Adoption of green electricity by small- and medium-sized enterprises in Germany

Renewable and Sustainable Energy Reviews 59 (2016) 1185–1194

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Renewable and Sustainable Energy Reviews journal homepage: www.elsevier.com/locate/rser

Adoption of green electricity by small- and medium-sized enterprises in Germany Sebastian Rahbauer a,b,n, Luisa Menapace b, Klaus Menrad a, Thomas Decker a a University of Applied Sciences Weihenstephan-Triesdorf, Straubing Center of Science, Chair of Marketing and Management of Biogenic Resources, Petersgasse 18, 94315 Straubing, Germany b Technische Universität München, TUM School of Life Sciences Weihenstephan, Baywa Endowed Professorship for Governance in International Agribusiness, Alte Akademie 12, 85354 Freising, Germany

art ic l e i nf o

a b s t r a c t

Article history: Received 27 July 2015 Received in revised form 19 November 2015 Accepted 13 January 2016 Available online

Since the liberalization of the German electricity market in 1998, green electricity (GE), i.e. electricity produced from environmentally friendly sources and marketed as such, has been available to German customers. Nonetheless, the demand for GE has remained low among the biggest electricity customer group in Germany, namely small- and medium-sized enterprises (SMEs). Based on an extensive review of the literature, this article provides a synthesis of existing empirical findings related to GE adoption in German SMEs. In addition to the literature directly addressing GE adoption, the literature on green practices, green supply chain management, corporate environmental responsibility and energy efficiency was reviewed. This article lays the groundwork for a theoretical model that reflects the decision of German SMEs to adopt GE by identifying adoption factors and resulting barriers. GE adoption factors are organized into four purchase-related factor groups and two sales-related factor groups. Purchase-related factors relate to the entrepreneur’s personality, the technical systems, economic aspects, and the SME’s characteristics. Sales-related factors relate to sales markets and green marketing. The examined literature on industrial GE adoption demonstrates the importance of ‘altruistic motives’ for GE adoption in SMEs. The main barriers identified by the remaining literature were (1) lack of knowledge regarding the GE system reliability, (2) upward-biased perceptions of GE price premiums and (3) lack of communicability of GE usage in the manufacture of products to customers. The article closes with recommendations for promoting GE adoption among SMEs. Based on the three main barriers identified, instruments well-suited to promote GE adoption include an online register for GE tariffs that provides SMEs with information regarding GE providers, prices and switching procedures and a standardized label that allows SMEs’ customers to identify products manufactured using GE. & 2016 Elsevier Ltd. All rights reserved.

Keywords: Green electricity SME Green marketing Adoption factors Literature review

Contents 1. 2. 3.

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Material and methods: search strategy and study selection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1. Purchase-related adoption factors of GE in German SMEs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1.1. Entrepreneur’s personality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1.2. Adoption factors linked to technical systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1.3. Adoption factors linked to economic aspects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1.4. Adoption factors linked to the SME’s characteristics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2. Sales-related adoption factors of GE in German SMEs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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n Corresponding author at: University of Applied Sciences Weihenstephan-Triesdorf, Straubing Center of Science, Chair of Marketing and Management of Biogenic Resources, Petersgasse 18, 94315 Straubing, Germany. Tel.: þ 49 9421 187 216; fax: þ 49 9421 187 211. E-mail addresses: [email protected] (S. Rahbauer), [email protected] (L. Menapace), [email protected] (K. Menrad), [email protected] (T. Decker).

http://dx.doi.org/10.1016/j.rser.2016.01.079 1364-0321/& 2016 Elsevier Ltd. All rights reserved.

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3.2.1. Adoption factors linked to the SME’s sales market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2.2. Adoption factors linked to green marketing practices in an SME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1. Introduction The political goal of achieving environmental sustainability has changed the German electricity market in the last 20 years [1,2]. Energy produced from renewable sources (RES) including wind, sun, water and biomass made up 31 percent of German electricity production in 2014, and RES replaced lignite as Germany’s most significant electricity source according to the Fraunhofer ISE [3]. By 2050, the German government would like to boost the share of RES in the country’s electricity generation to 80 percent [2,4]. This political goal, which is intended to address climate change, has to be reached in a liberalized and therefore commercially oriented electricity market [2]. The liberalization of the German electricity market in 1998 enabled private and industrial customers to choose their electricity supplier and product type [5]. Customers can express their environmental consciousness by purchasing green electricity (GE), defined as electricity produced from RES and marketed as being less environmentally harmful than energy from nuclear or fossil fuels [5]. To cater to their own interests, different actors in the electricity sector have developed numerous alternative definitions for GE that vary with regard to the type of electricity sources considered to be green [1]. In October 2012, 810 GE suppliers had an overall count of 3839 GE tariffs in their portfolios in Germany according to market research by GET AG [6]. One in five private household customers in Germany purchased GE in 2014, voluntarily paying a price premium of 0 to 5 percent above conventional electricity (CE) prices [5]. To the contrary, the demand for GE in the non-residential sector has been quite limited. In 2014, 240,430 enterprises used 10.14 billion kWh of GE. This equals a share of only 5.5 percent of all German companies and 4.5 percent of gross industrial electricity consumption [6]. With industrial sectors representing the biggest group of electricity customers in Germany, these percentages correspond to large amounts of GE consumption in Germany. Within the industrial sectors, small- and medium-sized enterprises (SMEs) are by far the largest group of enterprises and consume over 75 percent of the overall industrial electricity usage [7,8]. SMEs are businesses with less than 250 employees and no more than 50 million euro sales revenues or 43 million euro balance sheets, according to the definition of the Commission of the European Union [9]. Across all industrial sectors, 98 percent of all German companies fall within this definition. Employing about 68 percent of the German working population, SMEs are central actors in the German labor market [8]. SMEs also play an important role in the industrial innovation network as both developers of new innovations and demanders of new technologies and services [7]. The Environmental Impact Database for SMEs (EIDSME) states that SMEs contribute about 64 percent of industrial pollution in the European Union [10]. This percentage could be lowered if SMEs substituted part of their electricity share with GE. The conditions for GE adoption by German SMEs seem favorable given current market developments. Indeed, the German population is becoming increasingly environmentally conscious and applying pressure on manufacturers to elevate their environmental standards. Additionally, as the decision-making processes of SMEs share many similarities with those of households, e.g. restricted number of decision-makers and short ways of

