Assessing the Cost-Effectiveness of Renewable Energy Deployment Subsidies: Guidance for Policy-Makers

It is widely recognized that renewable energy technologies (RETs) have a key role to play in meeting the world’s energy needs sustainably. Many governments have responded by granting large subsidies for the deployment of renewable electricity generation. But given the unintended impacts, inefficiencies, fiscal waste and corruption often associated with government intervention, can we be sure that subsidies for renewable electricity are really achieving the goals they set out? How much is being spent? Can we quantify the impacts? How can existing policies, especially for developing countries, be improved? What is “best practice” in subsidizing renewables?

In an attempt to start answering these questions, the GSI, supported by the World Trade Institute’s Swiss National Centre of Competence in Research (NCCR), embarked upon a series of studies on the cost‐effectiveness of subsidies for the deployment of renewable electricity generation. This consisted of a review of existing literature; and three exploratory studies that made a preliminary experiment in assessing cost‐effectiveness, defined as the extent to which the cost of subsidies is balanced by the financial value of the benefits they achieve. The aim of these studies was to develop insights into using a cost‐effectiveness methodology and to see what broad conclusions, if any, could be drawn from an initial foray into measuring and evaluating indicators. This document summarizes the findings and recommendations for policy‐makers.