The
effects of market regulation and environmental policy on eight types of
renewable energy in the EU are identified in a study which examines
nearly three decades’ worth of data. The researchers found that reducing
entry barriers is a major driver of renewable energy innovation and
that the ability of environmental policy to promote renewable energy
innovation depends on the technology; for example, quota systems appear
to work better with older technologies.
Policy
plays a key role in promoting renewable energy, and much research has
been conducted to assess its effects on renewable energy innovation. For
example, previous work
has shown that guaranteed price schemes (which guarantee a minimum
price for energy producers for a specified period) and investment
incentives (such as grants and other measures to reduce the capital
costs of adopting renewable energy technologies) benefit the development
of emerging technology, while obligations (requiring suppliers to
provide a share of their energy supply from renewables) can be more
effective for established technologies, such as wind power.
Other research
has shown that market liberalisation (removing government control and
opening up energy markets to private companies, as occurred in the 1990s
in the EU1) also has a significant effect on renewable energy innovation.
Despite
extensive research, little attention has been paid to the effects of
these factors on individual technology types. This study, therefore,
explored the effect of market regulation and environmental policies on
eight individual renewable energy technologies, using data from 19
European countries. It looked at eight types of renewable energy —
geothermal, hydroelectric, marine, wind, solar thermal, solar
photovoltaic, biofuel and waste — over the period 1980–2007.
The
data analysed included information on the number of renewable energy
patents in each country (a measure of innovation) and the value of
different environmental policies for innovation.
The researchers considered the effect of seven different policy instruments:
- Government spending on research and development (R&D).
- Incentive (feed-in) tariffs i.e. guaranteed price schemes, through which the energy authority obliges energy distributors to feed in the production of renewable energy for a certain number of years at fixed prices, which vary according to the various sources.
- Investment incentives i.e. capital grants and all other measures aimed at reducing the capital cost of adopting renewable energy technologies.
- Tax measures, such as tax credits or property tax exemptions.
- Voluntary programmes adopted nationally by stakeholders (such as government and public utilities) to buy energy generated from renewable sources.
- Obligations, which place a requirement on producers to provide a share of their energy supply from renewable energy.
- Renewable energy certificates — tradeable certificates used to document compliance with a quota system.
To assess the effect of market competition, the researchers used the OECD Indicators of Product Market Regulation,
which includes information on three different aspects of the
liberalisation process: ownership (from ‘private’ to ‘public’);
third-party access to the grid (from ‘regulated’ to ‘no access’);
vertical integration (from ‘unbundling’ to ‘full integration’).
Overall, policy support, total historical renewable-energy innovation2
and the level of entry barriers came out as the major drivers of
innovation in renewable energy technologies. These were more influential
than the size of the energy market and consumer preferences for green
goods.
This
study also showed that market liberalisation had a greater impact on
renewable technologies which have lower ‘developer intensity’ (i.e.
where patents are spread among firms, and there are no major market
leaders) and more independent power producers, such as is the case for
wind and solar thermal energy. In relation to the other components of
market regulation, public ownership and unbundling has a low impact on
renewable energy innovation.
The
effect of individual policies also varied depending on the maturity of
the technology. For example, more established technologies seem to be
better regulated with quota systems, which reduce compliance costs for
producers, while more emerging technologies benefit from demand
subsidies and support for R&D.
Specifically,
the effect of feed-in tariff was largest for solar PV, while R&D
support had the most significant effect on wind and marine energy.
Policy had no significant effects on hydropower, likely because it is a
mature technology which is close to capacity in several Member States.
Finally, market stimulus due to an increase in electricity prices had a
significant effect on innovation in solar thermal, solar photovoltaic
and marine energy.
Overall,
the study shows that the magnitude of the benefits of environmental
policies on renewable energy innovation depend on technological
potential and are, therefore, strongest for wind and solar power. The
researchers recommend specific policy support for these technologies in
countries with the right environmental conditions, such as Denmark and
Spain, respectively.
To
close, the researchers warn that market integration in the EU (which can
lead to few large energy companies dominating the market) could be a
major concern for the future, as it may undermine market entry for new,
innovative companies and the development of distributed energy, which is highly efficient and benefits the environment by reducing emissions.
1.
In the 1990s, the EU began to open up the national electricity and gas
markets to competition. The first liberalisation directives were adopted
in 1996 (electricity) and 1998 (gas).
2. A
variable accounting for the accumulated stock of past innovation in
renewable energy technologies; the results suggest that the creation and
adoption of innovation has a dynamic effect through time, making future
investment less expensive and more secure, through a learning process
which diminishes overall innovation costs.
Source: Nicolli, F. & Vona, F. (2016). Heterogeneous policies, heterogeneous technologies: The case of renewable energy. Energy Economics, 56: 190–204. DOI: 10.1016/j.eneco.2016.03.007.
Contact: francesco.nicolli@unife.it
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