Market transformation
Encyclopedia
Market transformation describes both a policy objective and a program strategy to promote the value and self-sustaining presence of energy-efficient
technologies in the marketplace. It is a strategic process of market intervention which aims to alter market behavior by removing identified barriers and leveraging opportunities to further the internalization of cost-effective energy efficiency as a matter of standard practice. Market transformation has rapidly become the objective of many privately and publicly supported energy efficiency programs in the United States and other countries.
Summer Study in 1992, the term "market transformation" is underpinned by the classic microeconomic model of markets, which describes a downward-sloping demand curve and an upward-sloping, presumably short-run supply curve. In the energy efficiency market, however, standard price and quantity equilibria are often rendered inefficient because of structural market barriers
like split incentives, asymmetric information, distorted market power, and hassle costs.
Market transformation targets these barriers to optimal efficiency with strategies to shift entire market sectors into a more efficient product mix.
While it recognizes and harnesses the power of market forces and players, market transformation has also been conceptualized as a holistic, market-based marketing strategy
, building on the diffusion of innovations
theory through a strategic framework for justifying market intervention.
and installation of efficient products, the goal of market transformation is to produce new patterns of "business as usual" for all actors in the marketplace.
Programs act on market inefficiencies by removing quantity or price constraints, or by lowering transaction and uncertainty costs
. Market transformation program strategies can resemble demand side management (DSM) as well as supplier innovation interventions, but with the added goal of long-term energy savings and changing standard business practices.
Efficient energy use
Efficient energy use, sometimes simply called energy efficiency, is the goal of efforts to reduce the amount of energy required to provide products and services. For example, insulating a home allows a building to use less heating and cooling energy to achieve and maintain a comfortable temperature...
technologies in the marketplace. It is a strategic process of market intervention which aims to alter market behavior by removing identified barriers and leveraging opportunities to further the internalization of cost-effective energy efficiency as a matter of standard practice. Market transformation has rapidly become the objective of many privately and publicly supported energy efficiency programs in the United States and other countries.
Background
First coined in a paper presented at the ACEEEAmerican Council for an Energy-Efficient Economy
The American Council for an Energy-Efficient Economy, or ACEEE, is a nonprofit, 501 organization. Founded in 1980, ACEEE's mission is to advance energy efficiency as a fast, cheap, and effective means of meeting energy challenges...
Summer Study in 1992, the term "market transformation" is underpinned by the classic microeconomic model of markets, which describes a downward-sloping demand curve and an upward-sloping, presumably short-run supply curve. In the energy efficiency market, however, standard price and quantity equilibria are often rendered inefficient because of structural market barriers
Barriers to entry
In theories of competition in economics, barriers to entry are obstacles that make it difficult to enter a given market. The term can refer to hindrances a firm faces in trying to enter a market or industry - such as government regulation, or a large, established firm taking advantage of economies...
like split incentives, asymmetric information, distorted market power, and hassle costs.
Market transformation targets these barriers to optimal efficiency with strategies to shift entire market sectors into a more efficient product mix.
While it recognizes and harnesses the power of market forces and players, market transformation has also been conceptualized as a holistic, market-based marketing strategy
Marketing strategy
Marketing strategy is a process that can allow an organization to concentrate its limited resources on the greatest opportunities to increase sales and achieve a sustainable competitive advantage.-Developing a marketing strategy:...
, building on the diffusion of innovations
Diffusion of innovations
Diffusion of Innovations is a theory that seeks to explain how, why, and at what rate new ideas and technology spread through cultures. Everett Rogers, a professor of rural sociology, popularized the theory in his 1962 book Diffusion of Innovations...
theory through a strategic framework for justifying market intervention.
Implementation
Contrary to traditional energy efficiency strategies, which often focus on small-scale procurementProcurement
Procurement is the acquisition of goods or services. It is favourable that the goods/services are appropriate and that they are procured at the best possible cost to meet the needs of the purchaser in terms of quality and quantity, time, and location...
and installation of efficient products, the goal of market transformation is to produce new patterns of "business as usual" for all actors in the marketplace.
Programs act on market inefficiencies by removing quantity or price constraints, or by lowering transaction and uncertainty costs
Transaction cost
In economics and related disciplines, a transaction cost is a cost incurred in making an economic exchange . For example, most people, when buying or selling a stock, must pay a commission to their broker; that commission is a transaction cost of doing the stock deal...
. Market transformation program strategies can resemble demand side management (DSM) as well as supplier innovation interventions, but with the added goal of long-term energy savings and changing standard business practices.
See also
- American Council for an Energy-Efficient EconomyAmerican Council for an Energy-Efficient EconomyThe American Council for an Energy-Efficient Economy, or ACEEE, is a nonprofit, 501 organization. Founded in 1980, ACEEE's mission is to advance energy efficiency as a fast, cheap, and effective means of meeting energy challenges...
(ACEEE) - Energy efficiencyEfficient energy useEfficient energy use, sometimes simply called energy efficiency, is the goal of efforts to reduce the amount of energy required to provide products and services. For example, insulating a home allows a building to use less heating and cooling energy to achieve and maintain a comfortable temperature...
- Energy lawEnergy lawEnergy laws govern the use and taxation of energy, both renewable and non-renewable. These laws are the primary authorities related to energy...
- Energy policyEnergy policyEnergy policy is the manner in which a given entity has decided to address issues of energy development including energy production, distribution and consumption...
- Environmental technologyEnvironmental technologyEnvironmental technology or green technology or clean technology is the application of one or more of environmental science, green chemistry, environmental monitoring and electronic devices to monitor, model and conserve the natural environment and resources, and to curb the negative impacts of...
- Independent System Operator
- Renewable energy commercializationRenewable energy commercializationRenewable energy commercialization involves the deployment of three generations of renewable energy technologies dating back more than 100 years. First-generation technologies, which are already mature and economically competitive, include biomass, hydroelectricity, geothermal power and heat...