TIK WORKING PAPERS on Innovation Studies No. 20180524 · foundations e.g. in terms of regulations...
Transcript of TIK WORKING PAPERS on Innovation Studies No. 20180524 · foundations e.g. in terms of regulations...
TIK WORKING PAPERS
on Innovation Studies
No. 20180524 http://ideas.repec.org/s/tik/inowpp.html
Senter for teknologi, innovasjon og kultur Universitetet i Oslo
TIK
Centre for technology, innovation and culture P.O. BOX 1108 Blindern
N-0317 OSLO Norway
Eilert Sundts House, 5th floor
Moltke Moesvei 31
Phone: +47 22 84 16 00 Fax: +47 22 84 16 01
http://www.sv.uio.no/tik/
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The green flings: market fluctuations and incumbent energy industries’ engagement in renewable energy
Tuukka Mäkitie, Håkon E. Normann, Taran M. Thune, and Jakoba Sraml Gonzalez
Centre for Technology, Innovation and Culture, University of Oslo, Norway
Abstract
Reorientation of fossil fuel industries towards renewable energies, and the role of market
changes underlying such processes, have not featured strongly in the study of sustainable
energy transitions. We contribute to this important policy issue with a case study of
diversification of Norwegian oil and gas industry in offshore wind power. We study how the
engagement in diversification has changed during 2007-2016, and whether these changes
correspond with developments in the industry’s task and institutional environments. By using
news, statistical and survey data, our study reveals that despite continuous growth in offshore
wind market, the industry engaged more in offshore wind during two market downturn
periods in the oil and gas market, and less during an oil and gas boom period. Our results
therefore draw attention to the importance of market changes in reorientation of fossil fuel
industries towards renewable energies. We conclude by discussing the role of market changes
in influencing reorientations towards renewable energies, and implications of results for
policies which seek to support sustainable energy transitions.
Keywords Sustainable energy transition; Task environment; Oil and gas industry; Offshore wind power;
Norway
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1. Introduction
The current hydrocarbon energy system rests on a large incumbent industry that has dominated the
energy system of the world for more than a century. This industry, consisting of e.g. large oil and service
firms, has stakes in established value chains, technologies and business models. Oil and gas (O&G)
industry is therefore often seen to defend the current socio-technical energy system based on fossil fuels
against a transition towards sustainability and renewable energy.
Some recent studies, however, have shown that such incumbent industries are also able to transform and
adapt to transition processes, and even drive innovation in renewable energy (Bergek et al., 2013; Steen
& Weaver, 2017). For instance, oil companies have played a role in the development and
commercialization of solar PV technology (Pinkse & van den Buuse, 2012). In Norway, diversification
of the O&G industry to offshore wind power has had an impact on the development of an innovation
system around offshore wind power in the country (Hansen & Steen, 2015; Mäkitie et al., 2018). For
example the national oil company Statoil has made significant investments in renewable energy projects,
seeking to grow a new “green path” alongside its on-going O&G operations (Nilsen, 2017). In countries
with strong fossil fuel industries, such reorientations of incumbent energy industry towards renewable
energy have high relevance for energy and industrial policy, as it creates potential for utilization of
capabilities and experience of these industries in new markets. Renewable energy can therefore present
an opportunity to create jobs on the basis of oil and gas experiences, which can have political importance
in O&G countries in supporting ambitions to carry out a sustainable energy transition.
The environment of firms has been suggested as an important source of pressures driving incumbent
industry reorientation towards sustainability (Geels, 2014; Penna & Geels, 2015). However, the role of
market changes underlying such reorientations has this far received relatively little attention, even
though economic pressures have been reported to be effective in destabilizing fossil fuel paths (e.g.
Turnheim & Geels, 2012). We argue that the economic perspective (e.g. markets and value creation) is
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also particularly important because changes in markets are likely to cause a relatively fast reaction in
industries, as firms seek to secure their revenue production by reorganizing their activities to fit market
conditions. Hence, market changes have the potential to cause more urgent reorientation than e.g.
institutional changes, which are likely to take longer (cf. Penna & Geels, 2015). Such understanding
can, for instance, be useful in creation of policy mixes which simultaneously incentivize market
developments of sustainable technologies while also reduce support and destabilize unsustainable
technologies (cf. Kivimaa & Kern, 2016).
In this paper, we analyse the reorientation of an incumbent energy industry towards renewable energy
as influenced by changing pressures and incentives in their environment. Our perspective draws
attention to three potentially important and often over-looked issues related to understanding energy
industries in sustainable energy transitions. First, the central role of the economic environment for firm
behaviour; second, the possible intermittency of engagement in transitions; and third, the redeployability
of firm resources between fossil fuel and renewable energy markets. The empirical context we address
is the O&G in Norway and its engagement in diversification to offshore wind power (OWP) during
2007-2016. We apply the analytical framework of task and institutional environments of organizations
(Scott, 2003) and draw upon a range of data sources such as news data, statistics, and documentary and
survey data. Our research questions are: How has the engagement of oil and gas industry in offshore
wind power changed over time, and have the changes in engagement been consistent with the changing
conditions in the environment of the industry?
We continue the paper in section two by discussing theoretical perspectives for understanding how
environment of fossil fuel industries can influence their reorientation to renewable energy markets. In
section three, we introduce our case study topic, data and methods. In section four, we present our study
of Norwegian O&G industry’s engagement in diversification in OWP. We discuss our results in section
five in light of existing literature and outline the implications of the results for policy targeting
sustainable energy transitions.