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decision-making, the adoption behavior of households and SMEs could be expected to develop in a similar way (e.g. [8,11–13]). Nonetheless, while 20 percent of private households purchased GE in 2014, only 7 percent of all German SMEs did [8]. For little known reasons, GE adoption among German SMEs remains limited. Few studies have investigated the GE adoption behavior of SMEs and identified barriers to adoption. [14] found that the slow rate of non-residential GE uptake is attributable to the high cost of green marketing, unfavorable regulatory rules, the intangible nature of GE, and the prevailing lack of consumer awareness of the environmental impacts of energy production. Other studies have identified additional barriers to GE adoption and factors affecting firms’ adoption of GE and green supply chain practices [1,15,16]. However, to the authors’ knowledge, no study has yet been conducted that summarizes and provides a critical discussion of the factors determining the adoption of GE by SMEs. This article fills this gap in the current literature by reviewing previous studies on GE adoption. The broader literature on green practices and green supply chain management, and corporate environmental responsibility (CER) has also been considered. Given the similarity among the issues relevant for the adoption of energy efficiency (EE) measures and GE, the literature on EE in SMEs has been reviewed and parallelisms of decision-making between the two domains have been drawn. Based on the review of these bodies of literature, this article summarizes and discusses the factors that have been shown to influence (or have the potential to influence) the attitudes and intentions of SME decision-makers and ultimately determine an SME’s decision whether to adopt GE. These factors are called “adoption factors” (AFs). For each AF, this article also discusses the potential barriers to GE adoption faced by SMEs. Finally, policy recommendations are provided on how to promote the expansion of GE usage in the small- and medium-sized industrial sector. This article is structured as follows: Section 2 presents the material and methods used for the review. Section 3 reviews the relevant literature and discusses AFs for GE in the German smalland medium-sized economy. Concluding remarks are provided in Section 4.

2. Material and methods: search strategy and study selection Published studies that contain information on the adoption of GE were selected in order to identify AFs for GE among German SMEs. To gather the relevant literature for this research, ISI Web of Knowledge™ and ScienceDirects were queried for original studies published in peer-reviewed journals. The following synonyms were found in the literature to describe “green electricity”: “green energy”, “green power”, “clean power”, “eco-power” and “eco-electricity”. In database queries, each of the following keywords – “small and medium-sized enterprises”, “SMEs”, “industry”, “economy”, “adoption”, “purchase”, “barriers”, “motives”, “green marketing” and “willingness to buy” – were combined with each of the six terms used for GE. By using combinations of the GE terms with these keywords, a wide spectrum of literature relevant to the research was found. As literature explicitly addressing GE adoption by SMEs is limited, the search was expanded to include related topics. Specifically, literature on “green practices”, “green supply chain management” and “corporate

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Fig. 1. Development of the literature database. The bent arrows illustrate exclusion of studies. Exclusion criteria are described next to each arrow.

environmental responsibility” has been analyzed. The search terms (related topics in quotation marks) were combined with the same keywords used for the previous database queries. The total number of matches found for the applied combinations of the GE terms with the keywords in ISI Web of Knowledge™ and ScienceDirects (n¼ 9408) is presented in Fig. 1. The literature was exported to the “Citavi 4.0”-Citation-Software, where duplicates (n ¼ 412) were automatically removed. The titles and abstracts of the remaining 8996 studies were carefully examined to ensure suitability. Only studies that reported on GE (electric use only), green practices and green supply chain management, corporate environmental responsibility, and energy efficiency (EE) were investigated. Studies not classified within these domains (n ¼8917) were excluded. The remaining 79 studies were screened further. The exclusion methodology presented in Fig. 1 was applied. Studies on GE published before the liberalization of the German electricity market in 1998 were excluded (n¼ 14). Studies conducted in developing or non-democratic countries were also excluded because of the lack of comparability with German market conditions and respective legal frameworks (n ¼34). Following this process, 31 studies published in peer-reviewed journals were found to be relevant and were taken into consideration. These studies are summarized in Table 1. The studies listed in Tab. 1 are organized into four thematic groups: (1) green electricity, (2) green practices & green supply chain management, (3) corporate environmental responsibility and (4) energy efficiency. The literature in thematic groups (2) and (3) has been taken into consideration as it deals with the adoption of green measures (including GE adoption) by industrial actors, specifically SMEs. The literature on “energy efficiency” in SMEs was included because GE adoption and energy efficiency measures (EEM) have the common objective of improving a firm’s environmental performance and corporate environmental sustainability [17]. Of the eleven articles on GE, two studies look at adoption of GE by industry and non-residential customers, namely [14,18]. [14] conducted a mail survey among non-residential GE customers in the United States to explore their motivations, attitudes, and experiences with GE. [18] performed expert interviews with environmental, electricity and marketing sector representatives of enterprises to analyze different views related to GE in the Nordic pulp and paper industry. The remaining nine studies address GE adoption by general consumers and private households [1,5,19–25]. Six studies about green practices and green supply chain management were considered in the review (Table 1; Block 2). [26,27]’s studies on drivers of green innovations consider SMEs as an observation unit. The remaining four papers investigated these topics for industrial actors in general [28–31]. Another six papers

concerned corporate environmental responsibility among SMEs [32,33]) and the industry as a whole [34–37] (Table 1 Bock 3). Eight articles on energy efficiency measures by industrial actors complete the literature database (Table 1; Block 4). In all eight articles, SMEs are the focal point and observation unit [17,38–44].

