Sequence and alignment of external pressures in industry destabilisation: Understanding the downfall of incumbent utilities in the German energy transition (1998-2015)

Gregor Kunglx and Frank W. Geelsxx

Author Accepted Manuscript for publication in Environmental Innovation and Societal Transition (May 2017).

x University of Stuttgart, Institute for Social Sciences, Department of Organizational Sociology and Innovation Studies, Seidenstraße 36, 70174 Stuttgart, Germanygregor.kungl@sowi.uni-stuttgart.de

xx Frank W. Geels, University of Manchester, Manchester Institute of Innovation ResearchOxford Road, Manchester M13 9PL, UK, frank.geels@manchester.ac.uk

AbstractThis article makes two contributions to the emerging research stream on regime and industry destabilisation in the transition literature. First, we replicate the multi-dimensional framework developed by Turnheim and Geels with a more contemporary study that has closer links to sustainability transitions. Drawing on a wide range of primary and secondary sources, we analyse the destabilisation of the German electricity industry, which faced multiple external pressures: renewable energy technologies, nuclear phase-out policy, the financial-economic crisis, and negative public debates. Second, we elaborate the role of multiple pressures in industry destabilisation, focusing in particular on their sequence and alignment. We inductively identify patterns such as the ‘masking effect’ of highly visible macro-shocks, a ‘perfect storm’ pattern, a ‘killer blow’ effect, and spillover dynamics between external environments.

1. IntroductionWhile many studies in the sustainability transitions literature focus on emerging ‘green’ innovations, an emerging research stream is also addressing the flip-side of transitions, namely the destabilisation of existing regimes and industries (Karltorp and Sandén, 2012; Turnheim and Geels, 2012; Stegmaier et al., 2014; Kivimaa and Kern, 2016). This paper aims to contribute to that literature, focusing on industry destabilization, which we conceptualize as the unlocking of core regime elements such as routines, technical capabilities, strategic orientation and mind-sets (Nelson and Winter, 1982; Turnheim and Geels, 2013).1 Many existing literatures offer relevant (yet partial) insights with regard to industry destabilisation, although we will argue that destabilisation in the context of sustainability transitions requires a broader, inter-disciplinary approach. Industrial economists and economic historians (Lazonick, 1983; Lorenz, 1994) emphasise

economic pressures on industries (cheaper foreign competitors, shrinking markets shifting user preferences) and slow firm-level responses because of organisational inertia and routines.

Evolutionary economists and technology management scholars (Nelson and Winter, 1982; Tushman and Anderson, 1986; Rosenbloom and Christensen, 1994) see destabilisation as driven by disruptive technologies, which cause the downfall of incumbent firms, which

1 Industry destabilisation is thus not the same as industry decline, although the latter may contribute to the former.

1

respond too slowly because they are locked-in by routines, technical capabilities, and strategic commitments.

Sociological and neo-institutional literatures emphasise socio-political pressures from activists and social movements (Hiatt et al., 2009), policymakers (Scott, 1995), or public debates and discourses (Maguire and Hardy, 2009), which de-legitimate and de-institutionalise institutional logics, including mission and mind-sets.

The organisational decline literature highlights endogenous responses and unsuccessful adaptation to external pressures. This literature understands decline as a longitudinal process, consisting of several stages (Hambrick and D'Aveni 1988; Weitzel and Jonsson, 1989; Collins, 2009). It suggests that firms struggle to adjust to external pressures in a timely manner because of initial denial or mis-interpretation (Ocasio, 1997; Gopinath, 2005), because of mis-match between information and existing mind-sets or because of complacency. When problems are subsequently recognised, reorganisation and radical innovation are risky, costly (especially in capital intensive industries), and uproot existing capabilities, procedures and routines, which often causes organisational resistance (Tushman and Anderson, 1986; Leonard-Barton, 1992; Lorenz, 1994). Organisations therefore often postpone adaptation of core organisational elements for too long, relying instead on defensive strategies such as downsizing, cost-cutting, efficiency improvements (Barker and Mone, 1994). It therefore often takes an external shock or crisis to overcome inertia and change organisational core elements (Taylor, 1982). This reorientation may be ‘too little, too late, leading to exit.

While most of these disciplinary literatures usefully highlight the interplay between external environmental pressures and endogenous firm-level responses, they have two related shortcomings. First, their focus on a few dimensions has limitations in the context of sustainability transitions, which are multi-dimensional, co-evolutionary processes (Geels, 2005; Van den Bergh et al., 2011). Second, many studies (especially the phase-models in the organisational decline literature), conceptualise the topic as firms-in-industries facing one external pressure. The wider organisational literature also seems to focus on single environmental jolts or shock (Meyer et al., 1990; Sine and David, 2003; Suarez and Oliva, 2005).

Because of these limitations, we build on a conceptual framework developed by Turnheim and Geels (2013) which understands destabilisation as a multi-dimensional process including the interplay of various external pressures and endogenous responses (see section 2). We aim to make two contributions with regard to this framework. First, we want to replicate it with a more contemporary study (the destabilisation process of the German electricity industry) that is more closely related to sustainability transition. Second, we want to elaborate the framework by studying the role of multiple external pressures in industry destabilisation. In particular, we aim to investigate the sequence of pressures and their alignment with the aim of identifying patterns.

The research setting is the German electricity industry, which experienced major changes in fortune in the last decade. After liberalisation in 1998, the industry consolidated, resulting in the Big-4 (E.ON, RWE, EnBW, Vattenfall), increased its percentage of electricity generation (from 71% in 1998 to 90% in 2004), and saw major share prices increase between 100-200% between 2001 and 2008. Subsequently, however, net profits nosedived (Figure 1), share prices collapsed (Figure 2), and the Big-4 percentage of electricity generation decreased to 73% in 2014 (Bundesnetzagentur and Bundeskartellamt 2015). These problems destabilised the existing industry regime, undermining mind-sets, business models and technical competencies. The CEO of EnBW, for instance, stated in the 2012 annual report: “I see a paradigm shift in the energy sector that questions the traditional business model of many power supply companies”.

2

Figure 1: Development of the Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA) of the Big-4 utilities, in million euros (Source: Annual reports)

Figure 2: Share price performance of German electricity companies (Vattenfall is not included because it is a Swedish state-owned company), normalised by starting date (Source: Finanzen.net)

The destabilisation process was related to the electricity transition, which saw the market share of renewable electricity technologies (RETs) increase to 30,1% in 2015 (Figure 3). But it was also related to other external pressures such as the financial-economic crisis in 2008/9, public protests and negative discourses, the 2011 Fukushima nuclear accident and the German government’s decision to phase out nuclear power by 2022. The case thus seems suitable to investigate sequence and alignment between multiple external pressures. Industry

3

destabilisation also happened because of flawed strategic choices and (mis)interpretations, which we include in the empirical analysis since they form the other side of the destabilisation coin.

Figure 3: Relative fuel contributions (in %) to German electricity production (Data: AG Energiebilanzen)

Although the paper’s main contribution is to explore a conceptual topic (sequence and alignment of external pressures in industry destabilisation), it also adds some empirical novelty to rapidly expanding literature on the German energy transition. While many papers offer comprehensive analyses of the whole process (e.g. Strunz, 2014; Geels et al, 2016; Fuchs and Fettke, 2016), some also focus on established energy providers (e.g. Rogge et al., 2011; Becker, 2011; Bontrup and Marquardt, 2011, 2014). None of them, however, focuses explicitly on the destabilisation of industry regimes, which thus enables our paper to add some empirical and interpretive value to the literature.

The paper is structured as follows. Section 2 introduces the theoretical framework. Section 3 discusses methods, data sources and data analysis. Section 4 presents a longitudinal case study of the German electricity industry, which is guided by the analytical categories from the conceptual framework. Section 5 analyses the case, and section 6 draws conclusions.

2. Conceptual framework Our understanding of industry destabilisation builds on the Triple Embeddedness Framework, TEF (Geels, 2014), which provides an appreciative understanding of the co-evolution of firms-in-industries and their environment, drawing on ideas from evolutionary economics, neo-institutional theory, structuration theory, and strategy literature, particularly the interpretive and capabilities literatures (see Geels, 2014, for elaborate discussion). The TEF conceptualises industries as populations of firms in two environments with different selection pressures (Figure 4). In the economic (task) environment, which accommodates customers and suppliers, selection criteria are economic competitiveness, efficiency, and financial performance. In the institutional environment, which accommodates policymakers, social movements, and wider publics, selection criteria include social fitness and legitimacy (Scott,

4

1995), which derive from adherence to general institutions, i.e. "broadly accepted norms, values and belief systems that constitute the master principles of society" (Haveman and Rao, 1997: 1613).

Figure 4: Triple embeddedness framework of firms-in-industries (Geels, 2014: 266)

The TEF further suggests that firm-level perceptions and responses to environmental pressures are shaped by an ‘industry regime’, which contains industry-specific institutions that contribute to path dependence and lock-in: (1) mind-sets, belief systems (Ocasio, 1997), (2) mission, identity, norms (Dutton and Dukerich, 1991), (3) technical knowledge and capabilities (Leonard-Barton, 1992), (4) formal-regulatory institutions (regulations, taxes, subsidies).

The bidirectional arrows in Figure 4 indicate that firms-in-industries are not only influenced by external pressures, but also respond strategically to their environments, within the bounds of industry regimes. The main (externally-oriented) strategies towards various environments are: economic positioning strategies (take-overs, pricing, supply chain management, marketing), innovation strategies (R&D, technology collaborations), corporate political strategies (lobbying, financial contributions to political parties, constituency building, information strategies), and framing strategies (public relations, advertising).

Turnheim and Geels (2013) used the TEF to position different perspectives on industry destabilisation and develop a multi-dimensional understanding that involves two interacting processes. On the one hand, increasing external pressures from economic and socio-political environments cause economic and/or legitimacy problems for firms-in-an-industry. On the other hand, firms develop strategic responses to adapt to external pressures. Initially, these responses are likely to defend existing industry regimes with externally-oriented responses, mentioned above. But if external pressures and economic or legitimacy problems continue to increase, firms will loosen their commitment to existing regimes, which unlocks routines, technical capabilities, mind-sets and strategic mission. In a historical study of the UK coal industry, (Turnheim and Geels, 2013) found that mind-sets, mission and business models were the hardest regime elements to change, reorientation of which had “characteristics of a crash programme when the damage had already been done in terms of cultural legitimacy, competitiveness and political support” (p. 1765).

5

We will use the above framework and categories to guide the case study. Because the framework distinguishes multiple industry environments, it is suitable to go beyond single environmental jolts or shocks and investigate the role of multiple external pressures in industry destabilisation. We aim to build on Suarez and Oliva (2005), who distinguished different kinds of external pressures, e.g. specific shock (which has high amplitude and speed), disruptive change (which has high amplitude, but builds up gradually), and avalanche change (which has high amplitude, high speed and affects many dimensions). While this distinction remains important for industry destabilisation (and is visible in our case study), investigating multiple pressures enables asking further questions, e.g. about sequence and alignment of external pressures.

