Energy support measures and their impact on innovation in the renewable energy sector in Europe


Courtesy of European Environment Agency (EEA)

Governments support energy production and consumption in order to meet social, economic and environmental objectives, and they have been doing so for decades. In times of economic crisis, public budgets and household incomes come under pressure. At the same time, countries need to kick‑start their economies by creating new employment opportunities in emerging industries such as the renewable sector. This report examines the support allocated to energy production and consumption in Europe and its impact on innovation in renewable energy.

The study provides an overview, at European level, of the type of measures in place in 2012 to support energy consumption and production in 32 EEA countries. For four countries, a quantitative analysis is undertaken as well.

Progress towards innovation in the renewable sector is assessed using the number of patent applications to the European Patent Office (EPO) for various renewable energy technologies. The report explores the link between support measures for renewable energy and employment effects in two of the most developed renewable sectors in Europe, namely wind and solar photovoltaics (PV) as well.

The discussion is enhanced by an in‑depth analysis at national level of the situation in four European countries: the Czech Republic, the Netherlands, Spain and Switzerland.

These countries were selected using seven criteria:

  • in 2012, countries had to have in place feed-in tariffs/premiums to support renewable energy;
  • geographical coverage;
  • different progress towards the 2020 renewable targets;
  • different innovation performance based on the Innovation Union Scorecard 2013;
  • different economic structure;
  • different energy mix;
  • different drivers for renewable development (EU and non-EU countries).

The main purpose of this analysis is to highlight the part specific country circumstances play in the development of the renewable sector, by exploring related policy effectiveness and policy efficiency, as well as developments in the renewable sector in terms of innovation and employment. Coherence between policy objectives within relevant policy domains is also important, and is briefly addressed for these four countries.

The main findings of the report are summarized below.

Despite growing interest in promoting renewable energy, in 2012 many support measures in Europe targeting fossil fuels and nuclear sectors were still in place, and continued to affect public budgets.

Fossil fuel support in Europe is expressed mainly through fiscal exemptions to support the consumption of these fuels in certain economic sectors. They constitute a burden on public budgets, because they are revenue forgone by governments.

Renewable support is a mix of surcharges on the energy bill of the end users, and governmental support. In the case of electricity, the former type of support prevails. Consequently, such support does not represent a burden on public budgets, but it does affect energy prices for end users, particularly when the merit order effect is not passed on to them.

Support for the nuclear industry is poorly documented, but it has existed for decades in Europe in various forms, including explicit or implicit limited liability in case of major accidents, grants and government-mediated financing and regulated prices. Despite being difficult to quantify, this support can place a significant burden on the public budget.

Support for fossil fuels affects market conditions for renewable energy, but there is little evidence that the impact is significant, given the support allocated to the renewable sector.

Countries' strategies differ when it comes to supporting fossil fuels, so the renewable sector must compete with a unique price structure for these fuels in each country. A more harmonized framework for energy taxation would be a good start for facilitating further developments in the renewable sector.

Countries with a higher effective tax rate on carbon dioxide (CO2) generally have a higher rate of patent applications in renewable technologies.

Several factors are crucial for the innovation process in the renewable sector: political will (or the lack thereof) to shift the focus onto the renewable sector, pre-existing innovation capabilities, the level of investment in research and development (R&D) for renewable technologies and renewable policy design. This has been observed in developments in Denmark as well as in the four target countries (the Czech Republic, the Netherlands, Spain and Switzerland).

The four target countries focus on a few key and mature renewable technologies such as onshore wind, solar PV, hydro and biomass. All three EU Member States need to step up efforts to boost policy effectiveness and policy efficiency, especially in those technologies considered to be key for meeting the 2020 targets in their respective National Renewable Energy Action Plans (NREAPs). Across all three EU Member States, biomass developments are consistently behind the respective technology‑specific targets included in the NREAPs. All four countries need to increase efforts in the renewable heating and cooling sector.

Experiences of the three EU Member States studied in this report suggest that the NREAPs should be revisited in light of recent technological price developments, economic developments and knowledge gained on the environmental consequences of various renewable technologies. This seems to be particularly relevant for biomass.

Renewable policy design has a significant impact on policy effectiveness and efficiency. Policy flexibility in managing rapid and significant cost reductions of these technologies and the way the policy's cost is contained over time determines not only how effective the policy is in achieving the set goal, but also at what cost this occurs. For example, Spain's long-term policy objectives and effective policy resulted in a sizeable domestic renewable sector. However, this development was achieved at relatively high policy costs with annual feed‑in premium (FIP)/feed-in tariff (FIT) payments of around EUR 5 billion in 2011. By comparison, the Swiss annual FIT payments were around EUR 0.074 billion in 2011, albeit for a much less impressive deployment of these resources.

The strong focus on the market-pull policy type helped the innovation process in renewables, and generated some 2.2 million full-time equivalent jobs in Europe. However, a more balanced mix of market-pull and technological-push instruments (e.g. R&D investment), accompanied by greater attention to the quality of jobs created, will ensure the development of a more sustainable renewable energy industry in Europe.

If the renewable sector is to make a significant contribution to climate goals, energy security goals and more generally, green economic growth, policy objectives, particularly in the area of renewable energy, industry, economy and R&D, must be carefully designed, aligned and implemented.

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