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    Diana Ürge-Vorsatz

    Jochen Hauff

    Department of Environmental Sciences and Policy, Central European University,

    Budapest, H-1051, Nador utca 9. HUNGARY.

     Phone: 36-1-327-3021, Fax: 36-1-327-3031,

    Email: and

1 Abstract

    Over the past 5 years, Hungary has experienced one of the most remarkable market successes in a key energy-efficiency technology: compact fluorescent lighting. While market shares of compact fluorescent lamps (CFLs) were negligible half a decade ago, today residential CFL market penetration exceeds that in many industrialised economies, ranking Hungary among the eight countries in Europe with the highest penetration rates. Since substantial efforts have been invested internationally to promote

    Energy Policy: Drivers of market transformation

    the proliferation of CFLs often with limited results, the understanding of the Hungarian success can bring us closer to an effective planning of programs and policies designed to transform the markets of energy efficient technologies around the world. Therefore, this paper’s goal is to provide an insight into the driving forces which have contributed to this outstanding market success, and to investigate how the findings can apply in designing market transformation programs aimed at increasing the penetration of cost-effective energy efficient technologies internationally. The paper presents the results of nationally representative residential surveys and a large number of in-depth interviews with households, industry and other market participants. The market success is analysed in detail and differences in CFL penetration among the market segments provide an important clue for understanding which market barriers are the key in hampering market transformation, and which factors contributed to the overcoming of these barriers. The research suggests that the described market transformation occurred autonomously and rapidly. In the absence of major external influences, we attribute this market success to the combination of two key factors, among other contributing factors. First, the fierce market competition among CFL suppliers in Hungary has resulted in decreased prices

    Energy Policy: Drivers of market transformation

    and strong marketing campaigns, raising awareness substantially. This high awareness provided a fertile ground for an increase in CFL sales after drastic nominal electricity price hikes pressed consumers to start to care about cutting utility bills.

    Based on the findings about the various drivers of the market success the authors draw lessons for the design of effective market transformation programs. In addition, we recommend an amendment to the commonly used taxonomy of market barriers prevailing in energy efficient product markets.

    2 Acknowledgements

    The authors would like to thank the following institutions and companies for funding this research: Central European University, GE Lighting Tungsram, and the Global Environment Facility. We would specially like to thank Mónika Juhász of Philips Hungary for her invaluable help on CFL market data, and László Beck of Medián for his readiness to answer endless questions.

    Abbreviated article title: Drivers of market transformation

    Keywords: Market Transformation, Market Barriers, Energy efficient


    Energy Policy: Drivers of market transformation

3 Introduction

    When designing market transformation (MT) programs to increase the penetration of energy efficient end-use technologies, it is valuable to examine the key driving forces behind previous, successful market transformations. Blumstein et al. (1998) emphasised the importance of such an understanding of the dynamics of a target market, which needs to go beyond a mere understanding of the end user.

     The identification of the key market forces active in successful program-assisted or autonomous market transformations provides insights as to how such transformations could be induced by programs. In addition, the authors believe that it is easiest to introduce new MT agenda items to markets which are already undergoing dynamic change. Thus, dynamic changes in end-use technology markets should be paid close attention to, as they might open up chances for introducing new efficient technologies, and can thus be utilised as vehicles for reaching environmentally and economically motivated public goals. When no such dynamic development is taking place in the

    market in an autonomous way, MT programs can consider focusing on market characteristics and market forces which have played a driving role in dynamic market

    1transformations elsewhere.

