Development of Marine Renewable Energy (Technological Innovation System Approach)

A thesis submitted to the University of Manchester for the degree of Master of Philosophy (M.Phil) in the Faculty of Engineering and Physical Sciences

2015

Mariam Haghayegh Khorasani

School of Mechanical, Aerospace and Civil Engineering

Development of Marine Renewable Energy (Technological Innovation System Approach) Abstract

The unsustainability of fossil fuels and concerns for the environment have led to a considerable increase in demand and support for renewable energy technologies over the last two decades. The UK, with a natural abundance of wave and tidal resources, is at the forefront of marine technology development but, compared to more conventional fuels, the marine energy sector still remains in its infancy. This work uses a Technological Innovation Systems (TIS) approach to assess and evaluate how technological and institution changes affected the evolution of the UK’s marine energy sector between 2000 to present and provides recommendations on how best to accelerate the development of marine energy technology. The TIS approach facilitates the analysis of a system which aims to grow and develop a specific emerging technology by establishing the extent to which events or activities, which occurred within the UK’s marine energy sector, contribute to the fulfilment of seven ‘system functions’. The events are defined, classified and mapped by applying a historical event analysis to marine energy in the UK between 2000 and 2015. The interactions and interdependence between the system functions provided insights into which functional requirements needed to be fulfilled in order for the marine energy system to be successful. The analysis showed that as marine energy technology developed, complex functional interactions formed between the different phases of technological development. Knowledge development and knowledge diffusion (through key events, such as the opening of the European Marine Energy Centre in 2003) were identified as the system functions responsible for pushing marine technology from the research phase (2000-2005) to the demonstration phase (2005-2010). Consistent and significant entrepreneurial activities throughout the demonstration phase, together with mounting lobby activities and increased market attraction (through the introduction of bands to the Renewable Obligations scheme by the Government in 2009) drove marine technology through to the pre-commercial phase (2010-2015). Here, significant positive activity across all system functions in the sector was initially seen but negative fulfilment of the market formation function (through the Electricity Market Reforms, announced by Government in 2011) and the departure of several key actors (withdrawal of Siemens and the collapse of Pelamis Wave Power) led to increased risk and uncertainty amongst investors and a reduction in entrepreneurial activities.

Whilst marine technology in the UK has made significant ground towards commercialization over the last decade, the results from this study demonstrate that better fulfilment of the guidance of the search and market formation functions is required to help support and stimulate the formation of marine energy markets and reduce risk and uncertainty for investors. This, in the form of clear, long term, consistent and timely policy guidance from the Government, together with more streamlined and efficient funding mechanisms will help drive the sector towards commercialization. Mariam Haghayegh Khorasani Master of Philosophy (M.Phil) September, 2015 2

Table of Contents

Table of Contents ...... 3

List of Figures ...... 5

List of Tables ...... 6

Declaration ...... 7

Acronyms ...... 9

1 Introduction ...... 10 1.1 Marine Energy ...... 10 1.2 Innovations Systems ...... 11 1.3 Aim and Objectives ...... 13 1.4 Research Methodology ...... 14 1.5 Scope and Limitation...... 15 1.6 Thesis Outline ...... 17

2 Literature Review ...... 18 2.1 Transformative Innovation ...... 18 2.2 Innovation Systems ...... 19 2.3 Technological Innovation Systems ...... 21 2.3.1 Strategy ...... 22 2.3.2 Structure of a TIS ...... 23 2.3.3 Functional Patterns of a TIS ...... 27 2.3.4 Interactions and Momentum of System Functions ...... 39 2.4 Summary ...... 39

3 Methodology ...... 41 3.1 Introduction ...... 41 3.2 Justification ...... 41 3.3 Historical Event Analysis ...... 44 3.4 Process Analysis ...... 45 3.4.1 Search ...... 45 3.4.2 Classification ...... 46 3.4.3 Allocation ...... 46 3.4.4 Summary and graphical representation ...... 47 3.4.5 Historical Narrative...... 48 3.4.6 Identification of patterns, virtuous and vicious cycles ...... 48 3.5 Concluding remarks ...... 48

4 Analysis ...... 50 4.1 Historical Review of Marine energy in the UK between 2000-2015 ...... 51 4.2 Innovation System Functions ...... 60 4.3 Allocation and classification ...... 61 4.3.1 Function 1: Entrepreneurial Activities ...... 62 4.3.2 Function 2 and 3: Knowledge Development and Diffusion ...... 65 4.3.3 Function 4: Guidance of the Search ...... 67 4.3.4 Function 5: Market Formation ...... 69 4.3.5 Function 6: Resource Mobilisation ...... 70 4.3.6 Function 7: Advocacy Coalition ...... 72 4.4 Graphical analysis ...... 73 4.4.1 Phase 1: R&D...... 74 4.4.2 Phase 2: Demonstration ...... 75 4.4.3 Phase 3: Pre-commercial ...... 76 4.4.4 Phase 4: Supported Commercialisation ...... 78 4.5 Interactions between system functions ...... 79 4.6 Outlook ...... 82

5 Conclusion and recommendations...... 83 5.1 Discussion ...... 84 5.2 Summary of recommendations ...... 87 5.3 Further work ...... 88

6 References ...... 89

List of Figures

Figure 1: An illustration of the overall structure of Technological Innovation System. The parts of the structure relevant to this work are shaded in grey...... 16 Figure 2: Phases of development in an energy system (Adopted from Carbon Trust, 2002). 17 Figure 3: Schematic representation of a Technological Innovation System, showing the four keys stages of the analysis...... 23 Figure 4: Schematic representation of the development phase of technology...... 45 Figure 5: Graphical representation of activity pattern of System Function 1: Entrepreneurial Activities (Source: Negro, 2007)...... 47 Figure 6: A schematic representation of potential virtuous cycles. Source: Negro (2007). .... 48 Figure 7: Timeline of key events in the Technological Innovation System. Adapted from Lawrence et al., (2013)...... 50 Figure 8: Activity pattern of system function 1: Entrepreneurial Activity ...... 65 Figure 9: Activity pattern of system function 2 and 3: Knowledge Development and Knowledge Diffusion ...... 67 Figure 10: Activity pattern of system function 4: Guidance of Search ...... 69 Figure 11: Activity pattern of system function 5: Market Formation ...... 70 Figure 12: Activity pattern of system function 6: Resource Mobilisation ...... 72 Figure 13: Activity pattern of system function 7: Advocacy Coalition ...... 73 Figure 14: Schematic representation of the development phase of technology...... 74 Figure 15: Overview of activities for all system functions ...... 79

List of Tables

Table 1: Innovation System Functions, each row represents function concepts which are similar across authors...... 29 Table 2: Small selection of events...... 46 Table 3: Function within an innovation system (Hekkert et al., 2007; Bergek et al., 2008). See Chapter 2 for discussion...... 61 Table 4: Events allocated to system function 1: Entrepreneurial Activities ...... 63 Table 5: Events allocated to system function 2 and 3: Knowledge Development and Knowledge Diffusion ...... 66 Table 6: Events allocated to system function 4: Guidance of the Search ...... 68 Table 7: Events allocated to system function 5: Market Formation ...... 70 Table 8: Events allocated to system function 6: Resource Mobilisation ...... 71 Table 9: Events allocated to system function 7: Advocacy Coalition ...... 73

Declaration

I declare that no portion of the work referred to in the thesis has been submitted in support of an application for another degree or qualification of this or any other university or other institute of learning.

i. The author of this thesis (including any appendices and/or schedules to this thesis) owns certain copyright or related rights in it (the “Copyright”) and s/he has given The University of Manchester certain rights to use such Copyright, including for administrative purposes. ii. Copies of this thesis, either in full or in extracts and whether in hard or electronic copy, may be made only in accordance with the Copyright, Designs and Patents Act 1988 (as amended) and regulations issued under it or, where appropriate, in accordance with licensing agreements which the University has from time to time. This page must form part of any such copies made. iii. The ownership of certain Copyright, patents, designs, trade marks and other intellectual property (the “Intellectual Property”) and any reproductions of copyright works in the thesis, for example graphs and tables (“Reproductions”), which may be described in this thesis, may not be owned by the author and may be owned by third parties. Such Intellectual Property and Reproductions cannot and must not be made available for use without the prior written permission of the owners(s) of the relevant Intellectual Property and/or Reproductions. iv. Further information on the conditions under which disclosure, publication and commercialisation of this thesis, the Copyright and any Intellectual Property and/or Reproductions described in it may take place is available in the University IP Policy (see http://documents.manchester.ac.uk/DocuInfo.aspx?DocID=487 ), in any relevant Thesis restriction declarations deposited in the University Library, The University Library’s regulations (see http://www.manchester.ac.uk/library/aboutus/regulations ) and in The University’s policy on Presentation of Theses.

Acronyms

CfD Contract for Difference DECC Department of Energy & Climate Change ETI Energy Technologies Institute IS Innovation System MCT Marine Cu rrent Turbines MEAP Marine Energy Action Plan MEAD Marine Energy Array Demonstrator MRDF Marine Renewables Deployment Fund MRPF Marine Renewables Proving Fund MSO Marine Supply Obligation OEM Original Equipment Manufacturer RO Renewable Obligation ROC Renewable Obligation Certificate SIS Sectoral Innovation System TIS Technologica l Innovation System EMR The Electricity Market Reform EMEC the European Marine Energy Centre MEA the Marine Energy Accelerator NaREC the New and Renewable Energy Ce ntre PerAWaT The Performance Assessment of Wave and Tidal Array Systems ReDAPT The Reliable Data Acquisition Platform for Tidal TI Transformative Innovation UKCMER UK Centre for Marine Energy Research WATES Wave and Tidal Energy Support Scheme WATERS Wave and Tidal Energy: Research, Development and Demonstration Support fund

1 Introduction

Towards the end of the 20 th century and continuing until present, support for renewable energy technologies has dramatically increased. This is due, in part, to the unsustainability of conventional fuels and concerns for the environment. In order to address these issues, many governments and major industrial players have invested heavily in the development of renewable energy technologies and, as a consequence, many forms of renewable energy have evolved rapidly over a short period of time (Cochran et al., 2012). One major form of renewable energy is marine energy; energy that is derived from the motion of waves or tides. The evolution of marine energy for electricity supply in the UK, and the technology central to it, forms the subject of this Thesis.

This Chapter begins by providing some background information on marine energy as a significant contributor to renewable energy as a whole, before introducing the concept of innovation systems and the role of technological developments within them. Following this, the aim and objectives of the thesis are detailed together with the research methodology employed. Finally, the chapter closes by stating the scope and limitations of the present work and providing an outline for the rest of the Thesis.

1.11.11.1 Marine EEEnergyEnergy

Marine energy is defined as “mechanical energy derived from tidal movement, wave motion or ocean current and exploited for electricity generation” (International Energy Agency, 2011). The IPCC Special Report on Renewable Energy (IPCC, 2011) looks at the potential for energy supply from marine energy resources, and recognizes these as significant future sources of energy. Currently, the UK is at the forefront of marine energy technology development due to its access to an abundance of natural wave and tidal resources. The Carbon Trust (2011) has stated that marine energy has the potential to meet 15-20% of the UK’s present electricity demand in the first major commercial exploitation stage. Currently, however, the application of marine energy technology is in its infancy

10 and the deployment of the technology is largely driven by the economic gains from renewable energy incentives (International Energy Agency, 2011).

The continued growth and development of marine energy technology can be expected to considerably influence, and be influenced by, the wider energy system. The transformation of an energy system, however, can often take a very long time to come about (Scrase et al., 2009) and is usually the product of interactions between a diverse array of social actors, knowledge and artefacts. The transformation itself will consist of institutional changes, new socio-technical configurations and new market structures. These changes make the study of such a transformation, and the dynamics of the underlying innovations, a demanding task and any approach which attempts to do so, therefore, must be systemic (Kemp and Rotmans, 2009). Viewing such systems from an innovation systems perspective is the dominant approach in the literature surrounding innovation and transformations (Markard and Truffer, 2008), and thus this is used to provide the necessary conceptual background in this research.

1.21.21.2 Innovations Systems

Freeman initially introduced the concept of innovation systems in 1987 and it has received significant attention since (Andersen et al., 2000; Freeman, 1987). Lundvall (1992, p. 13) defines an innovation system as:

”the elements and relationships which interact in the production, diffusion, and use of new and economically useful knowledge.”

For marine energy, technological developments are clearly central to viable exploitation of the resource. In addition to technological developments, however, institutions will play a significant role influencing the pace and direction of commercialization (Wirth et al., 2013). Institutions form one of the main elements of innovation systems (Carlsson et al., 2002); one that could greatly impact the marine energy development in the UK, not only by reducing uncertainty, which can result in greater investments to the technology and the industry as a whole, but also through mechanisms that facilitate and guide development of marine energy technology.

As a new technology emerges, its legitimacy, the access of the associated actors to resources, and the formation of markets are strongly related to the surrounding institutional framework. If the framework does not align with the new technology, several key functions needed for commercialization may be blocked. Institutional change, and the politics associated with it, is therefore located at the centre of the processes by which new technologies emerge and gain ground (Freeman, 1987; Freeman and Louçã, 2001).

Institutional change itself is a multifaceted process. For instance, support for the formation of a new technological system may involve a redirection of science and technology policy in order to generate a range of competing designs. This creation of knowledge may well have to begin in advance of the emergence of markets, but it also needs to be sustained throughout the evolution of the system. Institutional change is often required to generate markets for new technologies. This change may, for example, invoke the modification or formation of standards, market regulations, tax policies and value systems. These often lie close to the operation of specific firms (Jacobsson and Bergek, 2004).

Institutions can bring stability, meaning, and predictability to social interactions but, for developments to occur, institutions need to change. As Unruh (2000) points out, institutions may unwillingly commit themselves to lock-in 1 by providing more support for existing technologies. In other words, institutions that were efficient in generating growth in the past, over time, become barriers to growth by protecting the vested interests of some of the established members of industries (incumbents) and thus maintain the status quo. Therefore, to facilitate growth and economic development, there is a need for institutional change.

This research focuses specifically on marine energy technologies. This, therefore, calls for an approach that draws attention to the growth and development of specific technologies rather than general industries. An approach most suited to this, and the one used in this thesis, is the Technological Innovation Systems (TIS) approach. A TIS is defined by Carlsson and Stankiewicz (1991, p. 94) as:

1 Unruh (2000) stated “changing current ways of producing and using energy towards a sustainable practice” is not simple and famously called this situation as carbon ‘lock-in’. According to him there are two main reasons that can lead to this lock- in: a) cost advantages of fossil-based technologies b) more support for existing technologies by institutional and government arrangements 12

“a network or networks of agents interacting in a specific technology area under a particular institutional infrastructure to generate, diffuse, and utilise technology.”

As stated by Jacobsson and Johnson (2000), the TIS approach enables researchers to better understand the strength, weaknesses, characteristics, and dynamics of a system that aims to grow and develop an emerging technology. This approach is further discussed in Chapter 2.

1.31.31.3 AAAimAim and OOObjectivesObjectives

This research aims to analyse the development of the UK’s marine energy sector and provide insight into the dynamics of the associated innovation system through a Technological Innovation Systems approach. It is proposed that the current marine energy innovation system in the UK is studied in detail to analyse its rapidly evolving dynamics and to identify the key institutions involved. This enables the potential failures and barriers currently faced by the industry to be identified. Specific institutional innovations will then be identified which would help address the challenges of marine energy development. Thus, using a systemic approach, this research conceptualizes the marine energy industry as a Technological Innovation System that is under transformation and investigates the roles institutions play in bringing change to this system. To that end, this Thesis aims to provide answers to the following questions:

- How did innovation system dynamics influence the processes of institutional change during the formation of the UK marine energy innovation system from 2000 to 2015? - What improvements can be made to ensure the development of marine energy technologies in the UK is accelerated?

Taking the Technological Innovation System (TIS) approach as the conceptual background, the specific objectives of this research are:

- To identify key events and activities that contribute to the development and diffusion of technology within the TIS.

- To examine the most important functional 2 requirements of the innovation system that have to be fulfilled in order to have a successful system of development, application, and diffusion of new marine energy technologies. - To identify “system failures” or weaknesses within the TIS. - To study and understand the relationships between each system function, so policies to accelerate development, diffusion and use of marine energy in the UK can be more effectively designed.

1.41.41.4 Research MMethodologyethodology

The methodology adopted for this research utilizes historical methods. These focus systematically on past events and use archival documents in an effort to understand the processes by which institutions emerge, self-maintain and erode (Van de Ven and Poole, 2005).

This methodology allows the researcher to characterise and identify the different institutions involved within a system and to develop a framework that describes how historical conditions and events instigate, drive and diversify those institutions. Institutional outcomes are viewed as the result of many different causes and events, whose timing and ordering is critical.

Suddaby and Greenwood (2009) note that historical methods offer several advantages over other approaches, notably multivariate and interpretive approaches, which are commonly used to analyse institutional change. First, by adopting the view that institutional change is caused by multiple and often chaotic events it avoids the dangers of assuming that single, connected, events are the primary driver for change. Second, it implies path dependency, which is the notion that the range and scope of present-day choices is limited by past events.

In this study an event is formally defined as “the smallest meaningful unit in which change can be detected” following Poole et al., (2000). These include introduction of new Government policies, the entry of new actors and any other events which have served to change the character of the innovation system over time in regards to the technological development of the UK’s marine energy.

2 The activities that contribute to the goal of the Innovation Systems are called Functions of Innovation Systems or System Functions (Hekkert et al., 2007b). 14

Various archival and secondary sources of data will be used to facilitate this methodology. These sources include, but are not limited to, government documents, white papers, news, trade and professional journals, associated websites and academic articles. After extensive data collection, relevant information will be extracted, characterised and visualized. This will allow the processes that drive institutional change, the weaknesses and strengths within the system, and how the system innovates, to be identified.

1.51.51.5 Scope and LLLimitationLimitation

Two specific forms of marine energy technology are considered in this research; wave and tidal. Other forms of marine energy, including ocean thermal energy, are not covered since they are less significant when compared the potential of wave and tidal energy for mass deployment in the UK (IPCC, 2011).

