of the Mechanical Engineering Society at UNSW.

Abstract

Innovation in the global energy sector is increasingly imperative to buttress economic and environmental sustainability moving forwards. Climate change and negative resource trends including decreasing supply and rising energy demand mean that finding innovative solutions to lessen our reliance on traditional fossil fuel sources is increasingly vital. Enabling innovation alliances between low-income developing countries and the developed world is essential for both to gain maximum benefit from upcoming energy technologies while also creating solutions to key global energy challenges.

This study will establish the scope for global innovation alliances in the energy sector in order to maximise return on investment and sustainable impact. It will use case studies to demonstrate the success of international collaboration in this critical and growing industry. The inclusive nature of the G20 positions it as an ideal forum to form strategic innovation alliances, as well as to develop policies that incentivise ongoing relationships between developing and developed countries in the energy sector. This raises the question of the limitations of the current role of the G20 and the potential need to drive it toward being a more active platform for implementing economic reform.

Recommendations

The G20 nations should:

  • Ensure that when changing existing policies, their governments recognise the importance of a stable policy environment in enabling new businesses to commercialise innovations with the assurance of long-term certainty.
  • Incentivise innovation in the renewable energy sector by subsidising loans for new businesses or company divisions working on renewable energy, energy efficiency and low emission technologies.
  • Collaborate to implement and incentivise programs that link research institutes to industry, with a particular focus on international programs such as global university research groups that include low-income developing countries.
  • Encourage the adoption of legislation to support evolving global finance solutions, including crowd-sourced capital and peer-to-peer lending. This should include a review of the bureaucracy involved in small business from incorporation to dissolution and the regulation of non-accredited investors. The aim should be to ensure a balance between investor protection and capital financing. For low-income developing countries, the enabling effects of access to technology to should not be underestimated, and the formation of global crowd-funding market alliances should be encouraged.
  • Ensure insolvency and bankruptcy laws for under 25’s do not unduly penalise entrepreneurial behaviour. This encouragement of youth participation in the economy should be a core responsibility of the G20 forum and has the potential to play a significant role in addressing youth unemployment.
  • Promote collaborations between young entrepreneurs, the public sector and the private sector within the global energy industry by creating initiatives such as innovation hubs, summits and conferences to educate and share ideas in this critical arena.
  • Invest in the development of online platforms that encourage global knowledge sharing in areas including innovative energy finance solutions and new low-emission technologies.
  • Reduce trade barriers for environmental and energy-related goods and services to encourage increased collaboration in order to maximise sustainable impact.

Introduction

Around the world, countries are increasingly investing in product, process and business model innovation across all sectors. This is a widely recognised strategy to lift the potential of our economies and enhance their resilience against market fluctuations. Simultaneously, issues regarding environmental sustainability are of growing urgency to the International community, which is largely at the mercy of our natural resources. Environmental and energy policy are also issues of economics, inclusiveness and social equality, demonstrated by the fact that 18% of the world’s population currently lacks access to electricity.[1] For the more fortunate, prices continue to rise and the environmental repercussions of accessing increasingly scarce resources continue to worsen.  

The energy challenge is widely cited as one of the fundamental trials facing the global community today,[2] and therefore requires innovative global solutions. Representing approximately two-thirds of the world’s population,[3] the G20 forum is well-positioned to aid in the development of such solutions. It is crucial that the G20 is willing to take an action-based role in forming alliances and driving consensus on key issues including energy efficiency. The shift to a more proactive use of this forum is critical for its sustained impact and validity from a global perspective. The market realises the importance of innovating in this sector, with the global energy industry spending upwards of US$21 billion a year on research and development (R&D) and this expenditure growing at 4.8% annually.[4] This growth, however, is not matched by equal growth in the adoption of alternative energy sources, which indicates that further effort is necessary. The G20 has the potential to be a key driver in balancing this precarious equation to ensure a sustainable future for both our global environment and economy.

In addition to this, on a domestic level this issue is also of immense importance to both the business sector as well as the general public. The recent controversy around the privatisation of the Australian energy industry has highlighted the often-conflicting demands of affordable energy solutions and profitability.[5] Forming innovation alliances in this sector serves to address these key domestic issues as well as the broader global challenges.