The general importance of sequence is emphasised in path creation and organisational process theories (Garud et al., 2010; Langley et al., 2013), which analyse temporal connections between events and how interacting event chains produce outcomes. These literatures suggest that the “time ordering of events is critical” (Van de Ven and Poole, 2005: 1382). We suggest that sequence is also important for industry destabilisation. One issue we will investigate is the sequence of external pressures on an industry. The effect of a specific shock, for example, may be larger when an industry has already been eroded by earlier external pressures. Another issue we will investigate is the sequential interaction between pressures (e.g. negative public discourse may lead to policies that change market conditions, which create opportunities for new entrants). While this general phenomenon has been studied as co-evolution (Nelson, 1994), it has not yet been applied to industry destabilisation. The broader implication is that firms tend to be quite skilled in dealing with single pressures from external environments; but they may become ‘encircled’ and overwhelmed when pressures in one environment spill over to another environment, leading to multi-frontal attacks.

Alignment of external pressures is also important for industry destabilisation. Starting from a relatively stable regime, in which firms-in-industries are positively supported by social groups in external environments (Figure 4), destabilisation entails changes from positive to negative in external environments. Only a few negative pressures are unlikely to destabilise an industry, if other pressures remain sufficiently positive. We therefore suggest that destabilisation requires an alignment in the directionality of multiple pressures from positive to negative. This is unlikely to happen in one fell swoop. So, there is likely to be an intermediate period with contradictory pressures (some positive, some negative) and ambiguous signals, which creates challenges for manager’s attention and interpretation (Occasio, 1997; Eisenhardt, 2000).

3. Methodology and data sources

Case selection and research designWe will analyse the destabilisation of the German electricity industry, using the framework described above. The selection logic is that this represents an ‘extreme case’ (Flyvbjerg, 2001), which demonstrates the phenomenon in a dramatic and salient way: the industry’s fortunes changed rapidly from national champion to destabilisation, due to alignments of various external pressures. We adopt a case study strategy, because case studies are rich in context and track complex developments over time (George and Bennett, 2004). Since the seeds for destabilisation are sown early on, we use a longitudinal case study design, starting in 1998 when liberalisation of the electricity sector heralded the start of a new period.

Data sourcesData-collection is guided by our conceptual framework, which focuses on interacting actors and contexts rather than dependent and independent variables (Van de Ven and Poole, 2005). For external pressures we mainly used data from secondary sources (academic books,

6

articles). For industry responses we draw on a wide range of primary sources: annual reports, company press reports, reports from business journals and a variety of daily newspapers (to ensure coverage of different political positions). 2 Documents were collected from online archives, searching for the companies’ names. In total we collected and analysed 2548 documents: 365 company reports, 715 newspaper articles, and 1468 documents from business journals.

The tracing of response strategies also draws on information from 22 interviews, conducted between August 2013 and August 2015. Twenty interviews were with managers from the respective companies and two with representatives of companies’ shareholders. Fourteen interviews were conducted face-to-face, eight via telephone. All interviews, except four, were recorded. Interviewees were selected to span different companies and a range of areas: corporate development, trade, sales, market analysis, transmission grids, distribution grids, research and development, generation, public affairs, public relations and municipal relations. We interviewed both present and former employees, who had worked at the companies for a long time. Table 1 provides anonymised information about the interviewees. Interviews were guided by a general interview guide (available in appendix table 6), which was tailored for specific interviewees.

Interview Position Still in position?

Interview situation

Date

E.ON-1 Operational business Y Telephone August 2013

E.ON-2 Operational business Y Telephone July 2014

E.ON-3 High management N Telephone May 2015

E.ON-4 High management N Face-to-face May 2015

E.ON-5 High management N Telephone May 2015

RWE-1 Operational business Y Telephone March 2014

RWE-2 High management Y Face-to-face March 2014

RWE-3 High management Y Face-to-face April 2014

RWE-4 Operational business Y Telephone May 2015

RWE-5 High management Y Face-to-face August 2015

EnBW-1 Mid management Y Face-to-face August 2013

EnBW-2 Operational business Y Face-to-face April 2014

EnBW-3 High management Y Face-to-face June 2014

EnBW-4 High management Y Face-to-face July 2014

EnBW-5 High management Y Face-to-face July 2014

EnBW-6 High management Y Face-to-face June 2015

Vattenfall-1 High management N Face-to-face August 2014

Vattenfall-2 High management N Telephone June 2015

Vattenfall-3 High management N Face-to-face June 2015

2 The selected daily newspapers were: Süddeutsche Zeitung, Westdeutsche Allgemeine, Frankfurter Allgemeine, Die Zeit, Der Spiegel, Die Welt. Additionally we used the biggest economic newspaper in Germany: Handelsblatt. We also gathered articles via the newspaper search machine Paperball.

7

Vattenfall-4 High management Y Telephone July 2015

VKA-1 High position Y Face-to-face May 2015

OEW-1 High position Y Face-to-face July 2015Table 1: Anonymised information about interviewees3

Data analysisOur data analysis was conducted in two steps. The first step consisted in processing the collected data with the qualitative content analysis method by Gläser and Laudel (2009). For the coding of the documents and the interviews two different category systems were developed. The first category system was inspired by the underlying theoretical framework, but inductively adjusted to the internal logic of the data (which aimed to prevent the generation of artificial results by mere reproduction of the theoretical categories). Relevant text parts were extracted, paraphrased and assigned to a category (for the category system see appendix table 7). The final data was exported to excel where it was further processed. These final sheets organised the data by source, category, company and date, which enabled quick search for any issue at any given point in time. The second category system, which we used for the analysis of the interviews (see appendix table 8), followed thematic issues (e.g. nuclear phase-out, emissions trading), which remained closer to the experience of the interviewees.

In the second data step we moved from processed data to the case study, using a process tracing methodology, which is useful for investigating temporal phenomena like destabilisation (Langley et al., 2013). Process tracing has particular advantages because of our interest in sequence and alignment: “Using process tracing, the researcher assesses a theory by identifying the causal chain(s) that (…) uncover the relations between possible causes and observed outcomes and (…) demonstrate the conjunction and temporal sequence of variables” (Vennesson, 2008: 231). George and Bennett (2004) distinguish different kinds of process tracing such as detailed narrative, use of hypotheses, analytic explanation, and more general explanation. Our study aims for analytic explanation which “converts a historical narrative into an analytical causal explanation couched in explicitly theoretical forms” (p. 211). This is not an easy procedure because of the richness and multi-dimensionality of our collected data. Langley (1999: 694) notes that: “This is where the central challenge lies: moving from a shapeless data spaghetti toward some kind of theoretical understanding that does not betray the richness, dynamism, and complexity of the data”. And Poole et al. (2000: 54) observe that: “Process methods must convert a heap of confusing data into a synthetic account in which the reader can comprehend all the data in a single act of understanding. This requires the ability to recognize recurrent patterns in event sequences, to establish necessary conditions, and to identify formal and final causation” (Poole et al., 2000: 54).

Unfortunately, the process tracing literature offers no conclusive guidelines for addressing this challenge. Kittel and Kuehn (2013), for instance, conclude that: “despite the outstanding career of the terminology of process tracing, there has been little success in formalising its methodology and defining standards”. We have attempted to address the data-analysis challenge in three ways. First, we ensured that our analytical narrative was guided by a theoretical plotline, based on the evolutionary logic that underlies the TEF (environmental selection pressures and industry response strategies). The narrative was fleshed out by organizing the processed data under more specific analytical categories of the triple embeddedness framework. Second, to select the most important observations from the data heap, we used triangulation to confront information from interviews, primary and secondary

3 VKA and OEW are the associations of the municipal shareholders of RWE and EnBW. The interviews were conducted over a comparably long time span, because the research was part of a PhD project that was conducted over a three year period. This enabled a study of the case as it unfolded.

8

sources. We used documents to create first overview of the whole process and case specifics (e.g. which kind of business activities were prevalent in certain time spans; how companies’ communication on specific issues changed over time). We confronted these initial interpretations with interview data, which added an exploratory layer. We used secondary sources to balance our expanding interpretation and adjudicate in case of contradictory information from documents and interviews. Third, we used schematic figures to summarize and interpret broader patterns within event chains. Langley et al. (2013: 8) note that such representations are common in process studies where “authors draw on visual maps or diagrams to represent processes and their iterative dynamics”.

We acknowledge that these procedures inevitably require interpretation and thus introduce a degree of subjectivity, as also noted above by Poole et al. (2000) and by Mahoney (2015: 215), who also emphasizes the importance of personal craft elements: “Successful inductive process tracing requires a good knowledge of relevant theory, an ability to examine the broad history of a case, and a skill at recognizing when evidence might be consistent with existing theory”.

4. Case studyWe have divided the case into four sub-periods, based on qualitative considerations (important policies and external shocks) and quantitative time series trends (especially EBITDA, averaged stock price performance, and wholesale electricity price), represented in Figure 5. For the first period (1998-2005) all proxies (beside stock price performance) indicate an upward trend. Upwards trends (in share price, electricity price, EBITDA) continue in the second period (2005-2008), but several policies indicate a shift (emission trading and cartel restrictions in 2005). Starting with the economic crisis, these trends reverse from the third period (2008-2011): electricity prices decrease, demand fluctuates and share prices collapses. The fourth period (2011-2015), which starts with the Fukushima nuclear accident, is characterised by a further downward trend at all levels.

Figure 5: Phases of decline based on proxy variables. Quantitative data normalised by starting date. Sources: Reports by the companies, BDEW, finanzen.net, energinet.dk

9

For each period we first describe external pressures from economic and socio-political environments (policy; social movement and public attention; markets; new entrants; technical alternatives) and then industry response strategies (economic positioning; technical innovation strategies; corporate political strategies and framing).4 We end each period with a brief summary and a ‘spillover figure’, which is a representational technique to synthetically summarise event chains (Turnheim and Geels, 2013).

4.1. Politically supported concentration, expansion and growth (1998–2005)Pressures in economic and socio-political environmentsPolicyThe 1998 election of a Red-Green government coalition heralded several fundamental policy changes in the German electricity supply system. These changes resulted from compromises between the Social Democrats (SPD), which traditionally supported the power industry (and coal interests), and the Green Party, which wanted to phase-out nuclear power and support renewable energy technologies (RETs).

First, following an EU market directive, the electricity supply industry was liberalised in 1998. This policy disbanded the former regional monopolies, and scrapped state control over investments and electricity prices. However, the law abstained from regulating third party grid access and implementing strict unbundling rules. The big utilities thus continued to operate the transmission grids and controlled the largest parts of the distribution grid. This gave the utilities a complete overview of the market, because grid operators had to be informed on any new power plant constructions. As a former E.ON manager put it: “In Germany nothing happened without the company knowing about it” (E.ON interview 4). So, although market was legally open, competition remained limited due to the incumbents’ strategies and historic ownership interlocks (Becker, 2011). The increasing market power of the big utilities (including mergers) was politically supported because of Chancellor Schröder’s goal to create “national champions” that could compete on European electricity markets (Lobo, 2011).

Second, the federal government and the utilities reached an agreement on the future of nuclear power (the 2000 “Atomkonsens”), which was institutionalised in the revised Nuclear Energy Act 2002. This policy banned the construction of new nuclear power plants and limited the running time of existing plants to 32 years on average from the date of commissioning.