As stated earlier this research conceptualizes the marine energy industry as a Technological Innovation System. The main components of a technological system, as identified by Bergek (2002), are actors, networks, and institutions. Actors are the firms in the entire value chain, institutions are the legal and regulatory aspects, as well as norms and cognitive rules, that regulate interactions, and networks are either the links that enable transfer of knowledge (learning networks), or coalitions seeking to influence the political agenda (political networks) (Bergek et al., 2008a). This research focuses on institutions within the UK’s marine energy system . These are defined by Scott (2003) as “social structures that have attained a high degree of resilience. They are composed of cultural-cognitive, normative, and regulative elements that, together with associated activities and resources, provide stability and meaning to social life” .

Within this institutional element, emphasis is placed on the regulatory aspects and how innovations facilitat e the technological development and advancement of the marine energy sector as a whole. The cultural-cognitive and normative elements of institutions lie beyond the scope of this work. The institutional policies, in terms of legal/regulatory frameworks and support, which are relevant to the emergence of the UK marine energy sector can be categorised as follows:

• Technological (financial, R&D, market, test centres, etc.). 15

• Planning, leasing and licensing. • Electrical transmission and distribution, i.e. The Grid.

Within these categories, the focus is on those policies and regulations that relate to the development of technology. This can be further broken down into those technologies which arise from a technology push and those which arise from a market pull. A technology push, where new developments are pushed into the market, can be facilitated through, for example, capital grant support, support for test centres, and increased R&D funding. A market pull, where the stimulus for innovation is in response to an identifiable market need, requires revenue support for sufficient development. Figure 1 provides an illustration of the overall structure of the Innovation System, and how the institutional polices, which fall under the categories described above, are positioned within it.

Actors

Technological Networks Cultural

Sectoral Instituations Normative Planning Innovation System(IS) Technology Regional Regulative Grid Push

National Technology Market Pull

Combination of both

Figure 1: An illustration of the overall structure of Technological Innovation System. The parts of the structure relevant to this work are shaded in grey. The development phase of the technology within the innovation system determines its relevance to the system functions used to characterise the system. Thus, to effectively monitor the formation of the TIS, this study distinguishes between five different phases of development as illustrated in Figure 2. Since marine energy is still considered as an emerging technology, however, only phases 1, 2, 3 and, to a certain extent, phases 4 are relevant. System performance has thus been evaluated in relation to these phases of development only.

Market Pull

Technology Push

Phase 1 Phase 2 Phase 3 Phase 4 Phase 5 R&D Demonstration Pre-Commercial Supported Commercial Commercial

Figure 2: Phases of development in an energy system (Adopted from Carbon Trust, 2002).

1.61.61.6 Thesis OOutlineutline

The thesis is structured as follows. Chapter 2 provides a review of literature relevant to several key topics central to this thesis. It begins with an overview of Transformative Innovation before defining and reviewing the concept of an Innovation system. Then, the Technological Innovation Systems approach used in this thesis is considered, and this includes details on the structure of a Technological Innovation System and the functional patterns used to analyse them. Chapter 3 details the methodology, providing justification and a detailed description. Then, Chapter 4 presents the main analysis and results of the thesis. It starts with the historical narrative, which provides a chronological description of relevant events in the UK’s marine energy industry throughout 2000 - 2015, before providing an analysis of how the identified events contribute and interact with the system functions that form part of the innovation system as a whole. Finally, Chapter 5 provides the main conclusions of the thesis and offers recommendations for how the UK’s marine energy industry can continue to grow.

2 Literature Review

This chapter provides a review of literature relevant to several key topics central to this thesis. It begins with an overview of transformative innovation before defining and reviewing the concept of an innovation system. Then, the Technological Innovation Systems approach used in this thesis is described, and this includes details on the structure of a Technological Innovation System and the functional patterns used to analyse them.

2.12.12.1 TransformatTransformativeive Innovation

As this research focuses on the role institutions and institutional changes play throughout the transformation of the marine energy industry in the UK, it is necessary to indicate what is meant by the word ‘Transformation’ and what is meant by a ‘Transformative Innovation’. Several definitions of transformative innovations can be found in the literature. Bright et al., (2006) define Transformative Innovation (TI) as "emergent activity that accompanies or accelerates a transformational effect on the institutions or systems that comprise the relationships between business, society and the natural environment. In other words, it encourages activities that generate mutual benefit to business and society or the natural environment" while Scrase et al., (2009) define it as “ changes of technology system”. Transformative innovations are not unparalleled and they do not always start with major scientific findings or inspired inventions. They can never be reduced to infrastructures or technical artefacts alone, but typically include an array of associated practices, institutions, attitudes, cultures and values (Scrase et al., 2009).

Transformation can also be referred to as the process of transition from one system (the current one) to another (the desired one) in a controlled environment. Kemp and Rotmans (2005) define transition as “the confluence of developments that span various systems and domains. A transition consists of a set of connected changes in technology, the economy, institutions, behaviour, culture, ecology and belief systems that reinforce each other”.

The transformation of an energy system involves far more than just technological innovation and changes of components within existing systems. Rather, it consists of institutional changes, new socio-technical configurations, and new market structures. These changes make studying such a transformation and the dynamics of the underlying innovations a demanding task.

Transformation is sometimes referred to as systems innovation 3 (Markard and Truffer, 2008). Systems innovation in the socio-technical realm involves changes in socio-technical systems beyond just a change in technical components. It is associated with new linkages, new knowledge, different rules and roles, and sometimes new organisations (Kemp and Rotmans, 2005). Systems innovation may simply be a change in combination of new and old components and may even consist of a novel combination of old components. The transformation may be beyond that which the dominant industries and firms are capable of developing easily, at least by themselves (Ashford et al., 2002).

Such transformations often take a very long time to occur (Scrase et al., 2009), have large implications for the innovation system, and are the result of interaction between social actors, knowledge, and artefacts. Therefore, a systemic approach is required to study these changes and the impacts they have. An innovation systems perspective is the dominant approach in the literature on innovations and transformations, and this is used to provide conceptual background for the purposes of this research (Andersen et al., 2000; Markard and Truffer, 2008).

2.22.22.2 Innovation SystemSystemssss

Studying and analysing the transformation of entire economic sectors forms one of the classical fields within the literature on innovation (Markard and Truffer, 2008). The emergence of literature on innovation systems is an important recent development in the study of innovation (Andersen et al., 2000). The character of this system needs to be understood before an understanding of how an energy system is transformed can be realised (Jacobsson and Johnson, 2000; Sagar and Holdren, 2002).

3 In this research “systems innovation” and “innovation systems” refer to the same concept. 19

Within the literature, innovation is regarded as both a collective and an individual act. This means that innovation is an interactive process among a wide variety of actors, with an emphasis on feedback mechanisms (Hessels and van Lente, 2008). In the innovation systems approach, firms interact with both other firms and non- commercial organizations and influence, and are influenced by, existing institutions. The organizations can be universities, research centres, financial institutions, and so on, while the institutions could be regulations on intellectual property, standards, and social culture (Carlsson et al., 2002).

Innovation systems can be defined at different levels depending on the type of analysis. Historically, the focus within the literature has been two-dimensional; that is, geographical (National and Regional), or physical (Technological and Sectoral). Freeman’s (1987) study of the Japanese national innovation system is largely viewed as the starting point of “systems of innovation” research. He and other authors, namely Lundvall (1992) and Nelson (1993), introduced and developed the concept of national innovation systems. Freeman (1987) defines national system of innovation as “networks of institutions, public or private, whose activities and interactions initiate, import, modify, and diffuse new technologies”. Since then the concept has received significant attention from the innovation community in academia (Foxon et al., 2005).

An innovation systems perspective has also been applied at other levels of aggregation including, Regional Systems of Innovation (Braczyk et al., 1998; Cooke et al., 1997; Mothe and Paquet, 1998), Sectoral Innovation Systems (Breschi and Malerba, 1997; Malerba, 2004) and Technological Systems (Carlsson, 1995; Carlsson and Stankiewicz, 1991).

The concept of regional innovation systems has no commonly accepted definition, but is usually understood as a set of interacting private and public interests, formal institutions and other organizations that function according to organizational and institutional arrangements and relationships conducive to the generation, use and dissemination of knowledge (Parto and Doloreux, 2004). Breschi and Malerba (1997) define sectoral innovation systems as “the specific clusters of the firms, technologies, and industries involved in the generation and diffusion of new technologies and in the knowledge flows that take place amongst them”. Technological systems are defined in Carlsson (1995) as “networks of agents 20 interacting in a specific technology area under a particular institutional infrastructure for the purpose of creating, diffusing and utilizing technology focus on knowledge, information and competence flow”.

The main focus of these approaches, and their authors, has historically been on the structure of the innovation systems at a snapshot within time. The structure of a system includes, but is not limited to, system borders, actors, institutions, and the networks of relations through which these are connected (Carlsson et al., 2002). This focus on structure means the dynamics of innovation systems has received much less attention (Hekkert et al., 2007b).

Since environmental problems do not respect geographic borders (Freeman and Soete, 1997), geographical conceptualizations of innovation systems (national and regional innovation systems) do not seem to be suitable for the purposes of this research. This is evident from previous studies in the innovation systems literature on sustainability and energy issues that have either used the Technological Innovation System (TIS) or Sectoral Innovation System (SIS) approach. In this research, the focus is on specific technologies (marine energy technologies) and thus an approach that focuses on the growth and development of a specific group of technologies, rather than generic industries, is desirable. Thus, as noted in Chapter 1, the Technological Innovation Systems approach arises as the most suitable way to study and understand the dynamics affecting development of marine energy technologies in the UK.

2.32.32.3 Technological Innovation SystemSystemssss

Referring back to the definition of a Technological Innovation System (TIS) provided in Section 1.3, Carlsson and Stanckiewicz (1991, p. 111) expand their definition as follows:

“networks of agents interacting in a specific economic/industrial area under a particular institutional infrastructure or setoff infrastructures and involved in the generation, diffusion and utilization of technology. Technological systems are defined in terms of knowledge or competence flows rather than flows of ordinary goods and services. They consist of dynamic knowledge and competence networks. In the presence of an entrepreneur and sufficient critical mass, such networks can be 21 transformed into development blocks, i.e. synergistic clusters of firms and technologies within an industry or a group of industries”

Taking this definition as a starting point, technology is the denominator used to define boundaries and enables these systems to surpass geographical and sectoral/industrial boundaries. The main elements of technological systems are: knowledge and competence networks, industrial networks/development blocks, and institutional infrastructure (Carlsson and Stankiewicz, 1991).

The main components of a technological system, as identified by Bergek (2002), are actors, networks, and institutions. Actors are the firms in the entire value chain, institutions are legal and regulatory aspects, norms and cognitive rules that regulate interactions, and networks are either the links that enable transfer of knowledge (learning networks) or coalitions seeking to influence the political agenda (political networks) (Bergek et al., 2008a).

Technological systems, and the study of the dynamics of innovation within these systems, has attracted much attention from authors (Jacobsson and Bergek (2004) Hekkert et al., (2007b) and Bergek et al., (2008b), for example). Negro et al., (2007) argue that the relatively small number of actors, networks and institutions in an emerging technology system has enabled scholars to focus on the dynamics of such innovation systems. Apart from the general functions of innovation systems, that Edquist (2005) argue “develop, diffuse and use innovations”, the focus has been redirected towards activities that take place inside systems (Coenen and Díaz López, 2010).

The TIS approach is specifically well positioned to study these activities due to its focus on emerging systems as compared to other innovation system approaches that study existing and mature systems (Carlsson, 1995). Proponents of the TIS approach argue that characteristics and dynamics of newly emerging systems are different than the mature ones (Carlsson, 1995; Carlsson et al., 2002).

2.3.1 Strategy

The TIS approach enables researchers to better understand the strength, weaknesses, characteristics, and dynamics of a system that aims to grow and develop an emerging technology (Jacobsson and Johnson, 2000). Jacobsson and

Johnson (2000) argue that by focusing on a specific technology, complexities of a system can be reduced, and therefore enable researchers to map the dynamics of change.

To analyse a system using the TIS approach most authors (for example, Hekkert et al., (2007b), Bergek et al., (2008a) and Suurs, (2009)) recommend some variation of the following strategy, visualized in Figure 3: 1. Define the Technological Innovation System (TIS) under focus. 2. Identify the structural components of the TIS, that is, the actors, networks and institutions that comprise it. 3. Identify all activities that contribute to the development and diffusion of technology within the TIS. These activities then form the functions of the system and describe what actually occurs within the TIS. System functions are typically distilled into categories, and the seven proposed by Hekkert et al. (2007b) and Bergek et al., (2008a) are applied here. 4. Identify interactions and the momentum of the system functions.

TIS Structural System Function Components Functions Interactions

• Entrepreneurial Activities • Definition of •Actors • Knowledge •Identification Technological •Networks Development of functional Innovation •Institutions • Knowledge patterns Sytem (TIS ) Diffusion • Direction of Search • Market Formation • Recourse Mobilisation • Advocacy Coalition

Figure 3: Schematic representation of a Technological Innovation System, showing the four keys stages of the analysis.

2.3.2 Structure of a TIS

The system components of a Technological Innovation System (TIS) are called structures. These structures tend to be reasonably static with respect to time and are thus regarded as relatively stable. The changes, and also the rate of change, are typically only visible from a historical point of view. The structures are typically

23 separated into three basic categories; actors , networks and institutions (Bergek et al., 2008a; Hekkert and Negro, 2009).

Actors The actors within a TIS comprise any organisation which actively contributes towards the generation, diffusion, and utilisation of technologies within the system under focus. With this definition, the potential number of actors is vast and can range from public to private actors, from technology developers to technology adopters, and may include not only firms along the value chain, such as universities and research institutes, but public bodies, organisations of influence (e.g. industry associations and non-commercial organisations), venture capitalists and standards organisations. The interrelations and dynamics between all of the relevant actors will drive the development of a TIS. Given such a wide variety of potential actors, the task of actually identifying them within a specific industry can be arduous. Several authors have proposed methods to help this process. Bergek et al., (2008a) summarises several of these as follows:

1. Study of industry associations, exhibitions, company directories and catalogues. 2. Patent analysis: This could reveal the direction of technological activity in different organisations and among individuals and hence may be a useful tool in recognising companies, research organisations or individuals with a specific technological profile (Andersson and Jacobsson, 2000; Holmen and Jacobsson, 2000; Rickne, 2000). 3. Bibliometric analysis: (i.e. volume of publications, number of citations etc.). This would provide a list of the most active organisations in terms of research activity, which would include not only universities but institutes and key firms. 4. Interviews: Informal and formal discussions with technology or industry experts, firms, research organisations, financiers are also a viable way to recognise further actors. This has been termed a “snowballing” method, since each actor may point to one or more other participants.

Networks A central idea behind the innovation systems framework is that actors function as part of networks (Hekkert et al., 2011). These networks facilitate the exchange of 24 information, knowledge and other resources between the actors. They can be formal, where the formation of the network is generally for strategic reasons and works towards common aims, or informal, which emerge in a more unstructured fashion through inter-organisational interactions. The latter type of networks do not tend to have clear boundaries or specific goals; examples would include social groups, buyer-seller relationships, and university-industry links (Bergek et al., 2008a; Suurs, 2009). Formal networks, on the other hand, tend to practice a specific task; examples include standardisation networks, working groups of associations, public-private relationships, technical committees and supplier groups having a common customer (Johnson and Jacobsson, 2001; Lindmark and Rickne, 2005; Rao, 2004; Sabatier, 1998; Suchman, 1995). This makes formal networks easily identifiable. Indications of informal networks will arise from the earlier analysis done on identifying the relevant actors; for example during interviews actors may point to other participants within the network.

Institutions As stated earlier, institution and institutional changes are the main focus of this research. Institutions form one of the main elements of an innovation system, and one that could greatly impact the marine energy development in the UK not only by reducing uncertainty, which can result in greater investments to the technology and industry as a whole, but also through mechanisms that facilitate greater integration of the energy systems into the electricity network.

Institutions are “the rules of the game” (North, 1990) and comprise all the laws, regulations and societal norms which govern and influence human interaction (Suurs, 2009). They can both facilitate and constrain the decisions and activities of actors. Examples include supportive legislation and technology standards. In general, institutions need to be aligned to a new technology but institutional alignment, however, is not an automatic or certain process. Firms compete not only in the market but also over the nature of the institutional set-up (Davies, 1996; Jacobsson and Lauber, 2006; Van De Ven, 1993).

Institutions stipulate the norms and rules which regulate interactions between actors (Edquist and Johnson, 1997), and form the value base of various segments in society. The roles of institutions vary; some influence connectivity in the system whereas others influence the incentive structure or the structure of demand. 25

Institutions are important not only because they can influence the specific path a technology takes, but also because they can create and accelerate the growth of new industrial clusters (Carlsson and Stankiewicz, 1991; Edquist and Johnson, 1997; Porter, 1998).

North (1990, p. 97) defines institutions as “the humanly devised constraints that shape human interaction”. They consist of informal constraints, such as, taboos, customs, traditions and codes of conduct, formal rules, such as sanctions, constitutions, laws, property rights, and their enforcement characteristics. Ruttan and Hayami (1984) refer to the rules that facilitate coordination among people, as institutions. These rules can be either at a societal level or an organizational level. In their perspective, institutions play an important part in economics since they “provide assurance respecting the actions of others, and give order and stability to expectations in the complex and uncertain world of economic relations” (Ibid., p. 204).

Social scholars turned their attention to rules and conventions that had rule-like status (see for example, DiMaggio & Powell, (1983) and Zucker, (1983)). Therefore, in their view, institutions arise from a collective consensus in understanding social situations (Jepperson, 1991). Based on this consensus, actors were expected to behave in certain ways depending on the situation they were involved in, their position, and their relationships (Meyer and Rowan, 1977). These expectations were transmitted by networks, artefacts, and symbolic systems, and could take form in cultural, normative, or regulative elements (Scott, 2008). Institutions provide “cognitive maps” (Douglas, 1986), to actors so they can engage in meaningful interactions. Any deviation from the meanings, however, is viewed as unacceptable and is constrained by institutions (Zucker, 1983).

