Energy Subsidies

(Updated November 2016)

  • Substantial amounts have been invested in energy R&D over the last 50 years. Much of this has been directed at developing nuclear energy – which now supplies 12% of world electricity.
  • Today there is about twice as much R&D investment in renewables than nuclear, but with rather less to show for it and with less potential for electricity supply.
  • Nowhere in the world is nuclear power subsidised per unit of production. In some countries however it is taxed because production costs are so low.
  • Renewables have received heavy direct subsidies in the market by various means, but these are being scaled back or abandoned in some places due to the high cost to consumers.
  • Fossil fuels receive indirect subsidies in their waste disposal as well as some direct subsidies.

There are three main areas where, broadly speaking, subsidies or other support for energy may apply: government R&D for particular technologies, subsidies for power generation per unit of production (or conceivably per unit of capacity), including costs imposed on disincentivised alternatives, and the allowance of external costs which are either paid by the community at large or picked up later by governments. Long-term R&D paid by governments is not properly called a subsidy, but is included here to fill out the picture. Strictly speaking, a subsidy is monetary assistance granted by a government in support of something regarded as being in the public interest. External costs are actually a socializing of costs which belong with particular energy users. Selective taxes can complement subsidies as another means of supporting what is perceived to be in the public interest.

The World Trade Organization (WTO 2006) defines three types of government programs that constitute subsidies:

  • Financial transfers made by the government that result in (actual or potential) budgetary outlays, as well as transfers that are made by private entities, as mandated by government.
  • Programs that involve the provision of goods or services below cost.
  • Regulatory policies that result in transfers from one group to another, conferring a benefit to the recipient.

The WTO definition explicitly recognises that subsidies need not come from government directly. Rather, government can require private actors such as electricity consumers to pay subsidies by creating corresponding regulations or legislation.

Government intervention in energy markets, such as in the UK under its Energy Market Reform, are ambiguous in that they may result in a subsidy or in a levy. They are ‘trade distortions’ according to the World Trade Organization definition, and may be justified as environmental protection.

Energy R&D

There has been a lot of government-financed energy research and development (R&D) in most developed countries. This has been driven by concern about energy security, as well as by the need to address environmental problems and social concerns. National pride is also a factor. Reliable and affordable energy supplies are vital to any economy, while energy shortages or the threat of such have political and economic consequences. Therefore as concerns have evolved from oil shocks to climate change, each country's energy provision and infrastructure needs restructuring accordingly.

Government R&D expenditure on energy tends to be focused on long-term development of new technologies, looking 20 years ahead, with the aim of bringing them to commercialisation, while private R&D is mostly on the further development of existing and operational technologies. While there are notable exceptions both ways, there is a strong disincentive for industry working in a highly competitive market and needing to justify a return on capital to shareholders to undertake long-term, high risk R&D. This is because after all their investment they will still be selling kilowatt hours of electricity or another essentially undifferentiated product in a competitive and very price-sensitive marketplace.

In recent years, some controversy has surrounded the question of the relative levels of R&D expenditure on nuclear energy and on new renewables (essentially technologies to harness wind and solar energy). Unfortunately, International Energy Agency (IEA) data that was used in the first edition of this paper is no longer available, hence some of the following is dated.

Table 1. Expenditure by IEA countries on energy R&D

Year 1975 1980 1985 1990 1995 2000 2005
Fossil Fuels
Nuclear Fission
Nuclear Fusion
Total Energy R&D
Total: Japan
Total: excluding Japan

Energy R&D

The above table and graph are from the OECD International Energy Agency's database (IEA, 2001 & 2006) regarding government expenditure in the 26 IEA member countries. The database does not include information about private companies' expenditure, nor funds spent by non-IEA countries, such as China, Russia or India.

The total amount of energy R&D expenditure by governments of IEA countries rose in response to the oil price shocks of the early 1970s and then fell away as associated concerns abated, with the conspicuous exception of Japan. Private R&D investment has apparently followed the same pattern outside Japan.

Nuclear energy R&D versus renewables and other sources

Throughout the period, the expenditure on nuclear fission dominated the overall figures, though falling from 64% of the total in 1975 to 33% in 2005. However, Table 2 shows that in most IEA countries (apart from Japan), government R&D expenditure on nuclear fission fell significantly through the 1990s, to trivial levels – in fact below that spent on renewables, which has averaged about US$ 700 million per year for the last two decades but is now rising.

IEA R and D
(2005 US$ millions)

Table 2. Expenditure by IEA Countries on Fission R&D

  UK France Japan USA Other IEA countries All IEA countries
1975 929 0 763 2164 952 4808
1980 741 0 2098 2410 1160 6794
1985 638 895 2259 1241 1542 6575
1990 253 555 2298 737 356 4199
1995 17 599 2455 103 442 3616
2000 0 666 2393 39 308 3406
2005 4 ? 2398 171 ? 3168

IEA data shows R&D on nuclear fission peaking around 1980 and after 1985 declining steadily to less than half that level. Since 1990 Japan alone has been responsible for some two-thirds of IEA R&D expenditure on nuclear fission, with France accounting for most of the remainder. If the French and Japanese figures are excluded, fission R&D expenditure in the rest of the IEA countries totalled US$ 308 million in 2000.

The extent of expenditure on renewables significantly outweighing that on nuclear fission everywhere except France and Japan would be unremarkable if the potential contribution from each were similar. In fact the potential scope for renewables contributing to electricity supply is very much less because the sources, particularly solar and wind, are diffuse, intermittent and unreliable. Their diffuse nature is simply a technical problem. But for intermittent and essentially opportunistic supply of wind- or solar-generated electricity to a grid system, the maximum potential appears to be about 20% of the total, and normally less, whereas that from nuclear energy is around 90%.

