Branding of non profit organizations, a case study of collaborative innovation and commercialization

UNIVERSITEIT MAASTRICHT BUSINESS SCHOOL (UMBS)
INSTITUT D 'ADMINISTRATION DES ENTREPRISES IAE AIX‐EN‐PROVENCE
AUDENCIA NANTES.ECOLE DE MANAGEMENT
ESCUELA DE ALTA DIRECCIÓN Y ADMINISTRACIÓN EADA, BARCELONA
LEON KOZMINSKY ACADEMY OF ENTREPRENEURSHIP AND MANAGEMENT (LKAEM)
HHL LIEPZIG GRADUATE SCHOOL OF MANAGEMENT

And associated partner:
OPEN UNIVERSITEIT NEDERLAND

Master Thesis
Submitted in partial fulfillment of the requirements for the
Euro*MBA

Branding of non-profit organizations, a case study of
collaborative innovation and commercialization in the U.S.A.
renewable energy industry.
Student:
James Flock

Version date: February 8th, 2010

Supervisor:
Dr. Clemens Bechter

DECLARATION OF ORIGINALITY OF WORK:
I affirm that the attached work is entirely my own except where the
words or ideas of other writers are specifically acknowledged through
the use of inverted commas and in‐text references. This thesis has not
been submitted for any other subject at Euro*MBA or any other
institution. I have revised, edited, and proofread this paper.

J.Flock - Branding Non Profits Euro*MBA

List of Tables and Figures

List of Tables
Table 1: Best Global Brands 2009 (Interbrand) ....................................................................................... 17
Table 2: Total Variance Explained............................................................................................................. 49
Table 3: Rotated Component Matrix ......................................................................................................... 51
Table 4: Gender Differences ....................................................................................................................... 64
Table 5: Network Value Cycle (Estimate) ................................................................................................. 82
Table 6: Coefficients Regression................................................................................................................. 83

List of Figures

Figure 1: Research Framework .................................................................................................................. 12
Figure 2: VENN-Diagram: Literature Review “Classic” Articles ......................................................... 13
Figure 3: Study 2 Mapping MBP and FBP (Grohmann, 2009) .............................................................. 16
Figure 4: Price and Product/image differentiation in commodity and branded markets (Pike, 2009)22
Figure 5: Taxonomy User Contribution Systems (Cook, 2008)............................................................... 25
Figure 6: Open Source Model of Wiki-Based Customer-Centricity (Wagner & Majchrzak, 2007).... 27
Figure 7: Open and Closed Innovation (Chesbrough & Appleyard, 2007) ............................................ 28
Figure 8: U.S. Energy Consumption by fuel (EIA, 2009) ......................................................................... 33
Figure 9: U.S. Energy Mix 2008 (EIA, 2009)............................................................................................. 34
Figure 10: Renewable / Nonrenewable Energy Centralized Grid Percentages taken from EIA (EIA,
2009) .............................................................................................................................................................. 37
Figure 11: Schematic of an example CM (Hatziagyriou et al, 2007)....................................................... 43
Figure 12: Energy Flow within a Microgrid (Hatziargyriou et al, 2007)................................................ 44
Figure 13: Climate Change Targets, US World Resource Institute (National Grid, 2008) .................. 45
Figure 14: Cluster country distribution..................................................................................................... 66
Figure 15: Cluster variable User_content................................................................................................. 67
Figure 16: Cluster Networkcost.................................................................................................................. 68
Figure 17: Cluster Brand ............................................................................................................................ 70
Figure 18: Cluster Renewables ................................................................................................................... 71
Figure 19: Cluster Residential .................................................................................................................... 72
Figure 20: Cluster Handson ........................................................................................................................ 73
Figure 21: Cluster Leave ............................................................................................................................. 75
Figure 22: Cluster Need_gov....................................................................................................................... 76
Figure 23: Cluster Designers....................................................................................................................... 78
Figure 24: Cluster All_ok ............................................................................................................................ 79
Figure 25: Network Value Cycle (Estimated)........................................................................................... 82
Figure 26: Regression .................................................................................................................................. 84
Figure 27: Renewable Energy Innovation community model ................................................................. 87

List of Tables and Figures................................................................................................ 2
List of Tables ..................................................................................................................... 2
List of Figures.................................................................................................................... 2
Abstract.............................................................................................................................. 5
1.0 Introduction................................................................................................................. 7

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1.1 Rationale of study.................................................................................................................7
1.2 Research Objectives ...........................................................................................................10
1.3 Research Framework and Methodology ..........................................................................11
1.4 Limitations and Scope for Further Research ..................................................................14
2.0 Literature Review ..................................................................................................... 14
2.1 Branding..............................................................................................................................15
2.1.1 Brand Fundamentals.......................................................................................................15
2.1.2 The Non-Profit Brand .....................................................................................................18
2.1.3 The Commodity Brand ...................................................................................................21
2.1.4 Co-Branding.....................................................................................................................22
2.2 User Contribution Systems................................................................................................24
2.2.1 Innovation Community...................................................................................................24
2.3 Energy..................................................................................................................................32
2.3.1 Market Trends.................................................................................................................32
2.3.2 Conventional Energy Process.........................................................................................37
2.3.3 RPS - Renewable Portfolio Standard ............................................................................37
2.3.4 FIT – Feed in Tariff.........................................................................................................38
2.3.5 Smart Grid .......................................................................................................................40
2.3.6 Micro-grid ........................................................................................................................41
2.3.7 Carbon Tax ......................................................................................................................45
2.3.8 Technology Trends ..........................................................................................................46
3.0 Dimensions of User Perceptions .............................................................................. 49
4.0 Interpretation of Dimensions ................................................................................... 51
4.1 Innovation Community - Product......................................................................................51
4.2 Illusion of choice - Placement.............................................................................................53
4.3 Signal Processing – Placement ...........................................................................................54
4.4 The RenewShow - Placement .............................................................................................56
4.5 B^3 - Promotion...................................................................................................................57
4.6 Real Deal - Price ................................................................................................................58
4.7 The Man – Incumbent power ..............................................................................................59
4.8 Value for you – Price / Promotion......................................................................................61
5.0 Gender Differences ................................................................................................... 62
6.0 Geographical Grouping............................................................................................ 65
6.1 Gift Economy ......................................................................................................................67
6.2 Community Cost.................................................................................................................68
6.3 Brand ...................................................................................................................................70
6.4 Renewables..........................................................................................................................71
6.5 Residential...........................................................................................................................72
6.6 Learn by doing....................................................................................................................73
6.7 Support ................................................................................................................................75
6.8 Need for Government.........................................................................................................76
6.9 Designers .............................................................................................................................78
6.10 Conventional Wisdom ......................................................................................................79
7.0 Further Qualitative Findings ................................................................................... 80
7.1 Network Equation ..............................................................................................................81
8.0 Conclusion and Recommendations ......................................................................... 84

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Appendix.......................................................................................................................... 89
Section A – Survey (Likert Scale) .............................................................................................89
Section B – Group Comparisons (T-Test) .................................................................................91
Section C – Network equation (variation) .................................................................................94
Section D....................................................................................................................................95
Bibliography .................................................................................................................... 95

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Abstract
This research is focused on branding of a renewable energy non-profit. Which
exists in the framework of network theory, open innovation, and methods for new
technology dispersal. To attract or draw members, clients, and supply-chain’s to this
network, a clearly defined value proposition must be embedded in the brand equity.
To create engagement with a potential network member of a non-profit, multi-
stakeholder perception, of renewable energy technologies, methods of brand
communication need to be determined, so as to deliver the value proposition of the brand,
thus influencing the dispersal of the network.
Apriori, the starting points for renewable energy sources are different than that of
non-renewable energy sources. The former are based along the thinking of Rachael
Carson [1962] (Karvonen, 2008) summarized in her breakthrough work titled ‘Silent
Spring.’ Under this view, society is viewed from the socio-bio eco-system perspective,
where the whole is viewed to be greater than the sum of the parts. Whereas the latter,
energy production from non-renewable sources, is based in the context of a synergy of
conventional machines, with defined rational for every part to serve the efficiency of
those controlling the divided parts. The sum of the parts is greater than the whole. Adam
Smith (1918) called this phenomena division of labor, in his influential book on
economics titled, ‘Wealth of Nations’.
In terms of usage as an energy source, non-renewables are considered an ideal
production source based upon the reliance on a tightly controlled and defined supply
chain from source to consumption. On the other hand, renewables are considered
sensitive in terms of a volatile input imposing environmental constrains, thus affecting
the output capacity, hampering the predictable energy quality and supply.
Early adopters of the Carson view, in the context of energy, accepted the risks
inherent with the output volatility and in turn created a local consumption environment
that seems to, on average, balance consumption with production of electrical energy.
Furthermore, the early adopters made this choice for many reasons, but one factor that all
the early adopters faced as a ramification of their decision was the hurdle of high initial
investment. This high initial investment coupled with other factors, beyond the scope of

