An empirical analysis of the fiscal incidence of renewable energy support in the European Union

In liberalised energy markets, electricity from Renewable Energy (RE) using Solar PV and Wind Turbines requires financial support because the expected number of generation hours is insufficient to induce private investment. Such support has a direct cost from the additional expenditure over what would have been incurred had fossil fuel generation been used and indirect costs arising from the random and distributed nature of the RE output. Comparing European Union countries between 2007 and 2017, we find the pricing structure of retail electricity is regressive and correlated to reliance upon RE. Although initially, the direct and indirect costs of RE affects integrated utilities and aggregators, the ultimate burden largely falls upon lower income cohorts. Given policy objectives for RE, these finding are worrisome. Though as a society we may benefit from reducing dependence upon fossil fuels, the burden of this transition falls upon those with the lowest income, raising questions over fairness. Explaining the reasons for fiscal regressiveness leads to suggestions on how it may be redressed.