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2. Theoretical perspectives
Previous literature has shown that pressures and incentives from environment can act as incetives and
pressures for industries to transform (Tushman & Anderson, 1986; Geels, 2014). In order to inform our
analysis, we draw on literature from institutional theory regarding organization-environment interaction.
Moreover, we complement this literature with insights from management literature regarding the role
of market changes for resource redeployment across related markets. Finally, we synthesize these
perspectives into a framework which we apply in our analysis.
2.1. Organizational environment and industrial change
Firms rely on their environment for inputs, such as resources and legitimacy, and for outputs, such as
markets for their products. Their actions are also influenced by surrounding institutions, such as
regulations, norms and culture (Scott, 2014). Analytically, the environment of firms can therefore be
divided into (economic) task environment and institutional environment, which both can exert different
pressures and incentives for change (Scott, 2003).
Task environment consists of elements directly relevant for firms to execute their main task, i.e. revenue
and value creation. The task environment consists of inputs (resources and materials) and outputs
(markets), as well as the competitive and collaborative landscape with other actors. Therefore, task
environment has high importance for firms, and they seek to control this interface by arranging and
coordinating firm activities to fit the prevailing conditions exerted by their task environment (Scott,
2003). Examples of such measures are e.g. securing crucial resources (physical materials, financial and
human capital etc.) and adapting firm strategy to ensure a favourable position in the marketplace.
Task environment is external to firms, and therefore beyond their direct control. Changes to elements of
task environment, e.g. rapid growth or drop in demand for the products of the firm, or availability of
qualified human capital, causes changes and uncertainty for firms (Suarez & Oliva, 2005). Therefore,
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changes in task environment shape the activities of firms by posing pressures and incentives regarding
competitiveness, efficiency and financial performance (Scott, 2003).
Institutional environment consist of regulative, normative and cultural-cognitive elements, which
promote and sustain desirable conduct of firms (Scott, 2014). First, regulative features of institutional
environment refer to “rules of the game” and governance systems. In order to avoid penalties from
authorities, firms tend to comply with relevant rules and laws. Second, normative features stand for the
perceived appropriateness of firm behaviour and the commitment in following the common values of
the society. Firms are therefore socially obliged to follow expectations of “moral” behaviour in their
relevant surroundings. Third, cultural-cognitive features refer to shared symbolic systems, meanings
and beliefs, which guide the behaviour of firms consciously or unconsciously. Such cultural-cognitive
elements lead firms to mimic “orthodox” behaviour, which derives from taken-for-granted
understanding of what is beneficial for the organization.
The respective institutional environment of firms defines them, as it creates the social meaning of firms
vis-à-vis the broader context of the society (Scott, 2003, 2014). To stay legitimate, firms seek to conform
to surrounding institutions, and changes taking place in institutional environment often lead to changes
also in firms (Mahon & Waddock, 1992). Institutional environment of firms is enacted for instance by
governmental authorities, professional groups and society at large. Governmental organizations, for
instance, can introduce policies designed to either encourage or hinder certain kind of firm behaviour
(Scott, 2003).
In practice, the division between task and institutional environments is not clear-cut. For instance,
technologies are shaped by social intentions and concerns, while markets are embedded in institutional
foundations e.g. in terms of regulations and practices (Pinch & Bijker, 1987; Fligstein & Mara-Drita,
1996). Moreover, governing institutions have co-evolved with certain types of socio-technical systems,
creating strong legitimacy for them, which is one of the reasons for e.g. lock-in to environmentally
harmful energy systems (Unruh, 2000). Hence, the division between task and institutional environments
serves analytical purposes, but does not suggest as simple division in the real world.
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2.2. Industries and diversification
We understand the O&G industry as an organizational field consisting of firms along a value chain of
extracting oil and gas. These firms consist of various resources related to these operations, such as know-
how, production facilities, customer relations, and production and management capabilities (Penrose,
1959; Barney, 1991; Eisenhardt & Martin, 2000). Firms apply these resources in the industry to create
value and revenue, but they also offer the basis for diversification to new markets.
Generally speaking, firms are more likely to engage in related markets where they can redeploy their
existing resources e.g. in terms of technology (Breschi et al., 2003), suppliers and customers (Nayyar &
Kazanjian, 1993) or manufacturing (Carroll et al., 1996). This offers firms possibilities to realize
synergies and complementarities between their operations in different markets (Tanriverdi &
Venkatraman, 2005), but also a smoother entry and exit of the markets through possibilities to redeploy
resources between markets (Lieberman et al., 2017).
Besides offering new business opportunities, diversification can also act as an opportunity to reduce
dependence on a single market, and enable firms to distribute resources between markets in different
market situations. Bergh and Lawless (1998) suggest that large firms with low levels of diversification
(i.e. firms focused on a single market) tend to invest in other markets when uncertainty in their core
market grows. In other words, such firms often adapt to uncertainty caused by e.g. downturns in demand
by looking into other markets to secure revenue production. Moreover, they are likely to exit from such
alternative markets and refocus back to their core market if uncertainty diminishes and opportunities
there reappear (Bergh, 1998). Hence, changes in the task environment of firms, such as in demand, can
incentivize and/or pressure firms to redeploy resources between markets because the relative
attractiveness of markets can shift over time. High demand in the core market can incentivize firms to
deploy resources into that market; while during downturns there can be pressures to seek opportunities
in other related markets (Helfat & Eisenhardt, 2004; Wu, 2013).