3. Results The AFs of GE identified by a careful screening of the literature were organized in the conceptual framework illustrated in Fig. 2. Groups of similar factors were formed and then divided into purchase-related and sales-related factor groups. Purchase-related factors were organized by following and adapting the structure proposed by [19] who surveyed GE adoption among Dutch households. Although the observation units (SMEs vs households) differ between this study and the study of [19], the presence of important similarities in the decision-making processes of SMEs and households suggests the use of a similar structure in organizing AFs. Similarities include low degree of formalization in the decisionmaking process, short decision-making channels and a small number of decision-makers [11,13]. For both households and SMEs, decision-makers have a strong personal connection to their economic decisions which affect directly their own private interests [12]. In addition, the Dutch and German energy markets are closely interconnected, equally developed, and share the same electricity supply structure such that the institutional and technical environments relevant to GE decision-making are comparable. [19]’s structure included three factor groups: the technical systems, the individuals and the economic aspects. These factor groups have been adapted to fit the conceptual framework in this article. Specifically, [19]’s factor group individuals has been transformed into the factor group entrepreneur’s personality. A forth factor was added to capture the SME’s characteristics. As discussed by [12], SMEs represent a wide range of enterprises with different structural and organizational characteristics. Finally, the sales-related AFs were organized into two factor groups, including AFs linked to the sales market and green marketing (Fig. 2). With the exception of the literature on EE, information from the previously introduced areas of literature was considered for all factor groups and AFs. The findings of the EE literature were considered in all AFs of the factor groups ‘entrepreneur’s personality’ and ‘SME’s characteristics’. Both EEM and GE adoption can contribute to meet the ecologic goals of an SME that are defined by the entrepreneur and hence strongly depend upon the entrepreneur’s personality. An SME’s characteristics, especially firm size and energy intensity, influence the relevance of energy related decisions for an SME’s bottom lines. This is the case for both EEM and

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Fig. 2. Conceptual framework of green electricity adoption in German SMEs.

GE adoption, which in SMEs frequently take place together as described by [42]. With regard to the ‘technical systems’ factor group, the EE literature was taken into consideration only for the factor ‘perceived availability of time’ and not for factors ‘perceived system complexity’ and ‘perceived system reliability.’ While both GE adoption and EEM require significant time and effort for information searching and screening, the specific aspects of the ‘technical systems’ are scarcely comparable. Finally, the literature on EE was not considered for the factor group ‘economic aspects’ and for the sales-related factor groups (‘sales market’ and ‘green marketing’). With regard to the former, the adoption of GE and the adoption of EEM among SMEs are substantially different types of economic decisions. Specifically, the adoption of GE is comparable to the purchase of any higher-quality (and hence more expensive) input. It does not require an initial investment but causes an additional expense for the entire adoption period. In contrast, an EEM, e.g. the purchase of more efficient production machinery or the installation of a more energy efficient heating/cooling system, requires an initial investment but leads to long-run monetary savings due to reduced energy needs. Similarly, the motivations for EEM and GE adoption differ with regard to sales-related factors. The main motivation behind EEM is cost-savings rather than green marketing, customer satisfaction or sales increases, whereas the adoption of GE is primarily a marketing tool. 3.1. Purchase-related adoption factors of GE in German SMEs 3.1.1. Entrepreneur’s personality Decisions in SMEs are often made by a small group of people or SME owners themselves [39]. No studies thus far have explicitly

investigated whether the attitudes toward GE of an SME’s entrepreneur affect the decision to adopt GE. Nevertheless, there is extensive literature concerning ‘green practices and green supply chain management’ demonstrating that an entrepreneur’s attitudes toward a green measure affect its adoption (see Table 1). Generally, as [25] outlined in his psychological investigation of the intentions to adopt GE, “[…] a consumer's personality traits and general environmental attitudes […] are principal determinants of environmentally sound consumption”. In a telephone survey among adopters and non-adopters of GE in the Netherlands, [19] distinguish between two aspects related to the decision-maker: ‘perceived responsibility for the environment’ and ‘perceived relative advantages for the environment’. [19] define ‘perceived responsibility for the environment’ as “[…] the value judgement actors have of environmental responsibility”. They found that positive attitudes towards improving the environment, such as accepting moral responsibility for the living conditions of future generations, are a significant variable in determining GE adoption. [14] referred to ‘perceived responsibility for the environment’ as ‘altruistic motives’ for GE adoption. They performed a survey among non-residential GE customers in the United States and found that some organizations are “[…] motivated by altruism, driven by a desire to maintain their civic responsibility and a strong organizational commitment to the environment rather than by economic gain.” Their main finding was that altruistic motives for GE adoption are present and important in the industrial sector. [14]’s survey considered altruism using two items. The first item was ‘organizational values,’ which 62 percent of participants identified as being a very important motivation for adopting GE. The second item was ‘civic responsibility,’ which was a very important motivation for 49 percent of survey participants. When