Partly as a result of the R&D expenditure, nuclear power now provides 14% of world electricity (more in those countries foremost in the R&D) – 2600 billion kWh per year, compared with a fraction of that for non-hydro renewables. Furthermore the scope for increasing the renewable contribution is not considered by the power producers to be very great.

The Japan Atomic Energy Agency (JAEA) is Japan's major integrated nuclear R&D organization, with 4400 employees at ten facilities and annual budget of 161 billion yen (US$ 1.7 billion).

A 2008 study by Management Information Services Inc looked at US energy more widely than just electricity, and took in all federal incentives, not simply R&D, from 1950 to 2006. Some $726 billion was identified (2006 dollars). Its conclusions included:

  • The largest incentive category was tax concessions, especially for oil but also wind. No tax concession was for nuclear in this period.
  • Total support for nuclear power over the 56 years was $65 billion, 9% of the total incentives. This compared with $50 billion (7%) for non-hydro renewables (wind and solar) plus geothermal.
  • The main support was for oil and gas – $436 billion, 60% of total, with coal at $93 billion (13%).
  • Most of the support for nuclear power was in R&D.
  • Today nuclear power in the USA pays more than it receives due to contributions to the federal nuclear waste fund, which by 2015 exceeded disbursements from it by more than $20 billion. (There is no corresponding payment from other energy sources.) This is a major government R&D program, but fully funded by industry.

Focusing on R&D:

  • R&D comprised 19% of the total incentives, and half of this ($67 billion of $135 billion) was for nuclear, 16.5% for renewables plus geothermal, and 23% for coal. (Nuclear fusion was not included).
  • Of the nuclear R&D, about $39 billion was spent before 1975 to explore a range of reactor concepts.
  • Nuclear R&D peaked at $2.8 billion in 1978 and declined sharply to about $550 million in 1987, then steadily to a low of $75 million in 2001.
  • Research on breeder reactors took 35% ($23.7 billion) of the nuclear R&D, though funding for this ceased in 1988. From 1976 to 1988, the breeder program accounted for a high proportion of expenditure.
  • Light water reactor technology accounted for only 8% ($5.3 billion) of the nuclear R&D though it now provides almost 20% of US electricity.
  • Other reactor types received $38 billion in R&D.
  • Since 1988, spending on nuclear R&D has been less than that for coal, and since 1994 it has been less than that for renewables as well.

US Department of Energy figures show the renewables total in the US R&D budget as $505 million in FY2007 and energy efficiency $676 million, compared with nuclear power at $300 million (double the 2003 level) and fossil fuels at $397 million. Nuclear fusion is additional at $319 million.

Other US DOE R&D data is as follows ($ million)

Years Currency Renewables Coal Nuclear End use
1988-2007 2007 $ 6271 7593 13,500 5737
FY 2007 2010 $ 717 582 1017 509
FY 2010 2010 $ 1409 663 1169 832

EIA 2008 & 2011

In FY 2007, relating the support to actual energy produced, the figures are: wind 2.34 c/kWh, 'clean coal' 2.98 c/kWh, gas, coal 0.044 c/kWh, nuclear 0.16 c/kWh.

Outside the IEA, Russia, India and China have substantial nuclear fission programs and as the European Union also funds an amount of fission R&D, the worldwide totals for fission will be rather higher than the figure above. Nonetheless, given that the bulk of government-sponsored R&D into nuclear fission focuses on waste management and other fuel cycle back-end processes, it is clear that little is being spent at present by governments on new reactor designs.

Subsidies for particular energy sources and disincentives on alternatives

A simple definition of 'subsidy' is difficult to find. The IEA points out that there is enormous confusion about what is meant by the term. The narrowest and perhaps most commonly used definition is a direct cash payment by a government or consumer to an energy producer, or by a government to consumers. But this is just one way in which governments can stimulate the production or use of a particular fuel or form of energy.

Broader definitions attempt to capture other types of government interventions that affect prices or costs, either directly or indirectly. For example, an OECD study defined a subsidy as any measure that keeps prices for consumers below market levels, or for producers above market levels, or that reduces costs for consumers and producers. In a similar way, the IEA defines energy subsidies as any government action that concerns primarily the energy sector that lowers the cost of energy production, raises the price received by energy producers or lowers the price paid by energy consumers. What matters in practice is the overall impact of all subsidies and taxes on the absolute level of prices and costs and the competitiveness of each fuel or technology.

In addition to front-end R&D expenditure there are ongoing operational subsidies for various forms and sources of energy. With government-controlled utilities, or regulated markets such as in the USA until the mid-1990s, and continuing in many states, utility costs could simply be passed onto the consumers, who effectively supplied a subsidy relative to cheaper alternatives. With deregulated and competitive markets this changed.

In an open market, government policies to support particular generation options such as renewables normally give rise to explicit direct subsidies along with other instruments such as feed-in tariffs (FIT), quota obligations and energy tax exemptions. To provide disincentive on alternatives there can be targeted taxes including carbon taxes, or emission trading schemes for carbon. (See later section on Carbon taxes and emission trading schemes for carbon.)

From about 2014 a number of subsidy schemes for renewables are being cut back. The UK, Spain, Germany, Italy, Switzerland and Australia have taken steps to reduce various subsides as costs to consumers have increased considerably.