    This paper seeks to analyse the driving forces behind a unique market success of a popular MT/DSM end-use technology target: the compact fluorescent lamp (CFL) in Hungary. Despite the fact that lighting usually represents only a fraction of national electricity consumption, the CFL is an ideal target for energy efficiency programs for several reasons (Vorsatz 1996). When a general service incandescent lamp (GSL) is

    Energy Policy: Drivers of market transformation

    replaced by a CFL, a very high energy saving potential (up to 80%) can be realised while maintaining the, arguably, same energy service (illumination). Additionally, important appeals of incandescent lighting as an energy efficiency program target include its low capital intensity, the short lifetime which provides ample opportunities for retirement-based retrofits, and the large number of light fixtures in all buildings. Since all over the world the majority of lighting in homes is still served by incandescent lamps, there is a massive potential for lamp replacements (Vorsatz et al. 1997; Palmer et al. 1998). In summary, while there are several concerns with the CFL as an identical replacement of the incandescent lamp, it has rightfully been a very popular target of energy efficiency programs around the world for over a decade.

    The effectiveness of these programs has been the subject of much discussion (Plexus Research 1995; Bergstrom 1997; Martinot et al. 1998). Despite the large number of CFL oriented programs, the global lighting marketplace has been transforming slowly, if at all, from the GSL to the CFL for years, sometimes even decades. For instance in the US, the home of one of the largest number of DSM programs targeting the CFL, less than 10% of households owned a CFL in 1994

    2. The (Vorsatz 1996), and between 10% to 15% in 1999 (Calwell et al. 1999)

    exceptions to low CFL market penetration rates in the mid-90s were a few Western European countries including Germany, the Netherlands, and Denmark, where CFL market penetration in 1995 reached values of 50%, 56% and 46% of homes, respectively, owning at least one CFL (Kofod et al. 1996; Palmer et al. 1998).

    Hungary, similarly to the rest of the Central and Eastern European (CEE) countries, was no exception to the general trend: CFLs were barely known in the early 1990s, and only few households owned a CFL even in the mid-90s. However, by 1997,

    Energy Policy: Drivers of market transformation

    th household used a CFL, which ranked Hungary in the top 8 countries in Europe every 5

    (and thus probably in the top dozen worldwide) in terms of CFL penetration (Palmer et al. 1998).

    This paper describes this rapid market transformation, examines the possibly key driving forces behind the swift success, and derives the implications for the design of market transformation programs worldwide.

    4 Methodology

    The findings in this paper rely on several years of research related to the lighting market in Hungary by the authors and a team of students of the Central European University. The first key component of the research was a representative market survey of 2400 Hungarian households evaluating CFL ownership, awareness, purchasing behaviour and barriers to CFL market success in 1997. It was conducted by Medián, a Hungarian market research company, which repeated the survey in 1999, when it included only questions related to ownership.

    The second component of the research consisted of in-depth consumer interviews also carried out by Medián. Within the 2400 households, two focus groups of eight consumers each were selected based on careful evaluations of the representative survey results. These households were questioned in detail on their consumption attitudes, behavioural patterns and awareness related to the CFL. In addition, a group of students has conducted over a hundred in-depth interviews on

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    3 in Budapest to reveal motivations for purchasing or for not convenience samples

    purchasing CFLs.

    Third, an industry survey was conducted to understand the dynamics of the CFL marketplace in Hungary. The industry review included interviews with the key manufacturers and CFL suppliers, and distribution channels including small retail outlets, supermarkets, hypermarkets, do-it-yourself chains and furniture outlets. Parts of the survey were conducted under the framework of the Efficient Lighting Initiative (ELI) of the Global Environment Facility (GEF) and the International Finance Corporation (IFC).

    During the pre-appraisal and appraisal phases of the ELI program, meetings with further market participants, lighting experts, engineering companies, ESCOs, government agencies, energy efficiency related NGOs and consumer protection organisations were conducted, which contributed to the results presented in the following.

    5 The successful transformation of the Hungarian CFL market 5.1 Overview data

    As mentioned above, the average Hungarian, similarly to the average CEE citizen, did not know about CFLs at the beginning of the 90s (Kazakevicius et al. 1999). However, CFLs, or “energy saving lamps”, as they are commonly referred to in

    Energy Policy: Drivers of market transformation

    Hungary, started to gain popularity during the mid-90s. In 1997, 8 out of 10 Hungarians knew what a CFL was, and one out of five households (19%) owned a CFL.