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this paper, is what many consumers consider to be the cause for the lack of real market
penetration of renewables in the U.S.A.
This paper will mainly focus on promoting alternatives in energy production as a
means to increase market penetration of renewable energy and energy efficiency
measures in the U.S.A. The market place has infinite segments and multiple stakeholders
and thus the idea proposed in this analysis is to create a network where open
communication can organically grow, but be monitored and directed. The goal of this
analysis is to address the barriers of renewable energy and energy efficiency measures
from a customer perspective of energy on a massive project scale.
Therefore, the proposal of this paper is to consider a web-based application to
develop an innovation community focused on addressing the issues of the deployment of
renewable energy and energy efficiency concepts for the average consumer. The mixing
of ideas in an open source forum to solve project-based issues should augment existing
programs with a reduced cost and learning curve for the end user. To achieve this
understanding on renewables and energy efficiency, a literature review will be conducted
to identify the fundamentals of an innovation community. More importantly though,
research into the branding process, specifically of a non-profit as a means to engage,
influence, and direct the potential market will be conducted. This project as proposed,
would be initiated in an effort to promote the mass penetration of renewables from a
demand point-of-view, minimizing the need for state intervention in the sector of energy
production and consumption.

To discover if this concept can be achieved or not a user perception survey was
distributed by the way of an online survey. The analysis of the results of the survey
found major dimensions of stakeholder perception combined with gender and
geographical differences. The results are further analyzing in the context of the
extensive literature review to determine a conclusion and also recommendations for
future research in this area.

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1.0 Introduction

1.1 Rationale of study

In December 2008, a team formed that would create the business plan for a non-
profit business idea known as the Global Sustainability Center (GSC). An entrepreneur,
with little funding, led the project. Three MBA students – two students from Case
Weatherhead School of Management (Cleveland, OH) and one student from the
Euro*MBA (European Consortium) were tasked with constructing the business plan that
would assist them in gaining requirements towards their graduation. The author of this
paper’s role was in the area of the marketing budget and plan. The business plan was to
directly challenge the research findings from a report generated by the Greater Cleveland
Partnership (Greater Cleveland Partnership, 2008), that stated the concept of GSC was,
not a good fit for Cleveland, and would not attract membership beyond the local region,
which limited the concept’s effectiveness for the region.

The GSC concept (Norman, 2009), as initially understood by the MBA students,
was to be a network hub, or an innovation community, that was to target three specific
market segments. This innovation community’s sole purpose was to be the market
incubator for existing products in the renewable energy and energy efficiency sector
related to building construction, and would have a physical space, in Cleveland, OH
U.S.A. During the course of the project, the MBA students, as the previous planners
(Greater Cleveland Partnership) before them discovered, that the business concept, as
was presented to them, had many financial short falls in terms of generating sustainable
revenue. The goal of what the business was to conceive was unable to be achieved on the
planned revenue stream. Furthermore, the business GSC, as it was uncovered in the
planning stages, had no real competitive advantage. Therefore, to attract potential
network members, the community of GSC was to rely on the targeted segment’s desire,
portion of their marketing budget, and good will to participate as a member of the
community.

The MBA team agreed that a key feature, namely the branding of the service, was
missing from the original concept. Despite the not-for-profit status, it was determined in

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the marketing plan that the main competitive advantage for this business concept was
ultimately in the selected brand type. Branding of the business activity was a key factor
in driving the increase in membership. Additionally, as the membership base grew, the
value proposition of a well-connected supply chain could be realized, which would
achieve the mission of the non-profit acting as the market incubator for renewable energy
and energy efficiency technologies for all building types.

However, to develop and promote the brand, it was crucial to maintain a
substantial marketing budget. For the GSC marketing budget plan, as a benchmark,
another non-profit brand, ‘CLE+ / Simply Cleveland’ was referenced for justification of
the financial figures (Norman, 2009) of the planned marketing budget. ‘CLE+’ was used
based upon specific criteria, such as similar mission, region, and concept of creating a
brand to attract businesses to a common hub, Northeast Ohio, or network, business’ in
Northeast Ohio, with the intent to draw upon synergies that can exist once in the
community. Nevertheless, in the business plan, the cash flow curve timeline was very
long to achieve positive cash flow and demonstrated that an annual deficit was going to
occur based upon the large marketing budget and limited number of revenue sources.

After considerable debate, the budget for GSC, was created to move away from
philanthropic institutions as sole funding sources and to operate with less dependency
upon governmental assistance or grants. Therefore, it was then the realization occurred,
supported by the financial figures, that the concept, GSC, as defined initially, was to fail,
the intent to get funding not realized.

One of the M.B.A. students considered an alternative scenario might improve the
chances for sustainable income. That scenario first required feedback to demonstrate
how multi-stakeholders would respond to a renewable energy brand campaign.
Therefore, as the project for the GSC business plan drew to a close, this master’s thesis
began and was to focus on branding a non-profit, the concept of the network, an
interactive web-based community, for connecting supply chains for the renewable energy
and energy efficiency in buildings.

At the time of this writing, the mass market has not adopted renewable energy and
energy efficient technology for many reasons, of which will be the primary discussion of

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this paper. As one reads this analysis, consider that most if not all, technology follow an
‘S-curve’ in their market share development, therefore, a key statement to make is why is
the distribution of electrical energy different? Is the energy network commodity not
ruled by market forces just as other commodities, products, and services? This paper will
focus on looking to the gap that has formed between multi-stakeholder expectations, the
market demand, and market supply related to renewable energy and energy efficiency
current product and service offerings. Secondly, it will expand upon the evolving
discussion around the innovation community concept, identifying the benefits in
promoting networks and furthering the supply chain connectivity, specifically related to
renewable energy and energy efficiency.

A critical goal of this research is to begin a discussion to determine whether these
open innovation communities truly channel latent innovation at the stakeholder level into
realistic economic activities? Furthermore, it is extremely important to identify the
specific stakeholder brand dimensions to create this engagement, attempting to close the
gap between multi-stakeholder demand and market supply in this U.S.A energy sector.

Throughout this discussion, will be looking to the activity of branding in the
context of a renewable energy in a not-for-profit innovation community. The goal being,
that to truly impact and make the most gains in terms of financial and social reward, the
mainstream stakeholders must feel a connection to this renewable energy technology and
begin to consider the commodity of energy similar to other consumer products where the
illusion of choice is plentiful. This, in turn, would move society towards a more efficient
path when considering the resources on the planet, striking a balance between the Carson
and Smith points of view. Maybe an innovation community for renewable energy can
consider a fresh method to communicate energy and energy efficiency ideas, for instance
what makes the most efficient use of resources: a market or central planning? Possibly a
brand is the tool that could assist in cultivating the demand embedded in the marketplace.

The rationale for organizing as an innovation community and looking to the value
of the user contribution model as a means to incubate technologies and connect unique
value chains; “without departing from the sense of urgency required to address the
pressing needs for sustainable energy systems, it is imperative that the involvement of

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people at the grassroots level is harnessed and sound commercial and technical criteria
are applied” (Jefferson, 2008). As grass roots activities involve organizing various
disciplines around a common-mission or goal, and relying on time and talent from
volunteers contributing to the mission of the non-profit.

In addition, this research seeks to understand the perception of the stakeholders on
issues surrounding a renewable energy non-profit. This is based on the puzzling
perception, surrounding the latest push of the ‘green’ buzz, in the U.S.A. by the corporate
and political elite. Despite this enormous push, there continues to exist a lack of
proliferation of energy production as renewables, and mainstream efficiency
implementation into buildings. The increased usage, by mainstream media, of the word
‘green’ gives the perception that the stakeholders are interested in adapting the way in
which energy is consumed and produced. However, status quo on both side of the value
chain, for electrical energy, remains dominant in the U.S.A. marketplace.