Figure 1: Alternative energy use (%) and R&D Expenditure per capita ($US)[6]

Figure 1: Alternative energy use (%) and R&D Expenditure per capita ($US)[6]

Defining Innovation

It is important from the outset to clarify the often-misinterpreted definition of innovation.  The Commonwealth of Australia’s Innovation Agenda clarifies that the definition of innovation is broader than commonly assumed. It states “there is much more to innovation than laboratory R&D ... Improvements to the way we organise, manage, operate, and market things are equally important.”[7] In the energy sector it is particularly necessary to adopt this broader interpretation as even minor improvements in the management of resources can have significant impact.[8] Furthermore, it is important to identify the importance of innovating across the support services adjacent to a company’s core competencies in energy, such as marketing and distribution.[9] 

It is, however, also vital to recognise the disparate distinction between invention and innovation and thus not over broaden the definition of innovation. Invention is commonly defined as the solution to a problem, while innovation is the commercially successful use of the invention.[10] Numerous examples of this can be seen in industry, such as the inventions of the mouse and graphic user interface by Xerox Palo Alto Research Center (PARC), which were only hailed as innovative when Apple commercialised and successfully marketed them as a product for the end user. This commercialisation is a crucial factor that is currently preventing many highly creative inventions in low-income developing countries from realising their full potential for impact as innovative solutions.[11] This strongly supports the value proposition of global alliances in this industry. Further to this, it bolsters the case for stronger collaboration between research institutes and industries, both locally and on an International level.

A more quantitative definition can be drawn from the Bloomberg 2015 Innovation Index, which evaluated six practical criteria in order to rank the top 50 most innovative countries globally.[12] This view of analysing a country’s innovation capacity is useful in developing a model for global innovation alliances as it validates key metrics that should be compared and evaluated by participating parties. Its secondary aim was to evaluate if there was a quantifiable and replicable formula for innovation. This would add significant value to the proposition of any international collaboration, but may also reduce the willingness of some parties to share knowledge and innovation expertise.

The first assessable area of the Bloomberg 2015 Innovation Index was R&D spending as a percentage of GDP. One common theory is that research and development (R&D) expenditure is indicative of a company or sector’s investment in innovation.[13] Frugal innovation is fundamentally challenging this presumption with successful innovations produced with very low R&D expenditure. The Commonwealth of Australia further expands the definition to align investment in science and technology as an indication of a country’s innovation capacity and performance.[14] This may be a more widely adopted view for low-income developing countries that are likely to consider investment in science and technology as a higher priority than R&D, which much of the developing world views as a luxury expense.[15] 

The second criterion examined was the manufacturing value added per capita. This measure specifically targets product development innovation. The ‘per capita’ analysis here is important, as it distinguishes truly innovative manufacturing nations from countries like China, which possess a significant manufacturing sector but aging technology in this industry. This is clearly a critical factor for cutting edge innovation in the energy sector; however, many of the ‘frugal’ innovations developed in India and China do not rely on this capability. They frequently keep costs to a minimum by using readily available materials and bulk existing manufacturing resources.[16]

Next, the Bloomberg Innovation Index calculated the total domestically domiciled high-tech public companies as a share of the world's total high-tech public companies. This factor involved defining the somewhat ambiguous term ‘high-tech’. Bloomberg included renewable energy in this metric, which reinforces the significant value of innovation in this sector. Interestingly, this was the only ranking that was not scaled to each individual company’s economy or population, which shed light onto the unequal geographic distribution of technology firms as it highlighted that 90% of the top 10 largest technology companies were US-based.

Post=secondary education was another factor that was crucial to consider, as this is often the root of the perceived disparity between the innovation capability of developed and developing countries.[17] This factor involved considering a number of sub-indices that were all relevant to accurately rank the countries’ innovation success. These included the number of secondary graduates enrolled in post-secondary institutions as a percentage of cohort, the proportion of the labor force with tertiary education, and an analysis of the annual science and engineering graduates within both the entire labor force and the total tertiary graduate pool.

Following on from this, the research personnel were evaluated by calculating the professionals engaged in R&D per 1 million population. Again, this metric does not credit frugal innovators producing and commercialising ideas without educational qualifications.[18] This disparity could, however, add value to the model of global innovation alliances as these are often developed based on complementary core competencies.[19] In this case, the technical expertise of research personnel could be an ideal pairing with the practical and pragmatic knowledge and understanding of large market segments that a less developed country could provide.

The final measure in this study was regarding patents filed, which can be considered a mixed blessing in the context of innovation. Although they serve to protect new ideas and encourage commercialisation, they can also limit progression. By encouraging secrecy rather than an open flow of communication between ideators, these frequently prohibit innovators from accessing details that would allow them to improve existing technologies.[20] This is particularly counter-productive in the energy sector, where the broader goal of achieving sustainability is often uniform across competing companies, and where impact can be maximised through collaboration while retaining or improving profits if the collaboration is correctly facilitated.[21] The G20 should consider this and come to appropriate agreements on patent recognition and idea sharing in order to maximise the impact of innovations to address the energy challenge.

