Public Policy Influence on Renewable Energy Investments – A Longitudinal Study Across OECD Countries

This paper examines the impact of public policy measures on renewable energy (RE) diffusion through corresponding investments in electricity-generating capacity made by institutional investors (i.e. investment/pension funds, banks and insurance companies). Capacity investment data is gathered from Bloomberg New Energy Finance (BNEF) and policy indicators from the IEA/IRENA Policy and Measures Database. The authors observe the influence of different policy measures on a sample of OECD countries during an 12-year period (2000-2011) to suggest an effective policy mix which could tackle existing path dependencies and failures in the market for clean energy. The results call for technology-specific policies which take into account actual market conditions and the position in the technology life cycle. To improve the environment for institutional investments, advisable policy instruments include economic/fiscal incentives such as feed-in tariffs (FIT) with grants and subsidies being less effective. Additionally market-based instruments such as greenhouse gas emission trading systems for mature technologies should be included. These policy measures directly impact the risk and return structure of RE projects. Supplementing these with regulatory measures such as codes and standards (e.g. RPS), and long term strategic planning could further strengthen the environment for RE investments