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Such movement between markets is possible due to ease of resource redeployability between markets
that have similarities e.g. in terms of technology and value chains. Engagement in related markets carry
relatively small transaction costs, as there is limited need to retrain or hire new staff and to reconfigure
equipment to the needs of the new market. This helps the entry to a market, but also enables firms to
reverse their engagement, and refocus back on their core market (Sakhartov & Folta, 2015; Lieberman
et al., 2017). Diversification to alternative markets can therefore act as a relatively easy reorientation
strategy for firms facing uncertainty and diminishing opportunities in their core market.
2.3. Analytical framework
Based on above theoretical perspectives, we present our analytical framework in Figure 1. Our
framework suggests that changes in task and institutional environments of an industry cause pressures
and incentives for incumbent energy industry to respond to new prevailing conditions (cf. Geels, 2014;
Mignon & Bergek, 2016). We focus on one type of response to changes in environment: diversifying to
a related market by redeploying resources to renewable energy market. We also acknowledge that firms
can choose to refocus back to their core market if the pressures and incentives for diversification
disappear (Bergh & Lawless, 1998; Lieberman et al., 2017). Such redeployment behaviour is likely to
be amplified in the case of the energy industries market, where periods of high commodity prices in
hydrocarbons can offer lucrative market opportunities in comparison to renewable energy markets,
characterized with lower profit margins.
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Figure 1 Analytical framework
3. Methodology
3.1. Case study
Upstream O&G industry in Norway is a complex industrial sector oriented towards identification,
extraction and production of hydrocarbons in offshore conditions, especially in the Norwegian
Continental Shelf (NCS). Extraction of offshore petroleum resources requires high investments of
capital, equipment and knowledge. Key companies are the operators (such as Shell, BP and Statoil)
which are responsible for extracting oil and natural gas from underground repositories. The industry is
disintegrated, meaning that sub-contractors of operators perform most of the activities. Consequently,
there is a substantial network of supplier and service companies that deliver products and services along
the value chain of the industry. In 2014, 1500-2000 Norwegian companies and around 300 000
employees, directly or indirectly, belonged to this industry (Blomgren et al., 2015). Only a small
minority of companies were operators while the rest were various supply and service companies.
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As a natural resource-based industry that does little refinement of products, the activities and investment
in O&G industry fluctuates considerably with commodity prices. The price for crude oil and gas
influences the revenue of petroleum companies and investments to develop new fields. The relationship
between oil prices and activities is pro-cyclical, which leads to intermittent up and downturns in the
industry. In periods of low oil price, the oil companies (operators) tend to restructure and reduce costs
to keep the productivity and profitability of oil extraction (Grant, 2003). In periods of high oil prices,
the companies often invest in exploration and development activities to maximize the long-term
profitability (Baaij et al., 2011). A drop in oil prices below a given level triggers lower investments
(Tvedt, 2002). Nevertheless, the cyclical nature of the oil industry has this far given relative certainty to
the supply chain that there will be a next upturn (Mohn & Misund, 2009).
3.2. Research design
We investigated the engagement of O&G industry in diversification to OWP during 2007-2016. We did
this by tracing the activities of O&G industry firms over time, to see whether the level of engagement
in diversification followed changes in the task and institutional environment of the industry. In order to
analyse such context dependent processes (Yin, 2009), our empirical work comprised of a case study of
an incumbent industry in its national context, which, however, operates in international markets.
Therefore, we focused our analysis on processes taking place in the domestic environment, but also were
mindful of important developments taking place abroad.
We adopted a qualitative process study approach (Langley, 1999; Van de Ven, 2007). We used our data
material to describe incidents of O&G industry´s engagement in diversification to OWP and parallel
developments in its environment, and analysed them as sequences of events taking place over our study
period (Van de Ven, 1992). Incidents were therefore the basic unit of analysis, and each incident
contained information about firm specific activities in OWP market, answering to questions such as who
did what, and when incidents happened.
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We used three codes to specify the type of OWP engagement “incidents” that occurred over time: 1)
statements, 2) investments, and 3) contracts in OWP. This way we could track down the “depth” of
engagement in diversification. “Statements” were incidents where the firm had made e.g. a public
statement regarding their interest and entry to the OWP market. Because such statements did not
necessarily entail concrete commitments, we saw these as the ‘weakest’ form of incidents.
“Investments” code stood for investments in future capabilities in OWP market, such as R&D projects,
facilities or specialized OWP companies. “Contracts” were the ´deepest´ form of engagement in OWP,
and were used for all incidents where firms had sold their services and products in the OWP market.
Finally, we used these codes to define significant events taking place in the time series by identifying
patterns and linkages between individual incidents. Each activity or incident could be part of one or
more codes/events (Van de Ven & Poole, 1990).
Due to technological similarities between the markets in some parts of the value chain (see more in
Mäkitie et al., 2018), we assumed that firms are able to redeploy resources between O&G and OWP
markets relatively easily. We also assumed that negative developments in the core O&G market, such
as reduced demand caused by decreasing oil price, translated to fewer market opportunities and thereby
more uncertainty in the task environment. Positive developments (e.g. increasing demand and rising oil
price), on the other hand, meant improved market conditions and lower uncertainty. We also outlined
the key market developments in OWP, where growth in demand acted as an incentive for entry to OWP.
