242C. Amenta and C. Stagnaro

Solar photovoltaics has also benefitted from substantial subsidies, higher than wind subsidies in terms of subsidy per unit of electricity. In this field, Europe has been a front runner, too, even though the take-off of installations started later than in the case of wind. In fact, in 2000, there was only 0.65 GW of solar capacity worldwide, of which about one-third was in Europe. In 2010, Europe had about three-quarters of global solar capacity (30.9 GW out of 40.1 GW globally). Ten years later, solar capacity in Europe had grown about five-fold, whereas global capacity had skyrocketed by more than 14-times to 586.5 GW. Unfortunately, Europe’s solar industry benefited only marginally from this spectacular growth. Of the 12 largest solar module manufacturers (with a joint market share of about 61%), nine are from China. Only one is European (German), while the remaining two are from South Korea and the United States. The European Union reacted to the Chinese dominance by introducing trade duties on imported panels in 2013; duties were removed in 2018, provided that importers sell panels above a specific price (Blenkinsop, 2018). Some member states also awarded lower subsidies to imported panels. Still, a substantial share of the solar panels in Europe come from China or elsewhere. Moreover, according to the European Solar Manufacturing Council, the European industry has satisfied just 15% of global demand (Enkhardt, 2021).

In the case of solar PV—even more than in wind power—generous subsidies failed to breed a European industry. Of course, to some extent, they succeeded, but firms eventually appropriated much of the value paid by European energy consumers in third countries, particularly China. Subsidies to clean energy can hardly be regarded as a compelling example of industrial policy.

Another critical aspect of industrial policy is its impact on firms. In general, it can be said that when sectoral policies are targeted toward competitive sectors or allocated in such a way as to preserve or increase competition, then these policies increase productivity growth (Aghion et al., 2015). This does not seem the case with the intervention of the entrepreneurial state in the RES-E sector. The intervention created an incentive to produce and invest in these technologies, whatever the level of competition in the sector, thus giving way to rent-seeking and creating firms interested in getting subsidies. Firms use resources and combine them to create specific competencies to enjoy a competitive advantage over their competitors. If a sector is flooded with subsidies, the firm’s primary resource is state intervention. The firms in a subsidized sector develop competencies to understand the main changes in the industrial policies, the political scenario, and they try to develop political connections to protect their rents. They do not try to innovate to better satisfy consumer demand because they only need to produce or invest according to the prescription of the entrepreneurial state that is their only customer (Böhringer et al., 2017).

When the entrepreneurial state is invoked, the risk of going from the invisiblehand model to the helping-hand and finally to the grabbing-hand one (Frye & Shleifer, 1997) is very high, especially in sectors already regulated whereby subsidies and state intervention exacerbate price distortions.

When the firms are not capable of efficiently allocating factors and do not compete for the market but for rent-seeking, economic growth very often languishes, The Failures of the Entrepreneurial State: Subsidies to Renewable Energies. . .

243since entrepreneurs and firms are a relevant determinant of economic growth. Subsidies can also favor big firms that often have extensive legal departments and can exert more lobbying capacity, thus favoring concentration in the sector. Moreover, when the state support fades out, or when low-cost competitors step in, the protected industry finds itself in trouble, if not on the brink of collapse, as has happened in France and Spain after generous solar subsidies were reduced (Del Río & Mir-Artigues, 2012; de La Tour et al., 2013).

5

Are Green Subsidies an Effective Social Policy?

All else being equal, subsidies to green energies increase the average price of electricity. While they may result in lower wholesale prices due to the priceformation mechanism in most E.U. power markets, they are generally funded by levies that build up onto the end price consumers pay to their energy suppliers. Figure 2 shows the composition of electricity prices in E.U. member states for households. The figure should also be taken with a pinch of salt: some member states fund clean energy incentives with tax revenues rather than tariff levies. Moreover, some member states, such as Germany, shift most of the burden onto households, while others, such as Italy, place a heavier toll on small and mediumsized enterprises. Still, the figure shows that one effect of green energy subsidies is to raise the price of energy for the average household.

Breakdown of electricity annuale expenditure (2019)

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