Fiscal year 2010 electricity production subsidies and support in the USA
(EIA Table ES4 & ES5, million 2010 dollars)

Beneficiary Direct Exp Tax Exp R&D Federal Elect Support Loan G'tee Total Share of total subsidies & support Share of electricity generation in 2010
Coal 37 486 575 91 0 1,189 10.0% 44.9%
Natural gas and petroleum liquids 1 583 15 56 0 654 5.5% 25%
Nuclear 0 908 1,169 157 265 2,499 21.0% 19.6%
Renewables 4,178 1,347 632 133 269 6,560 55.3% 10.3%
Biomass 6 54 55 0 0 114 1.0% 1.4%
Geothermal 115 1 72 0 12 200 1.7% 0.4%
Hydropower 17 17 51 130 0 215 1.8% 6.2%
Solar 409 99 287 0 173 968 8.2% 0%
Wind 3,556 1,178 166 1 85 4,986 42.0% 2.3%
Unallocated renewables 75 0 0 0 0 75 0.6% 0
Transmission & distribution 461 58 222 211 20 971 8.2% NA
Total 4,677 3,382 2,613 648 555 11,873 100% 100%

The IEA's World Energy Outlook 2015 estimates that the total cost of subsidies for renewable energy were $135 billion in 2014 and are expected to rise to about $250 billion in 2030 ($112 billion in the power sector rising to $172 billion in 2040). In its New Policies Scenario, over the period 2015-2040, cumulative subsidies to renewables are $5.9 trillion (equivalent to 0.2% of global gross domestic product over the same period). Of total subsidies, about half go to solar PV and wind power, almost 30% to the other renewables-based power plants and around 20% to biofuels. However, several countries are cutting back support for renewables due both to the high cost impacting electricity prices and also the costs and difficulties of integrating them into the transmission networks. Germany and Spain are cutting about $2.5 billion and $3.5 billion per year respectively from subsidies for renewables.

A feed-in tariff (FIT) obliges energy retailers to buy any electricity produced from specified, e.g. renewable, sources at a fixed price, usually over a fixed period of some years (eg 20 years in Germany), the price being significantly greater than that paid for power from mainstream sources. The rates usually vary for different sources, eg being greater for solar or offshore wind. In this case they may be called Advanced Renewable Tariffs (ART), differentiating by technology and perhaps project size. There is usually no amount or proportion specified, though a cap or quota on how much needs to be bought overall or from particular sources may be applied. With renewables, any supply offered must be taken by the grid operator, regardless of merit order considerations (normally applying, so that lowest marginal cost supplies are preferred). In Germany for instance, the grid operators buy the renewable kWh at the specified FIT rate and then sell them on the open market. The difference between the sales proceeds and the FIT they have paid to various suppliers is compensated by the end consumer through an 'EEG-surcharge' being applied to bills. Electricity-intense industry has this surcharge limited.

Feed-in tariffs are now common in Europe, Canada, China and Israel and imminent in several Australian states, total at least 41 countries or provinces. They generally mean that the consumer pays the subsidy for power from the legislated sources, the cost being spread across all power purchases unless there is a special deal to buy renewable power at a premium. In Germany the additional cost of the FIT above normal wholesale market is recovered by a ‘renewable energy surcharge’ being added to retail electricity bills (with exemptions for industry).  However, in some countries FITs have become unaffordable, and are being replaced with other mechanisms.

A variation on FIT is the contract for difference (CFD), which means that if the market price is lower that the agreed strike price, the government or consumers pay that difference per kWh, if the market is above the strike price, the generator pays the difference to government or consumers. The key factor then is setting the strike price far enough ahead to enable investment. So while the CfD may raise the final cost of energy to the consumer, depending on prevailing wholesale prices, it also provides the energy producer with the guarantee of a known price for the electricity and reduces the risk created by volatility in wholesale energy markets.

A FIT/CfD that is sponsored by a government in order to decarbonize the energy system may cut across market competition but it is nevertheless likely to be justified according to many domestic laws, European law, and international free trade treaties, since these generally permit government intervention in order to protect the environment.

A problem showing up in several countries, especially regarding FITs, is that they become increasingly costly to consumers as the take-up increases. In Germany, the cost of subsidies for solar power is expected to reach €46 billion by 2030. In Spain the take-up was so high that the government had to renege on its subsidy commitments after investments had been made. France cut back subsidies in 2010. The UK in 2011 wound back the FIT levels for new plants. Slovakia in 2011-12 slashed FITs for solar from €38 c/kWh to 11.9 c/kWh for small solar (up to 100 kW) in order to keep electricity prices down.

When governments change the FIT levels to adjust the incentive, the changes generally apply only to new sources.


In the EU, feed-in tariffs are widespread (in 18 of 25 EU countries as of 2007). European Environment Agency figures in 2004 gave indicative estimates of total energy subsidies in the EU-15 for 2001: solid fuel (coal) €13.0 billion, oil & gas €8.7 billion, nuclear €2.2 billion, renewables €5.3 billion.

In the UK, a February 2010 report from Ofgem showed that subsidies for renewables, notably the Renewables Obligation, had risen from £7 in 2007 to £13.50 per year on the average household electricity bill, and in 2008-09 totalled £1.04 billion.

The UK Renewables Obligation (RO) requires retailers each to buy a certain proportion of the electricity they supply from renewable sources with certificates at whatever price they can, or to pay a penalty. In the UK proportion was 9.1% and the default buy-out price (or 'fine') was 3.576 p/kWh in 2008-09. It had reached 11% at the end of 2010 and will be 15% by 2016 (i.e. suppliers needed to present to Ofgem 0.11 certificates per MWh sold in 2010-11). The buy-out price for 2010-11 was 3.7 p/kWh (£37 per MWh certificate) and in 2013 auction prices ranged £41.50 to £44/MWh. The price of the electricity from renewable sources is left to the market. The amount required to be bought can be adjusted annually, as in UK towards 15.4% by 2015 (2006-07 level was 6.7%, 2007-08 was 7.9%). In 2013-14, 18.6 TWh was involved, or about £83.7 million, assuming £4.50/MWh and 67.2 million certificates were issued. This climate change levy exemption certificate scheme ceased in July 2015.