The confusion on this point is echoed by the McKinsey (2009) Group in their
report titled ‘Unlocking Energy Efficiency in the US Economy.’ The preface of the
report introduces the topic as such: “How is it that so many energy efficiency
opportunities worth more than $130 billion annually to the U.S. economy can go
unrealized, despite decades of public awareness campaigns, federal, and state programs
and targeted action by individual companies, non-governmental organizations and private
individuals” (McKinsey, 2009).

Therefore, the scope of the research will focus on the following hypotheses:
Renewable energy products and solutions can gain market share in absence of
governmental support if non-profit innovation communities develop strong brands.
Furthermore, branding is the tool that can create engagement between the market and
information (supply) to make environmentally balanced decisions related to energy
consumption. See Section D in appendix for the historical motivation for this paper and
the connection to Northeast Ohio, U.S.A.

1.2 Research Objectives
It was seen from the GSC business plan that the concept of a market incubator
will not function; sustain revenue, as a brick and mortar entity, at least in Cleveland, OH

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U.S.A. Either, attracting clients as a B2B hub or an end-user network center or even as
means to connect suppliers with end-users; it seems the concept is not financially
favorable. There is no incentive, as initially proposed in GSC business plan (Norman
2009), in the first instance to attract broad-based clients, the potential community
members, to the center. Therefore, the objectives for this paper are to analyze the
concepts:

1. Non-profit branding to create high level of stake-holder engagement

2. Innovation communities to drive innovation

3. Current U.S. energy market and its branding implications

4. Emerging trends in this area of open innovation and

5. Give recommendations for branding of non-profit organizations involved in
renewable energy.

The research questions are:

• What are the stakeholder’s perceptions of a renewable energy (RE) innovation
community?
• What method of promotion of the RE innovation community will maximize
network growth?
• What is U.S.A. market forecast for energy alternatives?
• Do innovation community’s assist in promoting RE solutions to the market?

1.3 Research Framework and Methodology

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Figure 1: Research Framework

The focus of the research will be to determine if the weak penetration of
renewable energy and energy efficiency products, mainly in the U.S.A., despite high
degree of product and service differentiation, can be corrected to meet the growing
segment in this commodity sector, by branding a renewable energy innovation
community. The following will be the process to achieve this goal.

1. Perform literature review in the relevant areas

2. Create and distribute a stake-holder perception survey on the topic

3. Analyze the results, quantitatively and qualitatively

4. Draw conclusions from evidence considered in context of theory

5. Make recommendations

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Literature Review – overview

Figure 2: VENN-Diagram: Literature Review “Classic” Articles

Survey Details

Insight into stakeholder perception on problem statement was to be addressed by
distribution of a survey. The survey was conducted utilizing an online survey tool. The
survey was opened on the 10th of March 2009. It was advertised and distributed on the
author’s personal Facebook and Linked-in pages and through personal emails to
colleagues. Two personal responses were gained from participants working in the
renewable industry; both were given the renewable energy portion of the survey. The
survey was closed online, on the 23rd of March 2009 with 81 respondents initiating the
survey.

The survey was intended to determine the perceptions of the end users of
electricity and renewable products. A non-attribute approach was used. The twenty-two

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statements made in the survey gauged the respondent’s opinions on a one (low) to seven
(high) Likert scale ranging from least agreement (low) to most agreement (high) with a
four rating as neutral on the statement.

1.4 Limitations and Scope for Further Research
The primary strength of the research was the competence of respondents. Social
networking tools were used to obtain a wide variety of respondents as the network used
had a wide variety of opinions, cultures, and locations. In addition, various groups of
respondents from different nationalities and industry backgrounds responded to the
survey. Countries of the respondents were recorded for geographical clustering purposes.

A weakness of the data collection is that a more targeted audience (stake-holders)
in the form of a Quota sampling would potentially provide more specific details in the
actual brand construction and brand dimension for a potential value proposition.

Furthermore, the research was unable to get at the critical factors of a realistic
brand launch program. To achieve this, the survey requires revision and a more costly
distribution to target segments that would be potential members in the non-profit business
concept. Finally, this activity if placed more specifically, in the context of brand
perception, referencing other non-profit brands would possibly yield more specific details
on brand dimensions required to accurately address the problems of creating the brand
personality.

With the introduction, rationale, and framework established, the analysis will now
begin. The literature review will explore three primary areas, Branding, Innovation
Community, and Energy in the U.S.A. The section 2.1, branding, is a composite of
research based in theory throughout the 1990’s to the present, at the time of this writing.

2.0 Literature Review

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2.1 Branding
“Steve Case co-founder of America Online stated in a May 2005 Wall Street
Journal article,that brand programs can contribute to ‘significant social change.’ I can't
agree more, but would add this: These programs (non profit-branding) will drive social
change that will endure” (Chiagouris, 2005).

2.1.1 Brand Fundamentals
Brand definitions include brands being a logo, legal instrument, image in the
consumer’s mind, risk reducer, value system, adding value, personality, relationship,
shorthand an evolving entity, a company and an identity system (Dickenson & Barker,
2007). Branding, endowing services and products with the power of a brand, is currently
and has in the past been an effective way to communicate meaning. The meaning
communicated often was important to the establishment of a shared set of values between
the individuals that recognized and respected the brand. For example, to brand is literally
to label, burn or mark. Even to place indelibly in the memory or stigmatize. Originating
in pre-Roman livestock, pottery, and medieval trades, brands marked identifiable
distinctions in property as proof of ownership or marks of infamy (Room, 1998) and
established differentiated and recognizable identities for goods and trades in competition
(Tregear, 2003). Brand names, signs and logos evolved to identify and articulate the
character of goods and services (Riezebos, 2003) and reassure consumers of quality
(Pike, 2009). Furthermore, successful brand managers “recognize that people do not
respond to objective reality but to their perception of reality” (Boulding 1956; Stride and
Lee, 2007). Therefore, if put into context of a brand campaign, a brand does not need to
provide the appearance of being connected to the product or service offered. This
statement is based upon the concept that, “a brand is used as an expression of one’s
personality” (Aaker, 1996).
Branding, currently, can be a costly endeavor. For example, the cost of
introducing a new brand in some consumer markets has been estimated to range from $10
million to more than $200 million (Kolter &Amstrong, 2004; Kwon, 2006). Branding is
extremely costly when gender specific brands are utilized. Instead of double branding to

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meet the gender preferences, “ a growing trend of companies is using the same brand
name to target both sex segments” (Kwon, 2006).

Figure 3: Study 2 Mapping MBP and FBP (Grohmann, 2009)

As the figure 3 above demonstrates, contemporary brands are located in what
could be considered, in the range of slightly masculine to nearly neutral gender. The
grouping cluster on the chart in Figure 3 is measured by the y axis of masculine brand
personality [MBP] and x axis of feminine brand personality [FBP]. Research of the
critical role of gender in a brand demonstrates a strong factor that men will almost reject
feminine brands while women will most likely accept masculine brands (Kwon, 2006).
To go further on this, men tend to exaggerate the differences in brands more markedly
than women (Kwon, 2006). Essentially, men identify with a male oriented brand and will
reject a female oriented brand.

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Brand ranking from 2009 demonstrates the value of equity in a brand. The data in
Table 1 can be interpreted in a variety of ways, but what should be noted, relevant to this
study; brand equity is extremely important for products that exist in markets where threat
of substitution are high and for products that are attempting to ‘pull the market up’ based
on the price point, which are dependent on the targeted segment’s image of social class.

Table 1: Best Global Brands 2009 (Interbrand)
Rank Company Country of Brand Value ($m)
ownership

1 Coca-Cola USA 68734
2 IBM USA 60211
3 Microsoft USA 56647
4 GE USA 47777
5 Nokia Finland 34864
6 McDonalds USA 32275
7 Google USA 31980
8 Toyota Japan 31330
9 Intel USA 30636
10 Disney USA 28447
11 HP USA 24096
12 Mercedes-Benz Germany 23867
13 Gillette USA 22841
14 Cisco USA 22030
15 BMW Germany 21671
16 Louie Vutton France 21120
17 Marlboro USA 19010
18 Honda Japan 17803
19 Samsung Republic of Korea 17518
20 Apple USA 15433

“Over time, branded objects and branding processes accumulate histories that
are social and spatial and matter to their evolution.” (Pike, 2009)

Brands are essential for communication in a society where value is exchanged.
These brands are costly to cultivate and thus typically drive to engage across gender
lines. “Similar to cultural or country stereotypes, gender stereotypes should influence
the perception and judgment of any object, including consumer products and brands”
(Alreck, Settle and Belch, 1982). Keller (1998) also argues that some brands in the
marketplace possess certain gender-specific associations so that consumers associate the
individual brand’s user as specifically from either sex.

