This study uses panel data regression analysis to examine the relationship between incentive policies and the deployment of renewable energy sources (RES) in the European Union (EU). Data for 25 EU countries were collected from 2000 to 2021, with Malta and Cyprus excluded due to insufficient data. A fixed effects model was utilised to consider individual country characteristics and unobservable factors that differ over time. Additionally, a dynamic panel data model was estimated to assess the influence of prior RES capacity on current capacity, offering more efficient parameter estimates than traditional static fixed-effect estimation. Our findings reveal the multidirectional impact of various RES incentive instruments and policies on different types of RES in the EU. Fiscal and financial instruments, such as taxes, grants, and R&D policies, proved more effective in promoting RES development than other incentive types in the energy sector. Market-based incentives, including certificates and support policy frameworks, also positively impacted the capacity of RES power plants. However, net metering, direct investment, and loans did not significantly increase RES, while regulation and direct investment appeared to constrain RES potential. The dynamic panel data estimates demonstrate that previous RES capacity positively and significantly influences current capacity. Furthermore, our estimation results emphasise that fossil energy consumption, nuclear energy, and GDP are critical determinants of RES development. Interestingly, net imports (energy security) and CO2 emissions were not significant factors driving RES growth. The results also indicate that the fossil fuel lobby could be more highly effective, and concerns about nuclear power are quite strong in the analysed countries. This study highlights the importance of RES incentive instruments that reduce investment costs for the success of RES mechanisms, stressing the need for supportive policies to enhance the competitiveness of renewable energy technologies. It emphasises that although some incentive policies have effectively promoted RES development, others, such as net metering, direct investment, and loans, have not achieved the desired results. In conclusion, understanding the effectiveness of various incentive instruments and policies is crucial for driving further RES development and improving the overall sustainability of the energy sector in the EU.