A key shortcoming of this framework, however, was that although it may be inherent in some of the above statistics, the Bloomberg Innovation Index omits the important but hard to quantify influence of government regulation. This can be a critical factor in accelerating or impeding the adoption of new ideas, and is an aspect that the G20 should aim to address in discussions.[22]

Frugal Innovation

Approaches to innovation, however, naturally differ between developed and developing countries.[23] Although the broader goals are aligned, there are several factors (such as localised priorities and access to both technology and funding) that are vastly disparate. While innovation is currently considered a large expense to most of the developed world, frugal innovation, also known as ‘inclusive’ innovation, is becoming an increasingly prevalent term in business by questioning whether significant innovation requires equally significant funding. Frugal innovations are most commonly emerging from the populated areas of India and China, where a large class of less wealthy individuals is matched with a thriving economy.[24] Here, the shift to a technologically advanced economy and the desire to improve citizens’ quality of life naturally sees frugal innovators drawn to the energy industry.[25]

Numerous successful examples, such as a $70 battery-run small fridge[26] and a water purifier utilising rice husks,[27] have demonstrated that frugal innovation can overcome low profit margins with large volumes and demand. Ignoring the lower portion of the socio-economic pyramid in such booming and transitioning economies is clearly a poor strategic decision.[28] Additionally, in many cases frugal innovations have found surprisingly high demand in the developed world, where a natural resource crunch is coupled with the push for a more resilient and sustainable post-Global Financial Crisis economy. This has also seen frugal innovators profit from the income inequality in their own countries as even the wealthy look for more economical solutions, making the case for the universality of frugal innovation.  The developed world has as much to gain from the processes of frugal innovators in low-income developing countries as it does to offer in terms of cutting-edge technology and investment. This further enhances the value proposition of global innovation alliances to all tiers of our local and international community.

Establishing successful global innovation alliances between developed and developing countries is the most efficient way to maximise the environmental impact of new technologies or processes.[29] If the structure of these alliances is optimised, these can also serve to enhance the return on innovation investment for both participating parties. The G20 summit is an ideal forum to develop initiatives and commitments that address this economic and environmental issue by fostering collaboration.

Global innovation alliance case studies

Case study one: Clean Development Mechanism (CDM)

The CDM is an ideal example to examine as it demonstrates a process, rather than product innovation, which represents an ideal model for alliances initiated by global leaders. It revolutionised the management of carbon offset credits in a way that was mutually beneficial to both developed and developing countries.

The CDM was part of the first commitment period of the Kyoto Protocol, and enabled developed countries with emission offset commitments to invest in emission reduction projects in developing countries in exchange for certified emission reduction (CER) credits.[30]  There were over 5000 registered CDM projects during this period, which involved initiatives including the installation of solar panels, hydro power stations and biofuel production resources into under-developed communities.[31]

The CDM was effective in providing a financially and environmentally sound platform for collaboration in the energy sector.[32] During the eight years of this Protocol period, the mechanism mitigated the equivalent of over one billion tonnes of CO2 emissions, the equivalent of removing 180 million cars from the road.[33] With CDM projects on average being 15-50% less capital intensive and with compliance savings of US$3.6 billion over 4 years,[34] this solution was clearly economically justified for participating developed countries. Developing countries also realised clear benefits, with CDM projects representing half of the new investment into renewable energy in developing countries in 2011.[35] Studies have also shown that increased energy access, one of the aims of the CDM, has had positive flow-on effects in the education and health sectors.[36] These initiatives have also served to reduce communities’ dependence on government services, freeing up valuable government resources. Less quantifiable benefits of the mechanism include the increased transfer of technology and knowledge sharing between developed and developing countries, as well as heightened community awareness of environmental issues.[37]

With 161 countries involved,[38] the CDM initiative effectively acknowledged that the energy challenge facing our International community logically required a global rather than local solution. It therefore worked to stimulate sustainable development whilst encouraging environmentally responsible business. It proved that successful global solutions are possible, which should serve to motivate the G20 member states toward a unified position on similar current challenges. This was a successful demonstration that governments have the capability and resources to foster product innovation via the development of their own innovative, cost-effective global process solutions.

Case study two: Suzlon

Suzlon’s rise to success in the renewable energy sector has involved a number of strategic global innovation alliances. Suzlon is an Indian wind turbine manufacturer and wind power solutions provider, founded in 1995 and now operating across 17 countries in 6 continents with International investors and subsidiaries.[39] The first of its global alliances took place in 1995, when Suzlon engaged in an arrangement with Südwind in Germany.[40] At this stage, Suzlon was looking to gain technical expertise, so experience was the most valuable factor to the company. The two companies therefore structured a technical collaboration arrangement to facilitate Suzlon’s experiential learning.[41] After gaining a fundamental level of technical understanding, Suzlon entered an adjusted agreement with the new owners of the German company.[42] This involved Südwind continuing to share knowledge related to technical experience, but now receiving royalties on Suzlon’s wind turbine sales.[43] The 5-year agreement eventually saw Südwind capitalising on the understanding of demographics and market experience in India that Suzlon could now provide once equipped with the aforementioned technical expertise.

