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Can Technology-Specific Deployment Policies Be Cost-Effective? The Case of Renewable Energy Support Schemes

Paul Lehmann () and Patrik Söderholm ()
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Paul Lehmann: Helmholtz Centre for Environmental Research – UFZ

Environmental & Resource Economics, 2018, vol. 71, issue 2, 475-505

Abstract: Abstract While there is relatively limited disagreement on the general need for supporting the deployment of renewable energy sources for electricity generation (RES-E), there are diverging views on whether the granted support levels should be technology-neutral or technology-specific. In this review paper we question the frequently stressed argument that technology-neutral schemes will promote RES-E deployment cost-effectively. We use a simple partial equilibrium model of the electricity sector with one representative investor as a vehicle to synthesize the existing literature, and review potential rationales for technology-specific RES-E support. The analysis addresses market failures associated with technological development, long-term risk taking, path dependencies as well as various external costs, all of which drive a wedge between the private and the social costs of RES-E deployment. Based on analytical insight and a review of empirical literature, we conclude that the relevance of these market failures is typically heterogeneous across different RES-E technologies. The paper also discusses a number of possible caveats to implementing cost-effective technology-specific support schemes in practice, including the role of various informational and politico-economic constraints. While these considerations involve important challenges, neither of them suggests an unambiguous plea for technology-neutral RES-E support policies either. We close by highlighting principles for careful RES-E policy design, and by outlining four important avenues for future research.

Keywords: Technology development; Renewable energy sources; Support schemes; Cost-effectiveness (search for similar items in EconPapers)
JEL-codes: H23 O33 Q42 (search for similar items in EconPapers)
Date: 2018
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