Moreover, we analysed developments in the institutional environment in terms of possible changes in
public legitimacy of O&G and OWP. Due to our interest in sustainability transitions, we focused
especially on legitimacy issues of O&G industry related to climate change. Increase in attention to
climate change and transition perspectives of the O&G industry was therefore assumed as an indication
of weakening public legitimacy of the industry. These indications were compared with attention to
economic factors of O&G industry in relation to employment and social welfare, which are commonly
used by the Norwegian O&G industry in legitimizing itself in public debate (cf. Ihlen & Nitz, 2008).
The economic perspective is therefore used as indication of strengthening public legitimacy.
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Similarly to e.g. Penna and Geels (2015), we divided the analysis of incidents and events into a sequence
of phases. We defined the phases by identifying significant changes in our three key quantitative data
sources: the number of OWP engagement incidents, Brent oil price and O&G investments in NCS (see
more in the next sub-section). We normalized the different data sources by defining significant change
as 40% of overall range of the respective data series values. We then identified years that had a
significant change from the previous year in one or more indicators: these years were 2009, 2011 and
2015, resulting in four phases. We named the phases based on the analysis of our data on OWP
engagement incidents (see section 4).
3.3. Data
We collected a database of the engagement of 75 Norwegian O&G industry firms1 in OWP market. As
the primary source of data for collecting the OWP engagement incidents of these firms, we used the
media database Atekst/Retriever to search for news from five major Norwegian news media reporting
on O&G industry2. In total, we analysed 698 news articles. We also searched through press releases on
firm websites and analysed annual reports of firms when these were available for the whole study period.
Moreover, we used survey data regarding decisions and timing of entry in the OWP market (more details
in Normann & Hanson, 2015). We collected the name of the company, year, type of engagement
(statement, investment or contract) and described the incident qualitatively. In total, we identified 241
unique incidents of OWP engagement during 2007-2016.
We used two main indicators to describe the task environment developments in the O&G market. First,
average annual price for North Sea oil barrel (Brent), which influences the operator’s decisions to invest.
Second, the total investments in NCS by operators signify the size of the market and demand in O&G
industry. These annual statistics were retrieved from the Norwegian Statistical Agency (SSB) and the
1 Slightly more than 100 O&G industry firms in total have diversified to OWP in Norway. 2 These media outlets were Dagens Næringsliv, Teknisk Ukebladet, Sysla, Offshore, and Petro. We performed individual searches with all 75 firm names and five synonyms for OWP in Norwegian.
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Petroleum Directorate. To enable comparison of our task environment indicators with the engagement
incidents, we normalized the datasets by calculating the z-score of each variable (x) by using population
mean (µ) and standard deviation (σ).
Additionally, we used data of Wind Europe regarding installed capacity and investments in OWP in
Europe. Finally, to measure changes in institutional environment, we tracked public discussion
surrounding climate change, economy, transitions and O&G industry in Norway by using the
Atekst/Retriever tool3. Moreover, we used prior literature to describe task and institutional environments
for O&G and OWP. We summarize the key concepts, indicators and data in Table 1.
Table 1 Concepts, indicators and data
Definition Indicator(s) Data sources
Task
environment
Material-resource environment
consisting of inputs (resources) and
outputs (markets) of O&G industry
Brent oil price
Investment levels in O&G
in NCS
OWP market in Europe
Statistics Norway
Petroleum Directorate
Wind Europe
Prior studies
Institutional
environment
Regulative, normative and cultural-
cognitive environment of O&G
industry
Legitimacy of O&G
industry
News data (six newspapers)
Prior studies
Engagement in
diversification
The degree of activities of O&G
industry firms in OWP
Engagement incidents of
O&G industry firms in
OWP (3 categories)
News data (5 industry medias)
Annual reports
Firm news
3 We searched news articles in six Norwegian newspapers: Aftenposten, VG, Adresseavisen, Dagbladet, Morgenbladet and Klassekampen. We searched Norwegian equivalent of the words “climate change”, ”jobs”, “employment”, “welfare”, “transition”, “phasing out” and “after oil” together with 16 Norwegian synonyms for O&G industry during 2005-2016.
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4. Results
The four identified phases in the engagement of O&G industry in OWP were 1) The build-up phase in
2007-2008, 2) First wave of engagement in 2009-2010, 3) Stagnation during 2011-2014 and 4) Second
wave of engagement in 2015-2016. In this section, we present our results in two steps. First, in section
4.1 we put forth an overview of our data, presenting the key variables in our analysis. Second, in section
4.2 we present a more detailed qualitative analysis of our data.
4.1. Overview of results
Figure 2 presents the level of diversification engagement incidents of O&G industry in OWP over time.
The figure illustrates two peaks, in 2009-2010 and 2015-2016, which we call as the first and second
waves of engagement. These two phases are separated by the stagnation period in engagement in 2011-
2014 when the level of engagement remained did not grow.
Figure 2 Engagement of oil and gas industry firms in offshore wind power
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Figure 3 outlines key developments in the task environment of O&G industry: Brent oil price and level
of investments in NCS, which are important indicators of the development in the Norwegian O&G
market.