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Table 1 Peer-reviewed articles in the literature database. Topic

References Sector

Method used

Country/region

AFs

1. Green electricity

[5]

Consumers

Market research

Perceived system reliability

[1]

Consumers

Expert interviews

UK, Germany, Finland Finland

[14]

Industry

Mail survey

USA

[19]

Households

Telephone survey

Netherlands

[20] [21]

Consumers Consumers

Germany Australia

[22]

Consumers

[23] [24] [18] [25] [26] [27] [28] [29] [30] [31] [32] [33] [34]

Consumers Consumers Pulp and paper firms Households SMEs SMEs Industry Industry Industry Industry SMEs SMEs Industry

Literature review Price and policy analysis Telephone survey, Focus groups Interview survey Postal questionnaire Expert interviews

[35] [36] [37] [17]

Industry Industry Industry SMEs

[38] [39]

SMEs SMEs

[40]

SMEs

[41]

SMEs

[42] [43]

SMEs (bakery) SMEs (tourism)

[44]

SMEs (Foundry)

2. Green practices and green supply chain management

3. Corporate environmental responsibility

4. Energy efficiency

Street interviews Mail questionnaire Database analysis Mail questionnaire Database analysis Postal questionnaire Database analysis Multiple case study Expert interviews Questionnaire, Interviews Literature survey Mail questionnaire Mail questionnaire Database analysis, interviews Database analysis Interviews and questionnaire Survey analysis, Interviews Telephone survey, Interviews Case study Surveys, Interviews, Case-study Interviews and questionnaire

both items were considered as a single index for ‘altruism interest’, they became the most dominant motive for adopting GE among [14]’s sample. The factor ‘perceived responsibility for the environment’ has also been referred to as ‘environmental concern’ in the literature on CER ([37]) and EE [42]. [37] performed a mail survey in the USA to explore the relative effects of environmental concern on environmentallyfriendly consumer behavior. He found that environmental concern was a key motivator for voluntary environmental contributions of individuals. [42] conducted a case study analysis with a German bakery and concluded that a major motivation for the adoption of energy management practices was decision-makers’ concern for the environment. The second factor, ‘perceived relative advantages for the environment’, refers to the extent to which a green measure is perceived as environmentally superior to the measure it is replacing, i.e. whether an entrepreneur perceives GE to have more environmental benefits than CE. In the case of GE, as suggested by [19], the perceived relative advantage of GE over CE is related to lower emission levels of greenhouse gas. Contrasting findings emerged from the literature regarding

United Kingdom

Perceived system complexity, perceived availability of time, perceived system reliability, perception of price, customers Perceived environmental image, perceived responsibility for the environment, customers, firm size Perceived responsibility for the environment, perceived GE system reliability, perception of price of GE, perceived system complexity, perceived relative advantages for the environment, actual displayed environmental behavior Legal framework Perception of price

USA United Kingdom Finland, Norway

Perception of price, perceived GE system reliability, perceived system complexity Perception of price Perception of price, perceived system reliability Eco-labels, customers

Europe Worldwide Europe USA USA Mexico Worldwide Europe Worldwide Worldwide

Perceived relative advantages for the environment SME’s characteristics Eco-labelling Legal framework Customers Customers Economic factors, entrepreneurs Perceived level of competitive pressure Firm size, actual displayed environmental behavior Sales market, perceived level of competitive pressure

Sweden Worldwide Worldwide Europe

Eco-labelling, customers Customers, perceived environmental image Perceived responsibility for the environment Firm size

Germany Worldwide Asia

Actual displayed environmental behavior Entrepreneur’s personality, actual displayed environmental behavior Firm size

Germany

Perceived availability of time, SME’s energy intensity

Germany Worldwide

Perceived responsibility for the environment Perceived availability of time

Europe

Perceived availability of time

the effect of ‘perceived relative advantages for the environment’ on the purchase decisions of private households. Whereas [19] found this factor to have no significant effect on GE adoption, [25] found that the perception of environmental benefits (specifically reduced emissions through the use of renewable energy resources) exerted a significant influence on customers’ purchase intent. The existing literature provides no specific evidence regarding the relevance of this factor for the adoption of GE among SMEs. 3.1.2. Adoption factors linked to technical systems This factor group encompasses variables related to SME decision-makers’ understanding and knowledge of the characteristics of GE technical systems. These characteristics include GE production and distribution systems and the steps needed for the adoption of GE. The literature highlights the presence of informational shortcomings regarding the characteristics of the technical systems and identifies these shortcomings as a barrier to the adoption of GE for residential customers. Specifically, [22] found in their research on GE markets in northern European countries that informational shortcomings regarding the electricity market and