Related to the idea of meaningful interactions, Friedland and Alford (1991, p. 232) define institutions as “supra-organizational patterns of activity through which humans conduct their material life in time and space, and symbolic systems through which they categorize that activity and infuse it with meaning” , whilst Jepperson (1991, p. 145) defines institutions as “higher order constraints imposed by socially constructed realities”, and sees them as performance scripts that provide “stable designs for chronically repeated activity sequences”. DiMaggio (1988, p. 4) sees them as “the taken-for-granted organizational forms and practices”, or as Scott 26

(1987, p. 496) puts it, a general understanding of “defining the way things are and/or the way things are to be done”. Zucker (1983, p. 446) emphasised their persistence by seeing them as taken-for-granted forms and practices that last “over long periods of time without further justification or elaboration, and are highly resistant to change” and even went further to suggest that the alternatives are “unthinkable” .

Hargrave and Van de Ven (2006) argue that institutions are humanly devised schemas, norms, and regulations that either enable or constrain social behaviours, thus allowing them to become more predictable and meaningful. They distinguish institutional actors from institutional arrangements. Combining the main elements of institutional theory discussed above, Scott (2008, p. 48) provides a comprehensive and widely cited definition of institutions as “social structures that have attained a high degree of resilience. They are composed of cultural-cognitive, normative, and regulative elements that, together with associated activities and resources, provide stability and meaning to social life” .

Institutions can bring stability, meaning, and predictability to social interactions but, for developments to occur, and just as in the case of technology, institutions need to change. As Unruh (2000) points out, institutions may unwillingly commit themselves to lock-in by providing more support for existing technologies. In other words, institutions which were efficient in generating growth in the past, over time, can become barriers to growth by protecting the vested interests of some of the older members of industries (incumbents) and thus maintaining the status quo. Therefore, to facilitate growth and economic development there is a need for institutional change.

2.3.3 Functional Patterns of a TIS

The development of a new innovation system, and changes in existing innovation systems, co-evolve with the process of technological change (Carlsson, 1995; Carlsson and Stankiewicz, 1991). Initial analysis focused primarily on the structure of innovation systems rather than the dynamics within them (Galli and Teubal, 1997). Thus, to better understand the activities that contribute to this technological change, it is necessary to further study the processes within the innovation system which are instrumental to its performance. These processes are 27 usually labelled as the functions of innovation systems (Hekkert et al., 2007b). As Edquist (2001) states, “The more (and the better) the System Functions are served, the better the performance of the TIS will be, and the better the development, diffusion and implementation of innovations will be” .

The identification of system functions started with an attempt to understand whether there was any agreement between different innovation system approaches with regards to what ‘happened’ in the system and, if so, to identify the main processes that they agreed upon (Johnson, 2001). The first list of functions was, therefore, identified through a study of a number of leading innovation system references, including work by Freeman (1987), Nelson (1993), Edquist (1997) and Carlsson and Stankiewicz (1991). In addition, there have been a significant number of other studies on innovation systems, including, for example, Galli and Teubal (1997), Johnson (2001), Rickne (2000), Johnson and Jacobsson (2001), Bergek (2002), Bergek and Jacobsson (2003), Carlsson et al., (2004), Liu and White (2001), Hekkert et al., (2007b), and Negro (2007).

Once these system functions have been identified, they can be analysed to determine the extent to which they are fulfilled within the TIS and, also, to ascertain how the TIS is behaving in terms of a set of key processes. Edquist (2005) labelled them as a number of “activities” and “factors that influence the development, diffusion, and use of innovation” . This may then reveal further information about the TIS in terms of identifying “system failures” or weaknesses (Bergek et al., 2008b) or even possible policy challenges. It is also important to realise that the system functions do not generally execute in isolation, there is a level of interdependence between them or, as Negro (2007) highlights, the “performance of particular System Functions can influence other System Functions” .

The main benefit of utilising such a framework is that it focuses on what is actually achieved in the TIS, rather than the structure which supports it (Bergek et al., 2008a). Several interpretations of this approach are present in the literature and Table 1 provides a summary of the various ‘lists’ of system functions that have been proposed.

Bergek et a l., (2008a) Johnson (2001) and Rickne (2000) Bergek and Jacobsson Carlsson et al. , (2004) Edquist (2005) Galli and Teubal (1997) Hekkert et al. , (2007b) Bergek (2002) (2003) and Jacobsson and Bergek (2004) Knowledge Create knowledge, Create human capital Create new Creating a Provision of R&D, R&D diffusion of Creation of development and facilitate information knowledge knowledge base competence building information, technological diffusion and knowledge knowledge and knowledge exchange. technology Entrepreneurial Create knowledge Create knowledge Promoting Creating and changing experimentation entrepreneurial organizations needed experiments (e.g. enhancing entrepreneurship) Influence on the Identify problems. Direct technology, Guide the Creating Articulation of quality Articulation of direction of search Guide the direction of market and partner direction of the incentives requirements demand. Prioritizing search. Provide search. Create and search process (demand side). of public and private incentives for entry. diffuse technological Creating/changing sources (the process Recognise the opportunities institutions that of selection) potential for growth provide incentives or obstacles to innovation Market formation Stimulate market Create market/diffuse Facilitate the Creating markets Formation of new Regulation and formation market knowledge. formation of or appropriate product markets. formation of markets. Facilitate regulation markets market conditions Articulation of quality Articulation of (may enlarge market requirements demand and enhance market (demand side) access) Development of Facilitate information Enhance networking Facilitate the Promoting Networking Diffusion of Exchange of positive external and knowledge creation of positive information, information through economies exchange positive external externalities, or knowledge and networks economies ‘free utilities’ technology. Professional coordination Legitimation Counteract resistance Legitimize technology Creating/changing Design and Development of to change and firms institutions that implementation of advocacy coalitions provide incentives or institutions. Diffusion for processes of obstacles to of scientific culture change innovation Resource mobilization Supply resources Facilitate financing. Supply resources Creating resources Financing of Supply of scientific Supply of resources Create a labour (financial and innovation processes, and technical services for innovation market. Incubate to human capital) etc. Provision of provide facilities, etc. consultancy services. Create and diffuse Incubation activities products. Table 1: Innovation System Functions, each row represents function concepts which are similar across authors.

Based on Table 1, seven main system functions have been synthesized and are described below (Bergek et al., 2008a).

Function 1: Entrepreneurial Activities Entrepreneurs are an essential part of a well-functioning innovation system (Hekkert and Negro, 2009) and without them innovation systems would fail to exist. Hekkert et al., (2007a) define entrepreneurs as “ persons that are considered to bear risk while pursuing business opportunities; they often are associated with creative and innovative action” . Hekkert et al., (2007b) state that the role of the entrepreneur is “to turn the potential of new knowledge, networks, and markets into concrete actions to generate – and take advantage of – new business opportunities” . Entrepreneurs can either be new entrants that have the vision and foresight of the business opportunities available in new markets, or current firms who seek to expand their business strategy and take advantage of new developments (Hekkert et al., 2007b).

According to Rosenberg (1997), a TIS evolves under considerable uncertainty in terms of technologies, applications and markets. Kemp et al., (1998) stated that the main source of uncertainty reduction is entrepreneurial experimentation, which suggests examination into new technologies and applications, where many will fail, but those that succeed will leave behind a social learning process (Bergek et al., 2008a).

An example of this function is provided by Hekkert et al., (2007a) who examines the role of entrepreneurs during the uptake of biofuels within the Netherlands. Here, Dutch entrepreneurs collectively lobbied against the Dutch Government’s reluctance to implement tax exemptions for biofuels by emphasising their potential benefits for the environment. Concurrently, they contended for collective R&D resources and, as a result of this, they highlight the benefits of their specific technology over other competing technologies (Suurs, 2009). An analysis by Suurs (2009) shows that the incumbent entrepreneurs, who are seeking to expand their business strategy, are much better in fulfilling systems functions than new start- ups.

Bergek et al., (2008b) provides a further example by looking at the early development phases of wind turbines in Germany. Between 1977 and 1991, the state gave significant amounts of R&D funding to industrial firms and a range of 30 academic organizations for the testing and development of a wide range of turbine designs and sizes. The result of this entrepreneurial experimentation was that at least 14 firms, including academic spin-offs, medium sized mechanical engineering firms and large aerospace firms, entered wind turbine production. All of these injected knowledge and perspective into the industry.

In the UK, since marine energy technology is still in its early stages of development, there are many risks and uncertainties which could potentially be reduced through entrepreneurial experiments. Initially, small and medium enterprises (SMEs) were mostly involved in the marine industry but, in recent years, large-scale industrial organisations have also begun to enter into the sector. As the result, they brought different types of knowledge and perspectives into the industry as well as better financial security, a recognized supply chain, and access to experienced resources (RenewableUK, 2012a).

Bergek et al., (2008a) and Hekkert et al., (2007b) suggest that this function can be analysed by studying:

• The number of new entrants, including activities of incumbent companies. • The range of technologies used and the character of the complementary technologies employed.

Function 2: Knowledge Development (learning) The knowledge development function expresses the extent, depth and variety of the current knowledge base within the TIS, and provides a measure of how it is diffused and/or fused within the system over time. The importance of this function to the TIS was expressed by Lundvall (2007); “The most primary resource in the modern economy is knowledge and, then, the most important process is learning” . For these reasons, this function is generally considered to be at the core of a TIS (Bergek et al., 2008b) and a prerequisite for the successful development of an emerging technology (Suurs, 2009).

The concept is not just limited to the development of technological knowledge (Hekkert et al., 2007b). Bergek et al., (2008a) distinguishes both between different types of knowledge, for examples scientific, production, market logistics, design and technological, and between different sources of knowledge, for example, R&D

(Bijker, 1995; Nelson, 1992), learning from new applications (Hughes, 1990; Lundvall, 1992) , and imitation (Edquist and Johnson, 1997; Nelson, 1992).

As mentioned above, the knowledge development function is associated with the creation of variety within a system (McKelvey, 1997). Suurs (2009) notes that since this variety implies the availability of options within the system, it has the potential to generate uncertainty within the system; something which the other functions must serve to constrain.

An example for this function is provided by the emerging TIS for solar cells in Germany (Jacobsson and Bergek, 2004). After initial limitations, where the knowledge development was limited to scientific and technological fields and competing designs arose only from R&D, the system began to expand along the entire value chain and the knowledge base subsequently broadened.

To analyse this function, Zangwill and Kantor (2000) suggest using bibliometrics (citations, volume of publications, orientation) whilst Hekkert et al., (2007b) notes the following as typical indicators; • R&D projects : number, size and direction of R&D projects • Number of patents : assessments by managers and others; and learning curves • Investments in R&D

Function 3: Knowledge Diffusion The primary (and vital) function of networks is to facilitate the exchange of information and knowledge (Carlsson and Stankiewicz, 1991) between all the actors associated with it (Suurs, 2009). This function is critical not only in an R&D setting but also at the interface between R&D, governments, markets and competitors. Hekkert et al., (2007b) expresses this by stating that “policy decisions should be consistent with the latest technological knowledge and, at the same time, R&D schemas should be affected by changing norms and values” . This communication of knowledge throughout the network should increase the probability that institutions and technological developments become aligned (Suurs, 2009).

The development of solar cells in Germany, mentioned earlier as a case highlighting the entrepreneurial activities function, also serves to highlight the

32 importance of this function. The system expanded its knowledge base throughout the value chain by communicating knowledge through networks. For example, downstream, architecture schools experimented by considering solar cells as a building element, leading to the development of application-specific knowledge. Upstream, R&D development by the capital goods industry served to enhance technological knowledge. In addition a significant proportion of the overall knowledge development was more production based, as the mass manufacture of the solar cells required the creation of automated production lines (Bergek et al., 2008b).

With regards to the marine energy industry within the UK, there is significant R&D activity throughout universities, research centres and test centres. According to Winskel (2012), one of the main challenges is the lack of feedback and communication between learning-by-doing and learning-by-research. This is apparently because within the early stages of marine energy technology development there is currently only limited experience with regards to real operating conditions. One aspect of accelerated development is the feeding-back of data and experience on prototype performance and operating experience into earlier stages of the innovation chain. In practice, the transfer of experience is likely to be limited by commercial competition.

This function can be studied by identifying the number of conferences and workshops related to a particular technology topic, and through detecting the network size and intensity over time (Hekkert et al., 2007b).

Function 4: Guidance of the Search When there are multiple technologies to choose from, requests and wants among technology users should be visible and simple so that the search for technology can be guided towards the most appropriate choice. This ensures that the necessary focus and investment is on the technology that best suits demand. If this visibility and simplicity does not exist within the system, the available resources will be inefficiently distributed and insufficient resources will remain for the chosen option. The guidance of the search function is concerned with the activities within the innovation system that can positively affect the visibility and simplicity of these requests and wants (Hekkert et al., 2007b).

A variety of system components can fulfil this function, including industries or governments, technology producers and users, and market changes (Suurs, 2009). As an example, Bergek and Jacobsson (2003) highlight a case in Germany where firms received guidance of search to invest in wind turbines from both federal government’s policies, which aimed to subsidize R&D investments and demonstration projects, and market signals, which were in the form of a Californian and Danish wind energy boom. There was also local demand from utilities seeking “green” products and environmentally concerned farmers. Hekkert et al., (2007b) notes however, that the “guidance of the search is not solely a matter of market or government influence; it is often an interactive and cumulative process of exchanging ideas between technology producers, technology users, and many other actors, in which the technology itself is not a constant but a variable” .

A significant factor in the guidance of search function is the generation and distilment of both expectation and legitimacy. In the case of expectations, Harmsen et al., (2007a) point to the importance of this function in driving technological selection:

“The process of building positive expectations of a new technology is a powerful way to lead the search process. High expectations of new developments will attract entrepreneurs and convince early adopters to go into the market. While knowledge development can be considered as the creation of technological diversity, this function signifies the process of selection” .

Legitimacy (a prerequisite for the formation of new industries, as widely acknowledged in organization theory (Rao, 2004)) becomes important when one considers the possibility that adopters may fail to consider the implementation of certain technologies or, perhaps worse, not even be aware or informed of a particular technologies existence. Thus, as Hekkert et al., (2007b) argue, the guidance of search function can help to “widen the mental map of ‘rationally bound’ actors” and consequently increase legitimacy of a particular technology.

This function should be measured to ensure that, as previously mentioned, the requests among technology users are visible and clear, and that the incentives for a whole range of actors, including firms and organizations, to enter the relevant Technological Innovation System are provided. Bergek et al., (2008a) suggests that

34 guidance of the search function can be measured, or at least indicated, by the following qualitative factors:

• Beliefs in growth potential. • Incentives from factor/product prices, e.g. taxes and prices in the energy sector. • The extent of regulatory pressures, e.g. regulations on minimum level of adoption (“green” electricity certificates, etc.) and tax regimes. • The articulation of interest by leading customers.

Hekkert et al., (2007b) suggests mapping both the specific targets set by governments or industries regarding the use of a specific technology and the number of articles in professional journals which raise expectations about new technological developments. Through subsequently assessing the balance between positive and negative articles the “state of the debate” can be established.

With regards to renewable energy, guidance of the search is often provided by the long-term goals that are set by different governments in pursuit of a future target share of renewable energy. In the UK, the Government is legally bound to source 15% of its energy from renewable sources by 2020 (Beurskens et al., 2011). This ambition, or target, grants a degree of legitimacy to the development of sustainable energy technologies and stimulates the allocation of resources for this development (Carbon Trust, 2003a).

Function 5: Market Formation New and emerging technologies will often find difficulty competing with existing and embedded technologies. They may encounter difficulties winning their markets (Hekkert et al., 2007a), or find that the markets are either greatly underdeveloped or do not exist at all (Carlsson and Stankiewicz, 1991; Dahmén, 1988; Galli and Teubal, 1997; Nelson, 1992; Porter, 1990). Other factors, including the price or performance of the new technology when compared with incumbent alternatives, the failure (or lack of capability) of potential customers to communicate demand, and further uncertainties that may prevail (Bergek et al., 2008a), all increase the inertia of the new technology. Rosenberg (1972) provides a neat summary:

“Most inventions are relatively crude and inefficient at the date when they are first recognized as constituting a new innovation. They are, of necessity, badly adapted to many of the ultimate uses to which they will eventually be put; therefore, they may offer only very small advantages, or perhaps none at all, over previously existing techniques. Diffusion under these circumstances will necessarily be slow” .

Due to this lack of a well-developed market, it is important to create protected spaces for new technologies to grow (Alkemade et al., 2006). Schot et al., (1994) states that one possibility is the formation of temporary niche markets, where actors can learn about the new technology and develop expectation, whilst Alkemade et al., (2006) suggests the creation of a (temporary) competitive advantage through introduction of favourable tax regimes or minimal consumption quotes. The market formation function, therefore, describes the activities that contribute to the creation of a demand for the emerging technology (Suurs, 2009).

To understand how and why markets are formed, it is essential to analyse both actual market development and the drivers behind market formation (Bergek et al., 2008b). For markets that have already formed, it is relatively well understood how best to measure and understand their timing, size and type. For example, one could comprehend the size of a specific energy generation technology market by describing the capacities installed and the type by looking at the kind of consumer groups served. To analyse the market formation function itself, one can map the number of niche markets that have been introduced, identify the specific tax regimes for new technologies, and note any new environmental standards that may improve the chances for new technologies to develop (Hekkert et al., 2007b). As Hughes (1983) suggests, institutional change, and specifically the formation of standards, is often a prerequisite for market development. In the case of the UK wave and tidal energy sector, therefore, there exists a need to assess small niche electricity markets as a way of increasing early deployment. Governments can induce, or increase the size of, these niches by setting rules and targets (Mueller and Wallace, 2008; UKERC, 2008).

Function 6: Resource Mobilisation Resource mobilization refers to the allocation of financial, material and human capital within a TIS (Suurs, 2009). As the TIS evolves, a range of different resources

36 will need to be mobilized and these will contribute, in some fashion, to all activities within the innovation system (Carlsson and Stankiewicz, 1991; Dahmén, 1988; Edquist and Johnson, 1997; Hekkert et al., 2007b; Hughes, 1983; Lundvall, 1992; Nelson, 1992; Porter, 1990; Rickne, 2000). Human resources, especially those considered as being educated and skilled experts, can be mobilized through education in specific scientific and technological fields, entrepreneurship, management and finance (Bergek et al., 2008a). Financial capital is usually invoked by various mechanisms, including venture capital funding, government subsidies and industry funds that support R&D programs and demonstration activities (Hekkert et al., 2007b).

