EU Scenarios for a Sustainable RES Strategy - The Sustainability of Renewable Energy in Europe - page 131

The cornerstones of this new policy on the basis of our recommendations are
as follows. First, the implementation of support mechanisms that are price driven
instead of quantity driven in order to promote flexibility in the RES production
choices. Second, a unique RES support scheme, shared at the European level, to
spur RES localization taking into account the territorial vocation. Third, establish-
ment of dynamic credibility of the policy framework over time.
With reference to this latter issue, we notice that at the firm level the technologi-
cal innovation needs a stable incentives' path that supports new investments instead
of chocking them. This can be done in only one way: policies have to be clear and
maintained in the long term in such a way as to avoid the time-inconsistency prob-
lem (Kydland and Prescott 1977 ). We advocate a discontinuation of the policies of
stop and go of the past, in favor of a certain long-term horizon of the RES incentive
framework.
This highlights a crucial issue. Any level of incentives, maintained for a given
period of time, will give an advantage to earn extra profits to those who manage to
reach advanced technological solutions with lower costs compared to other com-
petitors. Such extra profits are, on the one hand, a welfare loss for consumers, but
on the other hand, the ultimate motivation to continue the technological innovation
for firms who want to be first in the innovation race.
So the new EU policy strategies must be based on a coherent design which has
to be both credible and consistent in the medium and long term in order to balance
the trade-off between the defense of the consumer welfare and the spur of the firm
profit.
At this end of this topic, we would like to highlight that our analysis does not
deliberately take into account many exogenous events that may influence RES de-
velopment. The following issues should be kept in mind:
• The current international financial and economic crisis has involved all the EU
countries with a negative impact in national economies. Its effects are still in
place and the ongoing phenomenon deserves a wider reflection on future devel-
opment scenarios. Although RES, in particular the wind and solar sectors, are
now quite mature, governments across the EU are still burdened with the respon-
sibility of supporting RES with funding since they are not yet able to compete
with fossil fuels technologies. The economic crisis may change the perspective
of the public opinion changing the priorities, lowering the attention to the cli-
mate change issue.
• Environmental policies often involve very long time horizons and it involves un-
certainty about policies stability. Indeed, despite the best framework the policy
maker can design, investments in RES might be suboptimal since investors do
not perceive climate change policies as a long lasting government commitment.
There have been occurred several turnabouts on climate change policies that
support financially RES in a shaky way, as it has happened recently in USA,
Germany, Italy, and Spain. Policy and regulatory uncertainties put RES at risk
of falling quantitative and qualitative goals to meet global climate change objec-
tives.