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Powering up institutions: What the UK’s energy strategy can learn from Denmark

Photo by Mads Eneqvist on Unsplash

By Adam Cantwell-Corn, IIPP MPA student

I n the foreword to the government’s much trailed Energy Security Strategy in April prompted by the invasion of Ukraine, Johnson repeated a slogan of making the UK “the Saudi Arabia of wind”. It’s a positive change from his 2013 statement that wind power couldn’t “pull the skin off a rice pudding”. But another country is already the longstanding title holder: Denmark.

As it pursues a strategy for how “Great Britain will accelerate homegrown power for greater energy independence” the government should pay attention to Denmark’s story. Though it may make for uncomfortable lessons. Its defining features are not of free market wizardry and techpreneurs, but of state-enabled market shaping and long term directed technological change.

The state as the conductor of a industrial orchestra

Denmark’s journey to be a global pioneer in wind power also has origins in geopolitical instability that left the country’s energy security extremely exposed. In 1973, as the oil crisis ripped through the global economy, Denmark was reliant on imported oil for 90% of its energy needs (Sawyer & Fichaux 2013). The political response was a series of ambitious multi-year plans, directed towards the goal of energy security and, latterly, action on the climate crisis. From the first Dansk Energipolitik (Danish Energy Policy) 1976–1981 to the Energy Agreement for 2020–24, the state has led a proactive reshaping of the market. This has involved the coordination of diverse actors and an array of policies, including fiscal levers.

Today’s UK Government resisted a windfall tax on the enormous profits of energy companies as “ideologically unconservative”. While the subsequent u-turn will put welcome cash back in people’s pockets, it does nothing to address the structural drivers of high bills and insecure dirty energy. By contrast, in the mid-70s Denmark introduced a new tax on fossil fuel energy, with the revenue channelled directly to research and development in the nascent wind industry (Sawyer & Fichaux 2013).

Fossil fuel interests took a hit, but the policies were also market-creating. Underpinned by the long term commitment embodied in the plans, such policies worked to provide certainty and mobilise direct stimulation for a burgeoning domestic manufacturing industry. The second plan, 1981’s Energiplan81, included a 30% subsidy for the installation costs of an onshore wind turbine for local communities. Combined with preferential fixed feed-in tariffs, participatory local planning processes and the official promotion of community-owned turbines, the policies were a positive approach to the potential for NIMBY-esque resistance to onshore wind.

Though not without its own challenges, by 2016 67% of Danish wind installations were in some form of citizen ownership, securing high levels of public support (Gorroño-Albizu, Karl Sperling, & Djørup, 2019). From requirements on new wind developments to offer community owned shares, to the feeding into the Energy21 plan of the General Workers’ Union ‘Green Energy Plan’ (Lund, 1999), such approaches build the social consensus and more justly distribute the pain and the gains from transition. Critically, as well as more equitable distribution of ownership and access to energy, these demand-side policies drove production and employment at the turbine manufacturers, and in the wider industrial ecosystem. (Grubb and Wieners, 2020).

In this view, industrial or energy policy isn’t limited to technocratic tools, R&D and shiny machines. Rather, a system-wide approach that incorporates areas such as local planning policy within a broader socially legitimate programme.

The UK’s new strategy offers no compelling offer to a widely supportive public, despite onshore wind’s status as among the cheapest and quickly deployable solutions for clean ‘homegrown power’. The strategy appears more concerned with heading off a revolt from the Conservative party’s rural base, with a vague intention to consult a “limited number of supportive communities”. The failure to grasp this low hanging fruit compounds previous political failures. Since 2016 there has been a 94% drop in new onshore wind projects, the year subsidies were ended and stricter planning regulations introduced, particularly in England.

The Danish government has described its approach as “focusing on interactions among sectors and systems establishing synergies between them, as opposed to focusing on individual components and concepts”. Resonant with the concept of a ‘National Innovation System’ (Freedman et al), the process of innovation is understood not as a singular act, technology or policy, but as a continuous, uncertain and cumulative process (Lundvall, 2002, Lazonick 2019).

With this adaptive approach, in the 50 years since 1973 Denmark has deployed policies and practices that have evolved to respond to technological, political and market changes. Though not exempt from critique itself, consistent throughout has been a clear agenda setting, capability-building and facilitatory role of public institutions.

This includes state-owned companies. But instead of merely ‘picking winners’, where majoritarily state-owned national champions do exist the role has been to serve as a “systems integrator” (Volkesgard, Rudiger 2020 and Andreoni, 2018). From what began life as DONG, a publicly owned oil company, the renamed Ørsted is now the world’s largest developer of offshore wind power, sitting at the top of a global value chain.

Operating as a “chief conductor of a symphony orchestra”, (Askou Bøss, cited in Volkesgard, Rudiger 2020) it has the structural power to shape and de-risk the industrial ecology, estimated to be more than 500 domestic firms (Megavind, 2015). For example, in 2009 DONG temporarily purchased a specialist offshore wind installation vessel company to reduce cost uncertainty and bottlenecks for the industry as a whole (Volkesgard, Rudiger 2020). It also operates a policy of ‘managed competition’ between major turbine manufacturers, by alternating purchases between them in order to maintain a cost pressure and drive innovation (Ibid).

The Prime Minister’s foreword to April’s strategy lamented that the UK had “drifted into dependence on foreign sources” yet wouldn’t countenance a UK state-owned company acting as a key stakeholder in the sector. Much like in the privatised railways, state-owned companies are already major players in Britain’s massive offshore wind sector. Landmark installations like Hornsea and Dogger Bank are led by Danish and Norwegian state-owned firms, Ørsted and Equinor. Even Johnson’s own boosterish analogy skates over that Saudi Arabia’s Aramco, one of the largest energy companies in the world, is 98% state owned.

The Danish experience acknowledges that markets can’t orchestrate the massive structural transformation required. That unique role can only be played by a politically empowered and dynamic bureaucracy, in concert with a range of other actors.

Politically and practically empowered institutions

As the facilitator of structural change, public organisations need to be empowered and resourced. In the 1970s the number of civil servants working on energy issues expanded significantly (Rudiger, 2014). This helped develop and manage an evolving constellation of policies and institutions, from the innovation focused Danish Energy Agency to an expansive network of state, firm and knowledge sector actors. Over time they developed the bureaucratic competence and ‘dynamic capabilities’ (Kattel & Mazzucato, 2018), to progress the ambitions laid out in the plans.

These systems facilitated both the creation of technology and its diffusion, and the embedding of high levels of political buy-in and social licence. Wind now meets 50% of Denmark’s energy needs. As the technology matures, the system that fostered it is forming the foundation for a next generation of renewable technologies.

Denmark’s story is not without critique (its decarbonisation journey is far from over) and there isn’t a replicable ‘forms and function’ formula for institutions and policies to drive economic and technical change (Adreoni & Chang, 2019). But delivering structural transformation within a generation and net-zero by 2050 won’t happen by targets and markets alone.

Johnson said “for years, governments have dodged the big decisions on energy”. The biggest decision would be to utilise the unique role of the state to mobilise an entire ecosystem, and turn strategies into realities.

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