The role of governments in renewable energy: The importance of policy consistency

Abstract

The renewable energy sector (RES) often receives financial, institutional or educational support from the government. A significant challenge for the actors in the RES field is policy consistency. When investments are carried out, a prognosis for future policies must be made. If the future is uncertain, larger risk margins should be included in the investment appraisals. Sudden, unexpected policy changes are one type of uncertainty that makes it more difficult to attract capital. In this article, we discuss the consequences of discontinuities in policy support using a case study approach. In Ontario, feed-in tariffs were introduced in 2009 and resulted in a large uptake in the programme. In 2010, the subsidies were drastically cut, resulting in the RES community losing confidence that the government would offer consistent support to the sector. In Norway, a large new biodiesel plant was opened by the Minister of the Environment only a few weeks before the government announced a major change in the bioenergy policy. As a result, the new plant was closed and restructured, and the investors lost nearly all of their investments. The government lost political credibility, making it difficult to raise private capital for new investments in this sector in Norway. We do not argue that policies should not be changed, but the manner in which policies are changed plays an important role. Our study shows that large, unexpected changes in policies increase uncertainty and may have a negative impact on investments. This topic should be further researched.