Introduction
Climate change has been aggravating in recent years as CO2 emissions continue to grow in developed and developing countries alike (IPCC, 2014). OECD countries have a larger responsibility to address climate change, as they accounted for almost 50% of the global carbon emissions in 2010, most of which were linked to the energy sector (BNEF, 2013; Muller, Brown, & Olz, 2011; OECD, 2013a).
One possibility for transitioning towards a low-carbon society is to increase the share of energy (especially electrical energy) generated by renewable energy (RE) sources (Foxon & Pearson, 2007; Jefferson, 2008). To complement these activities, it is necessary to also increase overall efficiency of the energy sector (Eichhammer, Ragwitz, & Schlomann, 2013; Marques & Fuinhas, 2011; Schleich, 2009), however we focus on capacity additions of RE. Given limited financial resources of state governments, the involvement of private markets and investors is needed (Mathews, © Springer Fachmedien Wiesbaden GmbH 2017
M. Migendt, Accelerating Green Innovation, Innovationsmanagement
und Entrepreneurship, DOI 10.1007/978-3-658-17251-0_4
Kidney, Mallon, & Hughes, 2010b). Investments in clean energy[1] [2] companies, projects and infrastructure have been growing in the last decade and total up to a relevant amount. Yet the volumes are still relatively small when compared to investments in conventional fossil fuel-based power (see Figure 14) (BNEF, 2013).
Figure 14 — Renewable power capacity investment compared to fossil-fuel power capacity investment, 2008-2013 in billion USD
(Adapted from Frankfurt School-UNEP Centre and BNEF (2014, p. 31)13.
This is partially due to the challenge the diffusion of RE technology presents (Foxon & Pearson, 2007; Friebe, Flotow, & Taube, 2013; Friebe, von Flotow, & Taube, 2014; Veugelers, 2011). Market failures occur related to inherent characteristics of the energy sector (designed for fossil fuel-based power plants) on the one hand, as well as the particular nature of RE technologies on the other (Dinica, 2006; Helm, 2002; Jefferson, 2008; Wustenhagen & Menichetti, 2012). Long payback periods and illiquid assets coupled with high regulatory dependencies and corresponding uncertainties often make RE unattractive or even unsuitable for investors. While this holds true for mature technologies and conventional power plants, REs in addition face some technological uncertainty (Kenney & Hargadon, 2012; Mathews et al., 2010b).
To mitigate market failures and to compensate for technological and economic weaknesses, policy makers were historically confronted with a variety of options to stimulate diffusion of RE. This article attempts to uncover the effects of different policies to support clean energy applications. It adds to recent academic and political discussions about the choice among feed-in tariffs (FITs) and alternative mechanisms as well as the corresponding overall effectiveness and efficiency of these policy instruments (Carley, 2009; Lesser & Su, 2008; Mathews et al., 2010b). However quantitative analyses of the influence of public policies on investments in RE by private institutional investors are scarce (Bolkesj0, Eltvig, & Nygaard, 2014; Chassot et al., 2014; Luthi & Prassler, 2011; Luthi & Wustenhagen, 2012b), with longitudinal, let alone panel data analyses almost non-existent. This is even more relevant since private institutional investors provide a significant amount of the funds deployed, particularly in certain more mature technologies such as wind (BNEF, 2013; IEA, 2013).
Thus, building on previous work on RE investor behavior (Bergek, Mignon, & Sundberg, 2013a; Chassot et al., 2014; Luthi & Prassler, 2011; Wustenhagen & Menichetti, 2012), we investigate the influence of public policies on subsequent RE investments by institutional investors across OECD countries over a time period of 12 years (2000-2011). Using a novel dataset gathered from Bloomberg New Energy Finance (BNEF) and the International Energy Agency (IEA) together with the International Renewable Energy Agency (IRENA), it applies a panel data regression. We develop policy implications adding to the academic literature of RE policies and RE investment decisions. The overarching research question is: Which policies have proven (most) conducive to investments in renewable energy assets?
The remainder of this paper is structured as follows: Section 4.2 briefly describes the conceptual motivation. Section 4.3 introduces the analytical method and data used. Section 4.4 presents the results and discussion while section 4.5 finalises with conclusion, limitations and next steps in the research process.
- [1] Throughout this paper, we will use renewable energy (RE) and clean energy interchangeably.
- [2] Renewable energy does not include large hydro. Fossil fuel is gross investment in coal, gas andoil capacity and assumes retired fossil capacity is replaced. However a capacity retirement of3.3% per year for coal, 4% per year for gas and 2.5% per year for oil is assumed. The numbers inthis chart are adjusted for inflation.