Third, the Red-Green government published a climate protection program in 2000, which aimed for 25% CO2-reduction by 2005 (compared to 1990) and 10% renewable electricity in 2010. In 2002, the climate change target was confirmed, while the renewable electricity target was increased to 12.5% by 2010 and 60% in 2050 (Jacobsson and Lauber, 2006). Even optimistic experts thought this target was rather ambitious (Lobo, 2011). The Renewable Energy Sources Act (EEG), introduced in 2000, was a crucial policy instrument, which obliged grid operators to prioritise renewable energy on the grid and provided attractive, long-term (20 years), technology-specific remuneration rates for electricity generated from renewable sources (Jacobsson and Lauber, 2006).

Social movements and public attentionThe anti-nuclear movement, which was quite strong in Germany, especially since the 1986 Chernobyl accident, expressed concerns about the long-term character of the 2002 nuclear phase-out policy: they feared that the decision could be reversed by future governments

4 We made some slight deviations from the categories of the TEF: 1) we addressed markets instead of consumers, because the latter were of minor importance in our case, 2) we included new entrants and new technologies which are not explicitly mentioned in the TEF but played an important role for the destabilisation of the German electricity industry.

10

before nuclear plants would be switched off (Roose, 2010). After the 2002 phase-out decision, public debate gradually shifted from nuclear power towards climate change and renewable electricity (Bohn and Walgenbach, 2017).

MarketsElectricity demand in most sectors steadily increased during this period (BDEW, 2017). In the first year after market liberalization, competition intensified and electricity prices decreased. However, the big utilities soon regained control over the market as many newly founded electricity providers failed because of high transmission tariffs and limited willingness of customers to change electricity provider (Bontrup and Marquardt 2010).

New entrants and technical alternativesThe EEG improved grid access for new entrants (e.g. farmers, activists), which enabled a ‘social opening up’ of the electricity sector, including the creation of new associations that helped professionalise the renewables sector (Mautz et al., 2008). The EEG also stimulated renewable electricity production, which increased from 26.3 TWh in 1998 to 56.6 TWh in 2004. The expansion mainly came from onshore wind (which rose from 4.5 TWh to 25.5 TWh) and biomass (which rose from 1.1 TWh to 8.2 TWh). These developments were initially underestimated by the utilities as an interviewee regretfully expressed: “we realised much too late what kind of momentum it had behind it” (RWE interview 5).

Industry response strategiesEconomic positioning strategiesBefore 1998, the German electricity sector was dominated by eight vertically integrated utilities (RWE, VEW, Preussenelektra, HEW, EnBW, Bayernwerk, VEAG and Bewag), which produced the bulk of the German electricity, owned transmission grids, and controlled several regional and municipal utilities (Latkovic, 2000). Liberalisation created many economic opportunities for the utilities, which they exploited with the following strategies: Mergers and take-overs led the creation of the Big-4 utilities. E.ON and RWE became the

biggest companies with the largest profits (Figure 1). Although competition between the companies initially led to decreasing electricity prices for end-consumers, this trend reversed by the end of this period (Becker, 2011). Utilities (except Vattenfall) also expanded regionally via take-overs and purchasing majority shares in municipal utilities. Cartel authorities stopped these regional strategies of RWE and E.ON, because of market power concerns. Cartel authorities focused less on EnBW, however, which continued its regional expansion strategy (Becker, 2011).

Because RWE and E.ON faced domestic cartel restrictions, they pursued European and global expansion strategies. EnBW remained focused on Germany, because of smaller financial scope for large take-overs and because Electricité de France, which owned a significant part of EnBW shares (34 % in 2002), hindered EnBW expansion into markets they were themselves interested in.

The German utilities also expanded in other energy markets such as gas (Bontrup and Marquardt 2011). Vattenfall engaged in heat supply, while RWE expanded into global water supply (a market they later abandoned).

Companies also divested non-energy activities, which generated resources to finance the other expansion strategies. Especially, RWE and E.ON, which were multi-industry concerns before liberalisation, sold activities in areas like chemicals, telecommunication and logistics.

Technical innovation strategies

11

Companies significantly decreased R&D expenditures because they sold R&D intensive units (e.g. chemicals, print). Between 2000 and 2004 RWE reduced R&D expenditures from 505 to 114 million euro; E.ON reduced expenditures from 661 to 55 million euro (based on data from annual reports). Energy-related R&D mainly consisted of applied research (pilot projects, test plants), focused on efficiency improvement of conventional power plants. Utilities also dedicated smaller research efforts to fuel cells, CO2-reduction, and ‘smart home’ technologies.

Corporate political strategies and framingThe utilities negotiated with the government about the specifics of the nuclear phase-out decision, exploiting dissent between the SPD and Greens (Lobo, 211). The result (average running time of 32 years before shut-down) was closer to the utility demands (40 years) than to Green Party’s demands (below 20 years) (Mez, 2001).

While utilities oriented most efforts towards the nuclear phase-out, they also dedicated some political activity to opposing the EEG. For example, the industry association VDEW called for limitations to the feed-in priority for renewable energies. It also demanded that back-up capacity, which was needed to mitigate the volatility of wind power, would be financed through the EEG (VDEW et al., 2003).

SummaryPolitically-supported liberalisation created economic opportunities for utilities, which consolidated, increased their market power, and expanded on the European level. The utilities used most of their political capital to negotiate the design of the nuclear phase-out. They paid somewhat less attention to opposing the EEG, which created entry points for renewable energy technologies (RETs) and new entrants. Figure 6 schematically summarises the main developments.

Figure 6: Multi-dimensional pressures, responses and spillovers (1998-2005) 5

5 The varying thickness of arrows represents the relative importance of the respective interactions and interdependencies. It is based on qualitative considerations derived from interviewee’s statements, documents and desk research. The arrows serve the purpose of visualization and are to a certain degree subjective.

12

4.2. Positive economic developments and windfall profits despite increasing restrictions (2005–2008)Pressures in economic and socio-political environmentsPolicyThe 2005 elections replaced the Red-Green government with a grand coalition of Social Democrats and Conservatives, headed by Chancellor Merkel. Despite some dissent within the Conservative Party, the government coalition continued the previous policies on the EEG and nuclear phase-out (Lauber and Jacobsson, 2016).

One new policy was the second amendment to the Energy Industry Act (EnWG), which, in 2005, tightened the unbundling rules for transmission and distribution businesses and regulated third party grid access to facilitate competition (Bontrup and Marquardt, 2011).

Another new policy was the national implementation of the European emission trading scheme. In the first trading period (2005-2007), 95% of emission certificates were given to power plant operators for free (Lobo, 2011). The companies priced these certificates in as opportunity costs, which led to increasing electricity prices and windfall profits for the companies (see below).

The two biggest utilities (RWE and E.ON) faced increasing criticisms (e.g. from cartel authorities) about excessive market power and market manipulation. In 2007, the European Commission to mandate a sector inquiry, because of suspicions that E.ON, between 2002 and 2007, had manipulated prices at the stock exchange by holding back production capacity. The commission seized documents from E.ON’s offices and also investigated market manipulation by the Big-4. Investigations were halted in 2009 when the commission reached a compromise with the utilities (Becker, 2011).

Social movements and public attentionThe public image of electricity utilities, compared to other economic sectors, decreased considerably in this period (BDEW, 2015). This was due to negative public debates about cartels, abuse of market power and accusations that energy suppliers over-charged consumers. Public attention to climate change and renewables increased in this period. The German public strongly supported renewables, as indicated by successive surveys by the environmental ministry (BMU 2002, 2004, 2006, 2008, 2010). Nuclear power also returned to public debates, because the utilities increased their lobbying activities to influence the new government (Bohn and Walgenbach, 2017).

Technical alternatives and new entrantsRenewable electricity rapidly increased from 56.6 TWh in 2004 to 88.3 TWh in 2007. The 2002 target of 12.5% renewable electricity by 2010 was already met in 2007 (Figure 3). So, RETs not only expanded faster than initially anticipated, but also took market shares from existing technologies. Financial support from the 2004 EEG amendment attracted more new entrants such as farmers (which engaged in biogas production and installed wind turbines), households (which installed small rooftop solar-PV) and project developers, which installed large solar-PV installations (Mautz et al., 2008).

MarketsElectricity demand continued to increase gradually in this period (BDEW, 2017). Electricity prices also increased (Figure 7), because of possible rigging, priced-in emission certificates, and rising commodity prices.

13

Figure 7: Development of day-ahead spot price for electricity (EUR/MWh). DE European power exchange (Source: Energinet.dk)

Industry response strategiesCorporate political strategies and framingUtilities initially opposed the emissions trading scheme. They changed tack, however, when they realised the scheme offered commercial opportunities, as an interviewee noted: “At one point during internal discussion someone suggested: ‘Think about it: this could very well become an extremely interesting business model, because we will just pass this on to the customers by adjusting the electricity prices’” (E.ON interview 4). The windfall profits could be large. Cludius and Hermann (2014) estimate the value of the free certificates for the first ETS-phase (2005-2007) at over nine billion Euro. This led one RWE manager to state that: “Then the golden era began, namely the era of emissions trading” (RWE interview 4).

The utilities, except EnBW, also oriented political strategies towards the 2005 EnWG amendment. The opposition, however, had limited effects because the SPD (which had often supported the utilities) was weakened after the 2005 elections, because antitrust litigations eroded their reputation and credibility, and because lack of competition (see above) showed that legally binding rules were necessary (Lobo, 2011).

Political strategies also targeted renewable energy, but this was not a priority issue. The industry association (VDEW, 2005) proposed an “integration model” of renewable energies that would replace feed-in tariffs with a quota model, which would offer greater predictability of RET-expansion and better integration with regard to existing plants.

Utilities started to acknowledge climate change as an important issue. But they argued that renewables were not the best mitigation option, because of high costs and the inability to provide base-load power. Instead, they claimed that nuclear power was crucial for reaching climate targets cheaply and reliably (Bohn and Walgenbach, 2017). They also pointed to efficiency improvements in fossil fuel plants and flagged the possibility of carbon capture and storage (CCS).

14

Economic positioning strategies Rising electricity prices (Figure 7) boosted the profitability of power plants with low marginal costs such as lignite and nuclear power (RWE interview 4). Combined with windfall profits from emissions trading, utilities experienced substantial growth in net profits (Figure 1) in this period. “So, one had tailwind in all areas, in all operational areas” (E.ON interview 4).

These positive financial developments trumped concerns about renewable electricity or declining public reputations. They also stimulated a search for further expansion. Growth at the European level offered less opportunities, however, as Vattenfall noted in their 2006s annual report: “Opportunities to make major acquisitions have decreased in pace with a declining number of possible takeover candidates in relevant markets in Europe, which is driving up prices.” Despite the limited opportunities and high prices, shareholders exerted pressure on managers to use the surplus money for take-overs (especially at E.ON and RWE). In 2006, E.ON made a take-over bid on the Spanish utility Endesa (for roughly 40 billion Euro), which was impeded by the Spanish government. To please institutional investors an agreement was reached that E.ON would take over parts of Endesa, especially assets in France, Italy and Spain, which a former manager later referred to as being “anything but high performers” (E.ON interview 4). Another former manager referred to this period as “expansion at highest prices” (E.ON interview 5).

