Renewable electricity: subsidised or compulsory?

European nations employ a range of instruments to encourage investments in renewable energy. In broad terms, two main types of policy can be distinguished: subsidy schemes and arrangements obliging power suppliers to generate a specified fraction of their output from renewable sources (“mandatory renewable energy targets”). In the Netherlands the SDE renewable energy incentive scheme is employed to this end. This study examines whether mandatory renewable energy target are:

  • A more cost-effective and efficient way of securing the government’s near-term renewable electricity target (up to 2020).
  • A better means of creating a stable investment climate and thus a structural market for renewable electricity with an eye to the long-term energy transition, i.e. beyond 2020.

To answer these questions, renewable energy incentive schemes were assessed in the Netherlands, Denmark, Germany and Spain (all with subsidies) and Belgium, Poland, the United Kingdom and Sweden (all with mandatory targets).

The report concludes that there are at present no clear indications that mandatory targets are more cost-effective than subsidisation as long as the share of renewable electricity is still limited (up to 2020). To support the longer-term energy transition, however, from 2015 onwards mandatory targets will need to be gradually introduced as a means of achieving a timely shift in investments from conventional to renewable sources, essential for the envisaged transition. How mandatory targets can best be introduced in the Netherlands is an issue requiring further study.

The present study was commissioned by the Dutch Association for Energy Markets (VME).