In 2006-07 in England and Wales 12.87 billion kWh of renewable electricity was supplied and £218 million in fines was paid, representing a shortfall of 6.55 billion kWh. (The actual UK system is more complex than outlined, because Ofgem issues to generators certificates which can be traded, and the price of these reflects the fact that fines are distributed to retailers or others in proportion to certificates they submitted. In 2010-11 this was £14.32 per certificate, so the value of a certificate to the generator was about £51. This compares with the wholesale electricity price of about £52/MWh.)

Due to the Renewables Obligation the UK subsidy on onshore wind generation is the highest in the EU. Under the Energy Act 2008 the UK system was modified from 2009 to provide greater incentive to use offshore wind, biomass and emerging technologies. This is done by issuing one certificate (or 0.9 certificate) per MWh for onshore wind, 2 (or 1.9) per MWh for offshore wind, etc. and adjusting from time to time. Technologies such as wave and tidal power which are hopelessly uneconomic and likely to remain so, even if they are more useful, will get up to 5 certificates per MWh.

The Renewables Obligation provided about £1.4 billion support for renewables in 2010, at a cost of 3% on consumer bills, or about £20 per household, half of which is due to wind. DECC said it added £30 to an average household bill for 2013. By 2017 it is expected to be £50. A November 2011 estimate from DECC said every household in the UK had paid £320 on average so far to subsidise renewables, a total of £7 billion, bringing average household energy bills to £1300 pa. Ofgem estimates that in the course of achieving 30% of supply from renewables the amended Renewables Obligation for large-scale projects is predicted to cost consumers £6 billion per year by 2020, and the new feed-in tariff (FIT) for schemes up to 5 MWe will cost them £7.9 billion per year by 2030, on the basis of 5.2 pence/kWh for RO and 9.3 p/kWh for FIT*. Meanwhile it is seen by the Renewable Energy Foundation to be "both counterproductive and very poor value for money".

* From April 2010 householders and communities who install low carbon electricity technology such as solar photovoltaic (PV) panels and wind turbines up to 5 megawatts are paid for the electricity they generate, even if they use it themselves. The level of payment depends on the technology and is linked to inflation. Electricity from small wind turbines was paid at 34 p/kWh, that from solar PV 41 p/kWh. They got a further payment of 3 p/kWh for any electricity exported to the grid. These figures were reviewed in 2011 with a view to reductions applying from April 2012. The solar PV rate for FIT then dropped to 21 p/kWh, and to 16p in August 2012 with further decrease thereafter to average 3.5% every three months. But the export tariff goes up from 3.2 to 4.5 p/kWh. By April 2015 FIT for larger wind turbines had dropped to 2.77 p/kWh, while that for wind turbines 0.5 to 1.5 MWe was 6.54 p/kWh.

The new government elected in 2010 moved to replace the Renewables Obligation with a 'contract for difference' for new projects, effectively a long-term power price, which took shape in the draft energy bill released in May 2012. After the 2015 election the government announced that it would end the RO for onshore wind from April 2016. In 2014 installed wind capacity was almost 13 GWe, and it provided about 28 TWh in 2014, about 26% capacity factor with over £800 million subsidies – about 2.9 p/kWh.

Three units of the Drax coal-fired power plant are being converted to run on biomass, mostly imported wood pellets, for a guaranteed power price of £105/MWh. However, in April 2014 the second unit converted to biomass was denied similar investment contract support, leaving it to recoup costs from Renewables Obligation Certificates (at 0.9 ROC/MWh, the average ROC price in May 2014 was about £41.70) plus the wholesale power price – about £50/MWh. A court appeal failed. However, the government has offered an investment contract with price guarantee for the third Drax unit.

The Renewables Obligation was replaced in 2014 for new projects with a FIT effected through contracts for difference (CfD) which can be capped regarding quantity. The feed-in tariff with CfD means that if the market price is lower than the agreed ‘strike price’, the government pays that difference per kWh, passing that cost onto electricity consumers. If the market is above the strike price the generator pays the difference to electricity consumers by reducing average tariffs. Draft strike prices for renewables include £155/MWh for offshore wind (declining to £135 in 2018), £100/MWh for onshore wind (declining to £95 in 2018), and £125/MWh for large solar PV (declining to £110 in 2018).

The UK also has a Climate Change Levy of 0.43 p/kWh on non-renewable sources (at present including nuclear energy, despite its lack of greenhouse gas emissions), which corresponds to a further subsidy of renewables.

The UK government legislated to establish a carbon price floor from April 2013, to underpin the move to a low-carbon energy future. Per tonne of CO2, this rises from £4.94 to £9.55 for 2014-15, £18.08 for 2015-16, and £18 to 2018.

In Germany the Renewable Energy Sources Act (EEG) of 2000, revised in 2004 and 2007, governs subsidies. Germany applies a mixture of incentives for renewables, but principally relies on wholesale feed-in tariffs which are guaranteed for up to 20 years.

The average feed-in tariff (FIT) apart from solar PV was €8.5 c/kWh, or €16.4 cents including solar PV in 2006 (solar PV being up to 49 cents). Wind provides nearly half of the renewable input and feed-in tariffs for new plants are 8.9 c/kWh on land and 15.4 c/kWh offshore, but dropping to 3.9 c/kWh after five or twelve years respectively (or for offshore wind 19.4 c/kWh for eight years as a more popular option, then 3.9 c/kWh to 20 years). Solar PV gets 12-18 c/kWh depending on size, for 20 years. The combined subsidy from consumers and government totals about €20 billion per year – for some 25% of its electricity from wind and solar. Early in 2010 Germany announced a 15% cut in the solar feed-in tariff for new installations, after adding nearly 3000 MWe solar in 2009, and reportedly paying over $15 billion for solar power. Energy consumers will pay €100 billion over the next 20 years to subsidize domestic PV installed before the end of 2011. The first several months of 2012 added at least €5 billion to that amount. A public backlash is reported due to much of the economic benefit going to foreign solar module manufacturers. In mid-2012 parliament agreed to cap solar FITs at 52 GW (about double the present level) and apply a new solar FIT of 18.5 cents/kWh for rooftop plants of 10-40 kW and 16.5 c/kWh for 40-1000 kW systems. For larger plants, none over 10 MW would be eligible for FITs.