Following this, with the confidence of a greater level of experience, Suzlon entered into a licensing agreement and a one-time fee agreement with two specialised overseas manufacturing firms.[44] They viewed this arrangement as an efficient model for global technology transfer, which is a construct that should be a high priority for the G20 member states. This closely aligns with the G20 priority of inclusiveness and demonstrates the mutual benefit of championing such models. By essentially acquiring technology and experience from second-tier overseas firms, Suzlon fast-tracked its path to innovative manufacturing in a cost-effective manner. The shift in the dynamics of these joint-manufacturing ventures compared to the previous knowledge sharing was reflective of Suzlon’s growing confidence and capacity to handle increased risk. The G20 member states could maximise the mutual benefit of similar innovations by developing policies to support these global alliances in the energy sector.

Suzlon’s choice of alliance models was closely matched to its manufacturing and innovation strategy, which aimed to increase internal R&D and production.[45] To grow and develop this capacity, Suzlon founded R&D centres in strategically selected learning networks.[46] Concurrently, Suzlon focused on forming a number of subsidiaries and alliances around the world. These ranged from highly focused agreements, such as the innovative design of a small component with an Austrian-owned company, through to broad R&D knowledge sharing with a blade design firm in the Netherlands.[47] Suzlon recognised the value of these successful global alliances leading to significant innovation breakthroughs and consequently decided to establish global headquarters in Denmark, a leader in the international wind turbine industry.[48] These investments into developed overseas economies strengthen the argument for G20 members representing advanced nations to form alliances with those from low-income developing countries.

One defining factor of Suzlon’s success was the decision to continuously expand the overseas arm of the business, rather than just focusing domestically.[49] The long-term vision of the company combined with a culture of continuous learning meant that Suzlon decided to invest in overseas alliances regardless of the fact that it had not yet gained significant market share in India.[50] In a number of cases, Suzlon capitalised on the technological understanding gained through its global alliances by eventually purchasing majority control or entirely acquiring the overseas partner companies such as Hansen, which manufactures gearboxes.[51] An additional advantage here is the byproduct of acquiring a significant number of skilled personnel around the world, adding significantly to Suzlon’s value.

Despite its global outlook, Suzlon was also continuously committed to improving the socio-economic situation for the local Indian population. Their Corporate Social Responsibility (CSR) has therefore allowed them to cover over 1000 villages, benefitting over 140,000 families.[52] They now claim over 40% of the cumulative market share in India,[53] which is a strong indicator of their local success developed through their strategy of broad-based global innovation alliances.

The Suzlon case study effectively demonstrates that global innovation alliances can allow a small company in a developing country to accelerate the development of creative energy solutions by using the well-established expertise of developed countries, to mutual financial benefit.

Case study three: SunEdison

In the reverse situation of case study two, leading American company SunEdison demonstrated the value of a business in the developed world partnering with companies and government organisations operating in developing countries. In 2015 alone, SunEdison has formed alliances with companies across Africa, India and South America to provide innovative hydro, wind and solar energy solutions.[54] SunEdison Social Innovations is a key arm of the global company that aims to maximise environmental and social impact through business model and product innovations that work toward economical renewable energy solutions.[55]

In the first instance, SunEdison has proved that global alliances are highly effective in the creation of successful business model innovations in this sector. It was only through working closely with local communities in developing countries that they understood that funding was not the main concern.[56] Historically, well-funded initiatives that aimed to provide electricity to rural communities have failed due to the short-term outlook of the organisations involved, which often fail to provide replacement parts and necessary maintenance for newly installed systems.[57] This serves as a significant reminder that the value of local knowledge must not be underestimated when forming these alliances.[58] SunEdison therefore developed business models that consider the full product life cycle as well as knowledge of the affected communities when forming and implementing innovations.

Another example of business model innovation is SunEdison’s creative approach to financing their various renewable energy solutions. In Nepal, for example, SunEdison used rent-to-own loans over five- to seven-year terms to provide solar power to rural schools and hospitals.[59] As this initiative is a cheaper option than diesel energy and does not suffer the same uncertainty due to price fluctuations, it has proved a viable economic option for local communities, and aims to provide electricity to 7 million people by 2020.[60] In the case of SunEdison acquiring Energy storage solutions company Imergy, which already had operations in India, SunEdison intends to experiment with different contract and price options including prepaid plans and leasing.[61] SunEdison intends to use Imergy’s knowledge on appropriate contract lengths for local telecommunications providers when developing these plans in order to provide solar energy to 20 million people who otherwise would not have access to electricity.[62]

