Electricity market liberalization and renewable electricity innovation

This thesis studies the effects of electricity market liberalization on renewable electricity innovation in the European Union from 1990 to 2013 from an economic point of view. The transition to renewable electricity sources is an effective and efficient solution to environmental problems, and one of the most important solutions available. Innovation is required to attain the benefits of renewable electricity generation. The effect of electricity market liberalization on renewable electricity innovation should therefore bother policy makers in the European Union, although it is an underexposed aspect in liberalization research. This study aims to fill the gap. Previous work on the topic of electricity market liberalization identified positive effects for consumers, energy efficiency and prices. Two effects of electricity market liberalization on innovation are a market failure in basic R&D (Jamesb & Pollitt, 2008) and a switch from long term (and in particular cleaner, environmentally preferred energy supply R&D) to more customer-oriented product- and organizational innovations (Dooley, 1998). However, it is unclear whether these effects are initial or long term. The effect of electricity market liberalization on entry in renewable electricity innovative activities remained unstudied so far, as well as the effect on innovative quality. OECD data on product market regulation for the electricity sector are used in this study to quantify electricity market liberalization. Patent data from the Orbis database provides insight in entry, innovative quantity and quality. The major findings of this study are a positive association between electricity market liberalization and the quantity of innovative output in renewable electricity innovation; a negative association between electricity market liberalization and the quality of innovative output in renewable electricity innovation, and positive association between electricity market liberalization and entry in renewable electricity innovation. These findings are similar for studies on electricity innovation in general; and therefore seem to contradict with the theory presented in previous studies that liberalization is likely to be related with a decrease of long-term (and in particular renewable electricity) innovation (Dooley, 1998).