The four major German utilities and the Federal Network Agency and grid authority raised the surcharge that customers pay on their utility bills to fund renewable energy by a steep 47% in 2013, from 3.592 c/kWh in 2012 to 5.277 c/kWh. Then there was a further 18% rise to 6.24 c/kWh in 2014. In 2015 it came back to €6.17 c/kWh. This is to cover the increasing proportion from renewables and the fact that the utilities are obliged to pay for each renewable kWh much more than they can sell it for (e.g. 18 c/kWh for solar, sold for 3.0-4.5 c/kWh on wholesale market). Utilities charge most customers the EEG surcharge or Umlage to cover the difference. Some energy-intensive industries are exempt from this. Overall, the 2013 EEG feed-in tariff payments by grid operators amounted to €19.4 billion, compared with revenues on the wholesale electricity market of €2.1 billion for 57.8 TWh. In 2014 the TSO payments were €21.5 billion (both FIT and marketing premiums), with €1.6 billion market revenue for 51.2 TWh, and consumers paid €22.4 billion in EEG surcharges. The difference between projected feed-in tariffs and marketing revenues forms the essential part of the EEG surcharge. However, the government put a cap on the surcharge until the end of 2014, then allowing only 2.5% per annum increases. It also plans to tighten industry exemptions and possibly cut FITs for wind and biomass plants, calling into question investment security.

France cut subsidies for solar PV input to the grid by 25% early in 2010, from $0.80 set in 2006 to $0.61 c/kWh. In 2014 the solar PV FIT was €0.1345 c/kWh for up to 100kW on T4 tariff.

Denmark has a wide range of incentives for renewables and particularly wind energy. In 2000 it produced 4 TWh (out of 36 TWh gross total, about 11%) thus, and is aiming at 15%. Its utility buy-back rates for privately-generated wind electricity in 1999 averaged DKr 0.60/kWh, including a DKr 0.27/kWh subsidy funded by carbon tax (now US$ 6.8 cents & 3.2 cents respectively). However, there is a further economic cost borne by power utilities and customers. When there is a drop in wind, back-up power is bought from the Nordic power pool at the going rate. Similarly, any surplus (subsidised) wind power is sold to the pool. The net effect of this is growing losses as wind capacity expands. Official estimates put the expected losses at DKr 1.5 billion per year, others reckon more than double this.

Early in 2009, Nord Pool announced that from October the spot floor price for surplus power would drop from zero to minus 20 Euro cents/kWh. In other words, wind generators producing power in periods of low demand will have to pay the network to take it. Nord Pool stated: "A negative price floor has been in demand for some time – especially from participants trading Elspot in the Danish bidding areas. In situations with high wind feed in Denmark there have been incidents where sales bids have been curtailed at price €0. Curtailment of sales may give an imbalance cost for the affected seller and thus creates a willingness to pay in order to deliver power in the market." This has increased the negative effect on the economics of wind power in Denmark, since a significant amount of its wind power production is affected.

Sweden subsidises renewables (principally large-scale hydro) by a tax on nuclear capacity, which from 2008 works out at €0.67 cents/kWh. It also has a quota and certificate scheme which gives a price of 6.85 c/kWh on renewables apart from solar PV.

Italy had a quota (Renewable Portfolio Standard) and tradable and certificate scheme with average price 12.53 c/kWh for renewables apart from solar PV, 17.27 cents including solar PV, in 2006. This was replaced by FiTs, but due to the proliferation of solar PV capacity, the cost reached €3.8 billion in 2011, and the €6.7 billion cap on subsidies for 2013 was reached in mid-year, with almost 18 GWe installed. FiTs then were 10.6 to 18.2 c/kWh depending on size and location. Innovative plants got 21.7 to 24.2 c/kWh. Concentrating solar PV got 17.4 to 21.5 c/kWh. The FiTs are for 20 years. The government decided on a FiT reduction of 17-25% in 2014, and announced in January 2015 that it would cease subsidies to solar plants.

Switzerland in 2015 cut solar PV subsidies twice, and is set to do so again in 2016, by 7% then 14%. Early in 2015 the waiting list for PV subsidies amounted to 37,263, equal to a total subsidy demand of CHF 415.6 million.

In Norway the government subsidises wind energy with a 25% investment grant and then production support per kWh, the total coming to NOK 0.12/kWh, against a spot price of around NOK 0.18/kWh (US$ 1.3 cents & 2 cents respectively).

Spain has a feed-in tariff of €7.32 c/kWh for wind energy, 27 c/kWh for solar thermal, and 31-34 c/kWh for solar PV. In 2010 cuts of 25% for roof-mounted solar systems and 45% for larger ones were announced. In February 2013 subsidies were cut further and indexed to an inflation estimate that strips out the effects of energy, food commodities, and tax changes. In 2000, the government had promised more than 20 years of large subsidies, and investment had proceeded on this basis.

At the end of 2012 Spain brought in higher taxes on power generation to address a €24 billion energy tariff deficit after more than a decade of selling electricity at regulated rates which did not cover costs, with some €7 billion per year subsidies on renewables. The cost of subsidies was not passed on to consumers, since this would have made power unaffordable. However, foreign investors put a lot of money into wind and solar projects due to the high FITs – some €13 billion. But this power generation tax plus subsidy reductions in 2010 and further major cuts in February 2013 meant that the government had reneged on the terms of that investment, and legal action under the international Energy Charter Treaty was planned.