SunEdison also acknowledges the value of global alliances for the creation of tangible product technology innovations that allow it to capitalise on the largely untapped markets of the developing world. A key example of this is in the development of the company’s Outdoor Micro-station, which demonstrates a deep understanding of the needs of local communities by providing a small off-grid micro power station that can be installed in a few hours, is weatherproof, scalable, and requires no maintenance.[63] Demonstrating its understanding of the importance of the aforementioned long-term support, SunEdison provides 24/7 performance monitoring with the power stations.[64] SunEdison also recognises the benefits of encouraging entrepreneurship within communities, and therefore ensures that its staff collaborate with creative locals.[65]

In addition to local knowledge, in some cases the developing country has also provided crucial technical skills while SunEdison’s value proposition has become more in the project and financial management.[66] This was seen in the Omnigrid Micropower Company partnership to bring electricity to millions across India. Utilising the skills of local residents also provides significant socio-economic benefits, as seen by the predicted creation of 4500 direct jobs and over 15,000 indirect jobs through SunEdison’s partnership with local manufacturer Adani to build the largest solar manufacturing facility in India.[67]

SunEdison has recognised that there is significant financial opportunity in the energy sector of emerging markets due to the power deficit, economies of scale and the government incentives offered.[68] They believe that the majority of future global electric power infrastructure investments will be deployed in these areas, and have received confirmation of this in the form of backing by JPMorgan Chase Bank, Barclays, Citi and Morgan Stanley on their initiatives in the developing world.[69] SunEdison’s ongoing commitment to providing reliable and affordable energy solutions for communities in developing countries has proved to be economically sound, as it has secured the company significant contracts such as the 2015 award of five solar projects in Africa based on SunEdison’s track record since entering the market in 2011.[70]

Challenges and Lessons for G20 Members

The above case studies serve to prove that innovation alliances in the energy sector have scope for significant mutual benefit. This includes not only economic advantages, but increased social cohesion and international cooperation including idea sharing and technology transfer.  These successes provide strong justification and gravitas to the recommendations above. These examples demonstrate the value proposition for a company with roots in a low-income developing country, such as Suzlon, to engage in innovation alliances with the developed world, as well as for the reverse situation as discussed with reference to SunEdison. The CDM case study validates the role of strategic government alliances to encourage innovation in the energy sector.

These case studies should therefore serve to inspire G20 countries to take action on two stages. Firstly, the G20 member states should advocate that policies be implemented on a local level to support small business and research institutes in entrepreneurial or innovative ventures in the energy sector, particularly with scope for global expansion. This applies to both developed and low-income developing countries. Secondly, innovative strategic government solutions to large-scale climate change and energy challenges should be encouraged, with an emphasis on agreements between low-income developing countries and the developed world.

It is, however, important to note that there are a variety of often-underestimated social and economic considerations that need to be carefully evaluated in the formation of an innovation alliance in the energy sector. Despite the fact that these collaborations are of vital environmental importance as well as often financially sound decisions (as discussed above), they are frequently mismanaged.[71] Even the successful case studies described here needed to overcome significant challenges during their journey. These included difficulties from political, legal and socio-cultural perspectives. It is only by addressing all key factors that true sustainability can be achieved. This is encapsulated in the ‘Three Pillars of Sustainability’ shown in Figure 2, which highlights the importance of equanimity between the environmental, social and economic facets of sustainability.

Figure 1: Alternative energy use (%) and R&D Expenditure per capita ($US)[6]

Figure 1: Alternative energy use (%) and R&D Expenditure per capita ($US)[6]

Political stability, risk and uncertainty are crucial considerations when deciding to form a global alliance in the energy sector.[73] It is vital that the political environment of both participating countries is independently assessed, as well as examining any barriers or support for interactions between participating countries. It is commonly argued that government bureaucracy impedes innovation,[74] and trade barriers are an important example of this. Trade agreements can serve to either hinder or assist the flow of information, goods and services in an alliance. Bureaucracy in low-income developing countries, particularly relating to mandates in the energy sector, is typically less of a barrier to innovation, which adds value to these countries’ potential contribution to an alliance.[75] The CDM process faced the challenge of significant criticism for being overly complex and non-transparent,[76] which served to slow the approval of proposed projects.

The government’s ability to spark private sector interest in the energy industry further validates the importance of this consideration when choosing a model for global energy alliances. Historically, government spending in alternative energy has sparked venture capital and corporation investment into innovative renewable energy projects.[77] An example of this was the Clean Energy Finance Corporation (CEFC), which was funded by the Australian federal government and served as a minority investor in a number of renewable energy, energy efficiency and low emission technologies.[78] These investments were typically bolstered by private companies and aimed at achieving positive financial return.