To understand and to begin to analyse resource mobilization as a function, Bergek et al., (2008a) suggests that it is important to recognize the extent to which a TIS is able to mobilize not just the human and financial resources mentioned above, but any complementary assets as well, such as network infrastructure, products, and services. They propose various ways to measure resource mobilization:

• Rising volume of capital. • Increasing volume of seed and venture capital. • Changing volume and quality of human resources (e.g. number of university degrees). • Changes in complementary assets.

As an example, in 2009 the Marine Energy Group reported that UK companies in the marine energy sector faced problems employing skilled people. The reason, they highlight, was a ”general lack of graduate level experts in the UK, combined with a difficulty in attracting experienced employees from other sectors because of competition with other more recognized industries, specifically, the oil and gas industry” (Marine Energy Group, 2009).

Function 7: Advocacy Coalition Legitimacy is of paramount importance and a prerequisite for the formation of new industries and new Technology Innovation Systems (Bijker, 1995; Carlsson and Stankiewicz, 1991; Edquist and Johnson, 1997; Hughes, 1983). For a new technology to develop, it needs to be considered suitable, necessary and desirable by the relevant actors. Otherwise the required resources will not be allocated,

37 demand will not form, and the TIS will not acquire legitimacy (Bergek et al., 2008a).

The process of legitimation, however, often takes considerable time and is complicated by resistance from parties with vested interests in the incumbent system; that is, existing technologies and the institutional frameworks further support and reinforce their own existence. Hekkert et al., (2007b) calls this “creative destruction” and it is something which other actors within the TIS must actively counteract. Legitimacy can be formed “through conscious actions by various organisations and individuals in a dynamic process of legitimation, which eventually may help the new TIS overcome its ‘liability of newness’” (Bergek et al., 2008a; Zimmerman and Zeitz, 2002).

Advocacy coalitions, that put the new technology on the agenda and lobby for resources and favourable tax regimes, can function to catalyse the legitimation of a new technological trajectory. If sufficient resources are mobilized and future expectation are well managed, these advocacy coalitions can grow in size and become powerful enough to successfully legitimatise the new technology (Hekkert et al., 2007b).

To understand the dynamics of this function, Bergek et al., (2008b) suggests looking at both the legitimacy of the new technology and the associated TIS in the eyes of relevant actors and stakeholders, and the activities within the system that could potentially increase this legitimacy. In particular, one should understand:

• The strength of the legitimacy of the TIS, in particular whether there is alignment between the TIS and current legislation and the value base in industry and society. • How legitimacy influences demand, legislation and firm behaviour. • What (or who) influences legitimacy, and how.

In the case of marine energy, it can be argued that marine leisure users, the fishing industry, communities affected by electrical grid infrastructure expansions, and communities affected by the development of industrial infrastructure are considered as actors for this function.

2.3.4 Interactions and Momentum of System Functions

System functions, although separated for analytical reasons, are not independent of each other and they work in interaction with one another (Bergek et al., 2007). For a system to work effectively, it is important that all functions are fulfilled and reinforce each other. Fulfilment of one system function affects another just as the absence of one does (Bergek et al., 2008b; Hekkert et al., 2007b; Jacobsson and Johnson, 2000).

For instance, if a technology is to gain legitimacy, certain expectations about it has to be formed, which relies on creation and diffusion of some level of knowledge in the system. Therefore, a non-linear model of multiple interactions among the functions exists (Bergek et al., 2008b). These interactions either have positive or negative effects on the performance of the system (Jacobsson and Bergek, 2011).

Positive interactions among two or more of the functions will lead to further positive interactions that create cycles, strengthening those functions involved. This can lead to the development of a momentum and process that positively affects the performance of the emerging system and can potentially cause the demise of existing incumbent systems (Jacobsson and Bergek, 2004). In fact, as Jacobsson and Johnson (2000) argue, positive interaction among functions is necessary for structural change and systemic innovation.

However, a Technological Innovation System can decline if the functions negatively interact with each other, creating a vicious cycle which ultimately leads to its demise (Bergek et al., 2008b; Hekkert et al., 2007b). Therefore for researchers who aim to provide insights into the process of technological development and growth, the empirical focus should be on interactions and processes that lead to build-up of momentum in a TIS, and identifying and analysing positive or negative cycles (Hekkert and Negro, 2009).

2.42.42.4 Summary

In the preceding sections it was seen that the transformation of an energy system involves not just technological changes, but institutional changes and changes to market structures. A systemic approach is often used, since the transformation is a lengthy process and involves interactions between a wide variety of actors,

39 knowledge and artefacts, and an innovation systems perspective emerged as the dominant approach in the literature. Among the different ways in which innovation systems were seen to be defined (National/Regional, Sectoral and Technological) the Technological Innovation Systems (TIS) approach naturally emerged as the most suitable way to study the development of marine energy technologies in the UK, owing to its focus on the growth and development of specific technologies.

Within the TIS approach, it was seen that processes instrumental to the performance of the innovation system were analysed by assessing the degree to which a series of system functions were, or were not, fulfilled. Each of the seven identified system functions were explored and the most suitable methods to analyse and assess them were drawn from the literature. This forms information which will feed into the methodology chosen for this research.

3 Methodology

This chapter details the methodology employed in this research. It first provides a brief introduction before detailing and justifying the specific approach taken in this research, the Historical Event Analysis. Finally, the specific process required to undertake the methodology is given.

3.13.13.1 Introduction

The aim of this research, as stated in Section 1.3, is to describe and analyse the dynamics of the innovation system associated with the UK’s marine energy industry using the Technological Innovation Systems approach. This approach allows the characteristics of an innovation system associated with a specific emerging technology to be studied. As discussed below, it provides the means to analyse the strengths and weaknesses, as well as the dynamics, of the system (Jacobsson and Johnson, 2000).

The main components of a technological system are actors, networks, and institutions (Bergek, 2002). This study focuses on institutions within the UK’s marine energy innovation system. These are defined by Scott (2003) as “social structures that have attained a high degree of resilience. They are composed of cultural-cognitive, normative, and regulative elements that, together with associated activities and resources, provide stability and meaning to social life” . Within this institutional element, emphasis is placed on the regulatory aspects and how innovations facilitate the technological development and advancement of marine energy technologies as a whole. To accomplish this, a qualitative study is carried out which collects data by various methods and from various sources. The main sources of data are secondary, collected from resources including government reports, academic papers, news, trade and professional journals and associations’ websites.

3.23.23.2 Justification

There are several methodologies appropriate for studying institutional processes. Multivariate methods are typically used to identify and describe the degree to 41 which an organizational practice or structural feature diffuses throughout a network of organizations. That is, they implicitly define institutional change as the diffusion of a new procedure or practice. This diffusion based model stems from the concept of institutional isomorphism; an early observation in institutional theory that within an organizational field, once disparate organizations will gradually become more homogenous as they respond to similar sets of environmental conditions (DiMaggio and Powell, 1983). The major issue with multivariate methods, however, is that whilst they capture how the processes are diffused, they do not necessarily address why they are diffused (i.e. the motivation behind the adoption of these practices or procedures).

As well as the more common multivariate methods, Suddaby and Greenwood (2009) identify ‘tools’ which researchers are increasingly adopting to address the different dimensions that institutional change tends to produce. They classify these as interpretive, historical and dialectical methods, and argue that each of these provides a different perspective through which to view the dynamics of institutional change. This can thus better illustrate the different relationship characteristics that may, or may not, be present between institutions and organizations. Specifically, they state that institutional change which is perceived as a shift in the taken-for-granted views of the world is best studied with interpretive methods, that change as a complex phenomenon in which multiple political and economic pressures coincide is best studied with historical methods, and that change perceived as a conflicted struggle over ideology and meaning is best analysed with dialectical methods.

Where the multivariate approach differs from interpretive, historical and dialectical methods is its focus on variance within the system rather than process. Suddaby and Greenwood (2009) explain that researchers using the variance approach seek to analyse institutional change by examining how institutions and organizations, which are assumed to be relatively fixed and stable, change when contextual conditions are varied (Van de Ven and Poole, 2005). It assumes that causal relations between context and institutional outcomes are relatively unitary and linear, but that the timing of events is not important (Van de Ven and Poole, 2005).

Historical methods, on the other hand, view institutional outcomes as the result of many different causes and events, whose timing and ordering is critical. They focus systematically on past events, using archival documents and retrospective analyses in an attempt to understand the processes by which institutions emerge, self-maintain and erode (Van de Ven and Poole, 2005). Under this approach, institutions are viewed as the outcome of complex phenomena, in which multiple causes interact (Eisenstadt, 1964; Selznick, 1949). Thus, by analysing how variations in historical conditions produce different institutional and organizational arrangements, stages of stability, diversity and transformation can be identified. Researchers are then able to characterise and identify the different institutions involved within a system and develop a framework which best describes how historical conditions and events instigate, drive and diversify those institutions.

Suddaby and Greenwood (2009) note that historical methods offer several advantages over multivariate and interpretive approaches. First, by adopting the view that institutional change is caused by multiple and often chaotic events, it avoids the dangers of assuming that single, connected events are the primary driver for change. Second, it implies path dependency, which is the notion that the range and scope of present day choices is limited by past events.

This research intends to map the events that have taken place, and that are still taking place, within the marine energy Technological Innovation System under investigation. According to Jacobsson and Johnson (2000), to accelerate the innovation process, systems functions should interact and create a virtuous cycle to fulfil the overall function of a system. Edquist (2005) identified this to be the creation, diffusion and utilization of technology or knowledge. Therefore, to better understand this virtuous cycle, a research approach that considers the order and sequence of all relevant processes is needed. The Historical Event Analysis method, as developed by Van de Ven (1999) and Poole et al., (2000), is an approach that meets this demand. Stemming from organisational theory, this approach focuses on the firm and firm networks. This method will be applied to analyse marine energy and its Technological Innovation System.

3.33.33.3 Historical EEventvent AAnalysisnalysis

The historical event analysis starts with the identification of as many events as possible during the lifetime of the innovation system (Hekkert et al., 2007b). For this study of the marine energy innovation system, events between 2000 and 2015 are considered. Such information can be gathered from various sources, including, but not limited to, professional journals, newspapers, websites, magazines and technical reports. Here, the definition of an ‘event’ follows that of Poole et al., (2000), who label an event as “the smallest meaningful unit in which change can be detected.” Examples may include the introduction of new laws, the entry of new actors, the start-up of R&D projects, expressions of expectations about the technology in the press, and announcements of resources that are newly made available.

A narrative is then developed, which aims to put the events and processes into a context and reveal the ‘big picture’ (Poole et al., 2000). In other words, this method allows for a better understanding of what has influenced and what are the influences of each event. This analysis then provides insight into whether or not events have created causal mechanisms that build towards the development, or in some cases the collapse, of an innovation system. Furthermore, this methodology can provide a better understanding of how cycles are created. This is based upon the content of the events, their chronological order, and the influences and effects of one event over another. As Hekkert and Negro (2009) stated, it is expected for the researcher to be able to identify functional patterns by observing reoccurring sequences of events.

The outcome of the historical event analysis will be a narrative of how the marine energy innovation system has developed, changed and shaped to date. This can be used to gain insight into the role of system functions and how they have affected this development (Negro et al., 2007).

3.43.43.4 Process AAnalysisnalysis

The process of collecting and analysing data for this research can be divided into the following stages (Negro, 2007).

3.4.1 Search

The first step is to develop a chronological database of events that occurred within the marine energy innovation system. Core support for renewable energy in the UK began in 1990 with the Non Fossil Fuel Obligation (Mitchell, 1995; Mitchell and Connor, 2004). Support for marine energy in general, however, was sporadic throughout 1990-2000 (Lawrence et al., 2013) and only really began to improve following the connection of the first commercial scale wave energy device to the grid by Wavegen Ltd, a wave energy company based in Inverness (RenewableUK, 2012a). Thus, 2000 is taken to be the start of the search period.

As stated earlier in the introduction, this study distinguishes between the five phases of technological development shown in Figure 4. Marine energy is still considered a developing technology and thus only technology that lies within phases 1-3, and possibly 4, is likely to be encountered in the search stage.

Phase 4 Phase 1 Phase 2 Phase 3 Phase 5 Supported R&D Demonstration Pre-Commercial Commercial Commercial

Figure 4: Schematic representation of the development phase of technology.

The chronological ordering allows the construction of a timeline of events which have so far shaped the innovation system of marine energy. This timeline can be especially useful in understanding the shaping processes, and allows the events and processes to be classified based on the functions of the innovation system (Negro, 2007).

The search stage will result in a coherent sequence of events which relates to the institutions and institutional changes of the marine energy TIS from 2000 to present. In order to collect the data a search of news records, trade journals, professional and consulting reports, trade associations’ websites, magazines, conference/seminar papers and reports, government documents, and trade

45 exhibitions has been carried out to retrieve as much information as possible related to this study.

3.4.2 Classification

Following Poole et al., (2000), the database of events will be structured according to four criteria; the year of the event, a reference, the event description, and an event category. This classification enhances the analysis of the events and timeline constructed in the previous stage.

The events retrieved from literature are listed chronologically in the database and they receive a corresponding event number. The reference of the event is also listed and a description of the event is provided. The event description contains information that facilitates categorisation of each event and the allocation of it to the corresponding system functions. A small selection of events from the sources is provided in Table 2. The table shows that the description of the events contains much more information than merely the allocation of the event to a specific system function.

No. Year Reference Ev ent Description Category Allocation

A shore-mounted Project 1 2000 (RenewableUK, 2012) Wavegen’s LIMPET +1 oscillating water column started

Seven tidal turbines located in up Anglesey tidal and wind Project 2 2014 (Neill et al., 2016) to 40m of water at the Skerries, -1 power projects cancelled north west coast of Anglesey. Table 2: Small selection of events.

3.4.3 Allocation

Here, each event category developed in the second stage is allocated to one system function. The database provides an overview of the content of events and, based on this overview, the events cluster into types that corresponded to the system functions.

Allocating the events as such allows them to serve as indicators of the system functions. Each event is analysed to determine whether it contributes positively (+1) or negatively (-1) to the innovation system. The timing allocated to events is important. For example, events which are allocated to the knowledge development function are rated positive when a research project starts and negative when it terminates. Events allocated to the guidance of the search function are rated

46 positive or negative depending on whether they express a positive or negative opinion regarding the technology under investigation.

Indeed, for some events, even after they have commenced their interactions with the innovation system, they may continue in a more sporadic fashion over a longer time period. In order to be consistent throughout this thesis, the dates chosen for each event are based on the date the event first entered the innovation system. For example, if the event was the introduction of a policy then the year the policy was formally announced would be chosen. Similarly, if the event is the opening of a test centre, then it is the year the test centre actually opened. If the nature of the event is such that it actually makes more sense to choose another date, then this will be made clear.

3.4.4 Summary and graphical representation

The results are then represented in graphical form. By showing a positive line for the total amount of activities per year that positively affect a particular system function, and a negative line for the total amount of activities per year that negatively affect the function, the overall influence of events on the performance of the system can be visualized (Hekkert and Negro, 2009).

These graphs represent functional patterns over time, which helped to identify breaking points and the overall trend of fulfilment of the particular system function. Figure 5 provides an example from Negro (2007) who considered biomass digestion in the Netherlands.

Figure 5: Graphical representation of activity pattern of System Function 1: Entrepreneurial Activities (Source: Negro, 2007).

3.4.5 Historical Narrative

Following the previous stages and analysis of functions, a narrative of how the marine innovation system has developed over time can be constructed. This narrative should show the role of different functions at different times (Negro, 2007).

3.4.6 Identification of patterns, virtuous and vicious cycles

At this stage patterns and cycles, both virtuous and vicious, are identified by comparing the shapes of the graphs developed in stage 4 with the content of the narrative developed in stage 5 (Hekkert and Negro, 2009). These patterns, and the connections between the system functions, can be mapped and illustrated as a schematic; see Figure 6 for an example.

Figure 6: A schematic representation of potential virtuous cycles. Source: Negro (2007).

3.53.53.5 Concluding remarks

Among the methodologies explored (multivariate, interpretive, dialectical and historical), the Historical Event Analysis , a historical method, was justified as being the most suitable for use in this research. It was seen that this approach focuses systematically on past events and provides a means to analyse how variations in historical conditions can produce different organizational and institutional arrangements.

The procedure for the historical event analysis, as adopted in this research, is summarised as follows:

1. Search – Develop a database of events that occurred within the marine energy innovation system. 2. Classification – Structure the database according to four criteria; the year of the event, a reference, the event description, and an event category. 3. Allocation – Allocate the events to one system function and determine whether they contribute positively or negatively to the fulfilment of the function. 4. Summary and graphical representation – Present the results in graphical form to visualize the performance of the system function over time. 5. Historical narrative – Develop a narrative of how the marine energy system in the UK has evolved over time. 6. Identification of patterns – Identify and explore the interactions between the system functions to provide insight into the mechanisms which help or hinder the growth of the system. The results and analysis arising from the application of this methodology to the UK’s marine energy sector are presented in the next chapter.

4 Analysis

This chapter presents the results from the application of the Technological Innovation Systems framework to the marine energy sector in the UK and aims to provide an understanding of what activities took place, what government policies were introduced, and how these interacted with one another to shape the marine energy innovation system.

The chapter begins with the historical narrative, which provides a chronological description of the events which took place, and then provides a functional analysis of the system, which details the interactions of the systems functions. To support the historical narrative, a timeline covering some of the key events mentioned is provided in Figure 7. For clarity, references for all events discussed throughout this chapter are provided in Tables 4 – 9.

Figure 7: Timeline of key events in the Technological Innovation System. Adapted from Lawrence et al., (2013).

