Résumé
Occasionally small technology start-‐ups (STSUs) are unable to advance their technology towards commercialization due to financial limitations and lack of crucial complementary assets. For this reason, STSUs are bound to profit through an intermediate market for immature technology. Here, STSUs collaborate with incumbents who assume control over the technology, mature it and eventually commercialize it. Different collaboration agreements exist, such as e.g. licensing or joint venture. However, some STSUs are left with only one option, namely outright technology sale. The Profiting from Innovation literature studies the dynamics of innovation and the implications for business strategy. However, the particularities of STSUs bound to profit from technology sale are neglected. Accordingly, this thesis provides a contribution to the Profiting from Innovation literature. First, it is hypothesized that Profiting from Innovation has a limited reach in terms of providing adequate strategic advice for STSUs bound to profit from technology sale. By applying the Profiting from Innovation framework to a case study of a Danish STSU the hypothesis is confirmed, due to the immature nature of the technology, the immature state of the industry, and the lack of financial resources. It is argued that the strategic advice offered by the Profiting from Innovation framework is focused on the last phases of the innovation process. Subsequently, this thesis sets out to expand the reach of Profiting from Innovation as well as its practical application. The case study is now used in an explorative manner while derived findings are enriched with selected theory. It is proposed that STSUs have weak bargaining positions due to the imperfections of markets for immature technology, caused by limited thickness of the markets, asymmetric information, high uncertainty and high transaction costs. To improve this bargaining position, and enhance the probability of becoming profitable, STSUs need to build advantageous appropriability regimes and explorative complementary asset positions. An advantageous appropriability regime must balance between the protection and transferability of STSUs’ technologies. In order to optimize the explorative complementary asset position STSUs need to focus on building up competences for combining the right explorative assets – including scientific research, process innovative, product innovative (technical or functional application), and aesthetic design – and managing the alliances from which these assets stem. The findings are arranged in a proposed ‘Exit strategy decision & action flow chart’ targeted towards STSUs bound to profit from outright technology sale and thus focuses on the earlier phases of the innovation process.
Acknowledgements
We would like to thank the following people for their contribution to this master thesis:
• Nicholas Smith
• Christian Nielsen
• Carsten Bech
• Anders Køhler
• Erik Skaarup
• Kenneth Svenningsen
• Josephine Grønnegård
Additionally, we would like to thank our supervisor Jens Frøslev Christensen, Professor at the Institute for Innovation and Organizational Economics at Copenhagen Business School, for his guidance and insights during the process of writing this thesis. Finally, we thank family and friends for their support.
_________________________
Jean Michel Brask Deleuran
_________________________
Eske Bo Knudsen
Table of contents
Chapter 1: Introduction... 6
1.1 Terminology ...10
1.2 Reading Instruction...11
Chapter 2: Case Description... 14
2.1 Context: Sustainable Offshore Energy ...14
2.2 Floating Power Plant A/S ...16
2.3 The Poseidon Concept ...18
2.4 Challenges of Floating Power Plant ...24
Chapter 3: Methodological Reflections... 27
3.1 Social Science Methodology ...27
3.2 Research Strategy & Design...29
3.3 Reliability and Validity of our Research & Findings...38
3.4 Delimitations...40
Chapter 4: Theoretical Point of Departure... 42
4.1 Profiting from Innovation...42
Chapter 5: Analysis 1 The Limited Reach of Profiting from Innovation... 48
5.1 Appropriability Regime Surrounding Poseidon...49
5.2 Floating Power Plant’s Complementary Asset Position ...52
5.3 Floating Power Plant’s Profiting Chances ...55
5.4 Strategic Implications for Floating Power Plant...55
5.5 Conclusion to Analysis 1...63
Chapter 6: Analysis 2 Expanding the Domain of Profiting from Innovation... 65
6.1 Exit Strategy Business Model...66
Case Narrative: Floating Power Plant’s new ‘Exit Strategy Business Model’...67
6.2 Entering the Market for Technology...70
Case Narrative: Floating Power Plant and the Market for Technology...70
6.2.1 The Rise of Markets for Technology ... 72
6.2.2 Particular Characteristics of a Market for Immature Technology... 74
6.2.3 Implications of a Market for Immature Technology ... 77
6.2.4 Sub-‐Conclusion ... 79
6.3 Advantageous Appropriability Regime ...79
Case Narrative: Building an Advantageous Appropriability Regime ...80
6.3.1 Immaturity Increases Tacitness ... 81
6.3.2 Tacitness as a Disadvantage... 82
6.3.3 Building an Advantageous Appropriability Regime... 83
6.3.4 Available and Effective Appropriability Mechanisms... 84
6.3.5 Sub-‐Conclusion ... 85
6.4 Advantageous Complementary Asset Position...86
Case Narrative: Optimizing the Complementary Asset Position...86
6.4.1 Exploitative vs. Explorative Complementary Assets ... 88
6.4.2 Inter-‐asset (Innovative) Competences... 93
6.4.3 Valuable Alliances ... 95
6.4.4 Competitive Advantage in Alliances... 97
6.4.5 Sub-‐Conclusion ... 99
Chapter 7: Discussion... 101
7.1 Exit Strategy Decision & Action Flow Chart ...102
7.2 Did We Expand the Domain of Profiting from Innovation?...107