Nevertheless, the concept of the brand and the relevance to the target segment is
of extreme relevance. The brand is “imbued with its own unique qualities and

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characteristics, a brand can provide emotional and self-expressive benefits to the
consumer” (Stride and Lee, 2007). To engage the target, the brand must drive to the core
instinct, connecting with the inner self. “An understanding of the complex value
dimensions operating within the brand relationship provides the consumer with an
opportunity to express symbolically an actual self” (Belk, 1988), or an ideal self
(Malhotra, 1988). Brand image, or how the consumer perceives the brand, plays a central
role in the Customer Based Brand Equity model (Keller, 1998) where it is claimed that
the power of a brand lies in what resides in the minds of customers (Stride and Lee,
2007). Moreover, valued brands achieve this inner brain, emotional, connection with the
consumer.

Branding is primarily conducted to grab and maintain the attention of the
consumer. This activity, the grabbing attention, is an effect of the market that the product
or service resides within. Typically in markets where multiple products are competing
for attention, differentiation or the appearance of being different is natural. Being
different and expressing this difference, individuality, is the forward movement in the
social human experience. In the arena of product and service competition, the
brandscape, brands exhibit very similar characteristics. These characteristics beam to the
consumer the attempt to convey a difference, an attempt to stand-alone from the others.

However, whilst differentiation remains the key objective of branding (Kapferer,
1992), the focus of branding has shifted from the tangible aspects such as name and logo
to intangible elements such as brand personality and emotional benefits (Aaker, 1996;
Keller, 1998). With advances in technology that made it possible for companies to
replicate high quality products of their competitors it was no longer sufficient just to
promote a product, it had to be enhanced in some way (Kotler, 1997). Brands therefore
acquired an emotional dimension that reflected buyers' moods, personalities, and the
messages they wish to convey to others (de Chernatony and Dall'Olmo Riley, 1998;
Stride and Lee, 2007).

2.1.2 The Non-Profit Brand
Brands are the natural response of a desire for engagement in a competitive
environment. Competition for awareness or attention has been a constant for most brands

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observed in the for-profit sector. Increasingly, as the climate of human consciousness
shifts to an increase in social concerns, many for profit companies are not prepared to
meet the new social requirements from an overly informed and aware market.

Recently, as of this writing, more and more non-governmental organizations have
been increasing their presence, attempting to meet a demand not being filled by the for
profit companies. With the rise in non-profit organizations, many of these organizations
have overlapping missions. While resources and capital are typically derived from the
same sources, the burden to standout, to attract the resources and capital, falls on the non-
profit organization. This requirement of needing resources and capital puts downward
pressure on the organization to meet its mission. “One of the ways in which non-profits
are responding to this increase in competition is by adopting branding techniques
developed in the corporate context” (Stride and Lee, 2007).

This shift in thinking, branding a non-profit, moves the organization away from
the typical cycle of dependence upon philanthropic donations and governmental funding.
Again, the branding activity seems to be a natural posture when value differences exists
and resources are limited. However, while branding a non-profit may seem natural in a
competitive world, it is argued by some, that brand orientation helps voluntary
organizations develop trust across key stakeholder communities (Tapp, 1996; Ritchie,
Swami et al., 1998), strengthen awareness amongst target audiences (Hankinson, 2000)
and build charity loyalty within donor and supporter groups (Ritchie, Swami et al., 1998),
other academics and practitioners have expressed concern that the unquestioned adoption
of techniques developed in the for-profit context has contributed to the charity sector
becoming over-commercialized (Sternberg 1998; Salamon 1999; Stride and Lee, 2007).

Despite the grumbling from the academics and pure practitioners, branding a non-
profit is extremely practical in terms of budget efficiency, if people are going to donate
time or money or become members, they want to know what the brand is all about; they
want to know the mission statement (Chiagouris, 2005). More importantly, “a
compelling brand image is more important to non-profits than commercial sector
companies for one fundamental reason: Nonprofits do not have the resources to send their
messages to large numbers of people through the media. They cannot solve awareness

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challenges with more advertising weight, but must define and execute their branding
objectives right out of the gate” (Chiagouris, 2005).

Perhaps the academics and practitioners are concerned about the subtle
differences in branding between the for-profit and non-profit sector. The initial reaction
from the academic is first and foremost, skepticism. This skepticism is not unwarranted,
as the nuances between the profit and non-profit sector must be managed. Effective
brand management in the non-profit context is more complex than simply satisfying
donor needs. To be truly effective, non-profit brands need to address a number of
additional organizational objectives. The most widely cited include lobbying
(Hankinson, 2000), education and the communication of the cause itself (Tapp, 1996) and
image and reputation management (Polonsky and Macdonald, 2000; Stride and Lee,
2007).

The non-profit is thought to be meeting needs that focus on the common good,
where return on risk (financial) is not possible to be recovered. The common good is
structured or rather rests upon a foundation of a clearly defined value system. This value
system is what the non-profit typically promotes through its operations, working to fulfill
its mission. “For an organization to work towards a specific charitable purpose that is of
benefit to society, it must have a value system that both underpins and indeed drives the
charity's operations. This implies that the values are not optional or negotiable but are
integral to the organization itself” (Stride and Lee, 2003). This contrasts with the more
flexible nature of values in the commercial context, the objective of which is to ensure
survival in an external environment (Schein 1985; Stride and Lee, 2007).

Promotion of nonprofits typically come in the form of some benefit or activity
that generates interest based on personal gratification or social event but also has the
additional benefit that the money generated from the registration is destined for the
mission of the nonprofit. Athletic events typically bring the participants together and
thus their participation promotes the brand of the nonprofit furthering the mission. The
Unique Selling Proposition (USP). The USP is central to the brand message. Some call it
the brand promise; others refer to it as the net impression. Whatever the label, it is the

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primary thought the target audience should take from encounters with the brand, a
composite of brand attributes and benefits (Chiagouris, 2009).

In this instance the non-profit with limited financial resources can now reach and
engage a customer base that will associate the mission favorably based on the already
existing equity in the commercial brand. These brands or products can be represented
physically (e.g. bundled package of two or more brands) or symbolically (e.g.
advertisement) by association of brand names, logos or other proprietary assets of the
brand. Various terminologies have been used to describe these alliances including cause
branding strategies (Cone et al., 2003) cause-marketing alliances (Till & Nowak, 2000),
co-branding (Dickinson & Ramaseshan, 2004a, 2004b), cross promotion, joint branding
and symbiotic marketing (Adler, 1966). Brand alliances generate a relationship that is
not necessarily ‘cause' specific (as in cause-related marketing) and as such, are an overall
collaboration between two partner brands without necessarily referring to a specific
charity drive event (Dickinson & Barker, 2007).

Lastly, whilst concentration upon mission and vision achievement and core values
is crucial to successful branding, so to remains the ability to differentiate through image
in a competitive and increasingly cluttered marketplace. The majority of non-profit
branding commentators would agree, is first achieved through effective logo, tagline and
identity design (Ind and Bell 1999, Naddaf 2004; Stride and Lee, 2007).

2.1.3 The Commodity Brand
Commodity branding is the alternative approach to marketing that could
potentially have value for the RE, renewable energy, innovation community.
Observations in other sectors demonstrate the success of this particular type of branding.
For example the, ‘got, milk?’ branding campaign was a tremendous success, in that it
influenced demand to meet the over production on the supply of milk in the US dairy
farmer market. Awareness of the ‘got milk?’ branding campaign rated of 90% nationally
(US), making it a highly successful brand (Christensen, 2008). “A commodity is a good
with very little differentiation. Beef, milk, cell phones, and PV, photovoltaic, are all
examples of commodities. When it comes to marketing a commodity an individual
company’s marketing expenditures tend to have a poor return.” (Renewable Energy

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World, 2008). Furthermore, “Instead of putting so much emphasis into nickel and diming
the cost effectiveness of solar, perhaps the solar industry would be best served by
utilizing a collective branding effort in order to bring solar to the mainstream”
(Renewable Energy World, 2008). Note the chart below to gauge the stark difference
between commodity and branded markets.