Additionally, private sector investment is often motivated by government incentives such as grants and funding available for innovation, both broadly and more specifically for energy related projects. Another example of the effectiveness of public-private partnerships can be seen with SunEdison collaborating with the Indian government in the development of sustainable energy solutions to take advantage of incentives.[79] Tax reforms or exemptions for start-ups are fundamental policy decisions that promote a government’s commitment to innovation.[80] Renewable energy targets can provide further evidence of a government’s appetite for change and innovation in the energy industry. The commitment to sustainability and innovation from the political decision-makers of all participating countries needs to be carefully evaluated when combining different political environments. The G20 can therefore serve to drive consistency in energy policy and thus ease the process of initiating mutually beneficial global innovation alliances in this industry. By agreeing on common goals, energy innovation processes would be streamlined and collaboration would be optimised.

Differing regulations across nations can create significant challenges in developing mutually successful innovations. This is particularly true in the energy sector, which is typically more highly regulated in developed countries.[81] An absence of internationally accepted regulations can also discourage or discount innovation alliances. This was evident in the CDM, where the lack of sustainability standards likely caused a bias toward cost-efficient rather than highly sustainable development projects.[82]

The common perception is that the demographics of both sides of an innovation alliance should be closely matched; however, in many cases there is equal if not greater value in complementary populations.[83] Key indicators to consider include labour force demographics, average income, urbanisation, energy usage, access to electricity and proportion of energy used from renewable sources. A challenge, however, is to ensure that technology research is ahead of the most advanced participant but still includes the least advanced. Suzlon chose to overcome this challenge by establishing its global headquarters in Denmark, a leader in the international wind turbine industry,[84] to ensure that it was included in the most cutting-edge research.

Experience is a factor that commonly has the most distinct disparities between the participating parties. This can be surprisingly advantageous, as frequently complementary core competencies are the key to successful alliances.[85] SunEdison is well-known for leveraging different experience-based strengths following acquisitions to maximise impact and profitability.[86] These incongruences can be the catalyst to push established firms from incremental to disruptive innovations to reach new markets.[87] This is part of the value proposition for developed countries to collaborate with frugal energy innovators, whose lack of resources has frequently forced them to develop fundamentally different transferable processes.[88] 

It is vital to recognise different types of experience when evaluating the value of a global innovation alliance, and not over-emphasise only the technical aspects. The importance of commercial experience, including sales channels and understanding of the local industry, are often underestimated in the energy sector despite the fact that these can significantly impact the success and distribution network of an innovation.[89] The public appetite for innovation and renewable energy is also essential to consider, as it is necessary to engage the public for successful commercialisation of innovations or policy reforms.[90] Experience with the market, industry and local customers is therefore highly valuable in this context.[91] Many CDM projects have demonstrated the importance of informing stakeholders about climate change issues and their impact on the community.[92]

Conclusion

Global innovation alliances are increasingly critical in the energy sector in order to address the global sustainability and climate change challenges currently facing our international community. Innovation has been proven to be a pivotal key in unlocking solutions to these issues. Despite previous hesitation to discuss energy and climate change issues at the G20 summit, this research makes the case that it is not just an environmental issue – it in fact has profound economic, financial, political and social relevance. The potential of our economies is ultimately limited by our ability to innovate, and this is particularly grave in the time-sensitive energy industry.

The G20 has the potential to play a pivotal role in this area through two main arms. The first involves localised policies and incentives to support the positive global innovation initiatives of energy companies such as Suzlon and SunEdison as well as entrepreneurs and start-ups. The second is through the formation of strategic alliances and solutions to large-scale global challenges. This includes programs similar to the CDM as well as addressing issues such as trade barriers. Future process-based innovation should continue to focus on financing solutions for the energy sector such as crowdfunding. The crowdfunding potential of the developing world has been valued at 1.8 times the global venture capital investments at US$93 billion,[93] and therefore should not be underestimated in its role as an innovative and inclusive global solution.

It is, however, necessary to identify an optimal, mutually beneficial model for any global innovation alliance between low-income developing countries and the developed world. If correctly managed, these have had demonstrated success in maximising both the financial return and impact of innovations in the energy sector. The opportunity to gain from prospects in emerging markets and accelerate technological developments is significant.

Footnotes

[1] Energy Poverty, IEA, 2015 (accessed 05 April 2015).

[2] Rebecca Henderson and Richard Newell (eds.), Accelerating Energy Innovation: Insights from Multiple Sectors, USA, National Bureau of Economic Research Conference, 2011; Philippe Aghion, Reinhilde Veugelers & Clément Serre (eds.), Cold start for the green innovation machine, Bruegel policy contribution, 2009; Aidan Rhodes, Jim Skea and Matthew Hannon, 'The Global Surge in Energy Innovation', Energies, vol. 7, no. 9, 2014.  

