Abstract for: On the Integration and Cospecialization of Emerging Complementary Technologies: The Case of Renewable Power and Energy Storage

We develop insights into the problems of managing firms in emerging complementary industries by developing a stylized model motivated by the current state of the renewable energy industry. Several immature entrants, including wind and solar power contest the energy generation portion of this industry. However, all of these technologies present integration issues that prevent large-scale market penetration. In particular, the ultimate success of these generation technologies depends upon developing a cost-effective energy storage technology. Interestingly, storage manufacturers can co-specialize their systems to a generation technology so as to reduce overall generation-storage costs. However, this implies that a storage entrant must make a bet on a particular generation complement because co-specialization is expensive and these investments are unlikely to fully transfer between generation technologies. The paper describes conditions under which a storage entrant should bet on what it perceives as the most likely winner in the renewable generation arena versus when it should pursue a more balanced strategy. Factors influencing this decision include uncertainty, market competitiveness, and sources of finance, among others. Finally, the paper discusses policy implications with respect to vertical integration and market competition.