Chapter 8: Conclusion & Implications... 110
8.1 Suggestions for Further Research ...113
References... 115
Literature ...115
Primary Data ...121
Reports...122
Internal Data from Floating Power Plant ...122
Web Sites ...122
Appendices -‐ overview... 124
Chapter 1: Introduction
»Subsequent to the 1980s, the global economy entered a new phase which opened up significant new opportunities for and incentives to young, high-‐tech start up (or new technology-‐based) companies.« (Research Policy, 2006:1092)
Major innovations that revolutionize markets and create new ones often have their origin in small technology start-‐ups (hereafter STSUs) taking on the role as inventors and developers of novel technologies. While invention is a necessary first step to innovation, it does not in itself bring commercial success. Some STSUs succeed in independently transforming their technologies into commercial products, which allow them to compete directly on a product market. However, turning immature technologies into commercial products often requires significant downstream resources and capabilities that are beyond the reach of STSUs.
Furthermore, due to their youth and small size, many of such firms have little experience in the markets for which their innovation is most appropriate (Gans & Stern, 2003). For this reason, STSUs may choose to cooperate with incumbents who possess the needed resources and capabilities, such as capital, production capacity and knowhow, distribution network, and marketing skills. Cooperation may take on many forms ranging from licensing through joint venture to outright sale of the technology (Teece, 1998; Arora & Gambardella, 2009;
Gans & Stern, 2003). In other words, we are witnessing a partitioning of the innovation process, where firms – often small in size – conduct upstream activities related to invention and technology development, while leaving production, marketing and distribution to large firms that specialize in these capital-‐intensive downstream activities (Arora & Gambardella, 1994). Accordingly, the rents from the innovation are distributed among several players.
Many empirical studies have shown that the resourceful incumbents with access to crucial assets often have an upper hand in this regard, which impede on STSUs’ ability to become profitable (Teece, 1986).
In the wake of these developments, a stream of literature addressing the new competitive dynamics for technological innovation has emerged. One of the pioneers in understanding these dynamics and theorizing about who profits from innovation is David Teece. In his seminal paper from 1986 ‘Profiting from Technological Innovation’, the single most cited
paper published by Research Policy1, Teece transcended previous economic approaches and merged different perspectives on economic organization, business strategy, technology and innovation. In doing so, he posed the question of who gets to profit from innovation and under what conditions? The article led to a continuing thread of contributions from numerous scholars, which has improved the understanding of the links between value capture from innovation and firm strategy. The outcome has been a body of literature dedicated to the field of Profiting from Innovation (hereafter PFI2). Twenty years after its publication, Research Policy (2006) dedicated a special issue honouring and discussing Teece’s research question (1986) from a post millennium perspective. Despite that the PFI literature has been approached from various angles and the overall logics have been addressed (and nuanced) in isolation, a key mantra remains: Conditions regarding (1) the appropriability regime surrounding the technology and (2) the distribution of complementary assets determine the distribution of profits between the different players taking part in the innovation process, i.e. whether the ‘lion’s share of the profits’ accrue to the innovator, imitators, suppliers or even customers.
The Limited Reach of Profiting from Innovation
There’s no doubt that the work of Teece and followers is of great relevance in today’s economy. The various logics of the PFI literature have a broad applicability across different industries and technologies. However, contexts for innovation differ significantly. After all, several variables differ from one innovation context to another such as e.g. technological characteristics, industrial settings, market conditions and the players involved just to mention a few. Furthermore, the globalized economy has brought about new conditions for innovation (Research Policy, 2006). An increasing number of STSUs choose to avoid the highly competitive environment of final product markets and instead focus on selling immature technology to incumbent buyers, who assume final development efforts before eventually commercializing (Athreye & Cantwell, 2007; Arora & Gambardella, 2001).
Accordingly, these STSUs must reap profits prior to the technology becoming commercially applicable. We suspect that the dynamics of this alternative innovation context differ from
1 681 citations as of July 2006 (Research Policy, 2006).
2 ‘PFI literature’ refers to the entire body of literature stemming from Teece’s (1986) paper. ‘PFI’ and ‘PFI theory’ refer only to Teece (1986). A more detailed explanation of the abbreviation PFI will be presented in the Chapter 3.
the dynamics investigated thoroughly by the PFI literature and thus offer different strategic opportunities for firms to earn a profit. Rather than profiting from innovation (a technology only becomes an innovation when commercialized) it is a matter of addressing the question:
How can firms profit from technology?