Figure 3 Task environment of firms: oil and gas market (SSB, EIA)
To enable comparison over different scales, we illustrate engagement incidents and task environment
developments in Figure 4 by normalizing changes in variables between 0 and 1. All indicators saw major
fluctuation. During 2009-2010 and 2015-2016, OWP engagement was relatively high with positive z-
scores. As was seen Figure 3, these periods corresponded with downturn in oil price and investment
levels. During Stagnation phase of 2011-2014, the O&G market was booming, while OWP engagement
was relatively low. Hence, higher engagement in diversification in OWP took place when the core O&G
market was declining, while the engagement diminished during O&G boom period.
8192
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O&G investments in Norwegian Continental shelf Brent oil price annual average
2nd wave of engagement
1st wave of engage-ment
Build-up Stagnation
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Figure 4 Normalized presentation of task environment.
Figure 5 summarizes some developments in the institutional environment of O&G industry. Figure
presents the number of newspaper articles where the O&G industry was discussed in three contexts of
public legitimacy: economic, transition and climate change perspectives. The economic perspective
stands for news articles where O&G industry was mentioned together with “jobs”, “employment” and/or
“welfare”, while transition perspective stands for O&G industry and words “transition”, “phasing out
oil” and “beyond oil”. Climate change perspective presents news articles where O&G industry was
mentioned together with “climate change”.
-2,00
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2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Z-s
core
OWP Engagement by O&G firms
O&G investments in Norwegian Continental shelf
Brent oil price annual average
2nd wave of engagement
1st wave of engage-ment
Build-up Stagnation
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Figure 5 Institutional environment of firms: economic, transition and climate change perspectives of O&G industry in
six Norwegian newspapers.
In the next sub-sections, we discuss these developments in more detail.
4.2. The build-up phase, 2007-2008
4.2.1. Engagement in diversification
In the beginning of the 2000s, several Norwegian companies started to develop products for both
bottom-fixed and floating wind turbines. These firms included small start-ups like Sway but also Norsk
Hydro, one of the largest Norwegian industrial companies. Common for these firms was that they
exploited existing competences and technical knowledge from O&G industry in OWP projects.
Moreover, both Sway and Hydro developed floating turbine concepts with the purpose to deliver
electricity to petroleum platforms.
However, it was in 2007 and 2008 when the engagement in OWP started to build up. An increasing
number of O&G industry companies, such as Bergen Group, Kværner Stord and Troll Power, started
looking at opportunities in OWP. The main motivations for these companies to enter OWP were the
0
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ewsp
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icle
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Economic perspective Transition perspective
Climate change perspective on O&G industry OWP Engagement incidents
2nd wave of engagement
1st wave of engage-ment
Build-up Stagnation
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expectations for an international market for OWP, as a slump in the O&G industry and the opportunities
to exploit existing competences in new markets. The build-up phase was characterized especially by
R&D in floating wind power concepts (i.e. deep water OWP turbines) of Hywind and Sway. In 2007,
Hywind, inherited by Statoil from merger with Norsk Hydro, received NOK 59 Million funding from
Enova, a public research agency. Also, Sway raised NOK 150 Million in private investment. In 2008,
Statoil made its first significant breakthrough in their effort to establish itself as an OWP park operator,
and was consented its first park, the Sheringham Shoal in UK.
Such events attracted attention in media and industry, and the involvement of a large player like Statoil
created expectations for further growth in OWP. Also, concrete investments and activities in OWP were
starting to emerge. In our data, however, OWP incidents consisted mainly of statements (eight in total)
and investments (five), while actual contracts were few (three).
4.2.2. Task environment
Since the beginning of the 21st century, the oil price had been growing. Even though new oil and gas
discoveries had been relatively small, the level of investments in NCS was increasing because high oil
price made even smaller and “exotic” oil fields profitable to operate. This increased demand in the O&G
industry, making it an attractive market for suppliers. However, this changed when the financial crisis
of 2008 hit, and sent the Brent oil price from USD 132 per barrel in July 2008 to USD 40 by the same
year’s December.
Since the early 2000s, OWP market has developed mainly in the North Sea with Germany, UK,
Denmark and the Netherlands as the leading countries in innovation (Wieczorek et al., 2013). According
to Wind Europe, more than 300 MWs of OWP was installed in both 2007 and 2008, which were new
records in OWP market and signalled growth in the market.
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4.2.3. Institutional environment
In 2007, there was a heightened attention to climate change globally and in Norway. However, as was
seen in Figure 5, climate change was seldomly discussed in the context of the O&G industry, even
though fossil fuels are a key reason for anthropogenic climate change. Hence, climate change topic
appears to have been largely separated from the cultural-cognitive understanding of the national O&G
industry. Similarly, Ryggvik and Kristoffersen (2015) argue that historically in conflicts regarding the
pace of oil extraction in Norway, economic interests have prevailed over environmental interests.
Instead questioning the legitimacy of O&G market, the awareness of climate change around 2007-2008
resulted in calls for reductions in emissions and increased investments in renewable energy. Together
with the appointment of a renewable enthusiast as the new Minister of Petroleum and Energy in 2007,
this created expectations among firms for government led support for OWP in Norway (Normann 2015).
4.3. First wave of engagement in OWP, 2009-2010
4.3.1. Engagement in diversification
The years of 2009 and 2010 saw rapid increase of OWP incidents. The engagement in diversification in
this phase was characterized by early market entries and statements (26 in total) as well as investments
(16) in competence and capacity building. In April 2009, Statoil, together with Statkraft, confirmed a
joined investment of NOK 10 Billion in the construction of the Sheringham Shoal wind farm in the UK.
