**1. Introduction**

The debate about the depth and characteristics of public policy intervention in encouraging renewable energy is more urgent than ever. Some of the literature has started to cast doubt on the strategies being pursued by countries to encourage renewables. These criticisms have been varied with regard to the costs of intervention and the consequences for the economy as a whole. The need to guarantee a continuous supply of electricity requires the existence of backup power, which is essentially based on fossil sources. Marques and Fuinhas (2012a) point out that the increase in renewables has been predominantly based upon direct public subsidies and intervention. Market-driven policies have been deprecated in favor of policydriven measures. Fossil sources are often identified as beneficiaries of subsidies, so renewa‐ ble sources should also be stimulated by these policy instruments. However, the way in which this argument is presented can lead to confusion. In fact, a substantial part of these subsidies for fossil fuels is a consequence of the strategy to develop renewables. Fossil fuels are used to provide backup power, such as that from coal plants or combined-cycle gas-fired plants, but they are turned off for long periods. Consequently, overcapacity and economic inefficiency arise, which is the primary reason for the current subsidies for fossil fuels. Some literature, such as Liao et al. (2011), sustains that all incentives/subsidies should be removed, both for fossil fuels and renewables. The authors then propose applying fees to fossil-based

© 2013 Marques et al.; licensee InTech. This is an open access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. © 2013 Marques et al.; licensee InTech. This is a paper distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

products in order to pay for the emission of greenhouse gases. Despite being pragmatic and objective, this perspective is not easy to apply considering the current state of renewable en‐ ergy technology. In fact, several challenges remain, such as the problem of intermittent gen‐ eration, which will continue to require the use of fossil sources to offset it.

wind power. The ratio of the actual electricity output to maximum capacity is referred to as the capacity factor. Electricity demand throughout the day is volatile, especially in off-peak and peak-load periods. This may also influence the amount of idle capacity. This problem can force investment into pumped hydro during periods when there is wind overproduc‐ tion and low grid consumption and secondly into thermal plants like coal-based or gas-fired

On the Public Policies Supporting Renewables and Wind Power Overcapacity: Insights into the European Way Forward

http://dx.doi.org/10.5772/52159

53

The vast literature about renewable intermittency, both theoretical and case studies, has not explored the phenomenon of wind overcapacity in enough detail. Indeed, the empirical as‐ sessment of overcapacity in wind power merits much more attention. On the one hand, the phenomenon of overcapacity reflects the path taken by renewables and, on the other, since this phenomenon is a leading indicator, it should back the process of updating public guid‐ ance. The aim of this chapter is to provide empirical evidence on the drivers that contribute to explaining wind power overcapacity and, secondly, to identify empirically the causes for a panel of 19 countries. While Boccard (2009) addresses the issue of wind intermittency from the perspective of the capacity factors, this chapter is focused on the importance of intermit‐

tency and possible wind overcapacity, but using a non-used wind capacity approach.

**2. Renewables' intermittency context: The debate**

inefficiency.

sumers (Gómez et al., 2011).

The role played by several energy sources in creating wind power overcapacity is assessed, controlling for socio-economic drivers and public energy policies and measures. On the whole, this approach can be useful in highlighting the relevance of the intermittent nature of renewables for policymakers in order to deal with wind overcapacity. Econometric techni‐ ques of panel data were applied to deal with the energy and socio-economic characteristics of an economic bloc with environmental concerns and long-term energy targets. In particu‐ lar, the contribution of conventional energy sources to the wind power overcapacity in Eu‐ rope is appraised. Some light is shed on the public policies that might mitigate the economic

The expansion of renewables is the subject of hot debate in the literature regarding the im‐ plications of these energy sources, namely their advantages, consequences and prospects for growth. The implications of the unpredictability and inconstancy of wind energy generation prove relevant. In fact, this intermittency in generation makes it increasingly important to combine different energy sources, including fossil fuels, to backup energy supply. A rele‐ vant role is merited not only for conventional energy sources, but also for the mix of renew‐ ables. Moreover, it is crucial to understand the role that public policy and measures have played. Wind power installation has been strongly stimulated by public guidance and high‐ ly subsidized, namely by guaranteed prices under feed-in tariffs which will last for more than 25 years, as stated by Moreno and Martínez-Val (2011). Together with other drivers that promote renewables on a large scale, this creates distortions and increased costs for con‐

to provide backup power for wind power when necessary (Luickx et al., 2008).

