Innovation and institutional change: the transition to a sustainable ...

Evolution of decentral cogeneration in the Netherlands 145
sector 18 and the unbundling of power production from distribution led to a
reorientation in the distribution sector. The dominant role of the SEP in the
proposed electricity act and the dominance of the four production units in
SEP, made the distributors increasingly feel submitted to the SEP and
fuelled a strategy of strengthening their position through mergers 19 and
clustering of interests (Arentsen et al., 1997; Köper, 2003: 48-52). In the
new structure, efficiency by central production by SEP was among others to
be driven through competition with decentral production by distribution
utilities and private companies. In the Electricity Act of 1989 electricity
distributors were allowed to install decentral production facilities of up to 25
MW, whereas industry was allowed production facilities up to 400 MW. A
new tariff structure was introduced with a national base tariff set by
producers that formed the basis for somewhat diverging regional base tariffs
to which individual costs of utilities could be added to a certain maximum.
Central producers were moreover obliged to contract decentral produced
electricity against avoided costs. The distribution sector took this
opportunity to develop decentral generation and utilised cogeneration as the
main option also to strengthen its position in the power struggle against the
producers 20 . In essence, the restructuring of the electricity sector triggered a
process of divergence in the positions between producers and distributors as
the distributing companies started to develop a much stronger orientation
towards the market relative to the supply orientation of producers. Vlijm
(2002) describes how this changeover from a task orientation towards a
client orientation required changes at all levels of organisation in a regional
electricity distributor. Secondly, this strategy coincided with the emergence
of the national environmental policy plan which selected the energy sector as
one of the target groups where reduction in a range of emissions was to be
realised, with energy saving, climate change and CO2 reduction as prominent
issues (VROM, 1989, 1990). This change in environmental policy was part
of a new wave of environmental consciousness and environmental policy
from the second half of the eighties where a more integrated approach
18 The number of production companies was reduced from fifteen to four in 1986. Reduction
of the number of distributors took longer and also involved horizontal integration of
distribution of gas, electricity, water.
19 The process of concentration in the distribution sector was also driven by pressures of
national government, who threatened to formalise an electricity distribution act with
minimum amount of connections for distribution companies if the sector did not
significantly reduce the number of companies (Vlijm, 2002; Köper, 2003).
20 Based on personal communication with ir. W.K. Wiechers, former chairman of PNEM and
Essent, April 2005; Vlijm (2002); and Köper (2003). During the course of the nineties, in
anticipation of Eropean energy markets, the focus was on further restructuring of the
production sector towards one large scale production company. The distribution sector was
very wary of these plans as they threatened to further undermine their position.