Later the same year, the Hywind turbine became the world’s first full-scale floating wind turbine to
come online in October 2009.
Several O&G industry firms entered in competition for contracts in the European OWP market. For
instance, AF and Dr. techn. Olav Olsen invested in an OWP start-up called ViciVentus, CCB opened a
new base to supply OWP parks in the North Sea, and Draka invested in a new cable production facility
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to power OWP parks. Meanwhile, Fred. Olsen, a pioneer firm in OWP since early 2000s, continued to
establish their position in the market by e.g. seeking and receiving concessions for OWP farms in
Scotland and Ireland.
In 2010 also some of the first major contracts took place. Aker Verdal, having experienced major
cutbacks following the financial crisis and after going through 2009 without any orders from the O&G
industry, signed a contract in 2010 to supply foundations to the Nordsee Ost OWP farm in Germany.
The large engineering, procurement and commissioning company Aibel received, together with ABB,
a NOK 1.7 Billion contract to build one of the converter platforms in the German project Dolwin.
Moreover, maritime companies such as Seaproof Solutions and Parker Maritime received contracts in
installing OWP parks. Also Draka´s earlier investment in a new production unit started to pay off as the
firm received its first OWP cable contract in November 2010.
4.3.2. Task environment
After the financial crisis and crashed oil price, growth in the Norwegian O&G market came to an abrupt
end. During 2009, the oil price remained relatively low, and this stagnation can be visible in 2010’s
diminished level of investments in NCS (Figure 3). This decline in demand caused problems for many
companies in the O&G industry who had expanded their activities alongside the market growth, forcing
companies to lay off people.
In the meantime, the OWP market continued to mature and grow, opening opportunities for diversifiers
from O&G industry with relevant competences. As described by Kern and colleagues (2014), the UK
developed in a few years from a laggard to a leader in OWP deployment, largely stimulated by changes
of the Renewables Obligation in 2009 and 2010, which offered greater public support to more expensive
technologies. Also in Germany the OWP market began to solidify around 2009 with decisions to
implement new projects, despite also being challenged by limited available financial resources after the
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crisis (Reichardt et al., 2016). In Norway, the domestic OWP market continued to be non-existent
beyond the mentioned Hywind turbine project.
4.3.3. Institutional environment
Amidst the market downturn and lost jobs, the years 2009 and 2010 saw increased attention to the
economic aspects of the O&G industry (Figure 5). Moreover, politicians as well as industry and media
became even more attentive to how opportunities in offshore wind could offset some of the potential
layoffs in the oil and gas industry. There was considerable interest and efforts to lobby for the
development of a small domestic market, but this did not lead to success e.g. due to lack of collective
action from the side of OWP supporters (Normann, 2015).
4.4. Stagnation phase, 2011-2014
4.4.1. Engagement in diversification
The year 2011 saw reduced engagement in OWP from the previous year, and the growing engagement
from previous years turned into stagnation of OWP activities until 2014 (Figure 2). While some firms
continued investing in competence and capacity building, fewer firms decided to enter the OWP market.
Moreover, some OWP projects ran into trouble. While Sway celebrated the installation of a prototype
of its floating turbine, the company struggled to find customers, and eventually declared bankruptcy in
2014. Aker Verdal, on the other hand, experienced financial losses in its Nordsee Ost project, thus
discouraging further activities in OWP.
However, the few firms who decided to enter during this phase seemed to be able to establish a foothold
in the OWP market relatively fast. For instance companies like Simon Møkster and Siem Offshore
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invested in OWP installation vessels, while Aqualis acquired two firms with capabilities in OWP.
Moreover, a handful of companies, such as Fred. Olsen and Seaproof Solutions secured contracts to
install OWP turbines, while Fjellstrand and Island Offshore were assigned to deliver OWP vessels.
4.4.2. Task environment
The Brent oil price started to recover to its pre-crisis level already in late 2010, and during the following
years the investment level followed suit. This led to an O&G industry boom period in 2011-2014, during
which oil price stabilized to over USD 110 per barrel, and annual investment levels had doubled by 2014
from its 2008 levels (Figure 3). Another important event was the discovery of two major oil fields in
2010-2011 in the Northern part of North Sea and Barents Sea (Johan Sverdrup and Johan Castberg),
which increased expectations for further growth in the market.
Also the European OWP market continued to grow steadily especially with more developments in the
UK, and according to Wind Europe, nearly 1483 MW of OWP was installed in 2014 in comparison to
874 MW in 2011. This took place despite the fact that, unlike solar power and on-shore wind power, in
2008-2013 the cost of OWP increased. This was because of including e.g. high commodity prices (steel)
and increased project size and complexity, which made OWP less attractive for investments.
4.4.3. Institutional environment
Together with the raising oil price and new discoveries, the political interest in a Norwegian offshore
wind industry also faded away. In comparison, the public legitimacy of O&G market remained robust,
and was not significantly challenged by e.g. climate change concerns. This was illustrated in a 2012
study of climate change perceptions of Norwegian public, where 68% of respondents believed climate
change to be anthropogenic, but only 23% agreed that Norway should not begin extraction from new oil
fields because it contributes to climate change (Austgulen, 2012). These notions suggest that climate
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change issue had not this far significantly challenged the O&G industry’s cultural-cognitive legitimacy
in Norway.