The deployment of new energy sources is inevitable, which is why alternative energy sour‐ ces have emerged, resulting from the use of natural resources such as water, wind, sun, tides and heat from the earth. In the meantime, the international community has made several commitments to promoting greater deployment of renewable energy sources. Examples in‐ clude the Kyoto Protocol in 1997 or the recent European directive for climate and energy measures, known as the 20-20-20 targets. This directive aims to reduce greenhouse gas emis‐ sions by 20%, increase the share of energy consumption from renewable energy sources to 20% and promote energy efficiency by reducing primary energy use by 20%. Nevertheless, while the need to develop the use of new energy sources has been consensual, in view of the long-term depletion of fossil fuels and the issue of climate change, there has been no exten‐ sive evaluation of the consequences of renewable energy use. The continuous support for re‐ newables, particularly in Europe, has raised the debate about the levels of wind power installed capacity. It is well known that there is no kind of power plant that operates at 100% of its maximum capacity, particularly renewables due to their intermittent nature. Hence, a problem of structural inefficiency arises, which leads to high economic costs associated with the existence of idle capacity.

It is widely accepted that renewables, such as solar and wind, are at the heart of common instruments in reaching European goals of reducing energy dependence, as well as the re‐ duction of greenhouse gases. However, the growth in wind energy magnifies the problem of intermittency. As stated by Holttinen et al. (2009), it is crucial to properly estimate the costs of wind energy in the system as a whole when planning high wind power penetration. Fur‐ thermore, the analysis of renewables' intermittent generation is important for policymakers due to the great support for renewables in Europe, in the context of long-term energy goals. Faced with the problem of renewable intermittency, two possible solutions can be consid‐ ered: (i) energy storage for later use; and (ii) backup electricity generation with fossil fuels. However, the literature (e.g. Beaudin et al., 2010) suggests that energy storage costs are still very high, so upgrading the energy grid in this way is not yet attainable. As a consequence, it would seem more appropriate to combine other energy sources to backup power. Fossil fuel plants can startup and shut down in a short time to keep a secure energy supply and are an effective way of mitigating renewable intermittency (Isla, 1999; and Luickx et al., 2008). A consequence of the divergence between maximum capacity in full-time operation and the electricity actually generated in a given period of time is the idle capacity phenom‐ enon. Idle capacity is noticeable both for renewables, due to their intermittent nature, and for other energy sources since they are turned off more frequently.

We shall focus only on wind power overcapacity. The scarce research on this subject arouses curiosity about the high levels of idle capacity in wind power. Indeed, Boccard (2009), Fie‐ dler and Bukovsky (2011) and Yang et al. (2012) found that wind energy generation is rarely more than 25% of total capacity. This leads us to believe that there may be overcapacity in wind power. The ratio of the actual electricity output to maximum capacity is referred to as the capacity factor. Electricity demand throughout the day is volatile, especially in off-peak and peak-load periods. This may also influence the amount of idle capacity. This problem can force investment into pumped hydro during periods when there is wind overproduc‐ tion and low grid consumption and secondly into thermal plants like coal-based or gas-fired to provide backup power for wind power when necessary (Luickx et al., 2008).

products in order to pay for the emission of greenhouse gases. Despite being pragmatic and objective, this perspective is not easy to apply considering the current state of renewable en‐ ergy technology. In fact, several challenges remain, such as the problem of intermittent gen‐

