When and How to Support Renewables?—Letting the Data Speak - Green Energy and Efficiency: An Economic Perspective - page 292

matters. This would indicate that innovation is best driven by a combination of
RD&D and deployment. We summarise this interaction in Fig. 2 . Innovations that
cause system cost reduction are driven by (1) a certain amount of initial (or basic)
RD&D that brings down the cost of the technology before the

rst unit is deployed,
(2) learning-by-doing through the subsidised deployment of certain amount the
technology, (3) a price on carbon making conventional forms of energy less
competitive and (4) parallel RD&D expenses in order to speed up the learning.
Finally (5), the break even for the new technology is contingent on how well the
negative externalities of the incumbent technologies are priced in.
If this model were a fair description of reality, there should be an optimal
combination of RD&D spending and deployment. In this case, one would expect
that such an optimal combination is different for different technologies. The exact
relationship is, however, impossible to determine ex ante . Nevertheless, ex - post
analysis of existing support schemes should allow to learn on ef cient timing and

balance.

1.3 Renewables Support in Practice

Based on the rationales outlined in the rst section (decarbonisation, import sub-
stitution, etc.), various support policies have been implemented with signi cant

differences across countries and changes over time. Differences are partly explained
by national differences in the prioritisation of the different aims. For example, if the

RDD Deployment

315

48298

0 10000 20000 30000 40000 50000 60000

Fig. 2 Deployment versus RD&D expenditure for wind and solar in 2010 in six EU countries (in
mn Euro). Source Bruegel calculation based on IEA and datastream. Note Net deployment costs
are calculated as the difference of the deployment costs (Deployment costs are calculated as the
installation costs per MWe multiplied with the deployed capacity. The country-speci c costs per
MWe are obtained from the “ Projected Costs of Generating Electricity 2010 ” report of the IEA.)
and the net present value of the future electricity generated (The net present value of future
electricity generated is calculated by discounting future revenues which can be obtained by
projecting the yearly energy prices (we use the price of a 2013 futures contract) and production of
the respective technology in the respective country (differences across countries arise because of
varying hours of sun/wind per year as well as different energy prices). We assume a nominal
interest rate of 10 %). The countries are the ve largest EU countries (DE, ES, FR, IT, UK) plus
the Czech Republic (the largest Central East European country for which we have data)