    This relatively high market penetration was reached in only a few years. Figure 1 shows that there was a dramatic increase in CFL purchases in 1995. 83% of those who owned a CFL in 1997 bought their first CFL in or after 1995, only 5% of CFL owners, or less than 1% of all households, bought their first CFL before 1992.

Figure 1 here

    This led to a dynamic transformation of the CFL market in Hungary: market penetration jumped from less than 5% at the beginning of 1995 to 19% in 1997. Awareness of the CFL has risen from less than half of the respondents in 1996 to 80% in 1997. While such rapid market transformations have been experienced in other countries, this was mostly due to large-scale programs. For instance, in the case of Poland, market penetrations increased from 11% to 33% in 4 years mainly as result of the GEF/IFC Poland Efficient Lighting Project (PELP) (Navigant Consulting Inc 1999). Another example of a swift increase in market penetration of CFLs is the UK, where supplier subsidies and government sponsored give-aways of CFLs had a significant impact on CFL penetration: the share of households which owned at least one CFL increased from 10% in 1993 to 23% in 1997. Awareness concerning CFLs in the UK increased from 50% of households to 75% during the same period (Martinot et al. 1998).

    These comparisons let the Hungarian case stand out as a rather uniquely fast change, so that it is worth looking into the reasons for and details of this rapid success.

    Energy Policy: Drivers of market transformation

    5.2 The current Hungarian CFL landscape: analysis of market segments

    This section reviews the CFL market picture in more detail, to reveal the details of the transformation in various market segments. This analysis sheds light on the drivers of the dramatic changes.

    The awareness concerning CFLs in 1997 was found to be very high in almost all population groups: at least 75% of people from all population segments (by settlement type, geographic location, gender, and income level) were aware of CFLs. Two population groups differed significantly: only 62% of the elderly (those above 60), and less than half, 47% of the least educated (those who have not completed primary school) could say what a CFL was.

    However, the picture is not so uniform from the perspective of ownership. As displayed by Figure 2, CFL ownership was significantly higher in some market segments than the average of 19% in 1997. The highest disparity was according to the level of education. While only 6% of those with no complete primary school education had a CFL, 44% of all households with a college or university degree opted for the energy efficient alternative of the GSL. Already a high school degree implied that the CFL penetration was double of that among households with only a primary school degree.

    The strong correlation between the level of education and CFL ownership is confirmed by both the 1999 repeat Medián survey and another representative market survey conducted by Szonda Ipsos for Philips Hungary Ltd (Szonda Ipsos 1999). The repeat survey has not found a significant difference in any of the categories, as compared to the 1997 research. Although the categories in the

    Energy Policy: Drivers of market transformation

    Philips survey were slightly different, the key findings were all consistent with our survey. In the Philips study, the level of difference between the most and the least educated in terms of CFL ownership is the same as in the study conducted by the first author and Medián: five-fold. According to the Philips survey, more

    4. than half (51%) of respondents with a university degree owned a CFL in 1999

    While one may conclude that this is probably due to a higher income level among the better educated, the correlation between education level and income is not necessarily direct in Hungary. This is supported by the ownership distribution according to income group. Figure 2 shows that a higher income level did not mean higher CFL ownership, although there is some correlation in the extremes.

    Figure 2 here

    The trend between income level and CFL ownership is also supported by the Philips survey: there is not a direct correlation between the level of wealth and the decision to use an efficient lighting technology. While the lowest percentage of CFL usage is recorded in the poorest households and the highest among the richest, the correlation, although slight, is in fact reverse in the medium income groups: the more

    5affluent the households are, the fewer of them installed a CFL.

    Additional socio-demographic factors influencing CFL ownership include the size of household. Logically, the larger the household the more lighting hours are needed per light fixture, thus replacing incandescent lamps by CFLs is more economic. This is clearly supported by the survey results: almost three times as many households with 4 persons use CFLs as single households. However the trend of increasing CFL

    Energy Policy: Drivers of market transformation

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