Figure 4: Price and Product/image differentiation in commodity and branded markets (Pike, 2009)

2.1.4 Co-Branding

Brand alliances build brand equity by transferring new associations between
partner brands and increasing familiarity across established as well as new markets. From
a commercial entity perspective, developing brand capital is a financial burden making
branding alliances appealing as they result in image enhancement because nonprofit
brand knowledge structures usually have higher levels of trust and confidence that can be
transferred to the commercial entity (Austin, 2000; Dickenson & Barker, 2007).

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Alternatively, “The twenty-first century will be the age of alliances. In this age,
collaboration between non-profit organizations and corporations will grow in frequency
and strategic importance (Dickenson & Barker, 2007).”
Possibly the largest hurdle for the branding of a non-profit is financing the brand
program. To meet this challenge, a particular technique, co-branding, is introduced to
further the brand of the non-profit to the market. Brand extension theory provides a
strong basis to understand evaluations in the context of co-branding. The key
assumptions of this theory are that if respondents view a match' or 'fit' between the
original brand and the extended brand (or in this case two individual partner brands) then
the positive associations that the respondent holds towards the original brand (each
individual partner brand) may be transferred to the new extension the brand alliance
(Aaker and Keller, 1990) and there may be resulting spillover effects on original brand
attitudes (Simonin & Ruth, 1998; Dickinson & Barker, 2007).

Partnering with a commercial brand can introduce the less known non-profit
image to an already existing, ready and waiting audience. “Non profit entities can acquire
financial resources from the commercial partner through long term alliance sponsorships,
together with cause-related donations that the commercial brand may choose to support
as well as benefits of more favorable brand attitudes due to positive associations derived
from the commercial partner brand. Similarly, commercial entities want to gain more
from their brands and one way to do this is to form branding alliances with non-profit
organizations where response to their brand is attenuated as a result of the alliance
associations” (Porter and Kramer, 2002).

Ultimately, by having a brand alliance, organizations are able to transfer original
brand attitudes from a partner brand to their own brand, which is a more economical way
of managing brand knowledge (Dickinson & Barker, 2007). Given that a key motivation
of commercial entities is to transfer positive affect between a non-profit brand and their
commercial brand, the measure of how great an impact the brand alliance has had is
ultimately the spillover effects. These spillover effects relate to changes in brand
attitudes, brand image and brand equity (Javalgi et al., 1994; Dickinson & Barker, 2007).

The brand must be promoted in networks beyond the do-it-yourselfers, the early

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adopters of RE technology. Various terminologies have been used to describe these
alliances including cause branding strategies (Cone et al., 2003) cause-marketing
alliances (Till and Nowak, 2000), co-branding (Dickinson and Ramaseshan, 2004a,
2004b), cross promotion, joint branding and symbiotic marketing (Adler, 1966). Brand
alliances generate a relationship that is not necessarily ‘cause' specific (as in cause-related
marketing) (Dickenson & Barker, 2007).
Perceived fit between two brand partners in an alliance has been seen to be
important for positive brand alliance evaluations (Keller and Aaker, 1992; Simonin and
Ruth, 1998). Indeed, the majority of the literature reviewed suggests that the most
important condition for brand enhancement is the fit between the core brand: and the
extension. Past research has shown that consumer perceptions of how well the products
together influenced attitudes toward the joint offering of the partners (Yadav, 1993;
Simonin and Ruth, 1995 Park et al, 1996; Simonin and Ruth, 1998; Dickinson & Barker,
2007).

With an increasing interest in non-profit and commercial alliances such as recent
high profile alliances between McDonald's and Diabetes Australia as well as Toyota and
Planet Ark, an understanding of how consumers receive these alliances is important.
Brand alliances rely on 'transfer’ affect (Dickenson & Barker, 2007). The synthesis of
the two forces is the brand and thus the promotional atmosphere must incorporate
participants from both of these factions in a non-compromising or non-threatening way.

The fundamentals of branding, in both a profit and non-profit framework are
important to the analysis underway in this document. Branding is the tool to connect to
the market. In this next section, will discuss the ‘what’ is suggested to connect to the
market. Therefore, the discussion will now turn to the innovation community or the
network and open innovation.

2.2 User Contribution Systems

2.2.1 Innovation Community
The concept of user contribution isn’t new. However, both the Internet highfliers
(E-Bay, Amazon, etc.) and the old-economy behemoths (General Motors, General

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Electric, I.B.M. etc.) – have actively created something called a user contribution system.
That is, they’ve created methods, usually internet-based, for aggregating and leveraging
people’s contributions or behaviors in ways that are useful to other people (Cook, 2008).
In an innovation community, user content is the commodity or the currency that is
in circulation. The value of the community is made by the volume of subscriber content,
user contribution, in circulation in the respective network. “The discussion of user
contribution systems, a.k.a. innovation communities, involves two types: active and
passive systems” (Cook, 2008).

Figure 5: Taxonomy User Contribution Systems (Cook, 2008)

Active systems, such as these, focus the image of the network on specifically
attracting subscribers to contribute content. Conversely, passive systems tend to rely on a

25


technology or infrastructure that is designed to collect and log data and determine trends
in consumer behaviors.

User contribution systems turn to the consumers for the concepts that will
generate value. “These systems pose a challenge to the long unquestioned beliefs about
management and the role of management (in an organization), the value of experts and
the need for control of the customer experience and the importance of quality assurance
(Cook, 2008). User contribution systems inverses the traditional organization
information flow in that it, “creates value for a business as a consequence of the value it
delivers to users” (Cook, 2008).

The innovation community leverages a synergy that can naturally occur in a
community, the sharing and knowledge transfer between non-official partnerships,
facilitating the organic growth of a network. Once members, of the community, exist
utilizing and adding content to the network, the value of the network increases at a rate
greater than one for every new member (Wagner & Majchrzak, 2007). This rate of
increase of membership is driven by a low entry barrier to join the network. A low,
financial, barrier to enter the community often drives the high subscription rates in these
communities because, for a user contribution system, payment can destroy participation
by undermining a sense of collaboration and trust. Rather, these systems rely on
motivations intrinsic to humanity (Cook, 2008).

The concept of the innovation community challenges the conventional thinking in
respect to the core drivers of value creation and human economic activity. The challenge
is that, “we are not only acquisitive economic beings but also inquisitive social beings
with a desire for other forms of interaction, oriented around shared identities, values and
community spirit, which enable us, in varying degrees, to shape our lived experience
outside the realm of commodities and prices” (Currah, 2007).

An open innovation platform is a framework that channels the user contribution to
value creation. In active systems, motivation by the participants is extremely critical to
developing the community. To attract members who would like to contribute, a certain
level of organization structure needs to be in place to allow the contribution to be

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channeled effectively. The five factors that are important for facilitating participation in
an open source community are (Wagner & Majchrzak, 2007):

• Value Proposition

• Community Expertise

• Governance of the community

• Processes for co-creation

• Technology

Figure 6: Open Source Model of Wiki-Based Customer-Centricity (Wagner & Majchrzak, 2007)

These factors are considered the critical reference for the open source or wiki-
community to grow and cultivate value from the community. With these factors in place,
can then characterize the types of open and closed innovation platforms. Defined,
passive systems tend to be more ‘in-house’; where active systems lean towards a

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community-driven approach.

“If we are to make strategic sense of innovation communities, ecosystems,
networks, and their implications for competitive advantage, we need a new approach to
strategy—what we call open strategy” (Chesbrough & Appleyard, 2007).

Figure 7: Open and Closed Innovation (Chesbrough & Appleyard, 2007)

An open innovation system creates value when community-driven. However, the
open innovation presents a challenge to the conventional method of conducting business
because “shifting the focus from ownership to the concept of openness requires a re-
consideration of the processes that underlies value creation and value capture. Our notion
of openness is defined as the pooling of knowledge for innovative purposes where the
contributors have access to the inputs of others and cannot exert exclusive rights over the
resultant innovation. In its purest form, the value created through an open process would

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approach that of a public good. It would be ‘non-rival’ in that when someone ‘consumed’
it, it would not degrade the experience of a subsequent user. It also would be ‘non-
excludable’ so all comers could gain access...” (Chesbrough & Appleyard, 2007).

