The design and sustainability of renewable energy incentives: an economic analysis

Rapid urbanization and economic growth, new demographic trends, and climate change are key challenges that developing countries must face as they strive to meet growing energy demand. The main objectives of this study are to offer: a global taxonomy of the economic and financial incentives provided by renewable support schemes and an economic modeling of the sustainability and affordability of such support schemes. In an attempt to contribute to the lively debate, this study provides a global taxonomy of the economic and financial incentives provided by renewable energy (RE) support schemes. It summarizes economic models of the sustainability and affordability of such support schemes, alongside operational advice on how the regulatory design may need to be modified to minimize the impact on the budget and be affordable to the poor, as well as how to identify and fill the financing gap. This analytical framework: differentiates and illustrates tradeoffs among local, regional, and national impacts, in the short and long run; captures distributional impacts (since subsidies to cover the incremental costs of RE may have very different beneficiaries); and captures externalities and compares (where possible) alternative projects based on equivalent output and cost (comparing, for example, RE and energy efficiency projects against those using fossil fuels).