Utilities also pursued an organic growth strategy, investing in new assets such as fossil power plants. This strategy was underpinned by expectations of future demand growth and a need for new production capacities, as well as the availability of financial surpluses. They were also optimistic about the feasibility of CCS and underestimated the growth of renewables, as an interviewee admitted: “In 2007 the entire board – myself included – was convinced that it would take a long, long, long time before the era of renewables would arrive. We thought there would definitely be another generation of large power stations before renewables got off the ground” (RWE interview 5). Between 2005 and 2008 companies planned to build about 15 GW capacity of new coal and gas plants in Germany.

Towards the end of this period, utilities also explored renewable energy as a possible business area. “I think the real breakthrough for the large companies came with offshore wind farms, where you could also do a few megawatts. But that also has to do with financial considerations. We were large energy suppliers and tended to think big; we didn’t deal in small projects” (RWE interview 2; see also Reichardt and Rogge, 2016). In 2007 and 2008, utilities founded separate business units for renewable energies, which offered some protection from normal performance criteria: “I decided to build up a renewables division which was sheltered from the influence of sceptics, myself included”, E.ON’s chairman later said to a German newspaper (Spiegel, 7 June 2012). The first big wind parks were all built outside Germany, partly because return rates seemed more promising in other countries, partly because they wanted to protect their sunk investments in conventional power plants: “we don’t cannibalise our own power plants” (E.ON interview 5).

Technical innovation strategies While most R&D efforts focused on efficiency improvements in conventional power plants, utilities also seriously investigated CCS. In their 2006 annual report RWE designated CCS as its medium- to long-term R&D focus. RWE, E.ON and Vattenfall joined German and European CCS programs like “COORETEC”, “ENCAP”, “CASTOR” or “CO2SINK”. Companies also dedicated some resources to exploratory research in geothermal, fuel cells, smart technologies and compressed air storage.

SummaryUtilities faced some negative pressures from stricter regulations, cartel restrictions, RET-expansion, restricted European expansion opportunities, and declining public views. They

15

paid relatively limited attention to these developments, which did not affect their bottom line. In fact, windfall profits from emission trading and rising electricity prices created substantial financial surpluses and optimism, which led to decisions to build new fossil fuel plants and engage in (expensive) take-overs. Both decisions would turn sour in the next period. Figure 8 schematically summarises the main developments.

Figure 8: Multi-dimensional pressures, responses and spillovers (2005-2008)

4.3. Gathering storm clouds but incremental responses (2008–2011)Pressures in economic and socio-political environmentsPolicyThe 2009 elections resulted in a Conservative-Liberal government coalition, which was favourable to the utilities. The new government wanted to slow down RET-expansion, especially solar-PV, and reduce EEG-related costs (Hoppmann et al., 2014). The government also stated nuclear power could act as a ‘bridge’ until renewables were ‘affordable’. In 2010, the government overturned the earlier phase-out policy and implemented a lifetime extension of nuclear power plants (by twelve years on average). To siphon off parts of the profits the government also introduced a nuclear fuel tax, starting in 2011. This tax, which would expire after six years, would initially negate the profits of the lifetime extension; only after its expiration, the utilities would financially benefit, which thus introduced a temporal risk (Handelsblatt, 10 September 2010). The government also implemented an ‘Energy Concept’ with high renewables targets (35 % by 2020; 80 % by 2050), which the opposition branded as a tactic to legitimate the new nuclear policy (Lauber and Jacobsson, 2016).

Another political debate concerned carbon capture and storage (CCS) technologies, which the utilities were trying to develop. The European Commission stipulated that CCS should be embedded in a legal framework. This led to vivid political debates, which proved difficult to resolve because of three factors (Fischer, 2012): a) disagreement between coalition parties, b) public opposition (see below), c) the fact that the most suitable carbon storage sites were located in federal states with few emission-intensive power plants. Consequently a first draft CCS-law was blocked by the federal states in 2009. CCS was then postponed to the next legislation period.

16

During the second phase of the European emission trading scheme (2008-2012), 90 % of the certificates were still given to utilities for free (Lobo, 2011). Although windfall profits were still substantial, they were smaller than in the first ETS-phase (Cludius and Hermann, 2014).

Social movement and public attentionPressure from public debates also increased in this period. The government’s nuclear lifetime extension decision was very unpopular with the German public, leading to heated debates. A survey by a German newspaper showed that 49 % of the population was against any lifetime extension and another 29 % supported an extension by a maximum of ten years (Die Zeit, 22 July 2010).

Meanwhile, the public’s view of renewable energy remained very positive, despite claims by the governments and utilities about high costs. In 2006, 2008 and 2010 respectively, 87%, 86% and 85% of the population agreed with the statement that “we need a consistent change towards renewable energies” (BMU, 2006, 2008, 2010).

Although the public was hardly aware of CCS before 2008, the search for potential storage sites triggered many local protests. In the affected federal states public sentiments against underground storage were strong because past experiences with underground nuclear repositories (Fischer, 2012). Dütschke (2011) further suggests that the acceptance of CCS projects also depended on project scale and the image of the project developer. Large-scale projects by commercial actors (like the big utilities) particularly faced public resistance, in contrast to small-scale projects by scientific institutions.

Technical alternatives and new entrantsPower production from renewables increased from 88.3 TWh in 2007 to 104.8 TWh in 2010, which amounted to 16.6% of total electricity (Figure 3). Much of this increase came from biomass and solar-PV. The latter, in particular, experienced rapidly decreasing prices (due to learning curves, low-cost imports from China, overcapacities and price dumping). As PV-costs dropped faster than EEG remuneration rates, record amounts of solar-PV were installed in 2009, 2010 and 2011 (Hoppmann et al., 2014).

Renewable electricity technologies (RETs) were still mainly deployed by new entrants such as households and farmers (see Table 2). The Big-4 had some presence in biomass, but were generally limitedly involved in new renewables in Germany (Geels et al., 2016). Another new entrant were newly founded municipal utilities, which increased from 13 between 2005-2008 to 59 between 2009-2012 (Berlo and Wagner, 2013b). When long-term concession agreements between municipalities and grid operators came to an end, many municipalities took the opportunity to re-municipalise local distribution grids, which gave them more independence from the big utilities (Berlo and Wagner, 2013a).

Households, citizens

Farmers Banks, funds

Project developers

Municipal utilities

Industry Big-4 others

Wind 51.5 1.8 15.5 21.3 3.4 2.3 2.1 2.2Biogas 0.1 71.5 6.2 13.1 3.1 0.1 0.1 5.7Biomass 2.0 0 3.0 6.9 24.3 41.5 9.6 12.7PV 39.3 21.2 8.1 8.3 2.6 19.2 0.2 1.1Table 2: German ownership structure (%) of installed capacity of different renewable electricity technologies in 2010 (from: trend:research 2011)

MarketsGerman utilities faced substantial pressure from three market developments: a) the financial-economic crisis decreased demand for electricity (BDEW, 2017), b) the expansion of

17

renewable electricity (see below) reduced market shares of the utilities, c) electricity prices decreased (Figure 7), because of sinking hard coal prices and the merit order effect of renewables, which had priority access (Strunz, 2014).6 These developments did not immediately affect the net incomes of the utilities (which did not decline until 2011, as indicated in Figure 1), because they routinely hedged against the risk of decreasing prices (see below) (EnBW interview 1).

Industry response strategiesCorporate political strategies and framingAfter 2009, the utilities intensively lobbied the new government for a lifetime extension of nuclear power plants. “We were all aware that a change in government in Berlin would mean the opportunity to renegotiate the schedule for the nuclear phase-out” (E.ON interview 3). To support their nuclear lifetime extension lobby, the utilities deployed media campaigns highlighting the benefits of nuclear power, e.g. offering climate protection, diminishing the threat of energy shortages, and offering benefits for the national economy. They also claimed that they needed the money from nuclear power plants to finance the change towards renewable energies (Bohn and Walgenbach, 2017). This issue was the main focus of their political activities. “We were heavily engaged in it. We were among those that worked towards prolonging nuclear energy” (EnBW interview 2).

With regard to renewable energy, the companies argued for European ‘harmonisation’ of support policies, which meant abolishing the EEG. These demands were backed up by a supposedly neutral study from the industry-friendly research institute EWI (BDEW press release, 23 April 2010).

Economic positioning strategies As the companies were still doing well financially, they initially underestimated the impact of the financial-economic crisis and thought it would not affect them. RWE for example communicated that: “We are hell-bent to utilise the current crisis for further growth” (Handelsblatt, 16 December 2008). In 2009, RWE took over the Dutch company Essent, while Vattenfall bought the Dutch company Nuon. With hindsight, managers qualified both investments as overpriced (RWE interview 5, Vattenfall interview 2).

Companies not only faced problems from take-overs turning sour, but also from their power plant investments in the previous period. These investments were based on the assumption of growing electricity demand and stable market shares (i.e. limited renewables) which turned out to be wrong. Changes in the emission trading regulation, such as the 2007 announcement of full auctioning of emission certificates from 2012 onwards, also reduced the expected profitability (Rogge et al., 2011).

The utilities finally started to take serious the expansion of renewable energies. “Among those in the conventional business the first signs of hesitation came around mid-2009, and the final straw was Fukushima!” (Vattenfall interview 1). The threat from renewables was not recognised earlier “because they had blinders on. You could have seen it if you had dealt with the subject proactively and openly. But it was the old energy economists that had the say in the companies and it was them who tried to prevent all this. Their old way of thinking was: What we do not want, does not happen in the market, ok?” (E.ON interview 4).

Towards the end of this period, most companies started cost-cutting and efficiency measures to address worsening market developments. One month before the Fukushima accident RWE’s CEO qualified the fifth year of rising profits (Figure 1) with this caution: 6 The merit order refers to the ranking of sources of electrical generation, in ascending order of short-run marginal production costs. Electricity sources with the lowest marginal costs (i.e. renewable electricity in this period) are first brought online to meet demand.

18

“But now we are on the summit, and from there it goes downhill in all directions” (Handelsblatt, 25 February 2011).

Technical innovation strategiesBesides efficiency improvements of conventional power plants, innovation strategies focused on CCS-testing. EON, for instance, stated that: “We work intensely to make CCS economically feasible by 2020” (Handelsblatt, 29 August 2008). German CCS development strategies were hindered, however, by local protests and the inability of policymakers to develop a legal framework. The resulting deadlock was particularly problematic for Vattenfall, which in their 2008 annual report presented CCS as one main pillar to a low-carbon future by 2050. Utilities also researched alternative technologies like e-mobility and smart technologies.

SummaryIn this period, the utilities achieved political success with nuclear lifetime extension. Their net profits also increased (Figure 1), which created confidence that they could weather the financial-economic crisis (and even engage in take-overs). But the utilities also faced negative market developments, e.g. shrinking markets, decreasing electricity prices, competition from RETs (Figure 9). These developments were initially (mis)interpreted as temporary, although perceptions changed by the end of the period. Civil society pressures also increased (e.g. CCS protests, disapproval of nuclear lifetime extension), which undermined the industry’s legitimacy and reputation. Despite mounting pressures, the companies did not engage in substantial reorientation efforts.

Figure 9: Multi-dimensional pressures, strategies and spillovers (2008-2011)

4.4. Crisis and attempts at reorientation (2011–2015)Pressures in economic and socio-political environmentsPolicyThe Fukushima accident on March 12, 2011 was a major shock, which placed the previous nuclear lifetime extensions in a bad light (Hermwille, 2016). In response to a public outcry (see below) and with an eye to upcoming state level elections later that month (in Saxony-Anhalt, Baden-Wuerttemberg and Rhineland-Palatinate), Chancellor Merkel implemented for

19

a moratorium on nuclear power and a security assessment of all nuclear power plants. In June 2011, the government decided to shut down the eight oldest reactors and phase-out the remainder by 2022.

