236The support of renewable energies, particularly in electricity generation, has been the subject of several E.U. and national regulations.2 The support has taken many different forms, both cross-country and over time, including renewable portfolio standards, green certificate schemes, and direct subsidies of various kinds (such as feed-in tariffs, feed-in premiums, contract for differences, etc.) on top of other subsidies to research and development, infrastructure, etc. (Stagnaro, 2015).

The installed renewable capacity and the share of electricity production (or consumption) from RES-E increased dramatically in Europe. Figure 1 shows the increase in electrical, renewable energy sources (RES-E) in terms of capacity and generation in 1990–2018. Behind this dramatic increase stand many drivers, both market- and policydriven. The former include the impressive reduction in the cost of renewable technologies, the evolving preferences of consumers, and more stringent environmental standards: The levelized cost of electricity from wind and solar photovoltaic (solar PV)—a standard estimate of the average cost of generating electricity from different sources—fell by 48–56% and 85%, respectively, in 2010–2020 (Irena, 2021). Nevertheless, political support for investment was crucial, too. Attributing

2Directives 2001/77/EC, 2009/28/EC, and 2018/2001/EU.

237The Failures of the Entrepreneurial State: Subsidies to Renewable Energies. . .

this expansion of renewable energies entirely to the subsidies would be naïve. However, it would be even more naïve to rule out subsidies as a cause, and possibly a major one, of the rapid growth of renewable installed capacity. In the first place, subsidies made any investment in renewable capacity almost risk-free. Secondly, as production costs declined, high subsidies attracted even more investments, looking for high-return, low-risk opportunities. Thirdly, this rush to investments created a demand large enough to allow for scale economies and fast learning curves, thereby providing low-cost technologies and, at least for some time, even higher returns (Kavlak et al., 2018). A counterproof of how substantial subsidies were in driving investments in new renewable capacity lies in the fact that—as subsidies were reduced, phased-out or eliminated for new installations—the capital flow toward the renewable sector slowed down. According to CEER—the Council of European Energy Regulators—RES-E was awarded €60 billion worth of subsidies in 2018,3 up from about €25 billion in 2010, with an average cost per unit of gross electricity of €19.12/MWh. The country that invested the most in public support of RES-E was Italy (€38.48/MWh of gross electricity), versus just €2.53/MWh of gross electricity in Sweden. In the same year, the average wholesale price of electricity in Europe was around €50/MWh. The average support varies across technologies, ranging from €6.92/MWh for offshore wind in Ireland to €501.07/MWh for solar photovoltaic in the Czech Republic (CEER, 2021). As time passed and the amount of green installed capacity grew, the average level of unit subsidies decreased, following the average generating costs, but the overall expenditure increased. This trend was magnified by the falling rates of growth—or even reductions—in total energy consumption due to improvements in energy efficiency and the economic crises of 2009–2011 and 2020. In 2018, RES-E subsidization amounted to about 8% of the average yearly spending on electricity by households; but it was as high as 23% in Germany, 21% in the United Kingdom, and 22% in Portugal (Acer, 2020). These data should be taken with a pinch of salt, as some countries may subsidize RES-E through fiscal schemes that have little or no effect on the power bill. Moreover, other RES-E-related costs—such as higher costs for network connections or from imbalances in the power system due to the variability of green energies—cannot be easily disentangled from the overall price, but they are still there. Finally, some governments may shift the burden of subsidization almost entirely onto households (as is the case of Germany). In contrast, others may spread the costs over a more significant basis that includes small and medium-sized enterprises and households and, to a lesser extent, large enterprises (as happens in Italy).

3The estimate also includes North Macedonia, Norway, and the United Kingdom. The estimate partly differs from the one cited above because it is limited to renewable electricity and does not include other renewable energies such as biofuels or heat from solar thermal panels and renewablepowered district heating.

238C. Amenta and C. Stagnaro

RES-E produced economic benefits, on top of the environmental ones. In particular, given the price-formation mechanisms in most E.U. power markets, greater RES-E penetration is associated with a significant reduction in the wholesale price of electricity. For example, based on Italian data, Clò et al. (2015) found 1 extra GWh from solar and wind power reduced prices by €2.3 and €4.2/MWh, respectively, albeit it also amplified volatility. However, the net effect on end-user prices points toward a net increase of electricity prices, given how large subsidies are—in the case of Italy, about one order of magnitude. The policy of supporting RES-E had three stated goals: • Reducing CO2 emissions • Promoting Europe’s renewable industry • Contributing to a fairer distribution of wealth and income

Most economists would agree that some policy intervention is required to address such a complex and global problem as climate change. They would also agree that pricing carbon—through a carbon tax, a cap-and-trade scheme, or a hybrid system— should be the cornerstone of an economically sound and cost-effective strategy (Nordhaus, 2018). Subsidizing renewables, instead of merely letting market forces find out the optimal energy mix given a specific carbon price or cap, is a much less obvious strategy from an economic point of view. It is, however, the preferred strategy of the proponents of the entrepreneurial state and mission-oriented innova-