4.14.14.1 Historical Review of Marine energy in the UK between 2220002000000000---- 2015

In 2000, Wavegen Ltd, a wave energy company based in Inverness, became the first company in the world to connect a commercial scale wave energy device to the grid. Their 500kW LIMPET wave device was installed on the Isle of Islay, off the west coast of Scotland, and served to both demonstrate the feasibility of connecting wave generating devices to the electricity grid and provide valuable experience regarding design, construction and operation. Then in 2002, the then Regional Development Agency for the north east of England, One NorthEast, announced the establishment of the New and Renewable Energy Centre (NaREC) as part of its ‘Strategy for Success’ programme. The centre was created to facilitate the development and testing of marine and wind energy devices to international standards.

Following this, Renewable Obligation (RO) was introduced by UK parliament in 2002 and succeeded the Non-Fossil Fuel Order which had been in place from 1990 to 1998. It places an obligation on UK electricity suppliers to source a proportion of the electricity they provide from renewable sources. Suppliers meet their obligations through presenting Renewable Obligation Certificates (ROCs) to energy regulator OFGEM. The system offers a single rate of 1 ROC for every unit (MWh) of electricity generated, regardless of the technology used. The ROCs can be bought from a generator (with or without the accompanying energy) or bought and traded in a market. If the supplier cannot meet its obligation or does not wish to, then it can ‘buy-out’ by paying an additional rate for every unit of energy that they should have produced by renewable means.

In October 2003 Phase 1 of the SuperGen Marine Energy Research Consortium was announced under the EPSRC SUPERGEN program. This programme, which had a total fund of £2.6 million, brought together researchers from the University of Edinburgh, Robert Gordon University, Lancaster University, Heriot-Watt University and The University of Strathclyde and ended in September 2007. The consortium aimed to enable and support the development of marine technology by conducting research which focuses on developing potential for the exploitation of the marine energy resource. The overarching objective was to increase knowledge

51 and understanding of how best to extract energy from the sea in order to reduce the risk and uncertainty in investment.

The research was organised into 13 ‘work packages’ (WP) with topics designed to span a range of issues and problems perceived to affect the development of marine energy. For example, WP2 (Development of Methodologies for Device Evaluation and Optimisation) looked at developing and advancing the numerical and physical methodologies used to model wave and tidal devices, whilst WP3 (Engineering Guidance) contributed to establishing robust design principles for marine energy converters.

In 2003 the UK government, on an earlier recommendation by the House of Commons Science and Technology Committee, opened the European Marine Energy Centre (EMEC) in Orkney. The centre was the world’s only grid-connected, full-scale wave and tidal energy converter testing and accreditation facility which provided real open-sea, conditions. The centre has testing facilities at several locations across the Orkney isles and provides connections to the national grid. It aims to provide clients with the infrastructure, expertise and technical support necessary to test full-scale devices in unrivalled wave and tidal conditions. For developers, this is seen an essential platform for them to prove the commercial viability of their devices and attract interest from potential investors.

There are numerous examples of success stories for clients which have operated at the EMEC. For example, in 2011 Atlantis Resources Corporation successfully deployed and commissioned its AR1000 single rotor tidal turbine on Berth 6 of the Fall of Warness test site. The 1MW horizontal axis turbine was the first commercial scale tidal device to be connected and synchronised to the national grid, successfully producing its nameplate capacity. This has led to planned large-scale commercial deployment on the MeyGen project and at the Daishan demonstration site in China. In December 2011, Andritz Hydro Hammerfest deployed its HS1000 1MW pre-commercial tidal turbine at one of EMEC’s test sites. It since began delivering power to the grid in February 2012, and has been chosen by Scottish Power Renewables for use as part of a 10MW array in the Sound of Islay and a 95MW array at Duncansby Head.

2004 saw the introduction of the Marine Renewables Deployment Fund (MRDF). This was a £50 million fund designed to support the construction and 52 demonstration of small arrays of pre-commercial wave and tidal stream projects through a combination of capital grants and revenue support. Funding allocated through the MRDF was used for wave and tidal energy performance and standards protocols, as a contribution towards the construction of the wave & tidal testing facility at the EMEC, towards more general wave and tidal environmental research and as a contribution towards the Sustainable Development Commission’s Tidal Study. Principle recipients of the fund included Edinburgh University and the EMEC. Much of the total budget, however, went unspent, since most applications did not adequately meet the requirements that had been set, and the scheme was terminated in 2011.

In 2006, the Scottish Government introduced the £13.5 million Wave and Tidal Energy Support Scheme (WATES). The scheme was developed principally to provide grants for businesses that support the installation and commissioning of pre-commercial wave and tidal energy generating devices at the EMEC. It also provided funding to the EMEC for infrastructure upgrades.

Following the first phase of the SuperGen research programme in 2003, SuperGen Phase 2 was introduced in October 2007 with a total budget of £5 million, nearly twice that of Phase 1. Phase 2 built on the experiences and questions which arose from the early device tests and prototype development which occurred during Phase 1. It addressed issues surrounding the impact of device arrays on the environment, the challenges posed by fixing, mooring and recovering marine systems, and the economic challenges posed by the variable and intermittent nature of wave and tidal energy. This scheme again brought together researchers from a core consortium (Universities of Edinburgh, Queen’s Belfast, Heriot-Watt, Lancaster and Strathclyde) but was also affiliated with other institutions, including the Universities of Durham, Exeter, Highlands and Islands, Manchester, Robert Gordon and Southampton.

Phase 2 took a similar approach to Phase 1 and the work was split into twelve packages or streams. The range of research was equally as broad. WS1 (Numerical and physical convergence) for example, aimed to improve the capabilities of existing Computational Fluid Dynamics codes when applied to modelling free surface flows (WS1.17) and WS10 (Ecological Consequences of Tidal & Wave Energy Conversion) looked at the sensitivity of marine environments to the

53 artificial extraction of energy. This involved collaboration with the EMEC and resulted in the development of a turbine collision detection model which should provide robust data on the perceived threat to marine life.

In Scotland, from 2007 to 2008, the Scottish Marine Supply Obligation (MSO) was introduced as part of the Renewables Obligation (Scotland) Order 2007. This, in similar fashion to the Renewable Obligation introduced earlier in England, is an obligation placed on energy suppliers to provide a percentage of generation from marine renewables up to a proposed 75 MW ceiling. Suppliers are obligated to either produce evidence, via a Renewable Obligation Certificate (ROC), that a proportion of their energy was generated by eligible wave or tidal devices in Scottish waters, or pay a higher buy-out price. The ROCs can then be sold along with the generated energy or traded separately. Thus, this policy worked in partnership with the RO by creating a protected market for the ROCs generated by marine renewable projects. The scheme was discontinued in its current form by the Scottish Government in April 2009 following the introduction of proposals to ‘band’ the Renewables Obligation. No marine energy projects received support through the MSO since throughout its operation, both wave and tidal obligations were set to zero due to a lack of eligible capacity.

In 2007, the Department of Energy & Climate Change (DECC) provided £3.5 million for the Marine Energy Accelerator (MEA) programme, which aimed to understand and accelerate the reduction in costs associated with wave and tidal energy extraction. The programme, designed and managed by the Carbon Trust, resulted from consultations with industry and developers and set out clear pathways in terms of the level of cost reduction needed to make marine technologies competitive with other forms of renewable generation.

2007 also saw the formation of the Energy Technologies Institute (ETI); an energy research, development and demonstration body which currently still remains active. Its aim is to bridge the gulf between laboratory proven technologies and full-scale commercially tested systems, and it has formed a unique partnership between large international industrial companies (six of the largest global industrial organisations – BP, Caterpillar, EDF Energy, Rolls-Royce and Shell) and government departments (the Engineering and Physical Sciences Research

Council, the Department of Energy & Climate Change and the Department for Business Innovation & Skills).

The ETI has launched a range of calls supporting marine energy, provided roadmaps, and runs the Marine Energy Programme to invest in key technologies for marine energy. The Performance Assessment of Wave and Tidal Array Systems (PerAWaT) project for example, aimed to reduce commercial risk for investors by developing and validating numerical models to assist in predicting the performance of wave and tidal energy convertor when operating in arrays. The primary outcome was the release of two commercial software packages, WaveFarmer and TidalFarmer, which provides technology developers and investors a means to better assess the potential energy yield from a wave or tidal farm. The Reliable Data Acquisition Platform for Tidal (ReDAPT), led by Alstom in partnership with E.ON, EDF and the EMEC amongst others, obtained £12.6m worth of investment from the ETI and installed a 1 MW commercial scale tidal generator at the EMEC in January 2013. The project aims to increase public and investor confidence in tidal turbine technology by providing a range of data surrounding performance and environmental impact. As of 03/08/2015, the turbine has contributed over 1.2 GWh to the grid.

Recognising Scotland’s unrivalled natural potential for renewable energy and wanting to build upon ground already made, then First Minister Alex Salmond announced the Saltire Prize, a £10 million award for any individual or group which can demonstrate a commercially viable wave or tidal energy technology which, in Scottish waters, produces a minimum of 100GWh over a continuous two year period. The primary purpose of the award is to accelerate the development of marine energy and increase awareness of the industry (and of Scotland’s potential for it). To date, there are four competitors who are planning to deploy machines in Scottish waters.

In England and Wales, an Energy Review published in 2006 by the Department of Trade and Industry advised the Government that whilst ROs have been effective in incentivising renewable generation, the single rate, which did not differ between technologies, only favoured those technologies which were already commercially viable, and did not provide sufficient support for more emerging, less economically secure, technologies. To address these concerns, the report proposed reform of the

RO with the introduction of technology ‘banding’. This provided differing levels of support depending on the relative maturity, development cost and associated risk of the proposed technology. This was introduced in England and Wales as part of the Renewables Obligation Order 2009 and in Scotland as part of Renewable Obligation Order (Scotland) 2009. For energy generated by wave and tidal devices in England and Wales, the revised scheme offers an improved 2 ROCs for each MWh generated, whereas more established technologies, such as onshore wind, remained at 1 ROC per MWh. In Scotland, the banding levels for wave and tidal were mirrored but the legislation was amended to include additional ‘enhanced’ versions of wave and tidal stream technologies. These, specific to Scotland, gave 5 and 3 ROCs for each MWh generated by wave and tidal stream devices respectively and were designed to offer greater support for marine devices operating in Scottish waters (a follow on from the Marine Supply Obligation).

In September 2009 the Marine Renewables Proving Fund (MRPF), a £22.5 million capital grant initiative managed by the Carbon Trust on behalf of the Department of Energy and Climate Change (DECC), was announced. The creation of the fund was in response to the lack of devices which qualified for access to the earlier Marine Renewables Deployment Fund and was designed to help industry progress devices towards large scale prototype testing. Out of 31 applicants, six projects have been supported (Pelamis, Marine Current Turbines, Aquamarine Power, Atlantis, Voith and HSUK). The creation of the scheme has been widely praised by stakeholders 4 and has paved the way for the sector to move towards demonstration of small arrays 5.

The success of the MRPF was underpinned by a series of funding announcements in 2010. A further £12 million was allocated by the Technology Strategy Board for technology development, cost reduction and improved performance of marine devices through innovation and the Scottish Government awarded £13 million worth of grants through the Wave and Tidal Energy: Research, Development and Demonstration Support (WATERS) fund. This replaced the previous WATES scheme and provided support to five projects for development, testing and demonstration of marine devices in Scottish waters.

4 See Energy and Climate Change Select Committee (2012, p. 57). 5 See Energy and Climate Change Select Committee (2012, p. 87). 56

A longer term vision for the development of the UK’s marine energy sector was set out by the Government through its release of the Marine Energy Action Plan (MEAP) in 2010. The plan identifies the actions required by private and public sectors to best facilitate the development and deployment of marine technology and to ensure appropriate funding up to 2030. The release of the report demonstrated the willingness of the Government to work with and encourage industry cooperation across sectors and along the supply chain.

Further south in the UK, the Wave Hub was commissioned in 2010. This is a wave power research facility which was originally developed and funded by the South West of England Regional Development Agency, the European Regional Development Fund and the UK government. The site is located approximately 10 miles off the north coast of Cornwall and provides ‘sockets’ for the installation of wave energy devices.

In October 2011, the third phase of the SuperGen programme was announced and secured a further five years of funding from 2011 through to 2016. The core consortium consists of The Universities of Edinburgh, The University of Strathclyde, Queen’s University Belfast, and the University of Exeter and together they have formed the UK Centre for Marine Energy Research (UKCMER). The project’s long term objectives are to continue to conduct leading fundamental and applied research in marine energy with a focus on ensuring the required capacity to meet the UK’s renewable energy targets in 2020. So far two £3 million research calls have been issued and this has led to the funding of 13 new research projects managed by the UKCMER hub.

In 2011 the Government put forward proposals for arguably the most significant reform of the electricity market since the introduction of Renewable Obligation in 2002. The proposals, put forward in a 2011 white paper, contain a set of policies which aim to secure the future of electricity supplies, facilitate the push for decarbonisation, and provide a means to ensure consumers experience minimal impact with respect to energy bills.

The Electricity Market Reform (EMR) contains two main components. The first is a feed-in tariff with a Contract for Difference (CfDs). The feed-in tariff aims to protect generators from market volatility by topping up any shortfall between the amount the generator receives from the market and a pre-defined ‘strike price’. If 57 the market price exceeds the strike price, the contracts for difference require the generators to pay back the surplus revenue. The contracts are designed to be long- term, giving investors the confidence to provide longer term investment. In similar fashion to the bands in the reformed Renewable Obligation, the strike price will depend on the generation technology. The second component comprises capacity agreements within a capacity market. The market is designed to ensure that sufficient generation capacity is available by providing payments to either incentivise investment in new, low-carbon based, capacity or allow existing capacity to remain online. The overarching aim is to ensure security of supply.

The Feed-in tariff with Contracts for Difference will initially run alongside the existing Renewables Obligation scheme but the latter will eventually be phased out. Support for the Renewables Obligation banding was thus still provided by the Government, and during 2011 they announced that the number of ROCs allocated per MWh generated from wave or tidal energy devices in England and Wales will increase to five from 1 st April 2013.

There were also notable deployments of marine devices during 2011. Aquamarine Power commenced testing of an array of its Oyster 800 wave energy machine, Scotrenewables launched its SR250 floating tidal turbine at the EMEC, the first of its kind in the world, and Ocean Power technologies prepared its first generation scale PowerBuoy wave device (the PB150) for ocean trials off the coast of Scotland.

In 2012, the Marine Renewables Commercialisation Fund, an £18 million initiative to provide capital support for commercial-scale wave and tidal stream energy arrays, was announced by the Scottish Government. The scheme aims to help move the Scottish marine industry towards commercialisation. Numerous energy device projects were also started or completed during 2012. At the EMEC, Finnish wave energy developer Wello Ltd deployed its Penguin wave energy converter at the Billia Croo wave test site, Voith Hydro Ocean Current Technologies began work to install their HyTide 1000MW tidal current turbine and Scottish Power Renewables deployed its second generation Pelamis P2 Wave power device. A joint project between RWE Npower renewables and Voith Hydro Wavegen, which planned to deploy 20MW worth of wave generation at Siadar on Isle of Lewis, was cancelled, however, due to a lack of funding and uncertainty surrounding the installation of the required subsea cables.

Away from Scotland, the South West Marine Energy Park was launched in Bristol in 2012. It aims to exploit the energy resources surrounding the South West coast, foster collaboration between the private sector, research establishments, public bodies and universities, and accelerate the commercial development of marine energy in the region.

In April 2012, the Government launched the Marine Energy Array Demonstrator (MEAD) scheme. The scheme provides up to £20 million of funding to be shared between up to 2 pre-commercial projects which demonstrate the operation of marine energy devices in an array formation. Applicants are required to use at least three generating devices and provide a minimum of 7GWh per year.

In 2013, the Crown Estate, who own a large proportion of the UK’s foreshore 6, announced it was providing up to £20 million worth of investment to help finance the construction of two wave or tidal array projects, Nautricity installed their second generation CoRMaT tidal turbine at the EMEC and Voith Hydro, who had purchased then struggling Wavegen Limited in 2005, decided to close down that section of the company as part of a reorganisation. This followed the earlier cancellation of plans for a 20MW off the Isle of Lewis because of funding concerns. In other developments, Rolls Royce pulled out of the industry and sold Tidal Generation Limited, which was a wholly owned subsidiary, to French engineering firm Alstom.

2014 saw further losses within the industry as Aquamarine Power announced plans to downsize their business following a strategic review and proposals to develop a £2 million Tidal Blade Test Faclility at the National Composites Centre in Bristol were scrapped due to uncertainty in the tidal energy sector. Pelamis Wave Power, after earlier success with their wave energy converter at the EMEC in 2004, went into administration after it failed to secure the additional funding required to further develop their technology. Siemens, one of the largest engineering firms in Europe, divested their share of the marine energy sector by putting Marine Current Turbines (MCT) up for sale. This was after plans by MCT to deploy a 10MW Tidal Stream Array at the Skerries, off the Welsh coast, were scrapped by Siemens in 2013. They cited a lack of an established market and supply chain as the reason behind the sale and stated that the tidal sector would only ever be a ‘niche market’

6 The foreshore is the area of land beside a sea which sits between the highest and lowest points that the water reaches (MacMillan, 2015). 59 for them 7. Despite these developments, there were a selection of projects which did commence. The Swansea Bay Tidal Lagoon, which would be become the worlds first tidal lagoon power plant with a capacity of 320MW, was named as part of the Government’s 2014 National Infrastructure plan and the Crown Estate awarded seabed rights to allow Wave Hub to manage the North Devon Tidal demonstration zone.

In 2015, Scotrenewables, building upon the success of their earlier SR250 floating tidal turbine, begin development on the SR2000, a much larger 2MW commercial scale turbine more suited for deployment in tidal arrays. Natural Energy Wyre Ltd. successfully obtained rights to develop the Wyre Tidal barrage project in Lancashire. This is the first tidal barrage scheme to be launched in the UK and will provide an installed capacity of 90MW from a single construction. The Aegir wave farm, where Swedish power company Vattenfall planned to use around 25 Pelamis P2 convertors from Pelamis Wave Power to generate between 10 and 100MW of capacity off the coast of Shetland, was cancelled due to the collapse of Pelamis in November 2014. Vattenfall then announced that it would liquidate the project.