We suspect that PFI has a limited reach making it unfit for answering such a question and directing adequate focus to business strategy in a MFT context.3 Accordingly, we set forward a hypothesis, which we intend to confirm or disconfirm in this thesis:
Hypothesis: The Profiting from Innovation theory does not offer adequate strategic advice for small technology start-‐ups bound to profit from technology sale.
Our suspicion regarding the limited reach of PFI has arisen through initial literature research and further strengthened from concurrent empirical observations of a Danish STSU Floating Power Plant (hereafter FPP4). In the spring of 2008 the board of FPP raised a question seemingly similar to that of PFI: How do we profit from our technology? However, in some vital aspects the firm’s solution to the question has been different from the strategic advice proposed by PFI. Advancing FPP’s technology towards a commercialization stage required immense financial resources and production, distribution, and service capabilities that were out of reach for FPP. For this reason, the firm decided that there was no alternative option than to conduct an outright sale of the firm’s technology to a resourceful incumbent, who not only would commercialize, but also carry out the final development of the technology.
Expanding the Domain of Profiting from Innovation
Having identified what we discern as a limited reach of PFI – namely the lack of focus on the strategic opportunities of STSUs aiming to profit from technology sale – this thesis sets out to make a contribution towards exploring and providing a solution to this issue. We seek to expand the domain of PFI to adopt the point of view of a STSU bound to profit from
3 We also believe that the PFI literature generally neglects to address the question of how to profit from technology. However, due to the limits of this thesis, we only address PFI as represented by Teece (1986) in our hypothesis. See more in our Methodological Reflections (Chapter 3).
4 See Chapter 2 for a detailed presentation of Floating Power Plant. The homepage of FPP will be referred to as Web1.
technology sale. Doing so, we not only aim to nuance the theoretical field, but also its practical application.
Initially, we will confirm or disconfirm our proposition by analyzing the situation of FPP with the available analytical tools of the PFI framework. This will allow us to identify crucial variables that PFI does not embrace. Subsequent to this, we will turn to the overriding goal of this thesis, which is to expand the domain of PFI and make it applicable within the context of the depicted STSUs. In doing so, we use the case of FPP in an explorative manner to guide our theoretical analysis and discussion of strategic imperatives. We consider this thesis a contribution to the stream of PFI literature. Accordingly we maintain the PFI literatures’
mantra considering appropriability regimes and complementary asset positions important variables influencing the distribution of profits. It is important to stress that it is not the predictive power of FPI we seek to enhance, but rather the strategic dimension with an exclusive focus on STSUs pursuing a technology sale.
Based on the above we may derive the following research question:
How can the domain of the Profiting from Innovation theory be expanded to offer strategic advice for small technology start-‐ups bound to profit from technology sale?
After providing a confirmation of our hypothesis regarding the limited reach of PFI, we will structure the thesis according to the sub-‐questions below:
1. What characterizes the market for immature technology, and what are the strategic implications for STSUs?
2. How can STSUs enhance the bargaining position on a market for technology by (a) building an advantageous appropriability regime and (b) optimizing the firm’s complementary asset position?
1.1 Terminology
Throughout this thesis we will make use of terms for which there are no completely agreed-‐
upon definitions across literature. In order to avoid any misunderstandings we define their exact meaning in the context of this thesis in the following.
Technology
We define technology as »...useful knowledge, rooted in engineering and science, which usually also draws on practical experience from production. Technology can take the form of
“intellectual property” (e.g. patents), or intangibles (e.g. a software program, a design), or it can be embodied in a product...« (Arora & Gambardella, 2009:2-‐3). This clearly is a broad definition. Accordingly, technologies come in many shapes. We may define a simple sub-‐
component of a larger system as a technology, while using the same label on complex systems that comprise numerous sub-‐components.
Innovation
There are numerous definitions of the term innovation. We define it as the sum of invention, development and commercialization. Hence, a technological invention only qualifies as an innovation when it is commercialized and generates revenue.
Commercialization
The final stage of a product development process, where a technology is advanced sufficiently to finally be produced in full-‐scale, introduced on the product market, and hence, generate revenue. When entering the commercialization phase it becomes necessary to draw on resources and capabilities within manufacturing, marketing, distribution and service. A technology need not be commercially ready in order for a firm to earn a profit from it. Accordingly, firms may sell their technology on an intermediate technology market.
Small technology start-‐up
A small technology based firm with a limited operating history, which is focused on a technology (or a handful of technologies) that the firm develops and ultimately seeks to profit from in one way or the other.
