A brief introduction to Norsk Hydro involvement in new energy energy

At the time of my study, Norsk Hydro Energy⁴⁴ had started to proactively position itself in new energy development. Preparing for the future while at the same time exploiting its resources in offshore oil and gas, hence Hydro had one foot in exploitation and one foot in exploration⁴⁵. In the area of new energy, Norsk Hydro was involved in different innovation projects involving clean energy technologies at different development stages. For instance, Hydro was involved in wind power project development using technology further down the development road. Hydro’s focus on ‘new energy’ was also channelled through Norsk Hydro Technology Ventures (NTV established in 2001), a venture capital fund denoted as Hydro’s technology watch and vehicle in the energy space looking into promising energy sector-related technologies. One NTV investment area involved Hydro in the world’s first commercial wave power plant development⁴⁶. Finally, Hydro was involved

42 Viable in a technical and economic sense with costs subject to calculation and a certain technological performance has been achieved as they are further down their development path and therefore some new energy options are closer to commercial application (e.g. land-based wind power)

43 The term context refers to the situation and the entities that are related to the organisation (Håkansson & Snehota 1989)

44 A Division in Norsk Hydro AS and later called Markets under the Oil and Energy business area.

45 Borrowing from the language of March (1991).

46 http://www.planetark.com/dailynewsstory.cfm/newsid/30917/story.htm

in the hydrogen energy area seeking to advance hydrogen as ‘an energy carrier of the future’ for different areas of use such as for mobility and stationary energy production.

There were various drivers behind Hydro’s growing clean energy orientation⁴⁷. Then chief of staff in the Energy Division⁴⁸ pointed to historical reasons: “We have been in power production for a long time and it is part of our heritage”. More immediate challenges affecting Hydro were mentioned in terms of: the need for more power, the climate change challenge, new energy being profitable, and that it was “expected” that Hydro as a large company in the Norwegian economy was active and involved in this area. More long term considerations were also mentioned in terms of oil and gas resources being finite resources which in turn would require the use of present resources to build a platform for future energy activity. Finally, an external motivation was mentioned in terms of

“profiling” that is to earn the company a license to operate; and an internal motivation was that employees also wished to build a future business platform. So there were several motivating drivers that encouraged Hydro’s orientation towards the new energy sphere.

Although there were several drivers behind the new energy orientation, it was on the other hand also pointed out that the New Energy unit (set up in 2003) was established without a grand strategic process, and hence not the result of decision making process considering all aspects of the new energy sphere. In its infancy, the New Energy unit was meant to integrate pioneer activities that had been going on in the Hydro organisation in diverse new energy areas (e.g. wind energy, bio energy, alternative fuels) since the 1990s. The commonality in these pioneer activities was that they all related to ‘the something’ labelled New Energy and that these pioneer activities had no clear association or home in Hydro’s organisational structure.

Activities had been initiated in the mid and latter part of the 1990s at different locations in the organisation. The period was characterised by preliminary exploration. Part of the new energy/ renewable energy initiation started for example with a visit to Danish wind manufacturer Vestas in 1995 looking into suppliers of wind technology. The wind energy development orientation focused on using available technology to do business. Wind projects were considered based on economic decisions integrating political support frameworks in project development and not as a technology development decision. Bioenergy was also explored with the purchase of a company that was later sold to Hydro Texaco due to the profile and position in the heating market (pellets, oil etc), and since it did not fit Hydro’s

47 This description is based on initial meeting and interview with assigned company liaison, Dag Roar Christensen, October 2004.

48 At the time Dag Roar Christensen.

orientation toward larger scale production, larger scale energy carriers. As it related to fuels and the transportation sector, one of the initiators and pioneers in the hydrogen area described search like and exploratory activity as ‘nosing around’. “It was a time where everybody nosed around for example into natural gas, propane, biodiesel and hydrogen”. It was a time when the contours of information and growing focus on environmental issues were perceived. Hydro’s New Energy unit was formally established in 2003 as a union of the former units: wind power, hydrogen and the venture capital fund, Norsk Hydro Technology Ventures (NTV).

The establishment of the New Energy unit (2003) was in a way the end of the beginning, in the sense that it was the outcome of efforts and initiatives initiated since the middle and latter part of the 1990s. It took time to move from awareness of technical possibilities, trends or threats and early ideas amongst employee pioneers to making decisions on something tangible like establishing a business unit and/or projects. In the subsequent sections of this chapter, the initiation of activities to pursue the introduction of hydrogen in energy markets is portrayed in detail. For now it is sufficient to say that moving from a stream of ideas and pioneer activities to a business unit took time.