The deployment of new energy sources is inevitable, which is why alternative energy sour‐ ces have emerged, resulting from the use of natural resources such as water, wind, sun, tides and heat from the earth. In the meantime, the international community has made several commitments to promoting greater deployment of renewable energy sources. Examples in‐ clude the Kyoto Protocol in 1997 or the recent European directive for climate and energy measures, known as the 20-20-20 targets. This directive aims to reduce greenhouse gas emis‐ sions by 20%, increase the share of energy consumption from renewable energy sources to 20% and promote energy efficiency by reducing primary energy use by 20%. Nevertheless, while the need to develop the use of new energy sources has been consensual, in view of the long-term depletion of fossil fuels and the issue of climate change, there has been no exten‐ sive evaluation of the consequences of renewable energy use. The continuous support for re‐ newables, particularly in Europe, has raised the debate about the levels of wind power installed capacity. It is well known that there is no kind of power plant that operates at 100% of its maximum capacity, particularly renewables due to their intermittent nature. Hence, a problem of structural inefficiency arises, which leads to high economic costs associated with

It is widely accepted that renewables, such as solar and wind, are at the heart of common instruments in reaching European goals of reducing energy dependence, as well as the re‐ duction of greenhouse gases. However, the growth in wind energy magnifies the problem of intermittency. As stated by Holttinen et al. (2009), it is crucial to properly estimate the costs of wind energy in the system as a whole when planning high wind power penetration. Fur‐ thermore, the analysis of renewables' intermittent generation is important for policymakers due to the great support for renewables in Europe, in the context of long-term energy goals. Faced with the problem of renewable intermittency, two possible solutions can be consid‐ ered: (i) energy storage for later use; and (ii) backup electricity generation with fossil fuels. However, the literature (e.g. Beaudin et al., 2010) suggests that energy storage costs are still very high, so upgrading the energy grid in this way is not yet attainable. As a consequence, it would seem more appropriate to combine other energy sources to backup power. Fossil fuel plants can startup and shut down in a short time to keep a secure energy supply and are an effective way of mitigating renewable intermittency (Isla, 1999; and Luickx et al., 2008). A consequence of the divergence between maximum capacity in full-time operation and the electricity actually generated in a given period of time is the idle capacity phenom‐ enon. Idle capacity is noticeable both for renewables, due to their intermittent nature, and

We shall focus only on wind power overcapacity. The scarce research on this subject arouses curiosity about the high levels of idle capacity in wind power. Indeed, Boccard (2009), Fie‐ dler and Bukovsky (2011) and Yang et al. (2012) found that wind energy generation is rarely more than 25% of total capacity. This leads us to believe that there may be overcapacity in

for other energy sources since they are turned off more frequently.

eration, which will continue to require the use of fossil sources to offset it.

the existence of idle capacity.

52 New Developments in Renewable Energy

The vast literature about renewable intermittency, both theoretical and case studies, has not explored the phenomenon of wind overcapacity in enough detail. Indeed, the empirical as‐ sessment of overcapacity in wind power merits much more attention. On the one hand, the phenomenon of overcapacity reflects the path taken by renewables and, on the other, since this phenomenon is a leading indicator, it should back the process of updating public guid‐ ance. The aim of this chapter is to provide empirical evidence on the drivers that contribute to explaining wind power overcapacity and, secondly, to identify empirically the causes for a panel of 19 countries. While Boccard (2009) addresses the issue of wind intermittency from the perspective of the capacity factors, this chapter is focused on the importance of intermit‐ tency and possible wind overcapacity, but using a non-used wind capacity approach.

The role played by several energy sources in creating wind power overcapacity is assessed, controlling for socio-economic drivers and public energy policies and measures. On the whole, this approach can be useful in highlighting the relevance of the intermittent nature of renewables for policymakers in order to deal with wind overcapacity. Econometric techni‐ ques of panel data were applied to deal with the energy and socio-economic characteristics of an economic bloc with environmental concerns and long-term energy targets. In particu‐ lar, the contribution of conventional energy sources to the wind power overcapacity in Eu‐ rope is appraised. Some light is shed on the public policies that might mitigate the economic inefficiency.