Open innovation takes confidence and self-assurance on the part of the
management to allow value creation processes to become non-linear and incorporate the
intangibles of social interaction. However, the open innovation user contribution system
still must possess some structured role to utilize the value created in the community, as
noted in the model. Management of the company retains control of the system and may
choose to modify its design, the system, converting inputs into useful outputs in real time
with little or no intervention by the company (Cook, 2008). The company and
management processes become the conduit to channel innovation rather than being the
driver of innovation. “All of the traditional views are based upon ownership and control
as the key levers in achieving strategic success. All focus largely within the firm, or
within the value chain in which the firm is embedded. None take much notice of the
potential value of external resources that are not owned by the firm in question, but may
nonetheless create value for the firm. These external resources, such as volunteer
contributors, innovation communities and ecosystems, and surrounding networks
represent growing sources of value creation…” (Chesbrough & Appleyard, 2007).

An effective open strategy will balance value capture and value creation instead
of losing sight of value capture during the pursuit of innovation (Chesbrough &
Appleyard, 2007). The members of the community are thus bound by sharing the value
that unfolds from their contributions. The circulation of gifts leaves a series of
interconnected relationships in its wake which imbues the community with a form of
decentralized cohesiveness (Hyde 2006: Currah, 2007). This cohesiveness begins to
form a commons not only of resources but also of shared values (Hess & Ostrom 2007;
Currah, 2007). Gifted information from a community member has higher content value
based upon the social value exceeding the commercial value (Currah, 2007). Which
supports the statement, “today we see communities with evolving patterns of
participation, value derived from co-created knowledge rather than software artifacts,
knowledge that evolves as it is used rather than treated as an object that is periodically

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released, and technologies specifically suited for co-creation rather than adopted for
discussions and version control...” (Wagner & Majchrzak, 2007).

Open innovation is a balance, a balance between the two extreme poles of
extreme commercial interests and those of extreme social connectivity. For example,
“an excessive degree of commodification and control (through property rights) risks the
enclosure and under-utilization of creative works ; while an excessive degree of sharing
and freedom (through gift exchange) risks the implosion and underproduction of creative
works…” (Currah, 2007). Determining this balance is where the role of management is to
be asserted in this emerging innovative environment. Similar to current transactions,
“the emergence of the digital networked environment has sparked a battle between, on
the one hand, the corporations and, on the other hand, advocates of digital freedom, free
culture, and cyber liberty…” (Currah, 2007).

As a result of the user contribution system a new economy is burgeoned to form.
This environment where users transfer ideas self-generated or a derivative of a copy
righted are collectively known as the realm of the gift economy. “These gift economies
operate within virtual spaces of social interaction that have been opened up by Internet-
based communications protocol… as a result the Internet actually comprises a network of
myriad gift economies, which continue to undergo expansion and diversification, both in
parallel and at the intersection of different communication protocols…” (Currah, 2007).
The gifts created by the users in a sense are advertisements. The contributions
lead to the formation of the contributor’s brand. Each contribution that is created for the
network or shared with the network has in a sense the elements of a personal
advertisement. Three dimensions motivate consumers to create advertisements: Intrinsic
enjoyment, Self Promotion and Change Perception (Berthon et al, 2008). These gifts
allow for cross-pollination between the centrally controlled market structures. This
mixing of markets based now on the preference of the actors within the networked
communities drives consumer preference at the source. The innovation community can
be the market place for most distant of market actors. This activity has been defined by
O’Reilly (2005) as web 2.0 or e-commerce.

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The innovation community, which has been facilitated by improvements in
technology, from the centralized corporations, is the driver that has formed what is called
the web 2.0 commerce. The core competencies (of a web 2.0 business) O’Reilly listed
are:
• The company provides services, not packaged
software, and they can be cost-effectively scaled
• They have control over the content in their database,
which gets richer the more people use it
• They trust users as co-designers
• They harness collective intelligence
• They leverage "the long tail" of the Web through
customer self-service,
• Their software is not platform specific,
• Their user interfaces, development models and business models are
‘lightweight’ and can be "snapped together" and ‘mashed up,’” (O’Reilly,
Christopher, 2007)
The Web 2.0 based market tells the story of the natural or organic capacity of
human interaction, and that is witnessed through the myriad’s of web-based commercial
and social transactions daily. O'Reilly calls hyper-linking ‘the foundation of the Web’
because users add new content and new sites and as other users discover them, they
create hyper-links that bind them together into the network. The web of connections
grows organically (O’Reilly, Christopher, 2007).

“Simply put, commodities and gifts are both vital to the expression of creativity in
its myriad forms” (Currah, 2007).

From this point in the literature review, the theory is in place for the business
concept of the scope of this document. However, it is also of extreme importance to
place these concepts in a practical setting where it will serve the market. Therefore, the
next chapter will briefly address regulatory and market mechanisms from a historical
reference to what is currently attempting to meet the market’s demand for alternatives in
energy market in the U.S.A.

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2.3 Energy
“Externalities are defined as benefits or costs generated as an unintended by-
product of an economic activity that do not accrue to the parties involved in the activity.
Environmental externalities are benefits or costs that manifest themselves through
changes in the physical– biological environment” (Owen, 2006).

2.3.1 Market Trends

“We are currently witnessing one of those rare events in history when there arises
a head-on conflict between a line of development in a society and a new social attitude.
Consider these alternatives:

• On the one side, we have a vigorous growth in energy consumption, closely
related to a rising standard of living.

• On the other side, we have a widespread public concern with preservation of the
environment, which has been translated into restrictive standards and regulations”
(Netschert, 1973).

The above was written in the early 1970’s. Below is the current prediction of fuel
consumption.

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Figure 8: U.S. Energy Consumption by fuel (EIA, 2009)

The irony is that after a generation of awareness, the topic of energy production
and consumption remains under debate with no equitable solution for both sides of the
equation concretely developed. The social-bio concerns echoed by the ‘Carson’
philosophic view are being addressed by an attempt at a ‘race to the top’ global
legislation, yet the commercial burden of this will be passed onto the consumer in the
form of taxation. While the commerce business first, Laissez-faire market advocates
remain challenged and insecure as the transaction costs, the social costs to the commons,
of energy production remain debated. However, this area is currently under much debate
and the outcomes at the time of the writing have not been completely defined.

The energy market in the U.S.A. has been a tightly state regulated sector.
However, despite the strong controls imposed by state regulation related to the
production and transmission and distribution of electrical energy, only a handful of
private firms or holding companies manage the operations of these capital-intensive
activities. This oligopic control of the energy commodity, which in general allows growth
and progress, has brought unification to the U.S.A. market place, but has also been slow
to adapt to the changing social demands, related to conservation and efficiency.
“Consider first the matter of energy growth. The aggregate consumption of energy
in the United States has increased in almost every year of this century except during the
depression years in the 1930's. One of the causes of the growth in energy consumption is,
of course, population increase…” (Netschert, 1973). Also it was recognized then that
“the energy growth rate has been faster than that of population, indicating that per capita
consumption is also increasing. This is due in large part to the increasing ‘electrification’
of energy use. The growth in electricity consumption has consistently exceeded that of
aggregate energy consumption: the compound growth rate during the 1960's was 7.57%;
per-capita use increased at an annual rate of 6.2% (Netschert, 1973). In large measure,
this reflects general affluence, in which householders continue to acquire high-load
appliances and equipment such as electric dryers, quick-recovery water heaters, self-
cleaning ovens, frost-free refrigerators, color TV sets, air-conditioning, and electric space
heating (Netschert, 1973).

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While holding the historical mirror to face of the U.S.A. policy makers and to the
politicians engaged in the control of energy in the U.S.A. (is somewhat enjoyable), the
scoff of pious disdain shouldn’t be left un-challenged. To be fair, there has been some
movement in the energy marketplace to address the concerns of Netschert’s (1973) article
addressing the Carson point-of-view concerns. The increasing presence of renewable
energy production demonstrates the means to produce energy can be achieved in balance
with environmental concerns. Figure 9 below provides a breakdown of the energy
sources in terms of BTU (British Thermal Units) for the U.S.A. in 2008.

