The role of pilot and demonstration plants in market formation for new technologies

Paper in proceeding, 2020

One important requirement for moving towards a decarbonized economy is the redirection and acceleration of technological change towards zero-carbon technologies. To this end,  pilot and demonstration plants (PDPs) are key elements, particularly in the so-called formative phase of technological development, which involves high uncertainty in terms of future technology choices and value chains. Even though the literature has established that PDPs help bring new technologies to the market, more detailed insights on how PDPs contribute to market formation are still missing in the literature. Market formation refers to the process of strengthening the factors that influence the development, diffusion, and use of novel technology. The literature supports the proposition that PDPs contribute to market formation for new technologies by reducing different uncertainties. In this paper, we, therefore, investigate the enabling mechanisms through which PDPs reduce uncertainties, thereby contribute to market formation for novel, zero-carbon technologies. By departing from the Strategic Niche Management (SNM) literature, the paper analyzes how PDPs reduce uncertainties with respect to the supply and demand of new sustainable technologies. This is achieved in the empirical context of the development of three advanced biofuel technologies that have been demonstrated on a relatively commercial scale. We employ longitudinal case studies to construct a narrative of the technological developments as well as derive more fine-grained insights into how the respective PDPs have played a role in the various processes of uncertainty reduction. The study reveals that PDPs contribute to supply uncertainty reduction through three enabling mechanisms: building credibility for the technology, technology learning, and business ecosystem orchestration. We also find that PDPs contribute to demand uncertainty reduction through three enabling mechanisms: technology standardization, constructing the narrative, and creation of legitimacy for the new technology.