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the electricity supply chain are relevant in explaining GE adoption. Moreover, [22] identified the lack of knowledge as a barrier for UK consumers to changing electricity suppliers. [1]’s interviews with electricity customers in Finland indicated these customers frequently lacked knowledge about basic electricity market structures, e.g. production, networks and infrastructure, and the authors identified this asymmetry of information between GE supplier and potential customers as a barrier to switching to GE. [19] distinguished two AFs related to technical systems: ‘perceived system complexity’ and ‘perceived GE system reliability’, which are of potential relevance also for SMEs. ‘Perceived system complexity’ refers to the difficulties that decision-makers encounter in understanding, switching to and integrating GE into their daily practices. The existing literature has not yet explicitly considered this factor in the context of SMEs. With regard to households, [19] found this to be the most relevant factor in the ‘technical systems’ factor group. A report by [16] suggested that the difficulties perceived by Dutch electricity consumers of switching to GE without changing supplier are fewer than those of switching to the GE product of another electricity supplier. The second AF in this group is ‘perceived GE system reliability’. Two aspects of perceived reliability might be of relevance for SMEs. The first aspect concerns the perceived continual availability of GE. Although none of the reviewed papers have considered this attribute for enterprises, the studies of [19,1] suggest that this is an important factor for private customers. As SMEs rely on a continuous power supply to maintain their business processes, this factor might be of relevance for industrial customers as well. The second aspect concerns the perceived reliability of the energy provider to deliver actual GE (instead of disguising CE as GE). This aspect was found by [19] to be a significant factor explaining household lack of GE adoption. Also, the variety of sovereign GE-labels and certifications causes uncertainty among potential customers regarding the criteria for certification and leads to difficulties in selecting the desired certification scheme. An evaluation of GE products by a potential GE customer is difficult as some suppliers include promises in their offers that are hard to compare and monitor, e.g. the annual growth rates of fluctuating RES in their electricity mix [45]. Even promises to donate money to charitable organizations for every new customer are common. The lack of clarity concerning the certification and labeling of GE providers contributes to a raise in the level of uncertainty regarding perceived GE system reliability. As a consequence of the inability of the adopter to distinguish GE from CE and the lack of transparency in the electricity market, SMEs’ entrepreneurs are expected to share similar concerns with private households. The lack of transparency in the electricity market is illustrated by [5]. [5] reviewed GE products in the United Kingdom, Germany and Finland and illustrated the use of guarantee of origin (GOs) in electricity markets. GOs are certificates required to sell GE. In the existing legal framework, GOs can be used by electricity providers to sell CE as GE. German GE suppliers that cannot satisfy their customers’ demand for GE with their own RES production often buy GOs from Norwegian or Austrian GE suppliers. These Norwegian or Austrian suppliers typically produce GE with old hydropower stations, sell GE as CE to local customers (who are not willing to pay a price premium) and sell GOs to German CE providers. German providers then deliver CE to customers willing to pay a price premium for GE. Therefore, GOs (but not GE) are internationally redistributed to electricity providers with customers that are willing to pay a price premium for GE [46]. The media publicly denounced this practice and called it “greenwashing” of CE, as GOs only testify that electricity from RES is fed into the power grid somewhere in Europe [5]. A report from the German Federal Environmental Agency [7] concluded that this practice has undermined the trustworthiness of German GE suppliers and deteriorated customers’ perceptions of the environmental benefits of GE.

Overall, ‘perceived GE system reliability’ is the most frequently investigated factor in the literature on GE. This factor has also been referred to as “trust in the GE provider”. [19] found mixed results regarding the effect of trust in GE suppliers on GE adoption, where the variable ‘trust’ turned out to be significant and positive in some adoption models and insignificant in others. Focus groups comprised of general electricity customers in the United Kingdom that were conducted by [22] revealed that low levels of trust in the reliability of the GE system among electricity customers represent a barrier to the adoption of GE. [1]’s interviews with Finnish electricity customers showed that consumers feared electricity cuts if they switched to GE. In a study conducted in the United Kingdom, [24] found that the majority of electricity customers would be willing to pay a price premium for GE if they could be certain that the electricity was being generated in an environmentally sustainable way. Uncertainty about the reliability and sustainability of GE therefore represented a substantial barrier to GE adoption for UK customers. In addition to the factors regarding technical systems discussed above, the factor ‘perceived availability of time’ received attention in the literature concerning GE ([1]) and EE in SMEs ([41,43,44]). The ‘perceived availability of time’ factor is defined as the subjectively perceived availability of time exceeding the current time demand for business functions, regardless of entrepreneurs’ willingness to actually take the time to switch. [44]’s investigation of barriers to industrial EE in European foundries found that lack of time was a ‘quite relevant’ barrier to the adoption of EEM for 65 percent of survey participants. [41] conducted interviews and a telephone survey on energy conservation measures by German SMEs across eight industries and showed that manager and employee ‘lack of time’ is a significant barrier to the adoption of such measures. [43] analyzed energy practices among small- and medium-sized tourism enterprises in the United Kingdom and found that the availability of time was an important determinant in all stages of the realization of energy-saving measures. For GE adoption, [1]’s interviewees felt that the lack of time available to study the electricity market and green electricity purchases was a barrier to their adoption of GE. The same sample of interviewees also expected the time and effort required to compare different GE options to be substantial. In the context of SMEs, time is known to be a limiting factor for entrepreneurs because of their extensive areas of responsibility. The lack of time available for studying the relatively opaque GE market in addition to the evaluation of consequences of GE for the enterprise represent a barrier to industrial adoption of GE according to GE market analysis by the German Federal Environmental Agency [7]. According to [13], this is a weighty barrier for SMEs as these companies often do not hire dedicated employees for energy related activities. It is conceivable that an additional requirement of time for dealing with energy issues burdens SME owner/managers, who are often already fully occupied with their day-to-day responsibilities. 3.1.3. Adoption factors linked to economic aspects The factor group called ‘economic aspects’ includes three factors. The first factor is related to the price of CE and GE. The second factor is related to the level of competitive pressure. The third factor refers to the legal framework and its economic consequences. As will be explained in the last part of this section, the legal framework has several effects on energy prices and other economic aspects concerning GE. GE is often more cost intensive to produce than CE [5]. Therefore, a price premium for GE products is often essential to cover the additional production costs [23]. This price premium for GE is hard to quantify as it can fluctuate widely and depends upon factors like regional network charges.

