Investments in renewable electricity production: The importance of policy revisited

Abstract

Finding ways to encourage investments in renewable electricity production is crucial to reach a transition to a sustainable energy system. While in the energy policy literature, investments are usually explained by economic or regulatory policies, recent studies have suggested that some investors are boundedly rational and may respond differently to policies. In this paper, a framework is proposed to make a more complete analysis of the institutional demands influencing emerging investors in renewable electricity production. Based on 35 cases, both formal and informal demands were identified and their impact on emerging investors' behavior was analyzed. Results show that besides formal institutional demands, emerging investors were influenced by their task environment and by various informal demands which originated in investors' collective and internal contexts. However, different investors were affected by different institutional demands. They also responded in different ways to the same demands; while some perceived a specific demand as imposing, others regarded it as inducing. These findings provide a better understanding of the institutional forces affecting emerging investors in renewable electricity. The paper suggests new policies to handle the heterogeneity of investors and opens up for a new panorama of informal policy channels, where network effects can be utilized to trigger emerging investors' decisions.