A Lead Market Approach Towards the Emergence and Diffusion of Coal-fired Power Plant Technology,

Today, more than 70% of the world’s total electricity production is supplied by power plants using conventional fossil fuels. Coal accounts for more than half of the fossil fuel combustion in electricity plants. Five mega trends in the future – a growing world population, urbanisation, an increasing world GDP, increasing economic power in India and China - give reason to believe that electricity demand will double until 2030. The abundance of coal reserves in many countries and increasing fuel prices for gas and oil against the background of a growing need to provide sufficient, secure and affordable energy make coal an attractive option in worldwide electricity production. The estimated annual market volume of electricity plants powered by fossil fuels is $208 bn. A great share of this market volume is destined for coal-fired power plant technology. However, the need to reduce CO2 emissions in order to stop climate change has made coal combustion a central subject to environmental discussions. Many countries have already begun to develop ”clean coal technologies” and have started to diffuse these technologies in domestic markets. Despite the fact that clean coal technologies are already present and are currently adopted by many countries, the penetration rate differs considerably from country to country. The aim of this paper is to analyse why clean coal technologies in some countries diffuse faster and to a greater extent than in other nations. The paper applies the lead market concept in order to test the practicability of the methodology. Lead markets are markets that adopt an innovation before it is adopted by most other countries and therefore lead the global diffusion of the innovation. The most important technological trajectory for coal power plants is the pulverised coal-fired steam cycle (PC) which is the basis for all other coal combustion technologies. Modern PC technology is well developed and accounts for over 90% of coal-fired capacity worldwide. Therefore it will be taken as a reference technology for this paper, with SC (Supercritical) coal-fired power generation technologies being selected as an innovative technology within this trajectory. Moreover, SC technology has diffused over sufficiently long time periods to be examined by ex post analysis. As for the diffusion of SC, the paper concentrates on Germany, USA, China and Japan. The analysis of the diffusion curves of SC technology shows that the typical lead market pattern applies only to a limited extent. In the 1960s and 1970s, the USA established a lead market for SC technology; diffusion rates were high and large numbers of SC units were built. Other countries adopted the American innovation design, but when the USA stopped building supercritical coal-fired power plants in the late 1970s, the picture changed and diffusion curves overlapped, which is unusual. Japan surpassed the United States, although they started out as typical lag markets in the early 1980s. Japanese companies manage to meet their demand almost entirely out of domestic production and American technology plays only a minor role in both countries. Generally, countries that are the first to widely diffuse an innovation design in the domestic market become lead markets. So far, the lead market model argues that lead markets do not switch to other countries but are “stable”. This has been supported by several empirical analyses regarding, for instance, the diffusion of cellular phones, facsimile machines, diesel motors with direct injection, etc. Here we might see a clear deviation from that rule, since at least the diffusion curves overlap. After analysing the technology diffusion in the four countries, the question evolves: Can we determine a lead market for coal-fired power plant technology today? A closer look at the different lead market factors gives us the following answer: It can be concluded from the discussion of lead market factors that currently no clear lead market exists for coal-fired power plant technology. Although the United States still has comparative advantages in terms of prices, demand and market structure, Japan has caught up in terms of transfer advantage and Germany in terms of regulation. In the near future, demand advantages will switch to China. This supports also the thesis that - apart from the demand-oriented lead market model - push factors such as R&D activity play a strong role for establishing lead markets as well. The transfer advantage of Japan stems mainly from its intensive R&D activities. Thus it can be concluded that a mix of push and pull policies is necessary in order to establish a lead market position.

Rennings, Klaus and Wilko Smidt (2010), A Lead Market Approach Towards the Emergence and Diffusion of Coal-fired Power Plant Technology,, Politica Economia XXVII, n.2 , 301-327