The determinants of support levels for wind energy in the European Union. An econometric study

Abstract

The aim of this paper is to identify the factors that drive support levels for wind on-shore electricity in the Member States of the European Union (EU) with the help of econometric techniques. The econometric analysis is based on cross-section linear regressions with ordinary least squares. Four alternative specifications of the model have been estimated. The estimates comply with the basic hypotheses of the lineal model, i.e., absence of multicollinearity, accurate functional form, homokedasticity and normality in the distribution of errors. Thus, the estimations are unbiased, efficient and consistent. The results show that countries with higher wind energy generation costs have higher support levels. The higher support levels in countries with higher carbon intensities suggest that wind energy deployment is regarded as effective to mitigate carbon emissions. The type of support scheme also influences support levels, with feed-in tariffs leading to lower levels of support than other instruments. In addition, a general good investment climate in the country makes higher support levels less necessary, stressing the importance of lowering risks in order to reduce support levels and, thus, financial transfers from consumers to producers. Thus, providing stable regulatory frameworks should be a priority of policy-makers. The rest of variables (renewable energy resource potentials, administrative barriers, energy import dependency, interest rates, share of wind energy in total electricity generation as a proxy of lobbying pressures and electricity demand) are not statistically significant in most specifications and some of them do not have the expected sign.