1.2 Reading Instruction
To provide an overview of how this thesis will be structured, we briefly present the content of each chapter. Subsequently, we will provide a graphic illustration of the thesis structure.
Chapter 1: Introduction
This chapter introduces the research focus of the thesis. We will describe the broader context for our thesis and briefly present the theory that constitutes our point of departure.
We will make clear the relevance of the thesis. The chapter also presents the hypothesis regarding a limited reach of the Profiting from Innovation theory, together with the research question and sub-‐questions guiding our study. Furthermore we will provide an explanation of the terminology we use in order to clarify the meaning of important terms.
Chapter 2: Case Description
Chapter 2 presents the Danish small technology start-‐up Floating Power Plant and the firm’s technology Poseidon.
Chapter 3: Methodological Reflections
The third chapter presents the methodological choices related to answering our research question. The chapter covers our research strategy and design, a discussion of reliability and validity of our findings as well as methodological delimitations.
Chapter 4: Theoretical Point of Departure
This chapter will present Teece’s Profiting from Innovation theory from 1986, which serves as our theoretical point of departure.
Chapter 5: Analysis 1
The Limited Reach of Profiting from Innovation
Chapter 5 seeks to confirm our hypothesis regarding the limited reach of FPP. The PFI framework will be applied to the case of FPP in order to predict the future of FPP and determine what strategies are available given the firm’s situation. We analyze FPP around the time, when the firm had to determine how to profit from their technology. Afterwards, we will consider to what extent PFI has the quality to provide a subtle analysis that captures
the specific complexity of the case in subject and whether or not it offers relevant strategic advice.
Chapter 6: Analysis 2
Expanding the Domain of Profiting from Innovation
Chapter 6 aims at answering the sub-‐questions of this thesis. It is explored how FPP attempts to become profitable by pursuing a sale of its immature technology. In doing so, we will enrich with selected theories and thereby expand the reach of PFI making it applicable within the given context.
Chapter 7: Discussion
Chapter 7 gathers and discusses the derived findings of Analysis 2 and thereby improve the practical applicability of these findings for small technology start-‐ups. An ‘Exit strategy decision & action flow chart’ is proposed and discussed. Following this, it is discussed how our overall study has enabled us to move beyond the extant PFI theory and provide a contribution to the domain. Finally, some more general reflections regarding the general applicability and evaluation of our findings are discussed.
Chapter 8: Conclusion & Implications
Based on the overall findings from previous chapters, this final chapter answers our key research question and presents our overall contributions to theory and practice. Finally, the implications of our findings for further research are discussed.
Graphic Reading Instruction
Due to the two-‐headed aim of this thesis, implying that we first seek to confirm or disconfirm a hypothesis and subsequently seek to answer a research question, we find it necessary to provide the reader with a graphic reading instruction (page 12). It is meant as a supportive tool for the reader during the process of reading this thesis. The progress and flow of the thesis is illustrated as well as the interrelatedness between the various chapters and important sections. Horizontal doted lines denote interrelatedness. Vertical full arrows denote the progress in the thesis.
Theoretical Point of Departure Methodological
Reflections Case Description
Research Question Hypothesis
Introduction
The Limited Reach of Profiting from Innovation
Sub-‐question 2ab Sub-‐question 1
Entering the Market for Technology
Advantageous Appropriability Regime
Advantageous Complementary Asset Position Analysis 1
Analysis 2
Time Period 1: Spring
2008 Time Period 2: Summer 2008
to Present
Conclusion & Implications
Exit Strategy Decision & Action Flow Chart Discussion
Chapter 2: Case Description
In this chapter we will provide a description of our case company Floating Power Plant (FPP).
Apart from providing firm-‐specific details and presenting FPP’s technology, Poseidon, we also find it relevant to provide information on external conditions as it will improve the understanding of FPP and the firm’s activities.
2.1 Context: Sustainable Offshore Energy
It has become a well-‐established fact that traditional energy sources, like coal and fossil fuels, are harmful to the environment and limited in stock. At the same time, the world demand for energy is constantly growing, largely due to the rapid industrialization of emergent economies such as China and India (Roberts, 2005). This brings about an increasing need to harvest unlimited energy sources such as solar, wind and wave energy.
Wind energy has become a significant contributor to electricity production in many regions.
In Denmark 20 percent of the electricity production comes from wind energy, whereas the share is only two percent on a global level. However, wind energy is expected to diffuse further (World Wind Energy Association, 2009). Whereas technologies within onshore wind energy are relatively mature, technologies for offshore operations are still rather immature partly due to the demanding climatic environmental exposure offshore, which challenges assembly, installation and maintenance procedures. However, the opportunities within offshore wind energy are considered bigger for several reasons. Firstly, offshore winds are stronger thus providing a higher yield. Secondly, they are less likely to be object for public protest due to noise and visual pollution, which is becoming a growing problem in Europe, where many regions are running out of available onshore locations (Business Insights, 2008).
