Vinson Centre seminar series in Classical Political Economy Winter term 2023
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. Based upon Lawrence Haar’s recently published research comparing European Union countries between 2007 and 2017, it has been found that the pricing structure of retail electricity is regressive and correlated to reliance upon RE.
While initially, the direct and indirect costs of RE affects integrated utilities and aggregators, the ultimate burden predominately falls upon lower income cohorts. Given the growing promises under various COP Agreements spurring ambitious targets for RE, our findings with respect to how the burden of RE is funded, is worrisome. Though as a society we may benefit from reducing dependence upon fossil fuels, in many countries, the burden of this transition falls upon those least able to pay, raising questions over fairness. Growing concerns over fuel-poverty and the affordability of energy, makes these findings particularly relevant. But by understanding the reasons for fiscal regressiveness, we may see scope for improvement.
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Location: Institute of Economic Affairs, Westminster, London