The diffusion of renewable energy production in European countries: the role of incentives

The green technologies studied in this work can be considered non- drastic innovations, the diffusion process for which is largely influenced by government sponsorship. The study analyses heterogeneous non- hydroelectric RES-E (solar, wind, biomass and geothermal) support scheme policies in European countries and evaluates their effects on promoting installed capacity and production of electricity in twenty- eight European countries for the years 1995–2015. By applying panel data analysis, we estimate the relative effectiveness of financial and quota system incentives, taking into account the timing of adoption of these policies. The results suggest that price-based incentives (FIP and FIT), compared to quantity-based incentives (RPS), are the most effective mechanisms for diffusing non-hydroelectric renewable energy technologies. A novelty of the research concerns the evidence of a strong incidence of feed-in premium (FIP) incentive. In countries adopting FIP incentives, the production of renewable electric energy registers a step ahead performance compared to those adopting FIT and RPS. The results are confirmed in the robustness check estimations when RES-E sources are unbundled. The paper concludes with a discussion of some policy implications of the results.