In July 2013 the Ministry of Industry, Energy and Tourism introduced further ‘definitive reforms’ to reduce the deficit by €4.5 billion per year. These measures remove the FIT system and substitute a new Regulated Asset Value-based system and will cut the payments for renewables by €1.3 to 1.4 billion per year. Overall they will cost utilities €2.7 billion per year. Solar companies are expected to be worst affected, due to debt load estimated at €30 billion, and widespread financial distress is predicted by solar and wind industry groups. In May 2013 renewables received an average subsidy of €100/MWh.

Greece has a feed-in tariff of 6.1-7.5 c/kWh, whereas the Netherlands relies on exemption from energy taxes to encourage renewables.

The Czech Republic had a mandated feed-in tariff for solar power of CZK 12($0.63) per kWh, about ten times the cost of power generated by CEZ. This was threatening grid stability and was reduced to CZK 5.5 for new PV projects over 100 kW and CZK 7.5 for smaller ones after the end of 2010. However, the impact of some 1600 MWe constructed by then was expected to lead to an increase in electricity prices of 13% for residential and 18% for industry consumers in 2011, and a 25-28% retroactive tax on solar electricity from installations over 30 kW was introduced, but was challenged. The International Photovoltaic Investors Club (IPVIC) had an arbitration complaint being lodged in the first quarter of 2013 with findings expected in 2014. The investors group is reportedly seeking up to CZK 2.5 billion in damages.

From January 2014 the Czech government will end all support for new renewables capacity coming on line from then, and set a CZK 495/MWh (€19/MWh) cap on payments by consumers for renewable power - a 15% drop from 2013. The level of direct government payments to cover the costs of feed-in tariffs and green bonus scheme payments for electricity from renewables will rise to an estimated CZK 15.7 billion (€600 million) in 2014. Total Czech support for renewables is estimated at CZK 44.4 billion (€1.7 billion) in 2013. The 26% tax on new solar installations will drop to 10% in 2014.

Slovakia has drastically cut back on subsidies for solar power, after a boom in response to generous feed-in tariffs pushed the household price of electricity up by 5%. Only roof-mounted PV panels under 100 kW will now be eligible. The subsidy cost jumped from €10 million in 2010 to €117 million in 2011 (to 30 June). The planned 8 MWe of new solar capacity to the end of 2010 ended up with 145 MWe total, and 115 MWe more was expected by the end of June 2011 cut-off.

Latvia has feed-in tariffs of €9.6 to 18.2 c/kWh for wind, depending on size of generator, and 42.7 c/kWh for solar PV. Lithuania's feed-in tariff for wind is 8.7 c/kWh.

Elsewhere in EU, small-scale photovoltaic (PV) input is encouraged by high feed-in tariffs, eg 50 c/kWh in Portugal.

Serbia published new FITs early in 2013, which will be valid for 12 years from project commissioning and will be corrected annually every February in line with the level of inflation in the Eurozone. They include €9.2 c/kWh for wind and 16.25 c/kWh for solar, but with low caps on the capacity covered.

Turkey, under its Dec 2010 renewable energy law, has a basic feed-in tariff of 7.3 c/kWh, slightly below market prices late in 2010. This can then be increased by up to 3.7 c/kWh for wind, up to 9.2 c/kWh for concentrating solar thermal, and up to 6.7 c/kWh for solar PV, depending on the equipment used and its local content. Prior to this, the FIT was €5.5 cents/kWh.

North America

The US government spent $24 billion on energy subsidies in 2011, $16 billion of this for renewables including $6 billion for ethanol tax credits, according to the Congressional Budget Office. The production tax credit for wind cost $1.6 billion. Fossil fuels got $2.5 billion in tax breaks.

According to Subsidy Tracker based in Washington, the total value of subsidies to the biggest players in the US wind industry to 2016 (most from 2007) was $176 billion.

In the USA a direct subsidy or Production Tax Credit (PTC, finally about 2.3 c/kWh net for wind) has been available to generators of renewable power over the first ten years of a project's operation so they can sell it that much below actual cost. The subsidy is granted as credit on taxes, though following the American Recovery & Reinvestment Act (ARRA) in mid-2009, an investment tax credit (ITC) of 30% could be claimed instead for wind plant placed in service before 2013 if construction began before the end of 2013. A total of $16.8 billion had been provided in direct grants for energy efficiency and renewable energy projects under ARRA. This credit can be converted to a grant from the government.

In the USA a Renewable Portfolio Standard is proposed, mandating a specified amount of renewable power from suppliers, and applying already in California and other states. The PTC is indexed to inflation, and was extended each year to the end of 2013. With a wholesale electricity price of around 2.8 c/kWh, the PTC meant that intermittent wind generators could dump power on the market to the extent of depressing the wholesale price so that other generators were operating at a loss. This market distortion has created major problems for the viability of dispatchable generation sources upon which the market depends. In December 2015 a new spending package included a retroactive five-year extension on the Production Tax Credit (PTC) for wind and the Investment Tax Credit (ITC) for solar. The PTC gives wind developers a credit of $0.023 per kilowatt-hour for electricity supplied to the grid. This level will apply through 2016 and phase down to 80% of its present value in 2017, 60% in 2018, and 40% in 2019. Projects must begin construction before the end of year in order to qualify.

Several US states and municipalities are looking at FITs. Vermont enacted one in 2009 and Gainesville, Florida has one in 26-32 c/kWh range.

In Ontario, Canada, under a 2009 Green Energy Act, feed-in tariffs were introduced, ranging from 11 c/kWh for landfill gas and 13 c/kWh for wind to 80.2 c/kWh for solar PV.