The nuclear phase-out also gave rise to the Energiewende, an explicit energy transition policy that formally adopted the renewable electricity targets from the ‘Energy Concept’. Nevertheless, the government tried to reduce the EEG support for renewable electricity technologies (RETs), which gave rise to intense debates within Parliament and with federal states, especially those with renewable energy industries or generation (Lauber and Jacobsson, 2016). When, in December 2013, the European Commission opened state aid infringement procedures against Germany (because of industry exemptions to paying the EEG surcharge), this provided the government with opportunities to scale down renewables support (Tews, 2015). A hasty EEG-amendment was pushed through Parliament, coming into force in August 2014. The amendment, which was harmonised with EU state-aid guidelines, contained various restraints for renewable energies and saw the replacement of the feed-in-tariff system by a bidding system by 2017. Although these policy changes favoured the incumbents (Lauber and Jacobsson, 2016), they came too late to stop RET-expansion.

The government also introduced CCS-legislation in 2012. The bill had been watered down to a law for CCS-demonstration plants, which capped the volume of storage sites and gave federal states veto rights against storage sites. The law thus failed to provide a stable basis for the commercial use of CCS (Fischer, 2012).

Social movement and public attentionFukushima caused a public outcry, because the accident seemed to validate the pre-existing framing of nuclear power as a potentially catastrophic threat (Hermwille, 2016). The public widely supported the 2011 phase-out decision and also continued to support RET-expansion. A majority of people thought that the energy transition benefitted the German economy. They also attributed rising electricity prices more to the profit-seeking behaviour from the utilities than to the energy transition (BDEW, 2013).

MarketsMarket developments also continued to exert pressure on utilities. Although demand bounced back from the sharp drop following the economic crisis, the overall demand trend was downward (BDEW, 2017). Other negative developments also continued: electricity prices decreased (Figure 7) and RET-expansion continued (Figure 3). RWE’s CEO characterised developments as the “worst structural crisis in the history of energy supply” (Handelsblatt, 21 January 2014). Future forecasts became increasingly gloomy as an interviewee explained: “The hardest year will probably be 2016. That has to do with the fact that we sell our electricity years in advance. And so the current catastrophically low energy prices will really take effect in 2016. And that will put the company in an extremely difficult situation” (EnBW interview 3).

Technical alternatives and new entrantsRenewable electricity production increased from 104.8 TWh in 2010 to 195.9 TWh in 2015, which accounts for 30.1% of total electricity generation (Figure 3). This growth was driven mainly by solar-PV, onshore wind and biomass. Installation rates slowed down, however, as political debates and reduced EEG-tariffs created uncertainties that scared off investors (Lauber and Jacobsson, 2016).

Industry response strategiesCorporate political strategies and framing

20

The government’s nuclear phase-out decision was a major shock for the utilities, especially since they were not consulted beforehand (Handelsblatt, 25 March 2011). The immediate shut-down of eight reactors, and the accelerated closure of the remainder, implied major financial losses. Furthermore, the nuclear fuel tax was upheld, which caused extra losses since the policy was designed to become profitable after six years (see above). The utilities initially responded cautiously, taking account of the sensitive context. But when the situation calmed down, they started various litigations and lawsuits against the phase-out policy and the nuclear fuel tax.

Another battlefront was the unprofitability of many conventional power plants (because of low electricity prices and RET-competition). Because wind and solar-PV are intermittent power sources, the utilities argued that conventional power plants should be paid for providing back-up capacity (even when they generated no power) since this created grid stability and security of supply. EnBW’s CEO stated in a newspaper interview: “There is a product “security of supply” which the market needs and which we have to provide and which has a price” (Frankfurter Rundschau, 3 March 2014).

As the threat from renewables increased, the companies also directly attacked the EEG, demanding fundamental changes. For instance, E.ON’s chairman stated: “We finally need a general revision of the energy transition, cosmetic fixes are not enough” (Die Welt, 17 October 2013). And the boss of RWE’s renewables division said: “(the EEG) in its present form is not tenable, neither economically nor politically” (Finanzen.net, 10 January 2013).

Economic positioning strategies All companies saw major decreases in net profits in 2011, followed by some rebound in 2012, and further decreases afterwards (Figure 1). Companies were differentially affected, however, by the nuclear phase-out and market developments, because of varying energy production assets (Table 3). E.ON and EnBW were hit hardest by the nuclear phase-out, because of larger nuclear assets. Companies with much gas-fired power plants (e.g. E.ON, RWE) suffered from low electricity prices and solar-PV competition (which pushed gas plants out of the grid at mid-day). Lignite-fired plants could still operate at relatively favourable production margins because of low fuel costs (which benefitted RWE and Vattenfall).

E.ON RWE EnBW Vattenfallin MW in % in MW in % in MW in % in MW in %

Nuclear Power 5.403 26,0 3.901 12,5 3.333 25,0 0 0,0Hard Coal 6.016 29,0 9.555 30,5 3.953 29,6 1.318 9,4Lignite 852 4,1 9.799 31,3 1.034 7,7 7.123 50,8Gas 4.599 22,1 5.228 16,7 1.210 9,1 1.777 12,7Hydro 2.437 11,7 n/a n/a 2.704 20,3 2.880 20,5Wind 198 1,0 n/a n/a 194 1,5 13 0,1Other 1.258 6,1 2.802 9,0 922 6,9 911 6,5Total 20.763 100,0 31.285 100,0 13.350 100,0 14.022 100,0Table 3: German power plant capacities of companies by fuel type by the end of 2011 (Source: Annual reports)7.

7 For RWE, country specific data on renewables are not available. Their renewables division operated 2.357 MW of renewables worldwide in 2011. Category “other" differs widely and may include renewables. For EnBW, exclusive data for Germany are not available; their data thus include power plants outside Germany. However, the bulk of EnBW’s power plants are sited in Germany: 86% of sales and 92% of employees were attributed to Germany in 2011.

21

The Fukushima accident and subsequent phase-out not only affected the companies financially, but also culturally led to a change in mind-sets and perceptions, as an interviewee indicated: “After Fukushima… that was when colleagues across-the-board started to rethink” (Vattenfall interview 1). RWE's CEO described the developments in the energy business as “a profound structural disruption which destroys our business model of a centralised power supply” (Westdeutsche Allgemeine, 5 October 2014).

In response to the economic difficulties, the utilities implemented job-cuts, cost-cutting programs and major divestments (Kungl, 2015). They also started reorientation strategies that aimed to expand in new areas such as decentralised service activities, smart energy solutions and renewable energies. Their German offshore activities also gained momentum as regulatory uncertainties and grid connection problems were solved (Reichardt et al., 2016). They also searched for new business models, for instance in renewable energy, where the utilities explored a ‘less capital - more value’ business model. This model, which focused less on long-term operation and more on building, selling and servicing new power plants, would enable them to gain expertise in new technical domains and earn money more quickly, which created flexibility for new projects (see for example, E.ON press release, 13 November 2013).

In this volatile and uncertain context, the companies explored different strategic paths: In 2014, E.ON announced it would split its business into two separate companies: a) E.ON

would focus on renewables, distribution grids and service activities, b) the spin-off ‘Uniper’ would hold conventional business in large-scale electricity production and trading activities. In their 2014 annual report E.ON explained this strategy as follows: “This strategy is founded on our assessment that over the past few years two energy worlds have emerged: a conventional and a new energy world. They’re not separate. On the contrary, they depend on one another. But they place completely different demands on energy companies.”8

EnBW aimed to reorient towards the energy transition with its new CEO proclaiming: “we will rethink energy and we will rethink EnBW” (Handelsblatt, 1 October 2012). EnBW streamlined their organisational structure and called their new motto: “Energiewende. Safe. Hands on”. A leading manager stated: “we want the Energiewende to continue. We rely on it to continue if the German market is to remain relevant for us. (…) If the energy transition does not continue (…) that means I will lose money in the generation of conventional energy regardless, but that I won’t be able to do anything new. And that’s the worst part of it” (EnBW interview 4). Press reports also related the re-orientation of EnBW to the influence of the Red-Green government of Baden-Württemberg which held 45 % of the company’s shares in 2011 (Handelsblatt, 26 September 2012).

The failure of German CSS deployment was a major setback for Vattenfall, which was facing increasing pressure from its owner (the Swedish government) over the link between lignite and climate change (Der Spiegel, 3 October 2014). “With that (CSS) we tried to develop lignite in line with the objectives of Vattenfall’s portfolio. But that has obviously failed now unfortunately due to public opposition” (Vattenfall interview 4). In 2015, Vattenfall decided to offer its German lignite activities for sale, which represented a major retreat from the German market, given the relative size of its lignite assets (Table 3).

RWE abstained from substantial reorganisation until the end of 2015, which press reports related to the strong influence of RWE’s municipal shareholders, which demanded stable dividends and aimed to protect their regional interests, including coal mining (Die Welt, 23 April 2015). In December 2015, however, RWE adopted a similar restructuration strategy as E.ON, although the other way around: RWE announced to separate its

8 In 2015, however, E.ON announced it might abstain from separating their nuclear power plants (Berliner Zeitung, 14 October 2015).

22

renewables, grid and retail business in a new sub-company which was meant to be stock listed and sold stepwise (RWE press release, 1 December 2015).

Technical innovation strategies To accompany reorientation strategies, utilities created internal innovation teams such as E.ONs ‘:agile project’ and EnBW’s ‘innovation campus’. The direction of innovation strategies changed substantially with greater attention for radical innovations. Many CCS-projects were cancelled (e.g. Vattenfall’s projects at Jänschwalde, Altmark and Schwarze Pumpe). Research on conventional power plants (e.g. RWE and Vattenfall on lignite) focused on ways to improve flexibility, which acknowledged the need to adapt to increasing shares of intermittent renewables (e.g. Vattenfall press release, 14 November 2014). Companies also focused more on renewables, smart technologies (e.g. smart meters, smart grids) and Power-to-Gas (where electricity is used to create gas, e.g. hydrogen via electrolysis of water), for which they set up large-scale test facilities (E.ON at Falkenhagen and RWE at Niederaußem).

SummaryFukushima and the nuclear phase-out decision were a financial and cultural shock, which came on top of ongoing negative developments (decreasing prices, RET-expansion, eroding cultural legitimacy). The shock changed industry mind-sets and created awareness of structural problems, which led to cost-cutting and reorientation programs, which addressed both technologies and business models. Because utilities were differentially affected by the problems, their response and reorientation strategies diverged. The utilities contested the government’s nuclear phase-out implementation (asking for financial compensation or transfer of liabilities), but also asked the government for support for conventional power plants. Policymakers changed some policies in favour of the utilities (e.g. EEG-2014, bidding system), but have hesitated to make major concessions (e.g. financing back-up capacity). Figure 10 summarises the main developments in this period.

Figure 10: Multi-dimensional pressures, strategies and spillovers (2011-2015)

23

5. AnalysisThe German electricity industry experienced a roller coaster ride, which ended with destabilisation of the industry regime and a search for new business models, technologies, mission and mind-sets. The conceptual framework provided a versatile template to describe the various external pressures and endogenous responses. This section further analyses the alignment and sequence of external pressure as well as endogenous industry responses. We also identify specific patterns in the destabilisation process.