“Thus, the promotion of renewable alternatives to fossil fuels involves a complex
process of interaction among a variety of actors” (Ogihara et al, 2007).

Figure 9: U.S. Energy Mix 2008 (EIA, 2009)

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The planned centralized grid for 2020 provides a mix of energy production
sources of which renewables are expected to become 10% (EIA, 2009) of that production
mix. To achieve this increase there are to be regulatory instruments to assist this energy
production mix target. Feed in tariff, Renewable Portfolio Standards, Smart Grid, and a
possible Carbon Tax are regulatory techniques that are devised to proliferate market
penetration of energy from renewable sources along with improving the management of
individual building energy usage. The method least discussed to achieve higher
renewable energy production sources is a technique called decentralized energy, a.k.a.
Micro-grid.

Much of the literature on this topic states that the penetration of renewable energy
and energy efficiency lags far behind the stakeholder perspective in the first instance, and
in the second, in terms of financial gains made in energy savings. For example, “surveys
consistently reveal customer preference for green power.” (P&GJ, 2002) However,
despite the technologies for energy efficiency and production being readily available “the
consumer adoption has been slow…” (Caird & Roy, 2008). In addition, according to the
McKinsey (2009) report, the energy efficiency sector, if executed at scale, a holistic
approach would yield gross energy savings worth more than $1.2 trillion. For example,
just taking one portion of the renewable technologies production portfolio, photovoltaic
(PV) at $2 to $2.50 per installed watt, the annual market potential for grid-connected
residential and commercial building PV applications is estimated at 2,900 MW,
representing an annual market of about $6.6 billion, including equipment and
installations (Renewable Energy World, 2005). Nevertheless, the bottom line for
renewable energy systems, the starting points (for renewable energy systems) are very
low. Even 30% per annum increases in rated capacity (it) takes many years to make a big
impact at the global level (Jefferson, 2008).

From a financial rational perspective, slow adoption of renewable or green
technologies is slow, simply stated, because the risk premium of investment in these
technologies on conventional scaled implementation is too high. Energy as a commodity
has remained largely produced by non-renewable sources for the reason that non-
renewable commodities are non-stochastic, whereas renewable sources contain
uncertainty in supply, which increases the risk premium during investment planning.

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This “uncertainty, of renewable resources, reduces rent and increases the rate of
extraction of the resource but has implications for the degree of regulation when property
rights cannot be assigned and maintained…” (Pindyck, 1984). However, if demand for
the nonrenewable “resource is elastic so that the extraction rate falls when the stock is
low, then less regulation may be needed…” (Pindyck, 1984). From the stakeholder
perspective, the basic human need to feel secure dominates the discussion on energy and
less about determining the risk premium on a stochastic resource. Nevertheless, “the
conventional wisdom has been that ecological uncertainty increases the need for
regulation” (Pindyck, 1984).

In the USA energy market the beginning of regulatory and policy level techniques
are being introduced as a method to meet the socio-ecologic concern from the market.
The following are a few of the predominant policy level techniques that promise to bring
higher penetration of renewables and energy efficiency to the market. However, it
remains difficult to predict that any of these techniques are reacting to the market demand
appropriately. This is based upon the fundamentals that, the speed of the development of
alternative energy is limited by the laws of physics and economics. Regardless of their
good intentions, legislators cannot circumvent these engineering and market realities by
simply ordering the purchase of specified percentages of RPS (renewable portfolio
standards) qualifying energy on a politically developed schedule (Greenwald, 2007).

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2.3.2 Conventional Energy Process

Figure 10: Renewable / Nonrenewable Energy Centralized Grid Percentages taken from EIA (EIA,
2009)
FIT = FEED IN TARIFF (FIT Coalition, 2009); RPS = Renewable Portfolio Standard (FIT Coalition, 2009)

2.3.3 RPS - Renewable Portfolio Standard
After reviewing the research on this subject the following definition provides the
most straightforward definition. “A Renewable Portfolio Standard (RPS) requires
utilities to generate an increasing percentage of their electricity from renewable
resources” (Goldstein, 2007). These standards are typically introduced, in the U.S.A., at
the state legislation level. Politicians and policy makers drafted the RPS targets and their
associated time frames to compliance.

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From the research there demonstrates much lack of faith or credibility in the
ability of the RPS to meet social and economic demands. For example, “these initial
RPS initiatives have served their purpose: jump-starting the desired rejuvenation, and
promoting the accelerated development, of alternative energy projects. However,
imposition of RPS standards by themselves will not achieve the desired transition away
from our fossil fuel dominated generation facilities. In fact, exclusive resort to
increasingly more exacting RPS standards, along with a series of other regulatory and
utility practices, could actually inhibit the development of renewable resources, deprive
consumers of their benefits and, ironically, preserve thermal dominance…” (Greenwald,
2007).

The research continues to uncover that, one predominant theme in American
energy and electricity policy is the idea of a ‘portfolio approach’ or that society must
embrace an assortment of different energy technologies simultaneously. This strategy, in
practice, is (a) biased, since fossil fuel and nuclear technologies have been heavily
favored; (b) opaque, obscuring the different full social costs of energy systems; (c)
inequitable, promoting technologies that contribute to climate change; and (d)
unsophisticated, ignoring important qualitative differences among technologies
(Sovacool, 2008).

If indeed RPS is driving for a variety of sources for energy production, possibly
the proliferation of energy from a multiple sources would be greater. However, “the fact
that most hydroelectric resources are excluded from RPS-eligible status reveals an
unfortunate political reality: RPS status often reflects local political and competitive
situations, rather than objective scientific criteria. The California statute that generically
denies RPS eligibility to all combustion municipal solid waste generators, but for one
located in Stanislaus County and... operation prior to September 26. 1996, epitomizes the
partisan influences permeating RPS programs...” (Greenwald, 2007). At the time of this
writing there is no federal level RPS for the U.S.A.

2.3.4 FIT – Feed in Tariff
Recognizing the slow progress of RPS programs, an alternative known as a feed-
in-tariff (FIT) is promoted as the most effective and practical method for integrating

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renewables onto the energy grid. A much simpler and comprehensive policy structure
known as the Feed-in-tariff (FIT) is able to achieve greater developments in renewable
energy, but at a far lower cost and with greater economic and social benefits to the local
environment. The FIT does this by establishing a pre-determined price for renewable
energy high enough to attract investment without being so exorbitantly high that it allows
for windfall profits. Instead of mandating a specific quantity of renewable electricity
based on the overall electricity consumption and leaving the market to determine the
price with a plethora of financial mechanisms and incentives, FITs mandate a specific
price (tariff) for renewable electricity sufficient to attract investors and leaves the market
to determine quantity (FIT, 2009).

The FIT is the technique utilized in Germany and Denmark, which allows for
more rapid penetration of renewable energy sources. “European nations additionally
require utilities to take responsibility for interconnecting renewable energy projects on
demand to higher voltage transmission lines and require them to offer uniform contracts
that include these interconnection requirements so that projects are guaranteed a grid
connection. A FIT thus provides a long term contract at a fixed price sufficient for a
reasonable return on investment (ROI)…” (FIT, 2009).

FIT is promoted as the regulatory technique that cuts through the beauracracy
meeting the needs of the market. Because of the stability, straightforwardness and
transparency of the FIT, the net costs and benefits of transitioning to renewable energy
generation are shared more uniformly between all rate payers and involved parties.
Prioritizing renewables and ensuring their rapid deployment with the FIT will bring the
net costs down quickly and in doing so will mitigate the need for peaking plants and help
ensure that the benefits of renewable energy will be substantial and far-reaching (FIT,
2009). It is found that investor risks are much lower in a FIT system, and that innovation
incentives are larger (Fouquet & Johansson, 2008). “Renewable power feed in laws
which give renewable power producers access to the grid with a guaranteed price for the
power specify a minimum amount of renewable energy that must be included in the
portfolio of energy resources of licensed electricity suppliers serving a state or country...”
(Ogihara et al, 2007).