East Asia

In Japan, since 2009 a feed-in tariff required utilities to buy surplus solar power produced domestically at up to JPY 48/kWh. This was extended to hydro, wind and geothermal power at JPY 17-20/kWh, compared with JPY 5-7 for base-load power. In mid 2012 the general FIT was increased to JPY 42 /kWh for solar-generated electricity, double the tariff offered in Germany and more than three times that paid in China. The level was reduced in April 2014 to JPY 37/kWh residential and JPY 32/kWh for systems over 10 kW. Wind power FIT was JPY 22/kWh for onshore units above 20 kW, JPY 36 for offshore wind, and JPY 55 for smaller units.

In China, the Global Wind Energy Council acknowledges "the fact that wind is heavily subsidised". This is under a variety of complex measures focused on capacity rather than output, and correlates with a low average capacity factor of 16% over 2006-07, partly due to grid constraints. China's 2006 Renewable Energy Law sets out a subsidized electricity tariff structure (though no feed-in tariff), a compulsory grid connection mandate for renewable energy projects, and a rule that requires utilities to purchase all the renewable electricity produced in their service area. In addition, carbon credits awarded under the UN Clean Development Mechanism (CDM) enable foreign investors in Chinese wind projects to sell carbon credits outside the country, this being essential to project viability. From 2016 NDRC cut wind tariffs by CNY 0.02 to 0.03 /kWh.

Solar power has enjoyed substantial incentives in China since 2009, and in 2011 the national feed-in tariff was CNY 1.15 per kWh (18 cents), but in 2012 this was reduced to RMB 0.55 (8.7 cents). From 2016 NDRC cut solar tariffs by CNY 0.02 /kWh (and more inland). Late in 2012 subsidies for solar power were boosted by CNY 7 billion ($1.1 billion) to a total of CNY 13 billion. The subsidies are to allow support of 5.2 GWe of domestic solar energy production.


Australia's Mandatory Renewable Energy Target (RET or MRET) has since 2001 required retailers each to buy a certain proportion of the electricity they supply from non-hydro renewable sources at whatever price they can, or incur a penalty by paying a shortfall charge. The original 10% target or 9500 GWh by 2010 was increased in 2009 to 20% in 2020, then in 2015 the Large-scale Renewable Energy Target (LRET) went to 23.5% or 33,000 GWh, representing a major increase from non-hydro sources. The shortfall charge goes up fro 4 cents to 6.5 c/kWh. The obligation is tradeable. The cost is borne by ratepayers.

In 2013-14 subsidies were estimated at 4.2 c/kWh for wind and 41 c/kWh for solar, the latter being both for RET and FITs to householders. The total for renewables that year was $2.8 billion. It was estimated that the RET added about 3% to the typical household or small business electricity bill, and almost 9% for large business (over 5 GWh/yr), and state-based FITs add significantly to this.

Government-commissioned modelling suggested that the net overall power cost to consumers would be 0.5 c/kWh to 2015 and then 0.77 c/kWh to 2020. A 2011 study by Carbon Market Economics found that each tonne of CO2 emissions eliminated through the use of renewable energy plants commissioned by the end of 2010 cost $76 in subsidies, more than three times the proposed carbon price of $23 a tonne.

Feed-in tariffs are on a state basis. Those Victorian and NSW householders who were first to set up solar PV behind the meter sell power to the grid at 60 c/kWh, compared with about 8 c/kWh for coal-fired power delivered to the city. More recent connections have FIT of 5 c/kWh.

Direct subsidies for coal (and other fossil fuels)

The OECD IEA estimates that globally, fossil fuel subsidies amounted to $409 billion in 2010, compared with about $300 billion in 2009. Its detailed inventory covers over 250 mechanisms that support fossil fuel production and use. Some 54% of the fossil fuel support went to the petroleum sector.

In the EU, coal is heavily subsidised by governments, particularly in Germany's Ruhrgebiet region, northwest Spain, and Romania's Jiu Valley. There have been proposals to phase out coal subsidies by 2022, reducing them by one-quarter every three years, but some 100,00 jobs are involved. In 2010, some €3.2 billion in coal subsidies were handed out in six EU countries: Germany, Hungary, Poland, Romania, Slovakia and Spain.

In July 2010 the European Commission unanimously approved a proposal to close uncompetitive hard coal mines in the EU that rely on subsidies by October 2014, and to phase out coal subsidies by 2018. The mines that rely on operating subsidies are located mostly in the Ruhr region in Germany, in northwest Spain and in the Jiu Valley in Romania. More than 40% of electricity in Germany is produced from coal, about half of which is hard coal and half lignite. In Romania, coal-produced electricity is also around 40%, most of which hard coal. In Spain the share is around 25%, also mostly hard coal. Under the approved rules, interim operating aid would only be allowed for coal mines with a closure plan in place, otherwise state aid will stop.

According to the EC in mid 2010, total aid to the hard coal sector has been halved from €6.4 billion in 2003 to €2.9 billion in 2008. The amount of aid going towards actual production has fallen by 62% to €1.3 billion in the same period.

Germany has provided producer subsidies to its coal industry amounting to €68 per tonne for 34 Mt coal in 2000 – total €2.3 billion. Since the late 1980s the domestic hard coal production price has been at least €100/t above the imported cost, and subsidies reached a high of €7.9 billion in 1989. By 2002 production had declined to about 25 Mt/yr and the subsidy was down to €3.5 billion and a later figure quoted €2.5 billion, with €130 billion over previous four decades.

Indirect subsidies for fossil fuels

By virtue of their ability legally to discharge waste products into the environment, fossil fuels receive indirect subsidies, which may be quantified as external costs – see information paper on Externalities of Electricity Generation.

