Policies for the development of RES in the European Union - The Sustainability of Renewable Energy in Europe - page 74

transport; domestic aviation is instead often exempted. For instance, in Italy there
are existing exemptions for fuel used for certain types of carriage of goods by road
and public transport, or for fossil fuels used by consumers living in disadvantaged
areas. In some northern European countries, the use of fossil fuels for heating is
exempted or taxed at a reduced rate. It is evident that a distributive principle has
inspired the support measures mentioned above, aimed at sectors, consumers, or
uses for which governments have found it desirable to reserve a leniency. Some
EU member states have also reduced rates or exemptions in force for the energy-
intensive sectors, in order to avoid impact on competitiveness or reduce the possi-
bility of overlap of policy instruments, as these areas are already involved in the EU
emissions trading system (ETS).
Market Structure A classic problem in economics is whether a more competitive
market structure has a faster rate of innovation. In this context, it is appropriate to
assess the innovations related to market power and subsidies system that supports
the RES. The latter compete with the industry of fossil fuels that can be seen as a
Cournot oligopoly, at least in the electricity markets of Organisation for Economic
Co-operation and Development (OECD) countries that are dominated by a small
number of large firms. Regarding the RES, it is appropriate to divide the industry in
an upstream sector and a downstream sector. The upstream sector of RES or the pro-
ducers of equipment and the downstream sector refers to RES producers who buy
the equipment upstream sector and sell electricity to consumers (Reichenbach and
Requate 2012 ). The market structure in the market of RES equipment is not so pre-
dictable. For example, the ten market leaders in the wind turbine industry account
for 80 % of the world market in 2011. They are Vestas (12.7 %, Denmark), Sinovel
(9 %, China), Goldwind (8.5 %, China), Gamesa (8 %, Spain), Enercon (7.8 %, Ger-
many), GE Wind (7.7 %, the USA), Suzlon (7.6 %, India), Guodian United Power
(7.4 %, China), Siemens (6.3 %, Germany), and Ming Yang Wind Power (3.6 %,
China).
Most of the literature that considers that the points for which competitive mar-
kets to promote innovation are:
• In competitive markets, there are many firms, so they must work hard to attract
customers through innovation and thus developing better products and services,
and also offering a greater variety of choice; for example, the Internet is a com-
petitive industry but companies offer different services and products.
• If firms are inefficient, they can easily run into losses, so there is an incentive
to innovate and try new ideas and products to attract customers; an example is
the telecommunications and in particular from mobile phones that have various
applications and accessories and in a monopoly there would be less incentive to
innovate because they do not have to compete with anyone.
Points at the expense of competitive markets with respect to innovation are:
• If the markets are too competitive, profits will be low and therefore companies
do not spend some of their profits on R&D and therefore innovation will be low.