Decarbonising the power sector via technological change – differing contributions from heterogeneous firms

In the power sector, technological change is a key lever to address the decarbonisation needed to avoid dangerous climate change. Policy makers aim to accelerate and redirect technological change by targeting relevant firms via climate policy, e.g., the European Union Emissions Trading System (EU ETS), and climate-relevant technology policies, e.g., feed-in tariffs. Changes in firm's behaviour, i.e., their research and development (R&D) as well as diffusion activities, are at the heart of technological change. However, firms are heterogeneous actors with varying attributes which perceive policy differently. Hence, they can be expected to react very heterogeneously to these new policies. Based on an original dataset of 201 firms, we perform a cluster analysis grouping firms along their R&D and diffusion activity changes. We then compare these clusters with regards to the characteristics of the contained firms. Our analysis results in seven clusters showing very diverse contributions to low-carbon technological change, suggesting potential for policy to become more effective. A comparison of the firms' characteristics allows us to derive indicative recommendations on how to adjust the policy mix in order to induce contributions from most firms in the power sector.