The Argyll Tidal Demonstrator project saw the installation of Nautricity’s CoRMaT tidal turbine unit off the south-west tip of the Mull of Kintyre. The project initially planned for 6 turbines in an array but this was reduced to one after a feasibility study noted that new grid infrastructure would be required at the site. Two notable projects are scheduled to start in 2015, both looking to develop near Orkney, firstly the Brims Tidal Array, a joint venture between SSE Renewables and OpenHydro which will see the installation of 60 tidal devices (Crown Estate awarded an agreement for lease for this project in March 2010), and, secondly, Brough Ness Tidal farm, where Atlantis, having just acquired MCT from Siemens, secured consent to deploy 66 tidal turbines, an agreement having been awarded by Crown Estate for lease for this project in 2012.

4.24.24.2 Innovation System FFunctionsunctions

To understand technological change it is important to know how the innovation system for a new technology is developed. In the literature, significant attention

7 The reader is reminded that references for all events discussed in this section are provided in Tables 4-9. 60 has been devoted to understanding the processes and dynamics behind the shaping of such systems; see, for example, Bergek (2002), Jacobsson and Bergek (2004), Hekkert et al., (2007b), and Bergek et al., (2008a). These authors have identified ‘functions’ that take place inside the TIS, and define them as the contribution of a component or set of components to a system’s performance (Jacobsson and Johnson, 2000). These functions, adopted from Hekkert et al., (2007b) and Bergek et al., (2008a), are presented in Table 3. The following sections provide discussion and an analysis of the above historical narrative against these system functions. Where an event or action implies contribution to a system function, the relevant function it addresses has been included in parenthesis.

Innovation System Functions

F1. Entrepreneurial a ctivities F2. Knowledge development F3. Knowledge diffusion F4. Guidance of the s earch F5. Market formation F6. Resource mobilisation F7. Advocacy c oalitions Table 3: Function within an innovation system (Hekkert et al., 2007; Bergek et al., 2008). See Chapter 2 for discussion.

4.34.34.3 Allocation and classification

The allocation and classification stage, as detailed in Chapter 3, sees the events identified as part of the search stage structured according to four criteria; year of the event, reference, event description, and event category. This classification enhances the analysis of the events and timeline constructed in the previous stage. Subsequently, each event is allocated to one system function and analysed to determine whether it contributes positively (+1) or negatively (-1) to the system. Allocating the events as such allows them to serve as indicators of the individual system functions.

As stated earlier in Section 3.4.3, in order to be consistent throughout this thesis the dates chosen for each event in this research are based on the date the event first began contributing to the innovation system. For example, if the event was the introduction of a policy then the year the policy was formally announced would be chosen. Similarly, if the event is the opening of a test centre, then it is the year the 61 test centre actually opened. If the nature of the event is such that it actually makes more sense to choose another date, then this will be made clear.

4.3.1 Function 1: Entrepreneurial Activities

As mentioned in Chapter 2 , entrepreneurs can either be new entrants that have the vision and foresight of the business opportunities available in new markets, or current firms who seek to expand their business strategy and take advantage of new developments (Hekkert et al., 2007b).

The dates allocated to each event are based on either the date the project was launched or the date the project was withdrawn or cancelled. For events which concern specific devices, the launch date is the date the device was installed or connected. For example, the Andritz Hydro Hammerfest HS1000 1MW tidal device (No. 20, Table ) was connected in the Fall of Warness berth at the EMEC in 2011, and the Pelamis P2 0.75MW wave device (No. 15, Table ) was connected in the Billia Croo berth at the EMEC in 2012. For projects that were withdrawn, the date the cancellation was announced has been chosen. For example, it was announced that the wave energy project at Siadar (Shader) on Isle of Lewis (No. 32, Table ) was cancelled in 2012, and in 2014 the cancellation of seven tidal generators planned for deployment off the north west coast of Anglesey (No. 46, Table ) was announced.

For events which concern the allocation of a site for the deployment of wave or tidal devices, the allocation date is the year they have been able to acquire agreement for a lease from the site owner (the Crown Estate for example). For instance, Perpetuus was issued with an agreement for lease in November 2012 (No. 39, Table ) and a lease for permission to develop on the sea bed at the West Islay tidal array (No. 28, Table ) site was granted in October 2011. Table features a list of projects allocated to the entrepreneurial activities function (F1) and Figure 8 plots the results of the allocation process in graphical form.

The majority of the events are determined as contributing positively, since they concern projects which successfully started. Events that concern the withdrawal or cancellation of a project (here, events 32, 41, 42, 46, 49, 50 and 57 in Table ) are determined as contributing negatively.

No. Year Reference Event Description Category Allocation A shore-mounted oscillating water Project 1 2000 (RenewableUK, 2012a) Wavegen’s LIMPET +1 column. started Project 2 2003 (ETI and UKERC, 2010) Seaflow (MCT) Tidal turbine. +1 started Project 3 2003 (ETI and UKERC, 2010) Stingray (FB) Tidal stream device. +1 started Pelamis Project 4 2004 (ETI and UKERC, 2010) Wave power machine. +1 (OPD) started A generator power take-off system Project 5 2005 (Drew et al., 2009) PowerPod +1 and wave energy converter. started Project 6 2005 (Drew et al., 2009) Sperboy A floating wave energy converter. +1 started Tidal 7 2005 (ETI and UKERC, 2010) Sea Snail A tidal stream device. +1 project OpenHydro: Open- Project 8 2006 (RenewableUK, 2012a) A seabed mounted device. +1 Centre Turbine started Project 9 2006 (Drew et al., 2009) Waveline Magnet A wave energy device. +1 started Open Hydro Project 10 2007 (ETI and UKERC, 2010) Non-grid connected turbine. +1 (EMEC) started Project 11 2007 (Drew et al., 2009) Osprey A vertical axis turbine. +1 started Marine Current Project 12 2008 (RenewableUK, 2012a) Turbines: SeaGen A twin horizontal axis turbine. +1 started deployment Project 13 2009 (Drew et al., 2009) Anaconda A wave energy device. +1 started Pulse Tidal: Pulse- An oscillating hydrofoil tidal stream Project 14 2009 (RenewableUK, 2012a) +1 Stream 100 device. started E.ON Climate and A second generation wave energy Project 15 2010 (RenewableUK, 2012a) Renewables: +1 device. started Pelamis P2 deployment (Scottish Government, Tidal Generation: Project 16 2010 A 500kW three-bladed tidal turbine. +1 2010a) DeepGen III started Project 17 2010 (Neill et al., 2016) Brim tidal array phase 1 A tidal site in Pentland. +1 started A multi-cell array of flexible Project 18 2010 (ETI and UKERC, 2010) AWS ocean membrane absorbers which covert +1 started wave power to pneumatic power. Tidal 19 2010 (Neill et al., 2016) Ness of Duncansby Tidal array phase 1. +1 project Andritz Hydro A 1 MW pre-commercial tidal Project 20 2011 (RenewableUK, 2012a) Hammerfest: +1 turbine. started HS1000 deployment Aquamarine Power: Project 21 2011 (RenewableUK, 2012a) Oyster 800 A wave-powered pump. +1 started demonstration array Project 22 2011 (Poullikkas, 2014) Oceanus 1 technology A wave energy device. +1 started Atlantis Resources A 3-bladed fixed pitch horizontal Project 23 2011 (RenewableUK, 2012a) Corporation: AR1000 +1 axis turbine. started deployment Project 24 2011 (Neill et al., 2016) Nova 100 A tidal turbine. +1 started Project 25 2011 (Neill et al., 2016) Hammerfest A pre-commercial tidal turbine. +1 started Scotrenewables Tidal Project 26 2011 (RenewableUK, 2012a) Power: A floating tidal stream turbine. +1 started SR250 Ocean Power Project 27 2011 (RenewableUK, 2012a) A wave energy converter. +1 Technologies PB 150 started Project 28 2011 (Neill et al., 2016) West Islay tidal array A tidal farm. +1 started A wave energy concerted comprising a floating asymmetric Project 29 2012 (RenewableUK, 2012a) Wello: Penguin testing +1 vessel which houses an eccentric started rotating mass. Voith Hydro Ocean A seabed-mounted horizontal axis Project 30 2012 (RenewableUK, 2012a) Current Technologies +1 tidal stream turbine. started Voith HyTide 1000-13 Project 31 2012 (Neill et al., 2016) Broughness tidal farm A tidal site. +1 started Table 4: Events allocated to system function 1: Entrepreneurial Activities

A wave energy project, which was Siadar (Shader) on Isle planned jointly between RWE, Project 32 2012 (Poullikkas, 2014) of Lewis NPower renewables and Voith cancelled -1 Hydro Wavegen. Project 33 2012 (Poullikkas, 2014) Volta WaveFlex A wave energy device. +1 started A tidal energy demonstrator Project 34 2012 (Neill et al., 2016) Lashy sound +1 project. started Project 35 2012 (Neill et al., 2016) Fair head tidal A tidal energy power plant. +1 started Project 36 2012 (RenewableUK, 2012a) Open-centre Turbine A tidal project. +1 started A 1.2MW unit, which sits on the Tidal Energy: Project 37 2012 (RenewableUK, 2012a) seabed without the need for a +1 DeltaStream started positive anchoring system. Scottish Power A second generation wave energy Project 38 2012 (RenewableUK, 2012a) Renewables: device; it is a semi-submerged +1 started Pelamis P2 deployment floating device. Tidal 39 2012 (Neill et al., 2016) Perpetuus Tidal energy centre. +1 Project CoRMaT is a patented contra- rotating turbine, suitable for Project 40 2013 (Poullikkas, 2014) CoRMaT +1 deployment in water depths of 8 to started 500m. Voith Hydro Wavegen Company 41 2013 (Poullikkas, 2014) A wave energy company. -1 Limited closed Sold their 42 2013 (Harris, 2014) Rolls-Royce Tidal energy business. -1 business Project 43 2014 (Neill et al., 2016) Portland Bill project Tidal stream project site. +1 started The first device was installed in the Project 44 2014 (Neill et al., 2016) Nova-I Nova 30 +1 Bluemull Sound in Shetland. started A semi-submerged, floating, Ocean Flow Energy Project 45 2014 (Neill et al., 2016) tethered tidal energy capture +1 Evopod started device. Seven massive tidal generators Anglesey tidal and wind located in up to 130ft (40m) of Project 46 2014 (Neill et al., 2016) -1 power projects water at the Skerries, off the north cancelled west coast of Anglesey. Project 47 2014 (Poullikkas, 2014) Ecotricity Searaser A wave power device. +1 started A tidal project on the west coast of Project 48 2014 (Neill et al., 2016) Mull of Galloway project +1 Scotland. started Went into 49 2014 (Poullikkas, 2014) Pelamis Wave power company. administrat -1 ion Left Marine Marine Current Turbines 50 2014 (Harris, 2014) Siemens energy -1 company. business North Devon Tidal A tidal project off the coast at Project 51 2014 (Neill et al., 2016) +1 demonstration zone Lynmouth. started Project 52 2014 (Neill et al., 2016) Plat-o A subsea tidal platform. +1 started Wyre Tidal barrage A tidal energy power station Project 53 2015 (Neill et al., 2016) +1 project located on the River Wyre. started Project 54 2015 (Neill et al., 2016) Cardiff Bay tidal Lagoon A tidal site. +1 started Argy Tidal A patented contra-rotating Project 55 2015 (Neill et al., 2016) +1 demonstrator project turbine. started Largest and most powerful tidal Project 56 2015 (Neill et al., 2016) Scotrenewables SR2000 +1 turbine in the world. started Wave farm off the south west of Project 57 2015 (Lammey, 2015) The Aegir wave farm -1 Shetland. cancelled Table 4 (continued): Events allocated to system function 1: Entrepreneurial Activities

12 10 8 6 4 2 0 Number of events 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 -2 -4 -6

Figure 8: Activity pattern of system function 1: Entrepreneurial Activity

4.3.2 Function 2 and 3: Knowledge Development and Diffusion

Functions 2 and 3 are concerned with the advancement and dissemination of knowledge within the innovation system. Thus, in this research, they have been considered together. Events allocated to these functions can include, for example, the commencement or publication of research studies, laboratory trials, pilot studies and feasibility studies. Workshops and conferences are also included. The dates allocated depend on the type of event. For events which concern research and test centres either the date the centre was opened (the EMEC in 2003 – No. 5 Table , for example) or the date the centre was closed, or plans for the centre were withdrawn, (the Blade Test Facility at the NCC in Bristol in 2014 – No. 27 Table , for example) are chosen. For events which concern research projects (the SuperGen Project – No. 3, 8 and 19 in Table , for example) the date which the project commenced is assigned to the event. Figure 9 plots the result of the allocation process in graphical form.

All of the events allocated to these functions except one, are positive. Event no. 27 in Table has been allocated as negative since it represents the cancellation of a project (the proposals to build a 2m Tidal test facility at the National Composites Centre).

No. Year Reference Event Description Category Allocation 4th EWTEC Conference in 1 2000 (Østergaard et al., 2001) EWTEC Conference Conference +1 Denmark. A Renewable Energy Centre (NaREC) in North East England, 2 2002 (RenewableUK, 2012) NaREC Test centre +1 providing facilities such as tank testing and a drive train test rig. Research council-led support for Research 3 2003 (Lawrence et al., 2013) SuperGen Phase 1 marine R&D at academic +1 programme institutions. (Lewis and Thomas, 4 2003 EWTEC Conference 5th EWTEC Conference in Ireland. Conference +1 2003) Full-scale open water test centre 5 2003 (Lawrence et al., 2013) EMEC Test centre +1 for marine energy prototypes. 6 2005 (EWTEC, 2005) EWTEC Conference 6th EWTEC Conference in the UK. Conference +1 International First International Conference on 7 2006 (ICOE, 2006) Conference on Ocean Conference +1 Ocean Energy (ICOE) in Germany. Energy (ICOE) Research council-led support for Research 8 2007 (Lawrence et al., 2013) SuperGen Phase 2 marine R&D at academic +1 programme institutions. 9 2007 (EWTEC, 2015) EWTEC Conference 7th EWTEC Conference in Portugal. Conference +1 Aimed to deliver a suite of protocols for the equitable Research 10 2008 (Smith et al., 2009) EQUIMAR evaluation of marine energy +1 programme converters (based on either tidal or wave energy) International Second International Conference 11 2008 (ICOE, 2008) Conference on Ocean Conference +1 on Ocean Energy (ICOE)/ France Energy (ICOE) Help wave and tidal device developers prove their systems 12 2008 (RenewableUK, 2012) QinetiQ really work, supporting early Test centre +1 investment cases by testing ideas and technology. The South West Regional The UK’s first low-carbon Research 13 2009 (RenewableUK, 2011) +1 Development Agency economic area for marine energy. centre (SWRDA) 14 2009 (EWTEC, 2009) EWTEC Conference 8th EWTEC Conference Conference +1 A grid-connected offshore facility 15 2010 (RenewableUK, 2012) Wave Hub Test centre +1 in south-west England. Establish a set of equitable and Research in the transparent criteria for the (Pérez-Collazo et al., Research 16 2010 MARINA Platform evaluation of multi-purpose +1 2015) programme project. platforms for marine renewable energy (MRE). International 3rd International Conference on 17 2010 (ICOE, 2010) Conference on Ocean Conference +1 Ocean Energy (ICOE)/ Spain. Energy (ICOE) RenewableUK's Wave & RenewableUK's 7th annual Wave 18 2010 (RenewableUK, 2010) Tidal Energy & Tidal Energy Conference & Conference +1 Conference & Exhibition Exhibition Research council-led support for Research 19 2011 (Lawrence et al., 2013) UKCMER marine R&D at academic +1 programme institutions. 20 2011 (EWTEC, 2011) EWTEC Conference 9th EWTEC Conference Conference +1 ORECCA (Off-shore A European Union (EU) Seventh (Pérez-Collazo et al., Renewable Energy Framework Programme (FP7) Research 21 2011 +1 2015) Conversion platforms , funded collaborative project in the programme Coordination Action offshore renewable energy sector RenewableUK's Wave & RenewableUK's 8th annual Wave 22 2011 (RenewableUK, 2011) Tidal Energy & Tidal Energy Conference & Conference +1 Conference & Exhibition Exhibition International 4th International Conference on 23 2012 (ICOE, 2012) Conference on Ocean Conference +1 Ocean Energy (ICOE) in Ireland Energy (ICOE) RenewableUK's Wave & RenewableUK's 9th annual Wave 24 2012 (RenewableUK, 2012b) Tidal Energy & Tidal Energy Conference & Conference +1 Conference & Exhibition Exhibition 25 2013 (EWTEC, 2013) EWTEC Conference 10 th EWTEC Conference Conference +1 Table 5: Events allocated to system function 2 and 3: Knowledge Development and Knowledge Diffusion

RenewableUK's Wave & RenewableUK's 10th annual Wave 26 2013 (RenewableUK, 2013a) Tidal Energy & Tidal Energy Conference & Conference +1 Conference & Exhibition Exhibition Tidal Blade Test Facility A £2 million Tidal Blade test Project 27 2014 (Hayes, 2015) -1 at the NCC centre stopped RenewableUK's Wave & RenewableUK's 11th annual Wave 28 2014 (RenewableUK, 2014) Tidal Energy & Tidal Energy Conference & Conference +1 Conference & Exhibition Exhibition International 5th International Conference on 29 2014 (ICOE, 2014) Conference on Ocean Conference +1 Ocean Energy (ICOE) in Canada Energy (ICOE) RenewableUK's Wave & RenewableUK's 12th annual Wave 30 2015 (RenewableUK, 2015) Tidal Energy & Tidal Energy Conference & Conference +1 Conference & Exhibition Exhibition Table 5 (continued): Events allocated to system function 2 and 3: Knowledge Development and Knowledge Diffusion

6 5 4 3 2 1

Number of events 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 -1 -2

Figure 9: Activity pattern of system function 2 and 3: Knowledge Development and Knowledge Diffusion

4.3.3 Function 4: Guidance of the Search

The guidance of the search function concerns activities which shape the requests and wants among technology users within the innovation system. Events allocated to this system function generally involve the introduction of energy policies, government reports, energy bills or white papers by the UK government. Thus, the date the document or policy was released is allocated to the event. Table provides a list of events allocated to this function and Figure 10 plots the results of the allocation process in graphical form.