The Emergence of Wave Energy
Whereas wind energy is gaining a foothold in the global electricity generation mix, wave energy is yet to break through. Wave power is a byproduct of solar power. Solar heating on the ocean surface causes temperature gradients. As the wind skims across large ocean
surfaces, due to the temperature gradients, waves are created. What begins as a ripple can evolve into a large wave with the passage of time (Waveplam, 2009a). Wave energy largely depends on the wind speed and the distance it covers. It has high concentrated energy of up to 100 kW per meter of wave front (ibid.). By exploiting the vertical motion of waves, clean and renewable energy can be harvested. Most of the technologies around are still at a premature stage (which we shall return to). However, wave energy holds some characteristics, which make it reasonable to assume that this energy source can contribute to answering the world’s accelerating energy needs (Frost & Sullivan, 2010). Waves are much more reliable, constant and predictable than other kinds of renewable energy sources such as e.g. wind or solar light. Coupled with vast worldwide resources (2,000 to 4,000 TWh yearly), ocean energy may be the key to answer the world's accelerating energy needs (ibid.).
After more than three decades of being largely reduced to academic and partially industry supported research activity, the development of ocean wave energy has started to assume shape as an emerging industry, especially in Europe. The existence of national and international interest groups, research programmes as well as international agencies (e.g.
Association of Danish Wave Energy, Waveplam, and International Energy Agency – Ocean Energy Systems) furthermore indicates that the industry is evolving. The commercialization phase is commonly regarded to occur no later than 2015 (ES, cf. Appendix 1; Frost &
Sullivan, 2010; Waveplam, 2009a).5 There are roughly fifty different wave energy companies globally, each devoted to their own unique technology standard/design (Waveplam, 2009a).
It is highly unknown which technology (or technologies) will rise to become the dominant design(s). However, and unlike the wind turbine industry, it is expected that the industry will end up with more than one dominant design, due to the highly different conditions within wave energy sites around the world (ES; FPP, cf. Appendix 2). Although very difficult to categorize, we may distinguish between five categories of technological concepts within
5 There has been a few commercializing attempts among wave power companies, however none has managed to realize a commercial breakthrough. Examples include Scottish Pelamis, claiming to have the world’s first commercial wave energy park (Web2), however this assertion is met with massive skepticism due to the many technical failures and delays (ES, FPP).
wave energy extraction.6 Due to the business angle of this thesis, we do not wish to get into details, as each technological concept would require several pages to describe meaningfully.
Even if a number of technologies perform as required, their implementation and use as large-‐scale contributors, faces numerous challenges, which commonly are summarized as non-‐technical barriers (Waveplam, 2009b):
Non-‐technical Barriers Description
Regulatory Issues Conflict over sea use, operation licensing Financial Incentives Insufficient feed-‐in tariffs and capital grants Infrastructure and Logistics Grid limitations, supply chain bottlenecks Conflicts of Use Professional fishery, yachting/leisure activities Environmental Issues Marine mammals, visual impact and accidents
Public perception Worries on electricity bill, mistrust in the “new”
Table 2.1: Non-‐technical Barriers for wave energy (WavePlam, 2009b; IEA-‐OES, 2009).
2.2 Floating Power Plant A/S
FPP is a STSU located at Østerbro, Copenhagen with testing facilities in Nakskov, Denmark.
FPP is exclusively devoted to the development of a novel technology for offshore energy extraction named Poseidon. The company was founded as a joint-‐stock company in 2004 following an invention phase dating back to the early 1980s. The FPP venture is solely financed through private funding.
Apart from various people employed on a freelance basis, ranging from a communication executive to various blacksmiths and professional divers, FPP presently has two full time employees, CEO Carsten Bech and Project Manager Anders Køhler. Bech was hired in the spring of 2008. He has an extensive professional and educational background. Before joining FPP, Bech spent six years as a member of the executive team in NNE Pharmaplan, initially as
6 Tidal Barrage Technologies, Tidal Current Technologies, Ocean Wave Technologies, Ocean Thermal Energy Conversion (OTEC), and Salinity Gradient (IEA-‐OES, 2009).
Head of Program Management, later he was promoted to Head of Staff. Bech is originally an engineering graduate, but has supplemented with several business degrees and has furthermore obtained a PMP (Project Management Degree) certification from the University of Washington and a PED (Program for Executive Development) certification from IMB in Switzerland. Køhler has been a part of the management team of FPP since the spring of 2007. He holds a master degree in environmental engineering from DTU and has worked with consultancy and project management. The board of directors comprises five members.
Some of these are working board members, including Chairman Erik Schulz who undertakes various assignments for the company in particular when FPP officially meets with different stakeholders (FPP).