The establishment of the New Energy unit, on the other hand, also marked a beginning where new energy paths and their profiling intensified as a part of what the Norsk Hydro organisation was doing and what it communicated about itself to the world. In a web article about renewable energy from 2003, it was written⁴⁹: "It's difficult to imagine a serious energy company not getting involved in renewable energy“. In 2003, Rostrup (at the time, manager of the New Energy Unit) reflected on new energy involvement in the following way⁵⁰:

«We know that the development is in the direction of new forms of energy. It is important for us to be involved from the start, to build up expertise and establish a position in the new energy market, at the same time as we produce hydrocarbons in our core operation in the most efficient and environmentally friendly way…..Hydro's extensive hydroelectric power operations have provided many years of experience in delivering power based on a renewable, environmentally friendly energy source. The company has also produced hydrogen in connection with its fertilizer production for 75 years….When we add to this the many examples of the company's pioneering applications of new technology both in its aluminium and in its oil and gas operations, we see that Hydro is in a natural position to develop new forms of energy …. So far, Hydro has mainly focused on hydrogen and

49 Yes to renewable energy, May 9, 2003 http://www.hydro.com/en/Press-room/News/Archive/2003/May/16338/

50 Looking ahead to the future, November 5, 2003 http://www.hydro.com/en/Press-room/News/Archive/2003/November/17290/

wind power. The company has set up Norsk Hydro Technology Ventures to support promising projects based on other forms of renewable energy such as wave power. Oil and Energy also works on solutions for handling carbon dioxide (CO2), to minimize emissions of this greenhouse gas, and on trade with CO2 quotas and green certificates»

To Norsk Hydro⁵¹ getting involved in New Energy meant establishing the New Energy unit around initiatives in wind power and hydrogen to assess investment opportunities in renewable energy and distributed power generation, as well as realising and supporting other renewable energy projects through Hydro’s venture capital fund, Norsk Hydro Technology Ventures (NTV). The New Energy unit was conceptualised as a tool to gain insight into how technologies were developing, to explore opportunities and to uncover threats to existing activities and assets. This came across most clearly when discussing NTV. NTV was described as a “watch-dog in the market” and a vehicle in the energy space looking into promising energy and energy sector-related technologies. NTV was meant to contribute to:

technological development, insight into how different technologies were developing, and how to build experience, competency, and position the company for the future. NTV activity was also meant to provide insight into trends that could threaten existing business activities and assets.

«One of the values of these projects, where Hydro’s ownership interest is small, is that they give the company insight into advances in energy technologies. We don’t invest in these projects solely for the financial return, but also to increase our knowledge”… A lot of research and development in this area takes place outside the major companies»⁵²

The New Energy unit was set up to pursue some technological paths among new energy opportunities. Besides wind and hydrogen energy, other new energy opportunities could very well come to play a central part in the world of energy, and it was indicated that the organisation continually pondered the question: should they be thinking differently? Strategy- and ‘think tank’

processes were going on regularly to reflect on this question, and as a result, strategy documents were revised and fine-tuned every other or third year.

In addition to the -should they be thinking differently- question; other questions pondered in relation to the new energy sphere concerned the challenge of defining a role and position in development activities.

Illustrating dominant views in the organisation, it was mentioned that Hydro was not a technology developer, rather Hydro was to license and use technology to perform activities and bring the customer a product; that

51 Yes to renewable energy, May 9, 2003 http://www.hydro.com/en/Press-room/News/Archive/2003/May/16338/

52 Interview with Dag Roar Christensen 8-10-2004.

Hydro was a supplier of energy and a professional buyer of technology from technology developers. What should be Hydro’s core role? What roles were other companies taking in development processes and technology paths in the new energy sphere? Should Hydro take part in the resource, idea and concept generation phase so as to shape the energy system concept? Should Hydro develop technology? The challenge was to determine where Hydro should be positioned in development processes and with what people, and where to be in the activity chain of new energy paths.

Figure 1 Pondering roles

These questions and role pondering indicated that there was no “one and only” and obvious new energy business venture that the organisation should pursue, rather this was a subject for negotiation. The Hydro organisation was trying to make discriminating choices that fit the organisation and its circumstances. The questions pondered by the organisation also illustrated that when initiating new energy paths there was no clear facts out there which Hydro’s new energy people could accurately perceive and act upon.

New energy paths were in a continual flux, and emerged in interaction with the decisions of organisations like Hydro. However, initiating new energy activity provided insight and understanding into where the energy scene was moving, what ideas came up and gained strength, what were trends, what were technical obstacles, and what were other organisations doing?

Developing an understanding of the new energy sphere did not only concern Hydro’s own understanding, but also the understanding and actions of others. Hydro participated and started to engage in new energy projects and took on roles so as to build an understanding and experiment with how to go about this, and how to get into new energy areas in the best possible way.

With the establishment of the New Energy unit in Hydro, there was commitment to uncover the potential, performance, and value dimensions that new technologies could potentially bring to the energy market. The purpose of the New Energy unit was to consider trends, potential demand, performance attributes and then to make further decisions, deal with the

Energy system &

concept “developer”

Technology user / buyer

Technology developer

Yes and No

residual uncertainty, and to consider in what areas and capacities Hydro should participate in order to position itself, reserve a right to play and adapt and participate in market development.

From here on, I concentrate on hydrogen energy activity. However before I describe initiation and pioneer activity in detail, I start out with a brief overview of the establishment of the Hydrogen unit, and the hydrogen energy paths that Hydro chose to pursue. This is in a way the same as writing about the end before the beginning, since the paths which Hydro chose to pursue were the effect and outcome of pioneering efforts. I choose to structure it this way to give the reader a brief overview and understanding of Hydro’s hydrogen activities upfront.