The Local Sources of Market Formation: Explaining Regional Growth Differentials in German Photovoltaic Markets

Abstract

Sustainable transitions in the energy sector have gained only insufficient attention in economic geography so far. Conversely, transition scholars do not pay sufficient attention to the spatial dimension of these dynamics. This paper introduces a conceptual framework for analysing the spatial characteristics of market formation processes in emerging technological innovation systems, thus proposing a shared field of research for economic geographers and transition scholars. Drawing on a social constructivist analysis of market formation processes, we propose to differentiate “market formation” into three sub-processes for which we additionally specify spatial characteristics: (1) the formation of market segments, (2) market transactions and (3) end-user profiles. We apply this conceptual and explanatory framework to explain the uneven geography of photovoltaic market formation in Germany, the current world market leader in this field. By analysing the role of local solar initiatives in shaping and supporting local market formation processes, we are able to provide a more encompassing explanation of the German PV success story than alternative accounts that merely focus on strong incentive structures and favourable geophysical conditions.

Acknowledgements

This work was partially conducted while one of the authors (B. Truffer) was a Fellow in the Sustainability Science Program at Harvard University. An earlier version of this paper had been presented at the Annual AAG Conference 2010 in Washington, DC. We are grateful for the many comments we have received from different colleagues since. Specifically, we would like to thank the editor of the Special Issue, Lars Coenen as well as Eva Lieberherr and two anonymous reviewers who helped to considerably improve the paper.

Notes

These functions are knowledge development and diffusion, resource mobilization, creation of legitimacy, entrepreneurial activities and guidance of the direction of search and market formation.

Beyond network theory, institutionalist variants and the performative approach, there are more approaches that address the sociology of markets, for example, based on insights from political economy and population ecology or the performative approach (for an overview see Fligstein & Dauter, 2007; Fourcade, 2007).

Solar initiatives address the whole range of renewable energy technologies. However, their impact on PV technology has proven to be most important. This is due to its decentralized character, the simple handling of installed systems and low land-related conflicts. Other renewable energy technologies gained much less attention or even encountered public resistance, as in the case of wind mills or large biomass combustion sites.

Within the overall sample, 67% of the initiatives are located in Bayern, Bavaria and Northrine Westfalia. Within those 51 initiatives founded before the introduction of the EEG, even 82% stem from these three federal states.

Within the production network, solar modules as the end-product of the core industrial process are delivered to system suppliers. They assemble all components such as modules, cables, inverters and sell these to installers. In the case of large-scale power systems, they even install the solar systems themselves.

The median trend was calculated as the median among the per capita values for each year. As a consequence, half of the federal states experienced market growth above this line and 50% were below. This is not to be confounded with the overall national per capita figures calculated for the whole of German population, which would be considerably higher than the median trend.