Network
FPP has an extensive network of strategic alliances that to a large extent is concentrated around the office in Copenhagen, Denmark. The network comprises both partners and collaborators ranging from closed and formal to open and informal. Much of the continuous development of Poseidon depends on this network, because Poseidon builds upon various bodies of expert knowledge. As part of the company strategy FPP makes use of its network to e.g. verify technological performance results, as is the case with Risø DTU, who is globally recognized as one of the leading research laboratories in sustainable energy technologies, and Danish Hydraulic Institute (hereafter DHI), who are globally renowned and considered one of the world’s leading research institutes within marine technologies and hydraulics.
Below is a list of FPP’s network as of September 2010. The organizations are prioritized, according to their perceived importance, by CEO Carsten Bech (CB1, cf. Appendix 5):7
• Risø DTU (Denmark), collaborator (1)
• DHI Water & Environment (Denmark), collaborator (1)
• Knud E. Hansen A/S (Denmark), collaborator (2)
• Jotun (Norway), partner (3)
• Arup (Denmark), collaborator (3)
• Lolland Municipality (Denmark), partner (3)
• Det Norske Veritas (Norway), collaborator (4)
• Gaia (Denmark), partner (4)
7 1= most valuable, 5= least valuable.
• Dong Energy (Denmark), partner (5)
• HYDRAtech (Denmark), partner (5)
• Techinvest (Portugal), partner (5)
• Siemens (Denmark) (no value available8)
The difference between partner and collaborator lies within the different incitement agreements. E.g. Risø DTU and DHI, perceived as the most important alliances, are collaborators of FPP. They are not economically motivated, as they must be kept objective, in order for the important third party verifications to be valuable for FPP. On the other hand partners are economically motivated. E.g. Dong Energy has received shares in FPP in return for the location at Onsevig wind turbine park, cables, and know-‐how.
In regards to participating in more informal industry networks FPP has chosen to be very selective. The management argues that there are too many interest groups and research programs with minimal effect on the actual industry and technological development. FPP does not believe that the return on participating in the various summits and conferences is worth the investment. For this reason, FPP is not part of e.g. the Association for Danish Wave Energy. Furthermore, the company has chosen not to cooperate with wind turbine producers in order not to become locked-‐in with specific wind turbine interfaces (FPP).
2.3 The Poseidon Concept
The Poseidon concept is best labelled an ‘offshore energy system’, in which both wave energy and wind power extraction is combined in a floating foundation. Poseidon is designed for offshore locations with considerable flux. If broken into components the platform consists of the following four sub-‐components:
• Power take-‐off system
Ten floats facing the wave direction. When the waves roll in, the floats are tilted up and downwards activating a double function piston pump that transforms the energy from the wave into water pressure, which is sent through a turbine, thus generating electricity. The unique form of the float ensures high absorption of
8 However, Siemens has clearly become very important for FPP, as they are represented on the firm’s selected list of partnerships in the sales pitch slideshow (Appendix 8).
the wave energy, thereby reducing the height of the waves significantly and creating calm waters behind the plant.
• Wind turbines
The three wind turbines are not specifically designed for Poseidon. On a commercial size Poseidon plant, they will be industry standard wind turbines.
• Anchor buoy
The patented anchor buoy system ensures that the waves always meet the front of the plant. In principle it is capable of turning 360 degrees, but in most locations the waves will roll in within a 90° angle (FPP). The technology is known from the oil industry, where ships make it out for platforms that have to be perfectly stable over oil wells.
• Floating foundation
The floating foundation integrates all other elements and creates significantly calmer waters behind the platform making the platform easily accessible e.g. for maintenance purposes. The stability of the floating foundation is affected by all other components thus making the whole platform highly systemic.
A commercial Poseidon plant will measure from 100 and up to 420 meters wide (against the wave fronts), depending on wave and wind conditions at the chosen location. A Poseidon 230 meter wide scale plant weighing 20,000-‐30,000 tons is expected to perform as follows:
• Life expectancy of 30 years (designed to survive the 100 -‐1000 year wave9).
• Efficiency of transforming inherent wave energy to electricity of 70 percent. This is done by extracting both the push and lift energies of the waves. These results have been verified by DHI. According to experts, this efficiency rate is considered very high (Waveplam, 2009a).
• The total installed effect of the plant is 10 MW. 60 percent from the floats and 40 percent from the wind turbines (three 2 MW turbines or one 5 MW turbine).
• 50 GWh annual output (energy yield) depending on actual wind and wave conditions.