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The literature on GE with a focus on residential customers extensively analyzes the willingness to pay (WTP) for GE. Studies investigating WTP for GE ascertained that residential consumers are generally willing to pay a price premium for GE [22–24]. In their survey with US customers, [23] found that several population segments are willing to pay small price premiums for GE if emissions are ‘tangibly’ reduced. [24] investigated UK customers’ WTP for electricity generated from RES and found that WTP varies with social status and income, but the majority of UK customers support the concept of GE. [21] analyzed the price elasticity of voluntary GE markets and showed that GE sales were responsive to price and residential sales were more responsive to price than business sales in Australia. [22]’s results of their national telephone survey in the UK showed that over 30 percent of the participants “agreed” or “fully agreed” to be willing to pay a 5 to 10 percent price premium for GE. In most cases, the stated WTP of households for GE over CE was found to exceed the actual price premium. However, price perceptions of GE were also found to exceed actual GE prices as well as the stated WTP for GE. Ultimately, according to [19], the upward-biased price perceptions has limited the adoption of GE in the private consumer sector. As individual purchase decisions are based on price perceptions, the price-related adoption factor is referred to as ‘perceived price of GE’. [1]’s interviews with GE non-adopters confirmed that false price perceptions represented a barrier to GE adoption. They found that electricity customers often lacked knowledge about GE prices or significantly overestimated the price premium for GE (by about 20 percent of the price premium). The existing literature has not yet investigated whether the adoption of GE has been deterred by inaccurate price perceptions in SMEs. As conjectured by [47], in the specific case of German SMEs, unwillingness to pay a price premium for GE could also originate from the presence of the so-called EEG-levy. Since 2003, private and industrial electricity customers have paid an EEG-levy for electricity independent of the electricity source (in 2015, the EEGlevy amounts to 6.170 Ct per kWh). This amount is invested in the promotion of RES in Germany. The EEG-levy compels every electricity customer to financially support the transition to RES (the “Energiewende”). No additional empirical evidence is currently available to corroborate this conjecture by [47]. ‘Perceived level of competitive pressure’ is the second factor in this group and refers primarily to the size of the profit margin. SMEs that operate in highly competitive markets are known to face high cost pressures due to small market shares and low scale effects, resulting in modest profit margins [12]. The ‘perceived level of competitive pressure’ factor has been considered in the CER literature by [32,34]. On the one hand, [32] showed that only SMEs that sell luxurious products can afford investments in corporate social or environmental responsibility measures because of above average margins. On the other hand, [34] found that, especially in enterprises with a high level of competitive pressure, firms with strong corporate responsibility activities can add effective product differentiation to their products resulting in larger margins than the competition. The last factor in this group is ‘perceived legal framework’. In Germany, the legal framework regarding GE is mainly governed by the EEG (Renewable Energy Act). The EEG came into force in 2000 to implement the directives of the European Union on RES. Several revisions to the initial Act have been made since then (in 2004, 2009 and 2012) [48]. The role of the legal framework has been discussed in the literature on GE by [20]. They compared several energy policies in the German market and found that the EEG has been an important driver for increasing GE generation and consumption. Given the complexities of the legal system and in accord with anecdotal evidence collected by [20], it is conceivable that SME entrepreneurs have varying perceptions regarding the implications of

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the legal system on GE supply particularly with regard to price, availability and sustainability. The EEG determines the actual sustainability of GE by specifying GE sources and the minimum share of these sources in the ‘GE tariffs’. It also provides obligations for CE suppliers to have a specific minimum share of renewables in their energy mix. The EEG influences the availability of GE through governmental investment support for GE generation systems and includes the basis for the support of RE production through a system of feed-in tariffs [5]. These feed-in tariffs represent remuneration for RE production fixed by the state in order to promote RE in Germany and, therefore, also affect the price of GE. For a detailed analysis of the German legal framework surrounding GE see [49]. 3.1.4. Adoption factors linked to the SME’s characteristics The word ‘SMEs’ is a collective term for enterprises that do not exceed defined boundaries concerning number of employees, turnover and balance sheet. Within the SME group there exists significant heterogeneity with regard to factors that have the potential to affect GE adoption. The literature discusses the following firm-specific factors: ‘firm size’, ‘SME’s energy intensity’ and ‘actual displayed environmental behavior.’ By definition, the SME group includes firms of very different sizes (1 to 249 employees). Firm size is an important determinant for a firm’s availability of specialized staff and knowledge. Across all sectors, less than 11 percent of all German SMEs have employees who are responsible for energy purchasing according to [13]. His withinsector comparison of SMEs showed that firms with a higher number of employees (and with higher energy costs) more often employ expert staff to deal with matters of energy supply. Firm size played a relevant role in the paper by [14], where differences in main motivations for GE adoption were found between smaller and larger firms. Specifically, altruistic motives played a larger role in smaller firms while public image and green marketing played a larger role in bigger firms. The role of firm size was considered also in the literature on CER by [33] and in the EE literature by [17,40,41]. [33] performed interviews with SME owners about green business strategies and showed that firm size is one of the major determinants of a firm’s green strategy. [17] examined the role of firm size on the perception of barriers to adoption of EEM in European foundries and found that small enterprises perceive higher barriers (e.g., due to external risk, imperfect evaluation criteria) than bigger enterprises. [40]’s survey and semi-structured interviews on barriers to increasing EE in SMEs found that energy-saving activities of an SME are influenced by a number of general firm characteristics, including its size. [41] determined that the number of EEM adopted increases with company size (and level of energy costs). [41] also showed that the task of making decisions regarding GE adoption is more easily managed by bigger companies with expert staff to deal with energy matters; bigger enterprises are also less afflicted with informational deficiencies concerning energy measures. In small enterprises the task of gathering information on energy measures, including GE, resides with owners/managers who often do not have the required ‘perceived availability of time’ (see Section 3.1.2). Short-term daily business responsibilities tend to receive priority over strategic-type decisions like the adoption of GE. [41]’s article on energy conservation in German SMEs also considered the factor ‘SME’s energy intensity’. This factor represents the share of total costs that is spent on energy. Energy intensity varies significantly across sectors. [50] defined energy intensive sectors as sectors where energy intensity is higher than 15 percent. Examples of energy intense sectors are the chemical sector, the metal sector, manufacture of motor vehicles and manufacture of rubber and plastic products. Within a sector, energy intensity also varies between firms. [41]’s telephone survey revealed a close direct relationship between the EEM undertaken