No. Year Reference Event Description Category Allocation

(Department of Trade White paper, Our A path to cut the UK’s carbon White 1 2003 +1 and Industry, 2003) Energy Future dioxide emissions. Paper White paper with the aim of (Department of Trade Energy Challenge’ white addressing the long-term White 2 2006 +1 and Industry, 2006) paper challenges for the UK energy Paper policy. The SEA procedure recognizes Strategic Environmental (British Wind Energy areas appropriate for Guidance of 3 2007 Assessment +1 Association, 2009) development with minimum Search (SEA) environmental influence. Meeting the Energy White paper focused on (Department of Trade White 4 2007 Challenge international and domestic energy +1 and Industry, 2007) Paper White paper strategy. An integrated approach to sustainable management and the enhancement and use of the White 5 2007 (DEFRA, 2007) Marine Bill White Paper +1 marine natural environment for Paper the benefit of current and future generations. Certify designing of resources and activities, allowing all features of a The Planning and 6 2008 (HM Government, 2008) project including power Policy +1 Energy Act generation, to be regarded as holistically. UKERC Marine Marine renewable energy 7 2008 (UKERC, 2008) Renewable Energy Roadmap +1 technology roadmap. Technology Roadmap The 2010 MEAP outlined a (HM Government, Marine Energy Action strategic vision for growth of the Guidance of 8 2010 +1 2010a) Plan UK’s marine energy sector up to search 2030. A set of policies that will ensure the future security of electricity The Electricity Market supplies and offers mechanisms to 10 2010 (DECC, 2011a) Policy +1 Reform (EMR) drive electricity generations long term transition towards decarbonisation energy. UKERC and ETI Marine Marine energy technology 11 2010 (ETI and UKERC, 2010) Energy Technology Roadmap +1 roadmap. Roadmap (HM Government, Energy Security and Support research and 12 2010 Energy Bill +1 2010b) Green Economy Bill development. White Paper on Governments Planning Our Electric commitment to ensuring low- White 13 2011 (DECC, 2011a) Future +1 carbon, secure and affordable Paper White paper electricity. A scheme to make private and Marine Energy Program public sector cooperation to build Government 14 2011 (RenewableUK, 2011) +1 (MEP) up the UK’s emerging marine Programme energy industry. DECC: UK Renewable 15 2011 (DECC, 2011b) UK renewable energy roadmap. Roadmap +1 Energy Roadmap Table 6: Events allocated to system function 4: Guidance of the Search

The report examines the opportunities for the UK in (Energy and Climate Trade The Future of Marine developing wave and tidal energy 16 2012 Change Select association +1 Renewables in the UK and assesses the effectiveness of Committee, 2012) report the Government’s broader policy measures in this area. European Ocean Energy (European Ocean Energy European Ocean Energy 17 2012 Association: European Ocean Roadmap +1 Association, 2012) Roadmap 2010-2050 Energy Roadmap 2010-2050. An act to make provision for the 18 2013 (HM Government, 2013) Energy Act setting of a decarbonisation target Policy +1 range and duties in relation to it. Table 6 (continued): Events allocated to system function 4: Guidance of the Search

2 Numberof events 1

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Figure 10: Activity pattern of system function 4: Guidance of Search

4.3.4 Function 5: Market Formation

Events which enable or facilitate the formation of markets for emerging technologies are related to the market formation function (F5). They are rated positive if they contribute positively to the formation of a market and negative if otherwise. Examples include changes to regulations or tax exemptions.

For example, modifications to the banding of the Renewable Obligation scheme (No. 5, Table 7) which introduced 5 ROCs for both wave and tidal energy in 2011, is considered as a positive contribution to the function, but the subsequent announcement of a change from Renewable Obligation to Contract for Difference also in 2011 (No. 6, Table 7), which increased uncertainty surrounding the future renewable energy market, is allocated as negative.

In similar fashion to events under Function 4, the year chosen is based on the date the official announcement was made by the Government or Government body. Table 7 provides a list of events allocated to this system function and Figure 11 plots the results of the allocation process over time.

No. Year Reference Event Description Category Allocation

The RO places an obligation on licensed electricity suppliers in the United Kingdom to source an Market 1 2002 (HM Government, 2002) Renewable Obligation -1 increasing proportion of revenue electricity from renewable sources. An obligation placed on energy Marine Supply suppliers to provide a percentage Market 2 2006 (RenewableUK, 2011) +1 Obligation of generation using marine support technologies. Introduction of technology bands Market 3 2009 (HM Government, 2009) Banded RO and ROS to RO, designed to incentivise less +1 support developed technologies. A £10 million international (Scottish Government, innovation prize for sustained 4 2010 Saltire prize Award +1 2010b) commercial scale energy generation in Scottish waters. Proposed that the number of ROCs allocated per MWh generated Enhanced Renewables 5 2011 (RenewableUK, 2012a) from wave or tidal energy devices Market +1 Obligation banding in England and Wales will increase to five from 1 April 2013. Feed in tariff contract Long-term contracts which offer Market 6 2011 (DECC, 2011a) for difference -1 revenue known as strike price. Support (CFD) Table 7: Events allocated to system function 5: Market Formation

6 5 4 3 2 1

Number of events 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 -1 -2

Figure 11: Activity pattern of system function 5: Market Formation

4.3.5 Function 6: Resource Mobilisation

Events allocated to this function concern the financial, material and human resources necessary for all innovation system developments (Suurs, 2009). Examples include investments by venture capitalists or the introduction of governmental support programmes. The year chosen is based on the date the scheme or investment was officially announced by the funding body. For instance, the MRDF (No. 2, Table), a £50 million for fund introduced to support small demonstration arrays of marine devices, was announced in 2004 but no projects 70 could successfully meet the criteria for funding. Thus, this has been allocated as a negative contribution to the function.

Though it was initially supposed to provide financial support for early stage low carbon technologies, the vision for the Green Investment Bank (No. 15, Table) has developed into one which is too commercial for the current industry and this has compromised the ability for it to have real impact on the marine energy sector. Thus, this has also been allocated as a negative contribution to the function. The announcement in 2014 by Aquamarine power that staff numbers were to be reduced (No. 19, Table) is a further example of a negative contribution. Table provides a list of events allocated to this system function and Figure 12 plots the results of the allocation process over time.

No. Year Reference Event Description Category Allocation

Start of the 6th Framework (European Commission, European Framework Programme to give a clear picture Financial 1 2002 +1 2005) Programme of spending in the field of support renewables in Europe. Marine Renewables £50 million fund for qualifying Resource 2 2004 (Lawrence et al., 2013) -1 Deployment Fund prototypes mobilisation A capital grant for qualifying projects that gives an enhanced Financial 3 2006 (Lawrence et al., 2013) WATES +1 payment of 10 p/kWh in addition resource to the ROC payment. £3.5 million programme to help Marine Energy Financial 4 2007 (Carbon Trust, 2011) achieve cost reduction for marine +1 Accelerator resource energy devices. The establishment of the ETI in 2007 provided funding to develop Financial 5 2007 (Lawrence et al., 2013) ETI +1 devices from proof-of-concept to support large-scale demonstration. Support for the development of Financial 6 2008 (RenewableUK, 2011) NER300 innovative low-carbon +1 support technologies, at commercial scale. An investment to improve the cost Energy Technology Financial 7 2009 (RenewableUK, 2012a) competitiveness and long-term +1 Institute support viability of wave power. A £22.5 million capital grant from Marine Renewables the Carbon Trust designed to help Capital 8 2009 (Carbon Trust, 2010) +1 Proving Fund industry develop devices viable grant for the MRDF. This scheme provides £12 million from the Scottish Government as Capital 9 2010 (Lawrence et al., 2013) WATERS +1 capital and operational support support for wave and tidal device testing. Technology Strategy £12 million investment which Innovation 10 2010 (Lawrence et al., 2013) +1 Board focus on technology development. support Technology Strategy Supporting and underpinning the Financial 11 2010 (RenewableUK, 2011) +1 Board deployment marine energy. support Table 8: Events allocated to system function 6: Resource Mobilisation

Marine Energy Array £20 million fund focused on the Financial 12 2010 (RenewableUK, 2012a) +1 Demonstration development of arrays. support (MEAD) £6 million to promote research Innovation 13 2011 (RenewableUK, 2012a) WATERS2 and development activities in +1 investment Scotland. Marine Renewables An £18 million initiative to Commercialisation support two projects of Financial 14 2012 (Lawrence et al., 2013) +1 Fund commercial-scale arrays in support (MRCF) Scottish waters. Aims to catalyse the low carbon The Green Investment industrial revolution by Financial 15 2012 (RenewableUK, 2012a) -1 Bank supporting early stage organisation technologies. The Technology A £10.5 million competition being Strategy Board’s run with Scottish Enterprise and Financial 16 2012 (RenewableUK, 2013b) Marine Energy: +1 the Natural Environment Research support Supporting Array Council. Technologies (MESAT) Financial 17 2013 (RenewableUK, 2013b) The Crown Estate Up to £20 million investment. +1 support (Wave and Tidal Energy Wave Energy Scotland Financial 18 2014 £14.3m fund. +1 Network, 2015) (WES) support (Wave and Tidal Energy Shedding 19 2014 Aquamarine power Wave energy company -1 Network, 2015) staff The eighth phase of the (European Commission, Framework Programmes for Financial 20 2014 Horizon 2020 +1 2014) Research and Technological support Development Table 8 (continued): Events allocated to system function 6: Resource Mobilisation

0 Number of events 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 -1

-2

Figure 12: Activity pattern of system function 6: Resource Mobilisation

4.3.6 Function 7: Advocacy Coalition

Actors can increase support for a particular technology through political lobbying. Thus any events which provide support or opposition for a particular technology are allocated to this function. For example, the Marine Energy Programme Board (MEPB), which was established to enable the DECC to better consult with industry, was started in 2011 (No. 7, Table 9) and this clearly in support of developing 72 marine technologies. RenewableUK, a trade association for wind, wave and tidal power in the UK, expanded their remit to include support for marine energy in 2004 (No. 3, Table 9) after mostly concentrating on wind energy. A list of events allocated to this system function is provided in Table 9 and Figure 13 plots the results of the allocation process over time.

No. Year Reference Event Description Category Alloca tion

(Renewable Energy The Renewable Energy A trade association for the Support 1 2001 +1 Association, 2012) Association (REA) Renewable UK industry. group Support 2 2003 (Carbon Trust, 2003b) Carbon Trust Low carbon organisation. +1 group Support 3 2004 (RenewableUK, 2011) Renewable UK Low carbon organisation. +1 group Represent the marine sector to the (European Ocean Energy European Ocean Energy Support 4 2006 European Commission, Parliament +1 Association, 2015) Association group and Council of Members. (Scottish Renewables, Support 5 2006 Scottish renewable Low carbon organisation. +1 2015) group Making consistent progress (Marine Management Marine Management Support 6 2010 towards a transparent and +1 Organisation, 2015) organisation group equitable consenting process. (Marine Energy An important engagement Marine Energy Support 7 2011 Programme Board, mechanism which enables DECC +1 Programme Board group 2015) to consult industry. Scottish government Providing coherency to the Support 8 2011 (RenewableUK, 2012) Marine Energy +1 funding landscape. group Group Table 9: Events allocated to system function 7: Advocacy Coalition

2 Number of events 1

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Figure 13: Activity pattern of system function 7: Advocacy Coalition

4.44.44.4 Graphical analysis

The development phase of the technology within the innovation system determines relevant system functions. To monitor the formation of the system, this study distinguished initially between five different phases of development, shown in Figure 14. Since marine energy is still considered an emerging technology, only 73 phases 1, 2, 3 and, to a certain extent, phase 4 are actually relevant; no major technology in phase 5 has been identified. This is reflected in the following analysis, which is structured according to the phase of development. The activity patterns, shown separately in Figures 8 through 13, for all of the system functions has been collated, and plotted in Figure 15. Here each function is represented proportionally as a different colour in the bar for a given year. This allows the influence of the functions within each year, and phase of development, to be better identified.

Phase4: Phase 1: Phase2: Phase3: Phase5: Supported R&D Demonstration Pre-commercial Commercial commercial

Figure 14: Schematic representation of the development phase of technology.

4.4.1 Phase 1: R&D

During the period 2000 - 2005, Figure 8 shows that pioneers begin entrepreneurial activities (F1). There are contributions in 2000, where Wavegen installed their LIMPIT shoreline wave device in the Scottish Isle of Islay, and in 2003, also by Wavegen, where they installed their 300kW SeaFlow device. The significant gap between 2000 and 2003 provides some evidence that the marine energy market has not yet fully formed. Activity in the knowledge development (F2) and knowledge diffusion (F3) functions can be seen between 2002 and 2003 in Figure 9. This period saw the establishment of the NaRec and EMEC test centres and the launch of Phase 1 of the SuperGen program.

Despite these positive contributions to the system, there is limited activity in the guidance (F4) and market formation (F5) functions, as Figure 10 and Figure 11 show. The introduction of ROs in 2002, as a type of market formation, is notable, though it did not provide any special benefits or treatment to the marine energy sector; rather it provided more general market signals to the renewable energy sector as a whole. Thus, the initial contributions from the entrepreneurial (F1) and knowledge creation/diffusion functions (F2,F3) could better be attributed to those actors’ recognition of the UK’s, and specifically Scotland’s, marine energy potential. The sector also suffered from a lack of both human and financial resource mobilization (F6) as illustrated in Figure 12. The Government did attempt to increase financial investment with the introduction of the Marine Renewable 74

Deployment Fund (MRDF) in 2004 but this wasn’t entirely successful since, as discussed in Section 4.1, the funds went largely unallocated (RenewableUK, 2011).

Figure 15 plots an overview of activities for all system functions, and for technology in the research phase, the knowledge development (F2) and knowledge diffusion (F3) functions appear to be the most critical. Between 2000 and 2005 there were a growing number of R&D activities in the UK marine energy sector. The establishment of the NaREC (2002) and EMEC (2002) test centres and the start of Phase 1 of the SuperGen project in 2003 are identified as key events which contributed positively to this function. However, the knowledge development function (F2) was negatively influenced by the poor performance of other system functions, including knowledge diffusion (F3), guidance of the search (F4) and resource mobilization (F6) functions (see Figure 10 and Figure 12). The initial lack of support from the Government for marine energy, in the form of an absence of public funds, limited the rate of development of the system. Figure 15 shows that the Marine Renewables Deployment Fund and original incarnation of the Renewables Obligation scheme did not effectively incentivise development of the marine sector over others and, as a result, investors deemed the technology too risky to commit the necessary funds for its development. Other system functions, such as market formation (F5) and advocacy activities (F7), are less influential at this phase. At this point in time, although it can be seen that the system has started to form, no continuous build-up of system functions has occurred. Some system functions are fulfilled but they do not interact with each other in a way that would reinforce or trigger other system functions.

4.4.2 Phase 2: Demonstration

Figure 8 shows there was a steady input into the system in terms of entrepreneurial activities (F1) and R&D (F2, F3). This included the installation of the Open-Centre turbine at the EMEC in 2006, the installation of SeaGen in 2008, and the commencement of Phase 2 of the SuperGen program in 2007. This can be attributed to the rise in governmental activities in the guidance of the search function (F4), as illustrated by Figure 10. Publication of the Strategic Environment Assessment (SEA) by the DECC, the enactment of the Marine Bill, and instigation of the Marine Energy Accelerator program, all in 2007, show that the government has begun to fully recognise the potential of the marine energy sector. As a result, this

75 function sees the highest level of activity throughout this period. There was also much needed resource mobilization (F6) (Figure 12) and some significant events in the market formation function (F5) (Figure 11). Public funds were allocated through the WATES program in 2006 and through the Energy Technology Institute in 2009. The Marine Renewable Proving Fund (MRPF) was also increased in 2009. In market formation (F5), as will be seen in the next time period, the introduction of the Marine Supply Obligation in 2007 and the banding of the Renewable Obligations in 2009 instigated a large amount of activity in the industry, mainly through increasing the attractiveness of projects to investors.

In this phase, Figure 15 shows that entrepreneurial experimentation (F1) is the most consistent and most significant system function, as the first experiments begin to provide insight into whether or not innovations will work in practice. Marine energy saw significant growth in the number of projects within the industry (OpenHydro’s Open-Centre Turbine, Marine Current Turbines’ SeaGen deployment, SWEL’s Waveline Magnet and Pulse Tidal’s Pulse-Stream 100, for example). All other system functions could positively or negatively influence this system function, so all system functions can be considered critical during this phase. An injection of government guidance (F4) (the Strategic Environment Assessment SEA, Marine Bill and Planning and Energy Act, for example) led to creation and diffusion of knowledge (F2, F3) and a rise in the mobilization of resources (F6) (introduction of WATES in 2006, MEA in 2007, and MRPF in 2009, for example). Subsequently, lobby activities intensified (F7) and started to improve institutional conditions. Shortly after that, the government intensified market attraction for investors through the introduction of banded RO. Although the innovation system is clearly beginning to take shape, and there are clear interactions between the system functions, lowering the cost of marine energy remained the key challenge facing the industry.

4.4.3 Phase 3: Pre-commercial

As marine technology begins to mature and the industry gradually moves towards commercialization, there is an observed decrease in the activity patterns of the knowledge development (F2) and diffusion (F3) functions in Figure 9. These functions are not absent, however, and some significant events include the start of SuperGen Phase 3 and the opening of the Wave Hub Test Site in Cornwall.

The start this period also saw a large boost in government activity (see Figure 10). The landscape of the sector was fundamentally reshaped by the review of the Renewable Obligation scheme in 2009 and in 2010 and the DECC extended the scope of its SEA to explicitly include wave and tidal technologies. The Marine Action Plan was also published in the same year. Activity in the market formation function (F5), through release of the Marine Energy Program (MEP) and several white papers, led to significant growth in public and private funding over the next few years (see Figure 12). This included WATERS, TSB, MEAD and the Saltire Prize.

The result of this, and, crucially, the allocation of 5 Renewable Obligation Certificates (ROCs) to energy generated by wave and tidal devices as part of the banded RO scheme, significantly increased motivation within the industry and led to a very notable increase in entrepreneurial activities (F1) (see Figure 8). For example, Andritz Hydro Hammerfest installed their AR1000 turbine in 2011 using funds from the MRPF and Aquamarine Power installed their Oyster 800 demonstration array in 2011 with part grants from both the MRPF and WATERS (see Table ).