Escalating subsidies for renewables

A Eurelectric report in January 2004 looked at direct support levels for renewable electricity supply in 2001 and projections for 2010, assuming that present support mechanisms remained unchanged and that developments were in line with EU targets. The €3.3 billion subsidy in 2001 was projected to grow to about €11.5 billion in 2010, including €7.4 billion for feed-in tariffs. The unit subsidy would then range from 0.4 c/kWh in Finland to 6.6 c/kWh in Germany, with a weighted average of 3.7 c/kWh in EU-15 countries (4.2 c/kWh in those with feed-in tariffs).

Table 3. Direct support for renewable electricity supply

Country Subsidy
Euro million per yr
Euro cents/kWh
  2001 2010 2001 2010
Austria* 122 702 2.49 4.11
Belgium 27 55 2.7 2.70
Denmark* 273 499 4.19 3.87
France* 112 814 3.13 3.13
Germany* 1047 3326 6.21 6.58
Italy 1067 2493 6.31 5.88
Netherlands 59 679 1.98 5.69
Spain* 323 1537 2.78 2.65
Sweden 100 220 1.89 1.28
UK 96 547 1.73 1.45

* using feed-in tariff

Energy taxes, and subsidies for nuclear power

Corresponding to subsidies in the other direction are taxes on particular energy sources, justified by climate change or related policies, and with low production costs providing opportunity. For instance Sweden taxes nuclear power at about EUR 0.67 cents/kWh, which makes up about one-third of the operating costs for nuclear plants. Belgium is introducing a tax of 0.5 cents/kWh on nuclear. The UK has a Climate Change Levy which is a tax on energy used by business. The rate was 0.43 p/kWh but from 2006 has been indexed. Electricity from designated renewable sources is exempt from the levy, nuclear power is subject to it.

Germany in 2010 legislated for a tax of €145 per gram of uranium or plutonium fuel for six years, yielding €2.3 billion per year (about 1.6 c/kWh), a levy on nuclear generators of €300 million per year in 2011 and 2012, and €200 million 2013-16, to subsidise renewables, and a tax of €0.9 c/kWh for the same purpose after 2016.

Finland was planning to introduce a tax on nuclear fuel to raise about €170 million per year from 2013, and countering the windfall profits from nuclear generators selling CO2 emission allowances. The Ministry of Employment and Economy in 2011 said that these so-called ‘windfall’ profits would be taxed at 43% to 45% of the market price of CO2 emission rights, depending on the model adopted, and at least €0.2 cents/kWh. In the 'minimum tax model', at €15 per tonne CO2 the tax would generate at least €67 million per year, and at €30 per tonne, the tax would be € 0.67 cents per kWh, generating some €223 million. In the 'flexible tax model', the uranium tax would be €0.17 cents per kWh, plus 30% of the windfall profit. An emission allowance price of €15 per tonne of CO2 would generate some €57 million, and a price of €30 per tonne would generate €207 million. Under this model, if the emissions trading price fell to less than €9.3 per tonne of CO2, there would be a 'negative' tax which could be credited against subsequent years of 'positive' uranium taxes. The proposal has drawn criticism, as it counteracts a key goal of the EU's carbon market – to reward low-carbon production compared with high-CO2 sources.

There is also occasionally a tax on excess wind production at times of low demand in Denmark and northern Germany. Nordpool requires generators to pay up to EUR 20 c/kWh for users to take excess electricity when demand is low, and in Germany the price has hit 50 c/kWh (at 5am on an October day in 2008). A similar situation arises locally in western Texas.

The USA is the only country which has offered any subsidy to nuclear power: a production tax credit of 1.9 c/kWh from the first 6000 MWe of new-generation nuclear plants in their first eight years of operation (same as for wind power on unlimited basis). (In 2007 the USA subsidised renewables by $724 million and recorded $199 million subsidy for nuclear power. The latter was entirely due to a change in tax rules related to decommissioning, under the 2005 Energy Policy Act.)

Main sources

OECD International Energy Agency R&D Database
Renewable energy policy in IEA countries, Volume II: Country Reports, OECD International Energy Agency (October 1998)
Reforming Energy Subsidies, United Nations Environment Programme (UNEP) Division of Technology, Industry and Economics & International Energy Agency (2002)
Energy Policies of IEA countries: 2003 Review, OECD International Energy Agency (December 2003)
World Energy Outlook, OECD International Energy Agency (annual)
Health and Environment in Sustainable Development: Five Years after the Earth Summit, World Health Organization (June 1997)
Global Wind Energy Council, Global Wind Reports
Reiche D. & Bechberger M., Policy differences in the promotion of renewable energies in the EU member states, Energy Policy, 32, 7: 843-849 (May 2004)
Eurelectric, A Quantitative Assessment of Direct Support Schemes for Renewables (January 2004)
House of Lords Science & Technology Committee, Renewable Energy: Practicalities (2004)
Energy subsidies in the European Union: A brief overview, European Environment Agency (2004)
Bezdek, Roger H. & Robert M. Wendling, Real Numbers: The U.S. Energy Subsidy Scorecard, Issues in Science and Technology 22, no. 3 (Spring 2006)
European Renewable Energies Federation, Prices for Renewable Energies in Europe: Feed in tariffs versus Quota Systems – a comparison, Report 2006/2007
Analysis of Federal Expenditures for Energy Development, Management Information Services, Inc., prepared for the Nuclear Energy Institute (September 2008)
Williams, J.H. and Kahrl, F, 2008, Electricity reform and sustainable development in China, Environmental Research Letters, 3, 4 (December 2008)
US National Research Council, Hidden Costs of Energy: Unpriced Consequences of Energy Production and Use (2010)
Australian Government Productivity Commission, Carbon Emission Policies in Key Economies, Research Report (May 2011)
US Energy Information Administration, Direct Federal Financial Interventions and Subsidies in Energy in Fiscal Year 2010 (July 2011)
Boisvert, Will, Green Energy Bust in Germany, Dissent Magazine (Summer 2013)
Principal Economics, Electricity Production Subsidies in Australia (August 2015)


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