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by SMEs and their level of energy intensity and energy costs. No study has looked at the role of energy intensity on GE adoption. Contrary to the case of EEM, a negative relation is to be expected between GE adoption and energy intensity, as energy intensive SMEs require more electricity to generate the same revenue than less energy intensive SMEs, making a potential price premium for GE weigh more heavily on the SMEs’ bottom lines. The factor ‘actual displayed environmental behavior’ refers to a SME’s EE and energy conservation measures implemented in the past. This factor was analyzed in the GE literature by [19]. With regard to GE adoption by households, [19] showed that prior efforts to protect the environment are a predictor for GE-adoption behavior. The explanation offered by [19] is that past actions show that previous intentions have been transformed into actual behavior. This refers to Fishbein and Ajzen’s theory of reasoned action [51] which is a widely known intention model for predicting and explaining human behavior across many domains. According to this theory, a person’s performance of a certain behavior is determined by his or her behavioral intention, which is dependent on the person’s attitude and subjective norm concerning the behavior. The extent of actual displayed environmental behavior in the past reflects a person’s attitude towards active environmental protection and could also be a predictor for the future undertaking of environmental measures like GE adoption in SMEs. The factor ‘actual displayed environmental behavior’ has also been investigated in the EE literature in [38,39]. [38] empirically analyzed barriers to EEM and showed that active adoption of EEM in the past has no effect on the current adoption rates of EEM. In contrast, [39] found that the realization of EEM in the past favored the adoption of EEM in the present. Finally, concerning the CER literature, [33] reviewed the literature on green competitive advantages for firms and ascertained a close relationship between green practices and the implementation of EEM. In [33]’s view, green practices and EEM are the result of an SME’s innovativeness and pioneering spirit. 3.2. Sales-related adoption factors of GE in German SMEs Paying a price premium for GE might be a profit-maximizing action for an SME when the adoption of GE has positive effects on product demand. In this subsection we discuss the role of demand-related factors. 3.2.1. Adoption factors linked to the SME’s sales market Many German SMEs operate in a regional sales market and are therefore dependent on local acceptance of their behavior to achieve their business objectives [11]. Environmental sustainability has been shown to be a requirement for regional acceptance of SMEs’ actions [26,29]. Proactive environmental measures, like the adoption of GE, might generate sales advantages. This depends crucially on the ‘customers,’ and specifically on the customers’ interests and willingness to pay a price premium for green products. The customer is the SME’s principal, whose purchase decision determines the economic outcome of the company, irrespective of whether they are private or business customers. Therefore, SMEs have a particular interest in satisfying their customers. Social research refers to customer satisfaction as an abstract psychological construct, describing the difference between customers’ expectations and their satisfaction of needs, which is evaluated after acquiring goods or services [52]. Increasingly, customer satisfaction requires products to be assessed as environmentally sustainable. Green consumerism has had an average annual growth rate of over 6 percent worldwide since 2004. In sectors where customers impart clear environmental expectations, the

demand for green products has rapidly increased, e.g. in the organic food sectors with an annual growth rate of 20 percent [10]. While the role of “green” customers was only tangentially discussed in the GE literature by [14,18], it received specific consideration in the literature on green practices and green supply chain management. [29] analyzed drivers of green business in the US and found that survival of green businesses depends upon a sufficient level of local customer demand. In the literature on CER, this factor was investigated by [35,36]. In a survey on eco-labels in Sweden, [35] found that up to 93 percent of private customers considered the environmental impact of products to be important when purchasing goods. They categorized customers according to their willingness to buy products with environmental benefits. According to their results, only 16 percent of all customers actually paid a price premium for a wide range of products with environmentally conscious characteristics. This result was in line with [36], who states that the majority of customers are more likely to “[…] shop based on traditional product attributes such as price, convenience/availability and quality […]” than on environmentally responsible product features. Nonetheless, [36]’s mail survey in Australia about the importance of a company’s environmental behavior with regard to customer purchase intention showed that, in recent years, “many customers have adopted a positive attitude towards environmental issues as well as a willingness to incorporate environmental information into their consumption decisions.” 3.2.2. Adoption factors linked to green marketing practices in an SME The last factor group is “green marketing” (GM). GM is defined as the marketing of products that are supposed to be environmentally preferable to others [53]. With GM, enterprises strive to get new customers and strengthen the loyalty of present ones [14]. The use of GE in the manufacturing process might enhance the environmental character of a product by reducing the negative environmental effects of its production. Two factors have been identified in the literature: the ‘perceived environmental image’ of an SME and the ability of a firm to communicate its environmental image via ‘eco-labels’. [54] defined a company’s environmental image as the unity of all “[…] environmental and green-related features of a firm that stakeholders come to perceive.” In the literature on GE, empirical evidence concerning the ‘perceived environmental image’ of companies is provided by [14]. They performed a survey among 464 businesses that adopted GE to explore their motivations, attitudes, and experiences. They found that enterprises that adopted GE did so because they believed that having a good environmental reputation was essential for the future existence of their business. The role of an enterprise’s environmental image was also considered in literature on CER by [36]. [36] conducted a quasiexperimental study to examine the relationship between the perceived environmental performance of a company and consumers' purchase intentions. They found that customers’ ‘perceived environmental image’ of a company was a central determinant of customers’ purchase intensions. They concluded that developing a good environmental image delivered significant benefits to companies as long as the environmental image was appropriately communicated to consumers and that these consumers recognized the added ‘green’ value. In the context of GE adoption, SMEs need to communicate to customers that their products are manufactured using GE. This can be done with eco-labels. In general, eco-labels are quality marks used for products that are environmentally preferable to similar products in the same product group. Eco-labels allow customers to differentiate products based on their environmental attributes, provided that they understand, recognize and appreciate the green message [55].

