Abstract
This paper analyses how institutional constellations and their associated mode of risk allocation are reflected in the choice of policy instruments for the promotion of offshore wind power. Using the Varieties of Capitalism framework we expect that governments in Liberal Market Economies (LME) tend to use policy instruments that privatise investments and risk-taking, while those in Coordinated Market Economies (CME) use policy instruments that facilitate investments and shared risk-taking in the earlier, more riskful phase of technological development. We test our expectations through a longitudinal comparative analysis of the use of policy instruments and the deployment of offshore wind power in Denmark, the United Kingdom, Germany and the Netherlands between 1990 and 2020. Our results confirm the market oriented nature of policy instruments employed by the LME case of the United Kingdom throughout, while we witness initially lower levels of market orientation among the CME cases of Germany, Denmark and the Netherlands. Though the market orientation of Germany's policy instruments declined half way to build up domestic momentum, we generally see an increased use of market oriented policy instruments over time by the CME. Putting the trajectories together we witness an overall convergence in the use of policy instruments which we attribute to the liberalisation of the energy sector in the EU as well as to policy-learning effects. The results have generic relevance and can also be used to inform future national strategies and policies for deploying new low-carbon technologies, such as electrolysis for green hydrogen, which face similar risks and challenges.
| Original language | English |
|---|---|
| Article number | 113344 |
| Number of pages | 14 |
| Journal | Energy Policy |
| Volume | 173 |
| Early online date | 29 Nov 2022 |
| DOIs | |
| Publication status | Published - Feb 2023 |
Bibliographical note
Publisher Copyright:© 2022 The Authors
Funding
Furthermore, in order to further structure our analysis, we distinguish the initial investment (CAPEX, Set S2) from the exploitation of the deployed technology (OPEX, Set S3). Set S2 looks into the use of government-supported national banks to invest or loan as well as governments’ tax incentives for investment in OWP. Obviously, this amounts to government interference in the markets for capital.The focus on market mechanisms implies that the LME governments will deploy policy instruments which emphasise competition between firms and which strive to leave it to firms to shoulder investment risks. For the policy instruments listed in Table 1, we would (see Fig. 3) expect the LME governments to favour auction schemes (Set S1, AUC), to supply little or no investment support (Set S2) and to refrain from price setting for electricity production as much as possible (Set S3, QOS). Also we expect an LME to privatise the investment in grid connection (Set S4, GRM) and promote generic, market wide policies (Set S5, GEN).Typical for the UK's timeline is that liberalisation of the electricity supply industry was comparatively thorough and early. From the Electricity Act of 1989 on privatisation, a series of mergers and the entry of large foreign multinational utilities (German RWE and others) led to the emergence of 10 generation companies, owning 85.8% of UK generation assets by 2012 ([Hall et al. (2016)]). The 1989 Electricity Act also contained the Non-Fossil Fuel Obligation (NFFO) which consisted of a quota obligation scheme (QOS, see Table 1) to electricity suppliers as well as rounds of auctions for support for non-fossil electricity production (AUC).The 2001 “Offshore Wind Capital Grants Scheme” introduced €147 mio grant funding to ten OWF as government agency DECC advanced another 90 mio pound (€ 113,4 mio) and agency ETI advanced 16 mio pound ([Higgins & Foley(2014)] p606). Except for investment subsidies the consented first OWF also received capital grants and were exempt from the climate change levy (INV, TAX) ([Markard & Petersen(2009)]).The 2000 Renewable Energy Sources Act (the “EEG”) introduced technology specific and size specific support payments for renewables but did not introduce a specific technology band for OWP ([Nkomo (2018)], p19). The level of subsidy was generically established into law (FIT, ODP) so auctions were unnecessary. The project developers take the initiative and list their interest (ODP) and subsequently the government can grant permits and license grid connections ([Reichardt & Rogge (2015)], [Leiner & Reimer (2018)]).Later on, a German political majority wanted competitive auctions (AUC) to replace the open door policies (ODP) in order to control the volume of deployment. The introduction of auctions was speeded up by EU State aid guidelines requiring member states to align their renewable support schemes to competitive bidding processes ([Leiren & Reimer(2018)]). The German 2017 EEG introduced competitive bidding for OWP in Germany. First half of 2017 the very first auction for OWP in Germany immediately produced the first three zero-subsidy bids (winning three out of four offshore wind farms).In 2004 the second “Go” was the introduction of the MEP subsidy, a guaranteed premium for 10 years, on a “First come first served” basis and a FIP of EUR 100/MWh. This led to 54 applications involving 20.000 MW (ODP, FIP, GRM) ([Energeia(2005)]). The government closed the MEP policy when in 2006 it concluded this was too expensive and awarded no projects ([Verhees et al. (2015)], p.821)).However, with respect to intervention in the market for capital, the LME and CME acted similarly. The 2001 UK “Offshore Wind Capital Grants Scheme” kick-started the first round of OWP deployment. And the 2012 introduction of the UK's Green Investment Bank, which was government-owned until 2017, is very similar to the role in OWP of the government-owned German KfW in 2011. Both LME and CME chose public investment in OWP to deal with the larger demand for capital as OWF became bigger, while the financial world was still dealing with the negative effects of the financial crisis.
| Funders | Funder number |
|---|---|
| CAPEX | |
| OWF | |
| European Commission | |
| Ministry of Environmental Protection |
Keywords
- Climate and energy policy
- Energy transition
- Offshore wind power
- Policy instruments