4.5. Second wave of engagement, 2015-2016
4.5.1. Engagement in diversification
The year 2015 was another turning point in engagement in OWP, as the number of incidents doubled
from previous year. More firms than ever before made investments and/or received contracts in OWP
market during this phase. Especially maritime firms were successful in breaking through with several
contracts in the OWP market. Several shipping and offshore firms, such as Fred. Olsen, Siem Offshore
and Simon Møkster who had invested in OWP vessels before, all secured multiple installation and
service contracts in European OWP parks. Fjellstrand even decided to remodel one of their O&G support
vessels into OWP use.
Firms across the value chain continued investments in new technologies and capacity. For instance,
StormGeo and Dr. techn. Olav Olsen announced new R&D projects, while NorSea bought Danish Øer
to seek foothold in the European OWP market. Moreover, Ulstein invested in developing ship design
tailored for OWP use, and also received contracts for delivering OWP vessels. Meanwhile, Statoil raised
its bets by declaring to build the first floating wind power park in the world in Scotland, and increased
its presence in other OWP parks such as in Dogger Bank in UK and Arkona in Germany.
For the first time, a handful of O&G firms engaged also in new OWP markets in North America and
Asia. For instance, OWP pioneer Fred. Olsen managed to secure contracts in the new OWP parks on
the east coast of United States, and Statoil won a lease to explore building an OWP park outside of
New York.
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4.5.2. Task environment
In late 2014, the oil price crashed once again, which caused a significant downturn in investment levels
in NCS over the next two years. As this downturn lasted longer than in 2009-2010, it had much stronger
impact on the industry, and significant number of companies went bust and numerous jobs were cut.
Moreover, relatively low commodity prices and increasing costs of developing new fields in the Arctic
Sea have put pressure on the business models of the oil companies and led to an industry wide program
for increased cost-saving and efficiency (FT, 2016). In 2016, more than a quarter of the market had
evaporated since the peak year of 2014 (Figure 3).
In terms of OWP, the European market continued to grow. In 2016 the annual investments in OWP were
around EUR 18.2 Billion (Ho & Mbistrova, 2017), for first time exceeding the size of the Norwegian
O&G market. Moreover, the costs of OWP had fallen substantially, and in 2016 developers such as
Dong Energy and Vattenfall promised to build farms at costs well below than what was expected only
some years ago (The Telegraph, 14 September 2016).
However, by 2016, all initiatives aimed at establishing a full-scale OWP demonstration park in Norway
had failed to attract the necessary public support (Normann, 2017). Therefore, the Norwegian strategy
for OWP has been to support the export of products and services to international markets.
4.5.3. Institutional environment
Since the O&G downturn in 2015, there has been some signs of a change in cultural-cognitive perception
of the O&G industry in Norway. Such change was seen in Figure 5 where in 2015 and 2016 there was
increased attention to transitions and “green shifts” in Norwegian economy. According to Ryggvik and
Kristoffersen (2015), further evidence of such change in perception of O&G market include e.g.
increased knowledge of a potential climate crisis, opposition against oil extraction in Lofoten and
Vesterålen areas, and public statements of notable public figures and organizations emphasizing the
24
potential of green jobs while demanding to leave a large part of Norwegian oil and gas in the ground.
Nevertheless, the O&G still continued to enjoy stable regulative support which has been manifested by
new concession rounds for oil exploration in 2015 and 2017.
4.6. Summary
OWP has been cited as one of the opportunities to redeploy the existing competences and resources in
Norwegian O&G industry, and several firms diversified into this emerging market during 2007-2016.
This is unsurprising, as the international market in OWP has been growing rapidly over the last ten
years, asserting an incentive to enter OWP. Despite this steadily growing incentive to diversify, the
engagement of Norwegian O&G firms in OWP has followed a fluctuating pattern. These developments
co-occur with changes in the O&G market. O&G firms showed increased engagement in OWP in 2009
and 2010 – years that were characterized by lower oil price and decreased activities in the Norwegian
O&G market. In 2011-2014 when the oil price recovered to a high level, O&G investments were soaring
and new oil discoveries were announced, the engagement in OWP reduced. Towards the end of 2014,
the oil price collapsed again and demand in O&G market declined, and OWP saw an unprecedented
amount of activities from O&G firms.
OWP has not enjoyed enough public legitimacy and support for implementing a domestic market in
Norway. The guiding principle for climate policy and renewable energy policy throughout this period
has been that measures should be based on cost-efficiency, resulting in weak policy support for more
expensive technologies such as OWP (Wicken, 2011). Meanwhile, the institutional environment for
O&G has remained rather stable. For instance, environmental concerns such as climate change was
relatively seldom discussed together with O&G industry, even though the climate change issue itself
has attracted plenty of attention over the years. Instead, Norwegian government has steadily opened new
areas for O&G exploration with licensing rounds in 2008, 2010, 2012, 2015 and 2017, signalling stable
regulative conditions for the O&G industry. While recent evidence suggests some changes in public
25
debate regarding the future of the O&G industry, seen overall, the institutional environment for O&G
industry has therefore exerted little pressure on the O&G industry to reorientate and diversify.
Hence, our results suggest that the engagement of O&G industry in OWP has had similar patterns as the
task environment, while there is less symmetry with the developments in the institutional environment.
