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FAQ: Market Transformation

What is the theory behind market transformation?

Market transformation works to remove structural barriers preventing growth in market share of a technology or practice. These changes result in an accelerated adoption curve that pulls adoption forward in time and increases the maximum saturation rate. The area between these two S-curves is the market transformation impact. This might be cost-effective energy efficiency, GHG reductions, or some other identified benefit.​

Graph showing the impact of market transformation on the diffusion curve of market adoption. The difference between baseline market adoption (BMA) and total market adoption (TMA) is illustrated.

Market transformation is achieved when continuing the same market intervention strategy is no longer necessary to achieve the desired outcome in that market. Efficient technologies, processes or building design approaches are locked in through codes & standards or large market share.​ And, market transformation succeeds by bringing the next generation of even more efficient technologies, processes or design solutions to the market.​

Who are the market actors that market transformation targets?

Interventions are typically focused on influencing supply chain entities that offer market leverage, such as manufacturers, distributors, contractors, retailers, and organizations representing industries and customer groups. This leverage can allow the intervention to have an outsized impact. The key focus for MT programs is to work with targeted market actors, and the rules that govern the products in the supply chain, to drive adoption of a technology or practice and ultimately cause it to become a normal part of how the market operates.

A graphic showing how national retail and buying groups, in the retail product flow, and regional distributors, in the distributor product flow, are key leverage points in the market

For example, if the market barrier is availability, an intervention strategy could incentivize manufacturers and distributors to ensure that the product inventory is available in a certain geographic area and could encourage distributors to promote the product to customers and contractors.

How does market transformation break down barriers to accelerate adoption?

A market is any structure that allows buyers and sellers to exchange any type of goods, services, and information. When markets work perfectly, products are profitable, there are no barriers to entry or exit, buyers make rational purchasing decisions, labor and capital are widely available, and there’s no need for regulation.

A graphic showing a market supply chain from manufacturer to customer

In reality, various barriers, such as supply chain issues or price, have an impact on what’s available to buy or sell. Customers also make decisions without all relevant information and are not always rational. Common market barriers include:

Common supply-side barriers

Raw materials

Limited manufacturing capabilities

Limited suppliers

Paths to market

Lack of inventory

Common demand-side barriers

Lack of awareness

Lack of information

Availability

Price

Quality, features, performance

Market transformation works to remove key barriers that prevent the targeted technologies or practices from being adopted. It applies leverage at key points to create the changes that will allow the targeted technology or practice to become a regular or even preferred offering.  Sometimes these “leverage points” include the regulations governing transactions in the market, such as safety or energy specifications for the type of equipment that is allowed to be sold.

What’s the difference between market transformation and traditional energy efficiency programs?

Energy efficiency resource acquisition (RA) programs have a primary purpose of delivering cost-effective benefits to electricity and natural gas systems in the short term, typically two to four years.[1]   Historically, RA programs focused on the individual consumer, although that is not a requirement of the approach.

On the other hand, market transformation focuses on working with actors upstream in the supply chain, with market-level interventions that create benefits in the longer-term, and ultimately result in large and lasting savings. Both RA and MT deliver cost-effective benefits that reduce the amount of energy needed to meet end-user demand, but on a different timeline.  Finally, market transformation programs phase out once they have achieved their market goals.

The CPUC has now also has authorized “market support programs”, which can be coupled with RA to educate customers, train contractors, build partnerships, or move beneficial technologies towards greater cost-effectiveness. Education, training, and partnerships can be part of a market transformation approach but typically as support to other interventions that are changing the way a market works.

Both market transformation and traditional energy efficiency programs seek to make benefits accessible to hard-to-reach, underserved customers and disadvantaged communities, who have traditionally been left out of efficiency investments.

The following table highlights some of the classic difference between MT and RA.

Table showing key differences in goals, approaches, scale, target, scope of effort, evaluation and measurement, and timeframes between MT and RA

How does market transformation align with emerging technology and codes & standards?

Several programs in California advance emerging technologies through the research, development and demonstration stages, getting them ready for commercialization. These are then handed off to CalMTA, which works to break down the barriers keeping an innovative technology from becoming mainstream. With strategic interventions and robust collaborations, market transformation initiatives (MTIs) seek to accelerate adoption of products or practices that deliver cost-effective energy efficiency and decarbonization. In many cases, MTIs seek to lock in future energy savings by working to make the technology a requirement in relevant codes and standards. CalMTA collaborates closely with emerging technology, such as CalNEXT, and codes and standards programs in California to ensure that its initiatives are supportive and aligned.

What are the basics of market transformation evaluation?

MTIs expressly seek to accelerate market adoption by effecting changes to structural aspects of the market to produce sustained market effects. [2]  Like resource acquisition programs, market transformation evaluation requires accurate estimation of energy savings (and other benefits) per unit of adoption and incremental program impacts. However, evaluation of MTIs also requires estimating the change in overall market adoption induced by the market transformation effort.

What’s CalMTA’s process for selecting MTIs?

In this graphic, you can see the three-phase stage gate model CalMTA uses to select MTIs. The model will support a market transformation initiative or an MTI from the development of the concept through a program development market deployment in the eventual exiting of the market. For more information, check out our video below on the MTI development process.

What is an example of an MTI?

There are several examples of successful MTIs that have been implemented across the country including lighting, resource-efficient front-loading clothes washers, Building Operator Certification, 80 Plus, etc. MTIs always begin with a logic model that describes market barriers and strategies to overcome them.

Beyond cost-effective energy efficiency, MTIs include characteristics of longevity, leverage, scale, and market readiness. Read some case studies.

[1] CPUC D.21-05-031 page 14 clarifies the primarily purpose of Resource Acquisition in California for future portfolios.  In the past in California and generally resource acquisition programs all over the country are geared toward meeting near-term energy-savings goals.

[2] Market effects are energy savings that result from structural market changes.

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