Alignment and sequence of external pressuresTable 4 offers a temporal summary of external pressures, which shows that external pressures became increasingly aligned in negative directions. In the first period (1998-2005), the main negative pressure was political (nuclear phase-

out decision). Since this pressure had substantial potential economic implications, it absorbed much of the industry’s attention. Renewables were still small and did not exert much negative pressure.

In the second period (2005-2008), there was negative pressure from two clusters of issues: 1) anti-trust investigations, debates about corporate power and rising prices, decreasing public image, 2) attention for climate change, expanding renewables. But economic conditions remained favourable, leading to windfall profits.

In the third period (2008-2011) most pressures turned negative, except for political pressure (where nuclear lifetime extension offered positive support). These negative pressures did not lead to destabilisation, however, because firms still had positive financial performance and interpreted the economic problems (decreasing demand and prices) as temporary (due to the financial crisis) rather than structural.

The industry destabilised in the fourth period (2011-2015), when the Fukushima accident and nuclear phase-out decision came on top of ongoing pressures and gave rise to the ‘energy transition’ policy, which further unleashed renewables. The alignment of negative pressures overwhelmed the industry, which realised the structural nature of their problems, and abandoned the old regime.

24

Political pressure

Social movement pressure

Public discourse and legitimacy

Market developments

New entrants and technologies

1998 - 2005

++Market Liberalization

-Anti-nuclear movement

+Decreasing nuclear debates after "nuclear consensus"

+Rising demand

-Renewable energy producers

-RET support

+Positive image of utilities

-+Decreasing electricity prices (recovered by end of period)

-RET expansion (mainly wind onshore and biomass)

-Nuclear phase out

2005 - 2008

--Re-regulation

-Increasing attention for climate change

+Slightly rising demand

-Professionalization of RET branch. Expansion of actor variety

++Emissions trading

-Return of nuclear debates

++Rising electricity prices

-RET expansion (photovoltaics, onshore wind and biomass)

--Anti-trust investigations and cartel restrictions

-Debates on rising prices

-Image of utilities decreased considerably

2008 - 2011

+Lifetime-extension of nuclear power plants

-Protests against CO2 storage

-Critique on lifetime-extension of nuclear power plants

--Decreasing demand

-Further expansion of RET branch.

-Nuclear fuel tax

--Increased re-municipalisation

-Image of utilities remains negative

-Decreasing prices (recover in parts until end of phase)

-Foundation of new municipal utilities

--Photovoltaic boom

2011 - 2015

--Nuclear phase-out, but maintained nuclear fuel tax

-Protests against nuclear

-Public support of nuclear phase-out

-Slightly dropping demand

 --Ongoing RET expansion

+Cut in RET support

-Re-municipalisation

-Public support of RET

--Decreasing prices

-Implementation of CCS law

 -+Slight improvement in image of utilities

Table 4: External pressures for change in economic and socio-political environment (- is negative developments for utilities, + favourable. -- resp. ++ refers to the intensity of the effect. +- or -+ means that the direction of an effect changed over time)9

9 To make the table clearer we split “social movements and public attention” into two separate categories “social movement pressure” and “public discourse and legitimacy”.

25

The sequence of external pressures was also important for destabilisation. One conclusion concerns two international macro-shocks (the financial-economic crisis and the Fukushima accident) that came on top of domestic sector-specific pressures, summarised in Table 4. Suarez and Oliva (2005) already highlighted the importance of specific shocks, but we further suggest that both shocks affected the destabilisation process in different ways. The 2008/9 financial-economic crisis depressed electricity demand, which undermined the

viability of both the industry’s coal plant investments in the mid-2000s and their European take-overs. But the immediately visible economic crisis also masked the threat of gradually expanding renewables. In fact, industry actors thought they could ‘weather the storm’ in the third period because of continued positive financial performance (due to windfall profits from emissions trading).

The 2011 Fukushima accident, in contrast, destabilised the industry, not only because of direct financial effects of the subsequent nuclear phase-out decision, but also because of its symbolic effect since it represented the abolishment of the centralised logic of the traditional electricity system, leading utilities to question their core beliefs and business models. The shock had high impact because of its place in a sequence, occurring after previous external pressures had already eroded the industry’s economic positions, public reputation, and political capital.

A second conclusion concerns the pervasiveness of sequential interactions between the external environments, as mapped in the various spillover figures. Some important spillovers between economic and socio-political environments were the following: Industry consolidation (economic) led to anti-trust investigations (political) and public

debates, which decreased the industry’s image and legitimacy (cultural). The anti-nuclear movement (social) articulated a discourse (cultural) that created a context

for nuclear phase-out decisions (political); the industry contested these decisions (politically and culturally), which led to continued public debates that eroded the industry’s image (cultural).

Climate change concerns (cultural) and RET-expansion (economic) created a context in which the 2011 nuclear phase-out (political) could give rise to the Energiewende policy that further stimulated RET-expansion (economic).

These examples show that external pressures do not act independently, but affect each other through spillover event sequences, which may lead to ‘encirclement’ of industries and unexpected trade-offs. The utilities succeeded, for instance, in over-turning the initial nuclear phase-out decision, but their political lobbying activities negatively affected their public image. These findings underline the importance of co-evolution in industry destabilisation and interactions between economic and socio-political environments.

Endogenous response strategiesWhile the alignment of external pressures may be easily visible in retrospect, it was less clear for the German utilities during periods two and three, because they faced positive (supportive) pressures as well as negative ones. The diverging directionality of pressures thus created contradictions and ambiguities, which complicated interpretations and actions of utilities. Based on our findings, we suggest that five mis-interpretations and flawed decisions, in particular, contributed to industry destabilisation (Table 5).

26

Period Strategic mistakes Wrong interpretations and assessments

2000-2009 Underestimation of renewable energies

The expansion of renewables and their market impact were long underestimated because of established mind-sets. This prevented timely reorientation (or more dedicated fightback).

2005-2007 Decision to build new coal-fired power plants

These investment decisions soon became unprofitable, because electricity demand did not increase as expected, because of the financial crisis and because RETs expanded faster than anticipated.

2007-2009 Overpriced take-overs

Acquisitions of Nuon (by Vattenfall), Essent (by RWE) and parts of Endesa (by E.ON) were too expensive and rapidly turned sour in when macro-economic conditions turned negative. Take-over decisions were based on too much optimism (and full coffers), shareholder pressure and mis-interpretation of structural trends.

2005-2010 Fighting for lifetime extension of nuclear power

Utilities succeeded in nuclear life-time extension, but this had two unintended effects: 1) decreasing public image, 2) the nuclear fuel tax (which was agreed as part of a package deal) came back to haunt them after 2011 nuclear phase-out decision.

2004-2012 Betting on CCS Utilities placed high hopes on CCS-development (to reduce carbon emissions of conventional power plants). They underestimated issues of public acceptance and political feasibility.

Table 5: Strategic mistakes that contributed to destabilisation

Some strategic decisions became problematic after unforeseeable macro-shocks (e.g. the financial-economic crisis which confounded the assumption of continued demand growth; the Fukushima accident which defeated the nuclear fuel tax deal). Other mis-interpretations, however, related to established beliefs and mind-sets. The under-estimation of decentralised renewable energies, for instance, was shaped by the utilities’ identity as centralised energy suppliers, which hindered thinking beyond a taken-for-granted focus on large-scale power generation. Similarly, the strategic focus on CCS related to an engineering culture and technology-push approach, which underestimated social and political dimensions.

The entrenched beliefs and mind-sets contributed to the relatively late response to RETs and the utilities ill-preparedness for the unfolding energy transition. Although utilities engaged in some technological hedging and exploration in the second and third period, the industry was not seriously committed to renewable energy reorientation until their established business models and mind-sets had destabilised in the fourth period. This confirms the proposition from section 2 that mind-sets, mission and business models are the hardest industry regime elements to change. It remains to be seen if this reorientation of the German electricity industry will be sufficient, or if the industry’s decline will continue.

Specific patterns From the analysis we inductively identify three specific patterns in the destabilisation of German utilities. First, we distinguish a ‘perfect storm’ pattern, which relates to alignments of external pressures. Table 4 shows that the industry did not destabilise because of a single jolt or shock, but because it was overwhelmed by multiple aligning pressures: headwinds increased in second period, storm clouds gathered in third period, the storm unleashed in the fourth period and combined with a devastating lightning strike (Fukushima). This ‘perfect storm’ pattern reinforces the importance of multi-dimensional and co-evolutionary analyses. The underlying reason is that firms are often quite capable in addressing single pressures, but may become overwhelmed when faced by multiple interacting pressures.

27

Second, we distinguish a ‘masking effect’, in which immediate and highly visible pressures hide pressures that increase more gradually and less visibly. In the third period, for instance, the economic crisis was an immediate shock to which industry actors paid much attention. Consequently, they were less attentive to gradually expanding renewables, deteriorating public image and re-municipalisation of grids, leading them to underestimate their significance. So, with regard to Suarez and Oliva’s (2005) typology, we conclude that ‘specific shocks’ may mask ‘disruptive pressures’.

A third pattern, which we call ‘killer blow’ effect, emphasizes that the effect of a specific shock relates not only to its ‘size’, but also to its place in a sequence. The Fukushima accident, for instance, had strong effects because the utilities had already eroded because of several preceding pressures. Because the accident and subsequent nuclear phase-out decision were the last step in a longer sequence, the acted as the straw that broke the camel’s back, leading companies to commit to changing business strategy as well as cultural identity

6. Conclusion and outlookThe case study and analysis have demonstrated the usefulness of the triple embeddedness framework for investigating industry destabilisation. They also showed the importance of sequence and alignment of external pressures in the downfall of German utilities, leading to the identification of a ‘perfect storm’ pattern (in which multiple pressures align and turn negative), a ‘masking effect’ of highly visible macro-shocks (which may lead actors to under-estimate gradually building pressures), a ‘killer blow’ effect (high impacts of an external shock when earlier pressures have eroded the industry regime), and spillover dynamics between external environments (leading to possible encirclements of an industry). These conclusions confirm the importance of looking at multiple external pressures, which opens up new questions and generally highlights the importance of co-evolutionary analysis of techno-economic and socio-political dimensions. This conclusion reinforces the diagnosis from the introduction that disciplinary approaches can only offer partial analyses of complex processes like destabilisation. Inter-disciplinary frameworks, like the TEF, and multi-dimensional empirical analyses are therefore crucial for comprehensive understandings.

Our paper has several limitations, which could be addressed in future research. First, the analysis of firm-level strategies could be deepened. Although we discussed these strategies to some extent, the paper’s focus was on sequences and alignments between external pressures. Future research could complement this with further investigation of similarities and differences of the different firms (and perhaps relate these to ownership structures, assets, and company cultures). Second, our methodological procedures for process tracing have elements of subjectivity, which could have influenced the results. Future research could attempt to address this with different procedures. Third, because of our analytical focus on incumbent actors, we paid limited attention to the strategies of niche actors. Our case study should therefore not be read as a comprehensive account of the German energy transition. Fourth, with regard to generalisability, it should be noted that German sensitivities about nuclear power created particular vulnerabilities for utilities (Hermwille, 2016), involving entanglements between cultural, politic and economic dimensions. So, sequence and alignment of multiple external pressures may not be equally important in all industry destabilisation processes.