5. Discussion and concluding remarks
Recent literature regarding sustainable energy transitions has investigated the reorientations of
incumbent energy industries in these processes (Bergek et al., 2013; Steen & Weaver, 2017). Pressures
and incentives from industry environment have been suggested to influence such reorientations (Geels,
2014; Mignon & Bergek, 2016). Such questions are relevant for informing policy mixes which seek to
support a sustainable energy transition by complementing the support of renewable energy technology
development with dismantling support for fossil fuel industries (Kivimaa & Kern, 2016). We contributed
to such discussions with our study of the possible role of industry environment in influencing a
reorientation towards renewable energy markets.
Our case study of the engagement of Norwegian oil and gas (O&G) industry in offshore wind power
(OWP) during 2007-2016 showed notable fluctuations over time. While the institutional environment
surrounding the O&G industry remained fairly stable during this period, and the European OWP market
was on a continued growth path, the O&G industry had two peaks of engagement in diversification in
OWP – “green flings” – separated by a period of lower engagement. These “flings” co-occurred with
two periods of major downturns and a boom period in the O&G market. This suggests that reduced
market opportunities in the O&G market pressured to seek a diversification in OWP, while the
subsequent recovery of the O&G market attracted these firms back to their core market. This behaviour
resembles to what previous literature has discussed as redeployment of resources between related
26
markets in reaction to uncertainty and changes in demand (Bergh & Lawless, 1998; Helfat & Eisenhardt,
2004; Wu, 2013; Lieberman et al., 2017).
We are mindful that our study has some shortcomings which need to be addressed in further research.
First, we recognise that also other mechanisms than pressures and incentives from the environment can
explain diversification. For instance in the case of OWP in Norway, socio-political issues such as public
relations opportunities, national politics and other types of pressures and expectations have affected such
decisions (Hansen & Steen, 2015; Normann, 2015). Moreover, firms can diversify to new and even
unrelated markets without significant influence from environment. Therefore, we have not sought to
deliver a full empirical account regarding the relations of O&G and OWP industries in Norway (see
more in Steen & Hansen, 2014; Mäkitie et al., 2018). Rather, we focused on the issue of the environment
of O&G industry in this phenomenon. Also, we have to a large extent relied on news data to track the
engagement in OWP, which poses significant weaknesses. We are dependent on media outlets,
journalists and firms in their decisions to report on the O&G industry’s engagement in OWP, and this
can cause a bias in our data material. Here we have sought to overcome this weakness by using different
data sources in identifying engagement incidents. The most important drawback is that firms are more
likely to report entry decisions, and our dataset therefore has only few observations of exits from OWP.
Nevertheless, our study has drawn attention to three often overlooked issues in the study of sustainable
energy transitions and related policy topics. First, the study of incumbent industries in transitions has
had relatively little focus on the fact that companies are first and foremost concerned with value creation
and “making money”, where short-term profitability play an important role. Therefore, competition and
market forces “here and now” are important for strategy and activities of firms (Porter, 1980). For this
reason, rapid changes in the market can also cause rapid responses. This has been visible in our case
study where some firms in the O&G industry almost immediately increased their engagement in
diversification in OWP when their core market ran into difficult times. Hence, policy measures
addressing the economic environment of incumbent energy industries can have effective and swift
impacts in causing a reorientation towards renewable energy markets. Such findings support the recent
argument made by e.g. Kivimaa and Kern (2016) that destabilizing policy measures (e.g. through
27
regulation) directed towards the market conditions of incumbent energy industries can help to accelerate
sustainable energy transitions.
Second, as noted also by e.g. Geels and Penna (2015), when incumbent reorientation is triggered by
environment, this engagement can also backtrack when the external pressure diminishes. This was
certainly visible in our study when the O&G industry reduced engagement in diversification during a
boom period in O&G market, even though the OWP market also continued to grow in the meantime.
This finding draws attention to the possible reversibility of industry reorientations towards renewable
energy (cf. Pinkse & van den Buuse, 2012). Our results suggested that several firms in the O&G industry
redeployed resources back to O&G when they were no longer pressured to engage in OWP. This notion
is important in reminding that while market opportunities can act as an effective vehicle of causing
industry reorientation towards renewable energy, favourable conditions accentuating such a transition
can also reverse. Therefore, stable and committed policy measures supporting industry reorientations
have central importance, as such “on-off relationships” or “green flings” of incumbent energy industries
are likely to be harmful for committed push for sustainable energy transition.
Third, the relatively fast reorientation of O&G industry towards OWP showed that at least part of the
industry was able use their existing competences and other resources in another market. We therefore
suggest that redeployment of resources is a key factor in enabling reorientation of fossil fuel industries
towards renewable energy. Such opportunities to make use of the vast resources of incumbent energy
industries can be beneficial in speeding up transitions by making use of e.g. financial resources,
engineering capabilities and tacit knowledge related to technologies, and experience in large-scale
project management (Hanson, 2017).
We conclude by calling for further examinations in the field of sustainable energy transitions literature
in to empirically address the above mentioned three key areas. Moreover, we encourage further study
of intermittency in industry reorientations in order to support policy measures seeking to provide stable
framework conditions for sustainable energy transitions. Finally, we call for conceptual development
28
regarding the issue of resource redeployment between “old” and “new” sectors in the context of
sustainable energy transitions.
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