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There is no consistent eco-label for GE usage in manufacturing processes in Germany (see Section 3.1.1). As a result, GE products have been advertised in a variety of different ways. Sometimes GE providers have allowed their commercial users to advertise their GEproduced products using the provider’s logo. The environmental management standard ISO 14001, which focusses on continuously improving environmental performance to reach the company’s business goals [56], has been used to communicate environmental attributes of a product to customers. When on-product labeling was not possible (e.g. because of the size or nature of the product or packaging), the promotion of GE practices has occurred over the SME’s website [57]. [18] discussed the importance of eco-labels to help consumers make informed choices that take into consideration environmental aspects including the use of GE in production. [18] concluded that the formulation of industry-level standards is critical for ecolabeling but challenging due to the diverging interests within the industry. [18] pointed out that, while GM based on green-energy communication in the Nordic pulp and paper industry was still in its initial phase, a ‘credible, acceptable and trusted’ eco-label can be as a suitable and important instrument of governance. Eco-labels received attention also in the literature on CER ([35]), green practices and green supply chain management ([27]). [35] explored the potential of eco-labels in Sweden and concluded that eco-labels emerged as one of the dominant means of market communication of products’ green credentials. [27] investigated the drivers of different types of eco-innovation in European SMEs and found that eco-labels enabled firms to use their environmental performance in their marketing strategies, gaining competitive advantages via product differentiation. Given the relevance of eco-labels in capturing economic advantages for an SME and also the absence of a consistent eco-label for products manufactured using GE, the lack of communicability of GE usage is expected to play an important role in limiting GE adoption among SMEs.

relevant for SME entrepreneurs and decision-makers. The biased perceptions and lack of knowledge could be targeted by making information more accessible. One instrument to address this problem is the creation of an online register of GE suppliers that summarizes information about electricity prices and sources. The article by [18] focused on the sale-related factors of GE adoption and in particular on the role of a ‘credible, acceptable and trusted’ undefined to overcome the difficulties of communicating GE usage to customers in the pulp and paper industry. Similarly, the literature on the adoption of green measures by SMEs identified the absence of standardized eco-labels (and the related difficulty of communicating voluntary corporate environmentalism to customers) as a main adoption barrier. Given that the source of electricity is not visible to final customers, SMEs in general are expected to encounter difficulties in gaining marketing advantages from using GE. In line with the finding by [18], the development of a standardized eco-label for products manufactured with GE could be a challenging but worthwhile proposition for SMEs under the condition that a science-based eco-label can be popularized in the market. The literature review revealed that little is known regarding the relative importance of the individual adoption factors in the GE adoption decision by SMEs and that further research is needed to shed light on the GE adoption process. Exploiting the insights and conceptual framework developed in this review, qualitative and/or quantitative studies focusing on SME entrepreneurs could be initiated, specifically by collecting data regarding current level of knowledge, adoption intensions, perceived barriers to adoption, and green measures already undertaken. Although this article focusses on the German case, the conceptual framework proposed in this article could also be applied to investigate the adoption processes of GE in other industrialized countries with liberalized electricity markets where, as in Germany, SMEs are a large electricity customer group and the goal of a transition to renewable energy sources is of political relevance.

4. Conclusions

References

The objective of this article was to lay the premises for a theoretical model of factors that reflects the adoption process of GE in German SMEs. To identify factors of GE adoption in the case of German SMEs, the relevant literature on green electricity, green practices and green supply chain management, corporate environmental responsibility and energy efficiency was extensively reviewed. The adoption factors identified in the examined literature were subdivided into purchase-related factors, which include factors related to technical systems, the entrepreneur’s personality, economic aspects, and an SME’s characteristics, and salesrelated factors, which include factors related to sales markets and green marketing. With a focus on the industrial sector, [14] looked at the purchase-related factors affecting GE adoption. Their main, perhaps surprising, finding is that altruistic motives for GE adoption are present and important in the industrial sector. In particular, altruism played a more relevant role for smaller-scale businesses. They concluded that in smaller organizations, both profit maximization and personal motives are balanced against each other. In larger organizations, which are also best positioned to capture private values from GE adoption, gaining a green public image and green marketing are stronger motivations for GE adoption. The larger collection of literature on GE adoption among the general population identified two main barriers concerning the purchase-related factors: (1) the lack of knowledge regarding the GE system reliability and (2) the upward-biased perceptions of GE price premiums. It is conceivable that these barriers are also

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