[3] G20, G20, 2015 (accessed 27 July 2015).

[4] 2014 Global R&D Funding Forecast, Battelle, 2013 (accessed 05 April 2015).

[5] Rabindra Nepal and John Foster (eds.), Electricity Networks Privatization in Australia: An Overview of the Debate, 2015.

[6] Data Catalog, World Bank, 2014.

[7] Powering Ideas: An Innovation Agenda for the 21st Century, Commonwealth of Australia, 2009.

[8] Henderson and Newell, Accelerating Energy Innovation.  

[9] Russell Radford and Roger Bean, The Business of Innovation: Managing the Corporate Imagination for Maximum Results, New York, AMACOM, 2001.

[10] Ibid.

[11] Henderson and Newell, Accelerating Energy Innovation.  

[12] Peter Coy, The Bloomberg Innovation Index, 2015.

[13] Radford and Bean, The Business of Innovation.

[14] Powering Ideas: An Innovation Agenda for the 21st Century.

[15] Nancy Birdsall, 'Public spending on higher education in developing countries: too much or too little?', Economics of Education Review, vol. 15, no. 4, 1996.

[16] Kwasi Amoako-Gyampah and Moses Acquaah, 'Manufacturing strategy, competitive strategy and firm performance: An empirical study in a developing economy environment', International Journal of Production Economics, vol. 111, no. 2, 2008.

[17] Birdsall, ‘Public spending on higher education.’ 

[18] Navi Radjou, Jaideep Prabhu and Simone Ahuja, Jugaad Innovation: Think Frugal, Be Flexible, Generate Breakthrough Growth, John Wiley & Sons, 2012.

[19] Paul Tracey and Gordon Clark, 'Alliances, networks and competitive strategy: rethinking clusters of innovation', Growth and Change, vol. 34, no. 1, 2003.

[20] Tracey and Clark, ‘Alliances, networks and competitive strategy.’

[21] Henderson and Newell, Accelerating Energy Innovation.  

[22] Powering Ideas: An Innovation Agenda for the 21st Century.

[23] Henderson and Newell, Accelerating Energy Innovation.  

[24] Marco Zeschky, Bastian Widenmayer and Oliver Gassmann, 'Frugal innovation in emerging markets', Research-Technology Management, vol. 54, no. 4, 2011.

[25] Ibid.

[26] Anthony Kuo, 'Creating Social Value through Frugal Innovation.’

[27] Kaushik Mukherjee, 'Frugal innovation: Key to penetrating emerging markets', Ivey Business Journal, 2012.

[28] C.K. Prahalad, The fortune at the bottom of the pyramid, revised and updated 5th anniversary edition: Eradicating poverty through profits, FT Press, 2009.

[29] Henderson and Newell, Accelerating Energy Innovation.  

[30] Clean Development Mechanism (CDM), UNFCCC, 2014 (accessed 10 June 2015); Tom Delay, Michael Grubb, Catherine Willan and Thomas Counsell (eds.), Global Carbon Mechanisms: Emerging lessons and implications, Carbon Trust, 2009.

[31] Clean Development Mechanism (CDM); Srikanth Subbarao and Bob Lloyd, 'Can the clean development mechanism (CDM) deliver?', Energy Policy, vol. 39, no. 3, 2011.

[32] Delay et al., Global Carbon Mechanisms.

[33] Clean Development Mechanism (CDM).

[34] Subbarao and Lloyd, ‘Can the clean development mechanism (CDM) deliver?’

[35] Clean Development Mechanism (CDM).

[36] Subbarao and Lloyd, ‘Can the clean development mechanism (CDM) deliver?’

[37] Ibid.

[38] Clean Development Mechanism (CDM).

[39] Suzlon: Powering a greener tomorrow, Suzlon, 2015 (accessed 20 May 2015).

[40] Ibid.

[41] Joanna Lewis, 'Technology acquisition and innovation in the developing world: Wind turbine development in China and India', Studies in comparative international development, vol. 42, no. 3-4, 2007.

[42] Ibid.

[43] Ibid.

[44] Suzlon: Powering a greener tomorrow; Lewis, ‘Technology acquisition and innovation in the developing world.’

[45] Lewis, ‘Technology acquisition and innovation in the developing world.’

[46] Suzlon: Powering a greener tomorrow.

[47] Ibid.

[48] Ibid.

[49]  Lewis, ‘Technology acquisition and innovation in the developing world.’

[50] Suzlon: Powering a greener tomorrow.

[51] Lewis, ‘Technology acquisition and innovation in the developing world.’

[52] Suzlon: Powering a greener tomorrow.

[53] Ibid.

[54] SunEdison, SunEdison, 2015 (accessed 11 June 2015).

[55] Ibid.

[56] Ibid.

[57] Ibid.