We suggest that our framework and findings are important for future low-carbon transitions, which pose particular challenges for fossil-fuel related industries such as coal, oil, cars, chemicals, agriculture. Industry regimes in these sectors could destabilise because of alignments of multiple pressures in socio-political contexts (because of divestment campaigns, climate policies, and negative discourses) and economic environments (because of radical innovations, new entrants, or reduced demand). Sequence and alignment of external

28

pressures in destabilisation processes are therefore important topics on future research agendas.

Regime destabilisation and phase-out are also likely to gain salience on the political agenda. If policymakers are serious about limiting climate change to 20 Celsius, they will have to complement low-carbon innovation policies with active phase-out and discontinuation policies. UK policymakers, for instance, are (conditionally) planning to phase-out of coal in electricity production by 2025. Dutch and German policymakers have started to talk about phasing-out petroleum cars by 2030. Our study shows that policymakers can actively contribute to the destabilisation of industry regimes, but that this becomes more feasible in particular contexts, e.g. the presence of feasible alternatives, salient cultural discourses that frame existing technologies as undesirable, negative industry reputations (which reduce sympathy and willingness to support). Based on our findings we highlight three guiding principles for policy makers interested in phase-out.

First, policymakers should create clarity about the direction of travel, e.g. by clearly articulating intentions and visions and by developing coherent policy packages. In the German case, this clarity was lacking, which helps explain why it took the companies a long time to acknowledge the unfolding paradigm shift. German policies created ambiguities by, on the one hand, supporting renewable energies and, on the other hand, supporting the existing industry (via emissions trading, support of mergers, lifetime-extension of nuclear power plants). This ambiguity prolonged the belief of German utilities in the viability of the existing regime and motivated them to keep up their commitments.

Second, policymakers should consider alleviating negative implications of phase-out policies such as unemployment threats for the affected regions, which can cause social conflict and diminishing public support for sustainability transitions. In the German case, threats to f lignite mining and combustion have led regional politicians and municipal RWE-shareholders to oppose the energy transition. Policymakers can attempt to diminish the disruptive effects of discontinuation by compensating incumbent firms and/or retraining personnel, as Dutch policymakers did with coal mines in the transition towards natural gas in the 1960s (Correljé and Verbong, 2004).

Third, technology phase-out policies may be easier to implement if policymakers can simultaneously help the associated industry reorient towards alternative technologies. If such alternatives do not exist, incumbent firms are likely to strongly resist phase-out policies. In the German case, this strategy was initially not followed, since renewable energy policies mainly stimulated new entrants. In the last few years, however, renewables policy has become more favourable for incumbent utilities (e.g. improved planning security for offshore wind, shift from feed-in-tariffs towards auctions), offering assistance for their reorientation. Similar considerations may apply to other industries. The car industry, for instance, could reorient (more rapidly) towards electric vehicles if petrol/diesel cars were phased out.

These considerations suggest that the role of policymakers in regime destabilisation is another important and interesting topic for future research.

AcknowledgementsWe want to thank the editors of EIST and two reviewers for their thoughtful and constructive comments on an earlier version of the paper. This research was funded by the Helmholtz-Alliance ENERGY-TRANS and the ESRC in the context of the project 'Governance of the Discontinuation of Socio-Technical Systems' (grant reference: ES/K006371/1).

Appendix

General questions (asked to all interviewees)

29

Which were the most important environmental changes during your time working in the company?

Changes in the economic environment Political changes How did the company react to those changes?

How would you describe the main strategic focus during your time in the company? Were there important strategic changes? Which would you describe as the ‘best’ strategic decisions? Which decisions would you describe as ‘wrong’ in hindsight?

What are the main reasons for your company’s recent crisis? Which measures were undertaken to handle these problems? Which does your company consider as crucial future business areas?

What is the role of the company’s shareholders?

Were there any important changes in the company’s management? What were the reasons for these changes in personnel? Which impact did these changes have?

In the year XY your company established a business division for renewable energies What was the motivation for this decision? Why did the company not expand in this area earlier? When did your company realise the market effects from the expansion of renewable

energies?

Specific questions (adapted to specific interviewees)

Depending on the time span the person is/was in the company: Questions about specific deals (e.g. takeover of company XY) Specific business foci (e.g. building new coal power plants) Background information on establishment of new business areas (e.g. renewable energies) Questions about specific political regulations (e.g. emissions trading, nuclear phase-out) Questions about specific societal pressures (e.g. re-municipalisation, anti-nuclear

movement)

Regarding the department/business the person is/was working in: Detailed questions on strategies or developments in specific business areas (e.g.

transmission, public relations, trading)

Table 6: Basic interview template (which was adapted for specific interviewees)

Category Differentiated byBusiness strategy Business area (e.g. renewables, trade, transmission, overall

strategy)Region (e.g. Germany, federal level, other European countries, outside Europe)Activity (e.g. expansion, focus)

Resources Type (power plant, other company)Construction/acquisition/divestmentInvestment sum

Political activities Issue (e.g. nuclear phase out, unprofitability of conventional power plants)

30

Central actor (e.g. one or more of the four companies, associations, public authorities)Kind of activity (e.g. threat, lawsuit, demand, critique)

Management changes Business unitPositionOfficial reason

Organisational restructuring Affected parts of organisation

Kind of change (e.g. merging of divisions, separation, foundation)

Research and development Technology (e.g. electro-mobility, CCS, smart meter)Project partnersFunderInvestmentRunning time

Cooperation/Interaction between actors

Collaborating actorType of cooperation/interaction (e.g. project development, research cooperation, coordination of public relations activities)

Additional qualitative information (important information which does not strictly fit the category system)

Multiple issues (e.g. detailed information on single projects, background information on personnel, activities by single shareholders)

Table 7: (Simplified) category system for coding collected documents

Category Short definitionGeneral categories

Cultural identityCultural values, norms and self-understanding of the company

Research and developmentOrganisation of R&D activities, specific foci, projects/technologies

Image of company (Changes in) public perception of the companies

ManagementBackground information (personnel or reasons for management changes)

Political activitiesGeneral approach on political activities, organisation of political activities, framing, specific tactics, issues

Credit rating Role of credit rating for business decisionsOverall strategy (further differentiated by period 1,2,3,4) Focus of business activitiesRegional positioning (further differentiated by period 1,2,3,4)

(Change in) role of different foreign markets (position, entry, exit e.g.)

Investments/divestments (further differentiated by period 1,2,3,4) Information on specific deals/projectsRenewables (further differentiated by period 1,2,3,4)

Attitude towards renewables, assessment of feasibility, business activities e.g.

Role of shareholders (further differentiated by period 1,2,3,4) General information, specific demands

Specific categories (differentiated by time-span)Period 1 (1998-2005)

Nuclear phase-outPublic debates, political negotiations e.g. previous to the first nuclear phase-out; consequences for the company

LiberalisationImpact of 1998 EnWG changes, business responses, assessment e.g.

Unbundling/grid regulationRole of the unbundling/grid legislation 1998-2005, assessment, political negotiations, lobbying

Period 2 (2005-

Emission trading Political negotiations, lobbying, impact of legislation, assessment

31

2008) Antitrust proceedings Suspicion, reaction, process, impact

New coal power plantsMotivation behind, information on single projects, assessment e.g.

Unbundling/grid regulationRole of the unbundling/grid legislation 2005-2008, assessment, political negotiations, lobbying

Period 3 (2008-2011)

Economic crisis Assessment, reactionsRe-municipalisation Background, strategies, assessmentBad acquisitions Information on Endesa, Nuon, Essent deals

Disposition of electricity gridsBackground, information on process, motivation, assessment

Lifetime extension of nuclear power plants

Political and public debates, companies interests, policy process, assessment

Nuclear incidentsDetailed information, consequences, assessment, defensive strategies

Period 4 (2011-2015)

Fukushima Assessment of the accident

Nuclear phase-outReactions (lawsuits, lobbying e.g.), assessment, impact on company

Crisis of conventional power plants

Reasons, political and economic strategies to compensate impact

Cost-cutting programs Specific information, motivation, impact assessment

New business areasInformation on internal selection processes, kind of areas, motivations, expectations

Climate levyPublic debates on climate levy for coal power plants early 2015, assessment, lobbying

Re-municipalisation Re-municipalisation cases in Hamburg, Berlin, StuttgartTable 8: (Simplified) category system for coding the interviews

ReferencesBarker, V.L., Mone, M.A., 1994. Retrenchment: Cause of turnaround or consequences of

decline? Strat. Man. J. 15(5), 395-405.BDEW, 2015. Energie-Info. BDEW-Energiemonitor-2015: Das Meinungsbild der

Bevölkerung. BDEW, Berlin. BDEW, 2017. Energiedaten. Available online:

https://www.bdew.de/internet.nsf/id/DE_Energiedaten#cat/Daten%2FGrafiken\Energie%20allgemein\Energiedaten\3.%20Stromversorgung/3-12-netto-elektrizitaetsverbr-nach-verbrauchergruppen-de, last accessed April 3rd 2017.

Becker, P., 2011. Aufstieg und Krise der deutschen Stromkonzerne. Bochum, Ponte Press.Berlo, K., Wagner, O., 2013a. Auslaufende Konzessionsverträge für Stromnetze Strategien

überregionaler Energieversorgungsunternehmen zur Besitzstandswahrung auf der Verteilnetzebene. Wuppertal Institut für Klima, Umwelt, Energie, Wuppertal.

Berlo, K., Wagner, O., 2013b. Stadtwerke-Neugründungen und Rekommunalisierungen. Energieversorgung in Kommunaler Verantwortung. Bewertung der 10 wichtigsten Ziele und deren Erreichbarkeit. Wuppertal Institut für Klima, Umwelt, Energie, Wuppertal.

Bohn, S., Walgenbach, P., 2017. Refusing, connecting and playing off conflicting institutional demands. A longitudinal study on the organizational handling of the end of nuclear power, climate protection, and the energy turnaround in Germany, in: Mazza, C., Meyer, R. E., Krücken, G., Walgenbach, P. (Eds.), New Themes in Institutional Analysis: Topics and Issues from European Research. (In press).

Bontrup, H.J., Marquardt, R.M., 2011. Kritisches Handbuch der deutschen Elektrizitätswirtschaft. Edition Sigma, Berlin.

Bontrup, H.J., Marquardt, R.M., 2015. Die Zukunft der großen Energieversorger. Greenpeace, Hamburg.

32

Bundesministerium für Umwelt, Naturschutz und Reaktorsicherheit (BMU), 2002, 2004, 2006, 2008, 2010. Umweltbewusstsein in Deutschland. BMU, Berlin.

Bundesnetzagentur, Bundeskartellamt, 2015. Monitoringbericht 2015. Bundesnetzagentur and Bundeskartellamt, Bonn.

Collins, J., 2009. How the Mighty Fall, and Why Some Companies Never Give In. Random House, London.

Correljé, A., Verbong, G.P.J., 2004. The transition from coal to gas: radical change of the Dutch gas system, in: Elzen, B., Geels, F.W., Green, K. (Eds.), 2004, System Innovation and the Transition to Sustainability: Theory, Evidence and Policy. Cheltenham, Edward Elgar, 114-134.