This period also sees some lobbying activity (F7) in the sector (Figure 13). In 2011 the Marine Energy Programme Board was established which enabled the industry to better consult with the government (through the DECC) on the measures needed to accelerate growth in the industry. This support has enabled the industry to better build upon the advancements made following the significant entrepreneurial activities (F1) seen at the start of this period.

The later part of this period, however, was much more difficult for the industry and saw the withdrawal of several significant players. In 2013 Rolls-Royce sold Tidal Generation Limited to French engineering firm Alstom. Though this was claimed to be a positive development by both Tidal Generation Limited and Alstom, the withdrawal of such a world renowned engineering company was disappointing for the sector. Pelamis Wave Power went into administration in 2014 after it failed to secure the additional funding required to continue development of its wave energy converter and Siemens, arguably the largest engineering firm in Europe, put Marine Current Turbines (MCT) up for sale. They stated that the pace of development in the tidal energy market was too slow and the tidal energy sector

77 would only every represent a niche market for them 8. The losses continued to come throughout 2014 as Aquamarine Power announced plans to downsize their business following a strategic review and uncertainty in the tidal energy sector was blamed 9 for the abolishment of proposals to develop a £2 million Tidal Blade Test Facility at the National Composites Centre in Bristol.

Although the withdrawal of two engineering giants (Siemens and Rolls Royce) from the sector within two years, combined with the Governments decision to reform the electricity market, will inevitably have some impact on investor confidence, to say that this signals the sectors ‘demise’ would be wholly misleading. Siemens highlighted the length of time it was taking for the tidal technology to become commercial as the resaons for its departure, but consent for several larger scale projects, the Brims and Brough Ness Tidal farms, which will contain around 60 devices each, for example, was granted during 2015 by the Scottish Government and indicates that the developers and shareholders within the industry remain unfazed (Figure 8).

Within this phase, entrepreneurial activities (F1) remain as a critical function to be properly fulfilled; entrepreneurs should ideally become system builders in this phase (Hekkert et al., 2011). Therefore, the construction of legitimacy (F7) is critical to counteracting this resistance to change. For the marine energy system, there is a sharp increase in F1 activities between 2009 and 2015. The guidance of the search (F4), resource mobilization (F6) and market formation (F5) functions provide supportive roles.

Knowledge development (F2) and exchange (F3) is obviously still important in this stage, since it is required, in some format at least, to advance devices through to the commercialization phase, but is less crucial to the development of the system than it was during phases 1 and 2.

4.4.4 Phase 4: Supported Commercialisation

For the supported commercialisation phase, market formation (F5) is the most important system function (Hekkert et al., 2011). A prosperous market fuels the innovation system and allows technology to develop and diffuse further.

8 See Harris (2014). 9 See Hayes (2015). 78

Supportive functions are entrepreneurial activities (F1), resource mobilization (F6) and guidance of the search (F4). The other functions (F2, F3 and F7) can most likely be considered less critical. This phase, however, lies beyond the time range considered in this research and thus is not analysed in the present work. This is recommended for further research in Chapter 5.

Phase 1: R&D Phase 3: Pre-Commercial 24 Phase 2: Demonstration 110 22 100 20 90 18 80 16 70 14 60 12 50 10 40 8 30 6 20 4 Cumulative score Numberof events 10 2 0 0 -2 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 -10 -4 -20 -6 -30 -8 -40

F1 F2+F3 F4 F5 F6 F7 Cumulative score

Figure 15: Overview of activities for all system functions

4.54.54.5 Interactions between sssystemsystem fffunctionsfunctions

Innovation systems are not linear systems. As development progresses, complex interactions and feedback loops can form between the different stages of development (Freeman and Soete, 1997). This creates interdependence between the system functions; the fulfilment of one function will affect the other functions. These interactions can occur in numerous ways and the overall performance of the system will be influenced by whether they contribute to the system in a positive or negative fashion. If the interactions are positive, then the system functions will serve to strengthen and reinforce one another (Bergek et al., 2008a; Hekkert et al., 2007b; Jacobsson and Bergek, 2004). This can result in the formation of positive or virtuous cycles that build momentum within the innovation system and initiate a process of ‘creative destruction’, whereby old established ideas are destroyed to 79 make way for new innovations. Negative interactions will serve to hinder the fulfilment of the system functions and can, if characterized by the establishment of vicious cycles, lead to the decline of the system (Bergek et al., 2008b). In the following, a + or - preceding the function number indicates positive and negative contributions respectively.

For the system at hand, there is evidence of positive interaction which, should the system continue to develop positively, provides the potential for the creation of a virtuous cycle. For example, the establishment of the EMEC in 2003, (+F4) provided the opportunity for developers to test their devices in real sea conditions (Atlantis Resources Corporation commissioned its AR1000 tidal turbine in 2011 at the EMEC, the first commercial scale tidal device to be synchronised to the national grid (RenewableUK, 2012a)). The results of these tests (+F2,+F3) and the subsequent opportunities identified for design improvement (Atlantis developed the AR1500 turbine), provided the confidence needed for investment by entrepreneurs (+F1) and the mobilization of resources (+F6) (plans to deploy this turbine, and the Andritz Hydro Hammerfest turbine, as part of the MeyGen project with first power expected in 2016).

Although the establishment of the EMEC itself is a positive contribution, not all devices which underwent testing resulted in further positive interactions with the TIS. Following trials of the Pelamis P2 device at the EMEC in 2010, EON sold their stake in the concept back to Pelamis Wave Power and Pelamis then went into administration in 2014 after failing to secure additional funding for their second trial device.

A further example of positive interaction in the system is given by the introduction of enhanced Renewable Obligation banding in October 2011 (+F4). This incentivised the development of renewable energy, by increasing the allocation of Renewable Obligation certificates to 5 per MWh for energy produced by wave and tidal devices, providing the long-term market signals (+F5) and space necessary to attract investment (+F1). This was necessary to not just significantly increase the proportion of energy sourced from marine devices, but also enable investment for it to become commercially viable as well. This interest sparked capital investment by larger multi-national engineering firms (such as Voith and Alstom) (+F6). The

80 latter is significant, since the sector was previously almost entirely made up of small and medium sized enterprises (RenewableUK, 2011).

Negative function fulfilment tends to reduce activities related to other system functions and can slow down or even stop progress within the innovation system. For example, when the UK Government announced the transition from the current renewables obligation subsidy regime to the new feed-in tariff style Contract for Difference (CfD), the change in policy created instability in the system. The policy change led to increased risk and uncertainty among investors who are concerned about longer-term market viability. This ultimately impacted investor confidence, reducing the market size (-F5) and diminishing motivation for entrepreneurs to set up projects (-F1). The net result is that many investment decisions have been put on hold 10 (-F6) until developers can get a clearer sense of precisely how the CfDs will work in practice and how much financial support with be available through the scheme.

Analysis of the positive interactions above points to a common starting point for both the examples considered. The positive fulfilment of the guidance of the search function (F4) then leads to a rise in entrepreneurial activities (+F1). This triggers the fulfilment of the knowledge development (+F2) and market formation (+F5) functions and this subsequently leads to the mobilization of financial resources (+F6).

From the analysis of the negative interactions a similar pattern is observed. The negative fulfilment of the guidance of the search function (-F4), which in the example above occurred due to the instabilities generated by policy change, created uncertainty for the future marine energy market (-F5). This subsequently led to reduced entrepreneurial activities (-F1) and, therefore, a reduction of financial resource mobilization (-F6) in the system.

Though both tidal and wave devices have been considered together in this research, the above analysis provides some indication that there are differences in the state of the development between these technologies. Consent for several larger scale tidal projects (Brims and Brough Ness Tidal farms) have been granted by the Scottish Government but similar has not been seen for wave devices (see Table). This suggests that tidal stream devices have demonstrated the viability of

10 See RenewableUK (2012a). 81 the technology, and have potential to move towards pre-commercialized, whilst the wave sector has actually suffered setbacks, with the demise of Pelamis Wave Power, in 2014, for example. This forms a limitation in the analysis, since the methodology has been applied to both of these marine energy technologies in unison.

4.64.64.6 Outlook

As Figure 15 shows, the industry is clearly moving forward and has benefited from significant activity between 2006 and 2011. As it progresses closer to commercialization, further activities within the market formation function (F5) are needed. The move towards 5 ROCs for each megawatt hour produced by wave and tidal generation devices signalled government commitment and support for the sector, provided medium term certainty to investors and gave an enhanced revenue stream for the first commercial projects (RenewableUK, 2012a). However, with significant consolidation and divestment seen in the industry by several major international players (Rolls Royce and Siemens), the impending abolishment of the RO scheme, and the introduction of the feed-in tariff with Contracts for Difference in 2017 as part of the Electricity Market Reform, the government must provide clarity (F4) over the details of the EMR proposals, improve the allocation and management of upfront capital funds, and heighten the ambition of the deployment targets of the industry as outlined in the DECC Renewables Roadmap.

Though approaching commercialization, the industry is not there yet. The focus on reducing the cost of technologies is still high and further investment, both private and public, is needed. The support groups and lobbying activities (F7) surrounding marine energy still do not compare in size and scope to those in other similar sectors, such as the wind energy industry.

5 Conclusion and recommendations

This study used an innovation systems approach in order to assess and characterise technological and institutional changes within the UK’s marine energy sector. It aimed to explain the development of the sector by providing insights into the dynamics of the innovation system.

A Historical Event Analysis methodology was employed which defines, classifies and maps events that took place within the UK’s marine energy sector between 2000 and 2015. These events included the introduction of new government policies, the entry of new actors and many other events that have served to change the character of the innovation system over time.

Using this information, the events were allocated to one of seven system functions, as identified and adapted from the literature, to assess their impact on, and contribution towards, the marine energy innovation system. The interactions between the system functions were then studied and analysed in detail to determine which functional requirements enhanced or impeded the development and application of marine energy technologies within the innovation system. Through this analysis, it was determined that as marine energy technology progressed, complex functional interactions formed within each phases of technological development. This created interdependence between the systems functions and provided insights as to which functional requirements of the innovation system need to be fulfilled in order for the system to be successful. This chapter summarises the answers to the research questions posed in this thesis and offers suggestions for further study.

5.15.15.1 Discussion

The first research question posed in this research was:

How did innovation system dynamics influence the processes of institutional change during the formation of the UK marine energy innovation system from 2000 to 2015?

The analysis of the system functions identified within the UK marine energy innovation system shows that a positive functional pattern developed. This indicates that the industry as a whole has moved forward as many activities between 2000 and 2015 contributed to the fulfilment of system functions throughout this period. However, since the marine energy innovation system overall is still pre-commercial, some of the institutional changes which occurred throughout the transformation period caused some breakdowns in the system. For instance, the government’s announcement in 2011 that the primary support structure for renewable energy was to change to a feed-in tariff with Contracts for Difference from 2017, as part of the Electricity Market Reform, led to the creation of an institutional blocking mechanism. It generated instability and uncertainty surrounding the future of the renewable energy market that caused stakeholders to refrain from making investment decisions. Thus, since marine energy technology has not yet reached the commercialization phase, instability and changes to policies and institutional agreements caused actors to become reluctant to further support the industry which, in turn, resulted in the abortion of various initiatives and, ultimately, a decline in entrepreneurial activities (F1).

As discussed in Chapter 4 innovations systems are not linear and complex interactions can form between the system functions. From the analysis of the marine energy sector, it is clear that some system functions become more relevant, and in some cases play a more important role, than others depending on the phase that the technology is in. Throughout the development of marine energy in the UK, the knowledge development (F2) and knowledge diffusion (F3) functions were identified as system functions that propel technology from phase 1 (research) to phase 2 (demonstration). One example of this was the establishment of the EMEC test centre which, although arguably long before any developers were able to take full advantage of the facilities offered, provided growth in the sector by reducing

84 the number of entry barriers facing developers who were looking to test new technologies.

The system function that drives marine technology from phase 2 (demonstration) to phase 3 (pre-commercial) is the entrepreneurial activities function (F1). Here, entrepreneurs formed a well-organized group that built up expectations of the new technology as a reliable option whilst simultaneously lobbying (F7) for better institutional conditions. For example, as part of the Government’s announcement that the Renewable Obligation scheme was to be banded, the number of Renewable Obligation Certificates (ROCs) allocated per MWh for wave or tidal devices in Scotland was set to five, significantly more than the two allocated for those devices located in England and Wales. Although the industry welcomed the higher level of revenue support in Scotland 11 , it stressed that developers will mainly concentrate on projects in Scotland as two ROCs were not adequate support for developing projects elsewhere in the UK. The result of this pressure from industry and supporting groups, led to allocation of 5 ROCs to energy generated by wave and tidal devices in the UK as part of the banded RO scheme by government in 2011. This significantly increased motivation within the industry and led to a very notable increase in entrepreneurial activities (F1).

Finally, as marine energy technology is currently moving from phase 3 (pre- commercial) to phase 4 (supported commercial), it was established that the market formation function (F5) becomes one which is essential to pushing technology development further towards commercialisation by fuelling the development and diffusion of the innovation system. The entrepreneurial activities (F1), resource mobilization (F6) and guidance of the search (F4) functions were seen to play supportive roles. Following this, the system functions which block further development of the innovation system were identified and this allowed policy recommendations to be formulated which serve to help remove these barriers. These recommendations are provided in the answer to the second research question.

What improvements can be made to accelerate the development of marine energy technologies in the UK?

11 See RenewableUK, (2012a). 85

As discussed above, it was seen that since investors and entrepreneurs look for long term and stable perspectives, an innovation system will not continue to grow until a suitable market is formed. Thus, the market formation function (F5) serves to be a trigger, which can lead to the breakthrough of new technology.

The proposed changes under the Electricity Market Reform provide an example of this. Although the changes are viewed as beneficial for marine energy in general, the introduction of change itself was already seen to cause stakeholders to refrain from making decisions. Thus, in order to encourage investment and reduce this uncertainty, it becomes apparent that a clear and reliable plan from the Government is essential to making aspects of the transition from the current Renewable Obligation scheme, to the contract for difference arrangements under Energy Market reform, clearer for developers and other actors in industry.

Next, as identified in the analysis of virtuous and vicious cycles, an important starting point for these cycles was the guidance of the search function (F4), and this was particularly seen when the events in the function concerned energy policy and regulations. However, as the industry moves towards commercialisation, there were a few identified barriers that the government should focus on reducing. One of these was the timing of the introduction of support policies by the government and this was seen to have a significant and considerable impact on the system. For example, the focus of the Marine Renewables Deployment Fund was on getting devices to the pre-commercial array stage but this was too advanced for the sector at the time and developers were unable to meet the criteria for funding. Similarly, many technologies were not ready to take advantage of the support generated by the introduction of banding to the Renewables Obligation scheme. However, it was seen that the availability of the funding in itself did provide the market signals (F5) required to give investors the confidence they need. Thus, it is evident that the introduction of policies and funding schemes to the sector must be early enough so as to provide adequate market signals (F5) and drive growth, but also realistic enough to enable uptake given the state of development within the sector. The disparity between the success of the Marine Renewables Deployment Fund and the Marine Renewable Proving Fund highlights this.

Throughout the transition towards the supported-commercial phase another crucial system function was seen to be resource mobilisation (F6). This was

86 specifically in regard to financial resources. Marine energy in the UK is still considered an emerging sector supported by private funding. It was shown, however, that there are considerable uncertainties with respect to funding in general. Concerns over future market sizes and the timescales involved for returns on investments were seen to generate considerable risk for private companies. This provides justification for the utilization of public funds by the Government to target the development of marine energy technology and support cost reductions. This support is clearly important and instrumental in the sector; if privately funded innovation is not possible, then Government investment is needed to ensure innovation continues to take place and the market can continue to grow.

One further identified concern with regards to funding in the UK marine energy sector was the large number of bodies responsible for dispensing and allocating public funds. This was highlighted as something which created complexity within the industry, since developers are forced to search a wide range of potential funding sources. Some funding is provided directly by the Government, some is only available from the Scottish Government and there are further funding sources available from the EU. Such a convoluted system can generate inefficiencies, especially when overlap between bodies exists.

Further uncertainly was seen to arise from the time constraints which are placed on Government grants. Developers have to constantly evaluate funding options to ensure that they not only have enough funds for current development, but are able to secure further funding before time limits on other sources runs out. Marine Current Turbines, who won a £10 million grant from the Marine Energy Array Demonstrator (MEAD) fund in early 2015 only to find it was withdrawn after failing to securing further funding, provides an example of this. Thus, there is clear evidence that a simplified and more streamlined funding system would help to reduce the inefficiencies which are clearly borne by applicants having to submit proposals to multiple schemes from different funding bodies.

5.25.25.2 Summary of recommendations

In order to encourage investment and reduce uncertainty, clear, long term and consistent policies and institutional agreements from the Government are essential. This research has demonstrated that the focus should be on removing 87 barriers to the growth of virtuous cycles (i.e. inconsistent and unstable changes to regulations) and on providing support and stimulation to enable the formation of new virtuous cycles (i.e. better guidance and support for market formation). Thus, in this context, the fulfilment of the guidance of the search and the market formation functions are critical. The fulfilment of these functions provides confidence to entrepreneurs who, through subsequent further involvement in the processes of knowledge exchange and combined lobby activities, can drive the marine energy sector towards commercialization.

5.35.35.3 Further work

The following provides some suggestions for further study:

• The analysis of the marine energy sector can be enhanced through the inclusion of direct industrial perspectives from the actors involved. This could be in the form of interviews. • This research has considered the marine energy sector up to the present date (2015). The analysis can be continued by applying the methodology over the forthcoming years to assess how the system continues to evolve. • This study has focused on wave and tidal energy technologies in particular. For a wider perspective on how these are placed within the overall renewable energy sector, the study can be expanded to include events concerning other technologies such as off-shore wind. • In order to determine the state of the UK marine energy innovation system with respect to the more global drive towards renewable energy, the study can be repeated on similar energy innovation systems in others countries. This would show how the UK’s marine energy sector is performing on an international level.

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