• KWh price of 1st generation estimated to Euro Cent 15, 2nd generation estimated to Euro Cent 10. (AK, cf. Appendix 4; Appendix 8; Web1)
9 A 100 -‐year wave is a statistically projected water wave, the height of which, on average, is met or exceeded once in a hundred years for a given location. The likelihood of this wave height being attained at least once in the hundred-‐year period is 63%. As a projection of the most extreme wave, which can be expected to occur in a given body of water, the 100-‐year wave is a factor commonly taken into consideration by designers of oil platforms and other offshore structures. Periods of time other than a hundred years may also be taken into account, resulting in, for instance, a fifty-‐year wave. (Web3)
Graphic illustration of a commercial Poseidon plant (Web1).
The Development of the Poseidon Technology
The conception of Poseidon dates back to the 1980s, when inventor Hans Marius Pedersen began to develop various wave energy concepts. However, in this period of time, the process was very fluid and unorganized. In the mid-‐nineties the development of what we today know as the Poseidon concept speeded up. In 1997 Hans Marius Pedersen engaged in collaboration with Aalborg University and the first conceptual design was launched in 1998 with a full 4,2 meter floating power plant in a tank. The following year the 0,7 x 1,4 floats were tested in a wave channel at DHI. During 2001-‐2002 a new prototype – 8 meter wide, with three small installed wind turbines – was tested in an offshore basin at DHI.
These developments eventually led to the establishment of FPP as a company in 2004 and in 2007 an organization was formed with a working board of directors and a management team. All ownership of relevant intellectual property was acquired from the original founder and inventor. Subsequently, FPP began the construction of the Poseidon 37, a 37 meter wide test-‐ and demonstration plant. In 2008, Poseidon 37 was installed at the DONG offshore wind turbine park at Onsevig without wind turbines. In the winter of 2009, Poseidon 37 completed its 1st Test Phase after a four-‐month period with promising energy yield verified by DHI and platform stability confirmed by Risø DTU. In May 2010 three standardized 1 kW wind turbines, delivered by Gaia Wind, were for the first time mounted on the platform (Appendix 11). During June 2010 Poseidon initiated its 2nd Test Phase at Onsevig (expected to terminate in March 2011) in order to document the overall functionality and performance
of the platform and its components, including the wind turbines. Since the formation of FPP in 2004, the company has spent roughly 50 million DKK on the development of the Poseidon technology and constructing the Poseidon 37 (AK).
FPP’s patent portfolio has been difficult to assess and present in detail. According to Køhler, FPP holds one major patent that comprises the entire platform. Besides that, there are 14 minor patents covering various components and interfaces (AK). Through patent search, using the Derwent Innovation Index, we have found two patents concerning respectively
‘tidal power energy’ (patent number: WO8804362-‐A110) and ‘wave power energy’ (patent number: DK9800965-‐A11) with Hans Marius Pedersen as the Inventor and Patent Assignee.
We believe that the first is the ‘one major’ patent of Poseidon, with 12 smaller patents belonging to it, and the later, comprising two patents, is an add on to the patent portfolio, made when the inventor discovered the potential for wave power energy in the original invention. As of September 2010, FPP has two new patent applications pending concerning respectively (A) ‘Hydraulic Energy Conversion (pump and turbine)’ and (B) ‘Direct Electric Energy Conversion’ (Appendix 9). Furthermore, eight additional cases are in IPR Pipeline (ibid.). FPP collaborates with patent agency Chas.Hude and has during 2010 spent 500.000 DKK on this optimized patenting activity (AK).
Poseidon 37
Poseidon 37 is a downscaled demonstration version of a commercial Poseidon plant.
Poseidon 37 has an appropriate size in accordance to the relatively calm conditions around Onsevig. However, such a plant will never turn economically viable, due to limited energy yield and the lack of sufficient feed-‐in-‐tariffs on wave energy in Denmark (FPP; Waveplam, 2009b). For this reason, Denmark is not considered an appropriate location for commercial
10 WO8804362-‐A1 is the overall patent number, under which 12 other patent numbers belong. International Application Date: 16.06.88. Description: ‘Floating tidal power plant for energy generation -‐ has turbines detachably arranged on common beam, which can be swung up to surface within area limited by ring pontoon’
(Derwent Innovation Index). We believe that this patent (together with sub-‐patents) have something to do with Poseidon’s stable floating foundation, power take-‐off system, and anchor buoy’s ability to always make the plant face the front of the waves. (Appendix 10)
11 This patent is verified by Anders Køhler to be one of the Poseidon patents. Publication Date: 23.01.00.
Description (also including: DK174463-‐B): ‘Wave power plant has waves moving floating bodies and movement transmitted to pumps, establishing fluid flow driving turbines or similar under pressure’ (Derwent Innovation Index). No further details were extractable. The patent could comprise elements of the concept of the Poseidon technology.