Cludius, J., Hermann, H., 2014. Die Zusatzgewinne ausgewählter deutscher Branchen und Unternehmen durch den EU-Emissionshandel. WWF Deutschland, Berlin.

Dütschke, E., 2011. What drives local public acceptance - comparing two cases from Germany. Ener. Proc. 4, 6234-6240.

Dutton, J.E., Dukerich, J.M., 1991. Keeping an eye on the mirror: Image and identity in organizational adaptation. Acad. of Man. J. 34, 517-554.

Eisenhardt, K.M., 2000. Paradox, spirals, ambivalence: The new language of change and pluralism. Acad. of Man. Rev. 25(4), 703-705.

Fischer, W., 2012. No CCS in Germany Despite the CCS Act?, in: Kuckshinrichs, W., Hake, J.-F. (Eds.), Carbon Capture, Storage and Use. Technical, Economic, Environmental and Societal Perspectives. Heidelberg, Springer.

Flyvbjerg, B., 2001. Making Social Science Matter: Why Social Inquiry Fails and How It Can Succeed Again. Cambridge, Cambridge University Press

Fuchs, G., Fettke, U., 2016. Incumbent-Challenger-Interaktionen und die Veränderungen im Markt für Stromerzeugung in Deutschland, in: Giacovelli, S. (Ed.), Die Energiewende aus wirtschaftssoziologischer Sicht – Theoretische Konzepte und empirische Zugänge. Heidelberg, Springer

Garud, R., Kumaraswamy, A., Karnøe, P., 2010. Path dependence or path creation. J. of Man. Stud. 47(4), 760–774.

Geels, F.W., 2014. Reconceptualising the co-evolution of firms-in-industries and their environments: Developing an inter-disciplinary Triple Embeddedness Framework. Res. Pol. 43, 261-277.

Geels, F.W., 2005. Technological Transitions and System Innovations: A Co-evolutionary and Socio-Technical Analysis. Cheltenham, Edward Elgar

Geels, F.W., Kern, F., Fuchs, G., Hinderer, N., Kungl, G., Mylan, J., Neukirch, M., Wassermann, S., 2016. The enactment of socio-technical transition pathways: A reformulated typology illustrated with a comparative multi-level analysis of the German and UK low-carbon electricity transitions (1990-2014). Res. Pol. 45, 896–913.

George, A.L., Bennett, A., 2004. Case Studies and Theory Development in the Social Sciences. MIT Press, Cambridge, Massachusetts.

Gläser, J., Laudel, G., 2009. Experteninterviews und qualitative Inhaltsanalyse, third ed. VS Verlag, Wiesbaden.

Gopinath, C., 2005. Recognizing decline: The role of triggers. Am. J. of Bus. 20(1), 20-27. Hambrick, D.C., D'Aveni, R.A., 1988. Large corporate failures as downward spirals. Admin.

Sci. Quart. 33, 1-123.Haveman, H.A., Rao, H., 1997. Structuring a theory of moral sentiments: Institutional and

organizational coevolution in the early thrift industry. Am. J. of Soc. 102, 1606-1651. Hermwille, H., 2016. The role of narratives in socio-technical transitions—Fukushima and the

energy regimes of Japan, Germany, and the United Kingdom. En. Res. & Soc. Sci. 11, 237-246.

33

Hiatt, S., Sine, W.D., Tolbert, P.S., 2009. From Pabst to Pepsi: The deinstitutionalization of social practices and the creation of entrepreneurial opportunities. Admin. Sci. Quart. 54, 635-667.

Hoppmann, J., Huenteler, J., Girod, B., 2014. Compulsive policy-making: The evolution of the German feed-in tariff system for photovoltaic power. Res. Pol. 43, 1422–1441.

Jacobsson, S., Lauber, V., 2006. The politics and policy of energy system transformation– explaining German diffusion of renewable energy technology. En. Pol., 34, 256-276.

Karltorp, K., Sandén, B.A., 2012. Explaining regime destabilization in the pulp and paper industry. Env. Inn. and Soc. Trans. 2, 66-81.

Kittel, B., Kuehn, D., 2013. Introduction: Reassessing the methodology of process tracing. Europ. Pol. Sci. 12(1), 1-9.

Kivimaa P., Kern, F., 2016. Creative destruction or mere niche support? Innovation policy mixes for sustainability transitions. Res. Pol. 45(1), 205–217

Kungl, G., 2015. Stewards of sticklers for change? Incumbent energy providers and the politics of the German energy transition. En. Res. & Soc. Sci. 8, 13-23.

Langley, A., 1999. Strategies for theorizing from process data. Acad. of Man. Rev. 24(4), 691-710

Langley, A., Smallman, C., Tsoukas, H., Van de Ven, A., 2013. Process studies of change in organization and management: Unveiling temporality, activity, and flow. Acad. of Man. J. 56, 1-13.

Lazonick, W., 1983. Industrial organization and technology change: The decline of the British cotton industry. Bus. Hist. Rev. 57, 491-516.

Latkovic, K., 2000. Elektrizitätsversorgungsunternehmen im Wandel. Energiewirtschaft und Technik Verlag, Essen.

Lauber, V., Jacobsson, S., 2016. The politics and economics of constructing, contesting and restricting socio-political space for renewables – The German Renewable Energy Act. Env. Inn. and Soc. Trans. 18, 147–163.

Leonard-Barton, D., 1992. Core capabilities and core rigidities: A paradox in managing new product development. Strat. Man. J. 13, 111-125.

Lobo, K.R., 2011. Die Elektrizitätspolitik und ihre Akteure von 1998 bis 2009 – Eine strategische Politikfeldanalyse. Freie Universität Berlin, Berlin.

Lorenz, E., 1994. Organizational inertia and competitive decline: The British cotton, shipbuilding and car industries, 1945–1975. Ind. and Corp. Ch. 3, 379-403.

Maguire, S., Hardy, C., 2009. Discourse and deinstitutionalization: The decline of DDT. Acad. of Man. J. 52, 148-178.

Mahoney, J., 2015. Process tracing and historical explanation. Sec. Stud. 24(2), 200-218.Mautz, R., Byzio, A., Rosenbaum, W., 2008. Auf dem Weg zur Energiewende. Die

Entwicklumautzng der Stromproduktion aus erneuerbaren Energien in Deutschland. Universitätsverlag Göttingen, Göttingen.

Meyer, A.D., Brooks, G.R., Goes, J.B., 1990. Environmental jolts and industry revolutions: Organizational responses to discontinuous change. Strat. Man. J. 11, 93-110.

Mez, L., 2001. Der deutsche Weg zum Ausstieg aus der Atomenergie – im Konsens zu einer Quote für Atomstrom, in: Gourd, A., Noetzel, T. (Eds.), Zukunft der Demokratie in Deutschland. Leske + Budrich, Opladen.

Nelson, R.R., Winter, S.G., 1982. An Evolutionary Theory of Economic Change. Belknap Press, Cambridge, Massachusetts.

Nelson, R.R., 1994. The co-evolution of technology, industrial structure, and supporting institutions. Ind. and Corp. Ch. 3(1), 47-63.

Ocasio, W., 1997. Towards an attention-based view of the firm. Strat. Man. J. 18, 187-206.

34

Poole, M.S., Van de Ven, A.H., Dooley, K., Holmes, M.E., 2000. Organizational Change and Innovation Processes: Theory and Methods for Research. Oxford University Press, New York.

Reichardt, K. Negro, S., Rogge, K., Hekkert, M., 2016. Analyzing interdependencies between policy mixes and technological innovation systems: The case of offshore wind in Germany. Tech. For. & Soc. Ch. 106, 11-21.

Reichardt, K., Rogge, K., 2016. How the policy mix impacts innovation: Findings from company case studies on offshore wind in Germany. Env. Inn. and Soc. Trans. 18, 62-81.

Rogge, K., Schneider, M., Hoffmann, V., 2011. The innovation impact on the EU Emission Trading System - Findings of company case studies in the German power sector. Ecol. Ec. 70, 513-523.

Roose, J., 2010. Der endlose Streit um die Atomenergie. Konfliktsoziologische Untersuchung einer dauerhaften Auseinandersetzung, in: Feindt, P.W., Saretzki, T. (Eds.), Umwelt- und Technikkonflikte. VS Verlag, Wiesbaden.

Rosenbloom, R.S., Christensen, C.M., 1994. Technological discontinuities, organizational capabilities, and strategic commitments. Ind. and Corp. Ch. 3(3), 655-685.

Scott, W.R., 1995. Institutions and Organizations. Sage publications. Thousand Oaks, CA.Sine, W.D., David, R.J., 2003. Environmental jolts, institutional change, and the creation of

entrepreneurial opportunity in the US electric power industry. Res. Pol. 32, 185-207.Stegmaier, P., Kuhlmann, S., Visser, V.R., 2014. The discontinuation of socio-technical

systems as a governance problem, in: Borrás, S., Edler, J. (Eds.), the Governance of Socio-Technical Systems. Edward Elgar, Cheltenham, 111-128.

Strunz, S., 2014. The German energy transition as a regime shift. Ecol. Ec. 100, 150-158.Suarez, F.F., Oliva, R., 2005. Environmental change and organizational transformation. Ind.l

and Corp. Ch. 14(6), 1017-1041. Taylor, B., 1982. Turnaround, recovery and growth: the way through the crisis. J. of Gen.

Man. 8, 5-13.Tews, K., 2015. Europeanization of energy and climate policy: The struggle between

competing ideas of coordinating energy transitions. J. of Env. & Dev. 24, 267-291.trend:research, 2011. Marktakteure. Erneuerbare Energie Anlagen in der Stromerzeugung

2011. trend:research, Bremen.Turnheim, B., Geels, F.W., 2012. Regime destabilization as the flipside of energy transitions:

Lessons from the history of the British coal industry (1913-1997). En. Pol. 50, 35-49.Turnheim, B., Geels, F.W., 2013. The destabilisation of existing regimes: Confronting a

multi-dimensional framework with a case study of the British coal industry (1913-1967). Res. Pol. 42, 1749-1767.

Tushman, M., Anderson, P., 1986. Technological discontinuities and organization environments. Admin. Sci. Qua. 31, 439-465.

Van de Ven, A.H., Poole, M.S., 2005. Alternative approaches for studying organizational change. Org. Stud. 26(9), 1377-1404.

Van den Bergh, J.C.J.M., Truffer, B., Kallis, G., 2011. Environmental innovation and societal transitions: Introduction and overview. En. Inn. and Soc. Trans. 1(1), 1-23

VDEW, VRE, VDN, 2003. Gemeinsame Stellungnahme von VDEW, VDN und VRE zum “Entwurf eines Gesetzes zur Neuregelung des Rechts der Erneuerbaren Energien im Strombereich” (Referentenentwurf vom 18. November 2003). VDEW, VDN, VRE, Berlin.

Vennesson, P., 2008. Case studies and process tracing: Theories and practice, in: Della Porta, D., Keating, M. (Eds.), Approaches and Methodologies in the Social Sciences: A Pluralist Perspective. Cambridge University Press, Cambridge, 223-239.

Weitzel, W., Jonsson, E., 1989. Decline in organizations: A literature integration and extension. Admin. Sci. Quart. 34, 91-109.

35