39


The predictions currently are that energy demand is expected to increase by 20%
by 2020 (EIA, 2009) Therefore, maintaining the current non-renewable energy
production capacity will continue to suffice for day-to-day operations of the grid. The
renewables then as they come on line and connect to the grid can then be controlled to
meet this predicted 20% increase in demand. In conjunction with the planned increase in
demand and the increased penetration from renewable sources the smart grid technology
will curb the demand side, allowing the peaks or energy demand spikes to be flattened or
moderated in a controlled manner, reducing the demand side. The analysis is based on
recent development in EU with different models for support of installations based on
renewable energy. These include feed-in models with guaranteed minimum tariffs, tender
models for different bands of technologies, and green certificates trading models with
obligatory consumer quota. This describes the market situation in selected European
countries, including Germany, the UK, Holland and Denmark (Meyer, 2003).

2.3.5 Smart Grid
On the consumption and distribution section of the value chain, a tool or process
called ‘Smart Grid’ is to be deployed to bring about improvements on the efficiency of
the energy consumption devices. Smart Grid will allow homeowners or businesses to use
electricity as economically as possible (Caskey, 2008). The term ‘Smart Grid’ refers to a
modernization of the electricity delivery system so it monitors, protects and
automatically optimizes the operation of its interconnected elements—from the central
and distributed generator through the high-voltage network and distribution system, to
industrial users and building automation systems, to energy storage installations and to
end-use consumers and their thermostats, electric vehicles, appliances and other
household devices (Tuite, 2009). “The Smart Grid will be characterized by a two-way
flow of electricity and information to create an automated, widely distributed energy
delivery network. It incorporates into the grid the benefits of distributed computing and
communications to deliver real-time information and enable the near-instantaneous
balance of supply and demand at the device level…” (Tuite, 2009).

The RPS and FIT techniques are the regulators attempt to promote wider
renewable penetration onto the grid (FIT Coalition, 2009). They, RPS and FIT, are a

40


process or sequence of taxation or output quality standards that control the proliferation
of renewable energy onto the grid. These smart grid proposals would create a flexible,
interactive relationship between energy producers and consumers. "The grid needs to
evolve from one-way wires and cables to something where each power line would send
power in either direction — to or from homes, businesses, or industry. We need the
marriage of energy technology and information technology...” (Grant, 2010).

The Smart Grid will be mainly promoted by what is currently the service
provider’s portion of the value chain. The goal is to streamline consumption devices
usage through an elaborate communication network. The entire system is to set up to
ensure the base load, production from non-renewables are maintained. Smart grid is seen
as a more realistic alternative to building new power plants and transmission lines, which
are expensive in themselves and even more expensive if not impossible to build,
considering the difficulties in obtaining licenses (Tuite, 2009).

Therefore a base-load of non-renewables must be maintained until the market
produces technologies that can produce higher efficiency and less variable energy
production. This base load is to ensure predicted daily demand on the grid is factored to
have ample supply to accommodate for non-routine demand spikes. The Smart Grid
would allow a sort of auction in which rates would change minute by minute based on
present capacity and the cost of operations. Those rates would be regularly fed over the
grid to all users, whose electrical equipment would use complex algorithms to decide
whether or not to turn on (Tuite, 2009).

2.3.6 Micro-grid
A ‘micro-grid’ is a collection of energy sources that provide the location utilizing
them, to produce and consume energy more efficiently, as a distributed energy resource
rather than solely downstream from the central electricity energy grid. “Micro-grids are a
future power system configuration providing clear economic and environmental benefits
compared to expansion of legacy modern power systems. It is clear that development of
micro-grid concepts and technologies requires considerable effort to resolve numerous
economic, commercial, and technical challenges. Extensive RD&D efforts are therefore

41


in progress, especially in Europe, the United States, Japan, and Canada, to provide
efficient solutions and to demonstrate micro-grid operating concepts in laboratories and
in pilot installations…” (Hatziagyriou et al, 2007).

As an alternative to central grid planning, advocates of a decentralized electrical
energy system argue that micro-grids are more suited to hosting renewable energy and as
such could make a significant contribution to the overall reduction of carbon emissions
(Wilcox, 2009). One of the key advantages experienced in decentralized energy is in the
improved efficiency of the process during the transition from production to transmission.
For typical grid tied production sources, the power rating capacity of the production
source drops, as a large portion of the energy generated is lost as heat, sometimes referred
to as carbon.

In addition, the presence of generation close to demand can increase the power
quality and reliability (PQR) of electricity delivered to sensitive end uses. Indeed, DERs
(distributed energy resources) can be used to actively enhance PQR. In general, these
three perceived benefits, increased energy efficiency through combined heat and power
(CHP), reduced carbon emissions, and improved PQR, are the key drivers for DER
deployment, although many other benefits, such as reduced line losses and grid expansion
deferral, are also often discussed (Hatziagyriou et al, 2007).

Micro-grid as a technology incorporates the already marketed energy production
sources like photo voltaic (PV) and wind while the connection to the grid remains the
area under development. A method of transient suppression is required during the
switching in and out of the centralized grid, and it is in this area that much of the research
projects continue. “One of the events producing major transient interaction between a
WTG (wind generation) and a local grid is the grid connection itself” (Quinonez-Varela,
2008).

Despite this area of on-going development, “there has been significant progress
toward developing small (kW-scale) CHP applications. These systems, together with
solar photovoltaic (PV) modules, small wind turbines (WTs), other small renewables
(such as biogas digesters), heat and electricity storage, and controllable loads are

42


expected to play a significant role in future electricity supply. These technologies are
herein collectively called distributed energy resources (DERs) (Hatziagyriou et al, 2007).

Figure 11: Schematic of an example CM (Hatziagyriou et al, 2007)

Above, in Figure 11, is a model that represents a decentralized energy source
system with central grid connection, know as CERTS Microgrid [CM]. CERTS stands
for Consortium for Electric Reliability Technology Solutions and was formed in 1999
primarily to focus on energy alternatives in the area of improving the energy reliability
for the U.S.A. (Nikkhajoel & Lasseter, 2009). Micro-grid a.k.a island networks, stand as
the alternative for greater penetration of renewable, alternative energy. The development
of the ability to switch in the variable renewable source to the grid will gain the ability
for a truly independent market-demand-based and a resource optimized power generation
system. See Figure 12 for the energy efficient energy flow within a Microgrid. “While
the application of DERs can potentially reduce the need for traditional (power generation)
system expansion, controlling a potentially huge number of DERs creates a daunting new

43


challenge for operating and controlling the network safely and efficiently...”
(Hatziargyriou et al, 2007).

Figure 12: Energy Flow within a Microgrid (Hatziargyriou et al, 2007)

Micro-grid’s are being deployed in developing nations and the impact of
continuous and reliable power is tremendous on the society. For example a “micro-grid
in rural Kenya, demonstrated that access to electricity enables the use of electric
equipment and tools by small and micro enterprises, resulting in significant improvement
in productivity per worker (100–200% depending on the task at hand) and in a
corresponding growth in income levels in the order of 20–70%, depending on the product
made (Kirubi et al, 2009).” In another example, Stiren Hermansen, director of the
Energy Academy on the island of Samso, says, “Denmark decided to focus on many
different sources of decentralized energy production…” (Nielsen, 2009). Today Denmark
is perceived to be a leader in renewable energy production partly based on the
governance and the leadership’s ability to leverage the power of distributed energy

44


resources. “The amount of decentralized electricity generation (DG) connected to
distribution networks increases across EU member states. This increasing penetration of
DG units poses potential costs and benefits for distribution system operators (DSOs).
These DSOs are regulated since the business of electricity distribution is considered to be
a natural monopoly” (De Joode et al, 2009).

2.3.7 Carbon Tax
Carbon trading has been occurring in the European Union since 2005 (Jaehen &
Latmathe, 2010). The carbon is traded at a per ton price. Since the inception the price
per ton has traded between one and 30 Euro, which was an unpredicted volatility (Jaehen
& Latmathe, 2010). The trading scheme was billed to act as market solution to curb
‘dirty’ contributors in the energy business, specifically non-renewable sources of energy
production. The historical volatility in this market has given rise to speculation
surrounding market power, specifically on the influence of price. Besides market power,
the combination of information asymmetry and price interdependencies (between prices
of primary goods, especially electricity, and allowances) plays an important role in
explaining the emission trading paradox (Jaehen & Latmathe, 2010).

Figure 13: Climate Change Targets, US World Resource Institute (National Grid, 2008)

45

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