Poseidon plants. Accordingly, the Poseidon concept is being developed to become fit for operations in greater oceans, where flux and wave heights are much greater. An example could be in the Atlantic Ocean off the coast of Portugal, where the feed-‐in tariffs are highly favourable (ibid). Moreover, the energy flux off the coast of Portugal is four times higher than the flux off the coast of Hanstholm, Northern Jutland, which is the highest in Denmark (Waveplam, 2009a). Such locations will require Poseidon plants that are up to six times bigger than the present Poseidon in order to generate platform stability, which will enable the mounting of wind turbines.
Technological Maturity of Poseidon
In this thesis we will refer to Poseidon as one technology. However, we acknowledge that this is a slight simplification, because Poseidon is a platform integrating both novel and existing sub-‐technologies in a unique way. Novel technologies include the power take-‐off system, the buoy and the floating foundation itself. Existing technologies include the standardized wind turbines and the anchor. We may label Poseidon as a systemic technology, consisting of several components that are interdependent. This implies that making changes in one component will necessitate changes in another (or several other) component (Chesbrough & Tusunoki, 200112). Such characteristics are predominant within immature technologies. As they mature, the interface between components will become standardized. Accordingly, when viewed as a single technology, Poseidon is rather complex because it builds upon different regimes of highly specialized knowledge in respect to marine conditions, wind conditions, hydraulics, mechanical controlling and automation software (AK, FPP).
In terms of maturity, Poseidon is immature in the sense that it must undergo further developments in order to become commercially viable and be introduced on a final product market. In order to nuance our notion of immature we may refer to the technological phases proposed by the International Energy Association – Ocean Energy Systems (2009):
12 Chesbrough & Kusunoki (2001) most often use the term ‘integral’ rather than ‘systemic’ in order to denote complex technologies, in which a change in one component also implies changes in the linkages between components.
1. Concept Design: Systems that have attracted attention due to their unique and promising features, which may or may not be realized in the future.
2. Part-‐scale (Tank): Devices, concepts and prototypes that are in the research and development phase undergoing tests in the laboratory environment.
3. Part-‐scale (Sea): Technologies that are reported to have undergone tests in the sea (Part of the full system or part-‐scale model of the prototype).
4. Full-‐scale: Devices or concepts that have seen at least one full-‐cycle development regardless of their scope of commercial production or present status of progress.
5. Pre-‐commercial: Systems that are claimed to be in such a level of advancement where commercial deployment is reasonably expected within few years.
6. Commercial: Technologies that have been operating on commercial basis for a significant period of time.
As of September 2010, we perceive Poseidon to be in the full-‐scale phase, however close to the pre-‐commercial phase. The plant has completed its 1st Test Phase offshore (winter 2009) and has initiated the 2nd Test Phase (summer 2010). Poseidon is capable of generating consistent power to Dong Energy’s grid. However, it is still not rentable under Danish conditions (due to low flux and lack of sufficient feed-‐in-‐tariffs). See Figure 2.2 for FPP/Poseidon’s chronological timeline, important events, technological development and maturation.
Figure 2.2: FPP/Poseidon’s timeline. See also Appendix 8, for FPP’s own timeline.
Targeted End-‐Users of Poseidon
FPP has defined two end-‐user groups for Poseidon as a commercial product ready for use:
Energy utilities and offshore oil companies. Energy utilities, such as e.g. Dong Energy, Vattenfall, and NG&E, produce and distribute energy from different sources including offshore wind turbine parks. Such companies buy products that will allow them to produce energy ranging from raw materials such as biogas and coal to products that transform energy into electricity, e.g. wind turbines and potentially wave energy systems. Not only will a fully commercial Poseidon plant enable an energy utility to harvest energy from the ocean, but it will also enable a floating foundation for wind turbines, which potentially will ease the resource demanding installation of offshore wind turbines in deep-‐water environments significantly. Poseidon therefore has a number of clear synergistic features from an energy utility’s perspective. The other end-‐user group is offshore oil companies. Poseidon can make oil platforms self-‐sufficient with electricity and avoid instalments of costly electricity wires from the mainland. Also, the concept reduces the height of the waves significantly and creates calm waters behind the front of the plant making the Poseidon platform easy accessible and potentially suitable for e.g. storage.
2.4 Challenges of Floating Power Plant
Compared to the rapid developments within e.g. software and consumer electronics the development of Poseidon has been slow. The concept has been underway for nearly 30 years without reaching the commercialization stage. The obvious reason for this is the low degree of commercial viability, which makes it difficult to raise capital and speed up development. FPP has continuously been constrained by the lack of funding. On several occasions FPP has been forced to stall operations while awaiting new capital injections. The capital base of the company comprises approximately 60 small private investors (FPP). A significant amount of FPP’s limited resources have been spent on raising capital. Hence, the freedom to operate has been rather limited (FPP).
The low commercial viability can partially be ascribed to the numerous risks and uncertainties surrounding the functionality of the concept. Although the technology has advanced substantially and yielded promising results verified by external parties, it has yet