[58] Ibid.; Chetan Krishna, Ambuj Sagar and Stephen Spratt, 'The Political Economy of Low-carbon Investments: Insights from the Wind and Solar Power Sectors in India', IDS Evidence Report 104, Institute of Development Studies, 2015.

[59] Katherine Tweed, 'Solar's next big market: minigrids and micropower stations for energy poor', Renew Economy, 26 February 2015.

[60] Ibid.

[61] Ucilia Wang, 'SunEdison: Solving The Rural Electrification Puzzle', Forbes, 25 March 2015.

[62] Justin Doom, 'SunEdison Buying Imargy Batteries for Microgrids in Rural India', Bloomberg, 25 March 2015.

[63] SunEdison.

[64] SunEdison.

[65] Ibid.

[66] Ibid.; Krishna, Sagar and Spratt, ‘The Political Economy of Low-carbon Investments.’

[67] SunEdison.

[68] Ibid; Krishna, Sagar and Spratt, ‘The Political Economy of Low-carbon Investments.’

[69] SunEdison; Krishna, Sagar and Spratt, ‘The Political Economy of Low-carbon Investments.’

[70] SunEdison.

[71] Emanuela Todeva and David Knoke, 'Strategic alliances & models of collaboration', Management Decision, vol. 43, no. 1, 2005.  

[72] The Three Pillars of Sustainability, Thwink, 2014 (accessed 12 June 2015).

[73] Henderson and Newell, Accelerating Energy Innovation; Rhodes, Skea and Hannon, 'The Global Surge in Energy Innovation.’   

[74] Victor Thompson, 'Bureaucracy and innovation', Administrative Science Quarterly, 1965.

[75] Zeschky, Widenmayer and Gassmann, 'Frugal innovation in emerging markets'; Radjou, Prabhu and Ahuja, Jugaad Innovation.  

[76] Subbarao and Lloyd, ‘Can the clean development mechanism (CDM) deliver?’

[77] Aghion, Veugelers and Serre, Cold start for the green innovation machine; Rolf Wustenhagen and Tarja Teppo, 'Do venture capitalists really invest in good industries? Risk-return perceptions and path dependence in the emerging European energy VC market', International Journal of Technology Management, vol. 34, no. 1, 2006.  

[78] Clean Energy Finance Corporation, Clean Energy Finance Corporation, 2015 (accessed 28 July 2015).

[79] Krishna, Sagar and Spratt, ‘The Political Economy of Low-carbon Investments.’

[80] Aghion, Veugelers and Serre, Cold start for the green innovation machine; Powering Ideas: An Innovation Agenda for the 21st Century.

[81] Henderson and Newell, Accelerating Energy Innovation.

[82] Subbarao and Lloyd, ‘Can the clean development mechanism (CDM) deliver?’; Christoph Sutter and Juan Carlos Parreño, 'Does the current Clean Development Mechanism (CDM) deliver its sustainable development claim? An analysis of officially registered CDM projects', Climatic Change, vol. 84, no. 1, 2007.

[83] Tracey and Clark, ‘Alliances, networks and competitive strategy.’

[84] Suzlon: Powering a greener tomorrow.

[85] Todeva and Knoke, ‘Strategic alliances and models of collaboration;’ Tracey and Clark, ‘Alliances, networks and competitive strategy.’ 

[86] SunEdison; Wang, ‘SunEdison: Solving the Rural Electrification Puzzle.’

[87] Tracey and Clark, ‘Alliances, networks and competitive strategy’; Larry Walters, Helen Keeley, Ryan Pikkel and Brian Quinn, Ten types of innovation: the discipline of building breakthroughs, New Jersey, Wiley, 2013. 

[88] Radjou, Prabhu and Ahuja, Jugaad Innovation; Zeschky, Widenmayer and Gassmann, 'Frugal innovation in emerging markets’; Mukherjee, ‘Frugal innovation.’   

[89] Rolf Wüstenhagen and Emanuela Menichetti, 'Strategic choices for renewable energy investment: Conceptual framework and opportunities for further research', Energy Policy, vol. 40, 2012.

[90] Henderson and Newell, Accelerating Energy Innovation; Jay Kandampully, 'Innovation as the core competency of a service organisation: the role of technology, knowledge and networks', European Journal of Innovation Management, vol. 5, no. 1, 2002.

[91] Henderson and Newell, Accelerating Energy Innovation; Wüstenhagen and Menichetti, 'Strategic choices for renewable energy investment.’

[92] Subbarao and Lloyd, ‘Can the clean development mechanism (CDM) deliver?’

[93] Jason Best, Sherwood Neiss, Richard Swart and Anthony Lambkin, 'Scaling innovation: Crowdfunding’s potential for the developing world', Information for Development Program (infoDev), World Bank, 2013.

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