Varieties of capitalism and clean energy transitions in the European Union: When renewable energy hits different economic logics

Abstract

Renewable energy sources are central to building low-carbon energy systems but there is little secured knowledge about the structural factors that shape national renewable energy policies and energy transition pathways. Drawing on the literature on ‘varieties of capitalism’ , this article offers an in-depth account of the evolution and impact of renewable energy policies in two countries that are commonly labelled in the literature as two opposite forms of capitalism: ‘coordinative market economy’ (CME) in Germany and ‘liberal market economy’ (LME) in the UK. Based on recent political economy literature, this dual perspective is complemented by including a third subtype, ‘dependent market economies’ (DMEs), which are found in the transition states of central and eastern Europe. The analysis reveals an initial convergence of the three varieties of capitalism towards stronger government involvement and CME-style targeted policy measures. The effectiveness and scope of these measures, however, continues to be constrained by the political economic settings. More recently, centralization and market-based renewable energy governance has gained the upper hand at both national and EU-level. The article concludes with emphasizing the risks of national and EU climate and energy policies driven by short-termism and cost-effectiveness for both renewable energy and climate change goals in the long-run.

Policy relevance

The article has policy implications for EU and national policy makers and stakeholders concerned with renewable energy and climate change governance. It underlines the need for comprehensive renewable energy policies targeting domestic market creation and industrial development as well as civic participation. Domestic and external constraints that different varieties of capitalism within the EU face in advancing these three components of renewable energy development are emphasized. The article stresses the need for enhanced coordination and balanced development of renewable energy sectors across all EU economies as essential for achieving climate change goals and a genuine low-carbon energy transition.

Keywords:

• climate change mitigation
• climate change policies
• development pathways
• energy modernization
• industrial policy
• institutional framework

1. Introduction

Renewable energy diffusion is widely regarded as a key instrument for achieving a transition towards low-carbon energy systems. This in turn should contribute to reducing greenhouse gas emissions and other environmental pollution while enhancing energy security and spurring job creation and technological innovations (UNEP, 2011). The successful design and implementation of comprehensive renewable energy policies, however, has turned out to be a challenging task, given dynamic global market trends and the necessity for a complex set of governing capacities domestically. Still, some countries appear to be better equipped than others in utilizing renewable energy sources (RES) and promoting participation, innovation and wealth creation in the emerging renewable energy sectors. Why is this so and how can we understand the differences?

Existing studies provide in-depth insights into the main factors and mechanisms that facilitate or hinder renewable energy implementation at the national level. The literature emphasizes the role of country-specific political variables (Aklin & Urpelainen, 2013; Yi & Feiock, 2014) and of socio-technological factors (Park, 2015; Schaffer & Bernauer, 2014; Simmie, Sternberg, & Carpenter, 2014). Overall, the literature suggests that stable and comprehensive policy frameworks, cross-sectoral coordination, and close but transparent state-industry relations together with target education and research, demonstration and development (RD&D) programmes constitute factors that generate sustainable renewable energy development (Lipp, 2007; Negro, Alkemade, & Hekkert, 2012). Yet, there have been few attempts so far to relate these factors to broader political-economic settings in different countries and explain how specific national political-economic conditions constrain or facilitate the emergence of these factors. This has prevented the establishment of a systemic framework for comparing renewable energy transitions across countries and political-economic contexts.

To fill this gap, this contribution proposes that the literature on comparative capitalism, particularly the varieties of capitalism (VOC) framework, provides valuable theoretical lenses for understanding how the growing importance of renewable energy technologies has been embraced in different types of national political-economic settings (see also Bailey, 2014; Lachapelle & Paterson, 2013). This analysis argues that the specific positioning and the overall logic of different capitalisms influence their ability and readiness to adopt new renewables. To explore this argument, the article reviews the development of renewable energy in the electricity sectors in Germany and the UK as two countries representing opposite varieties of capitalism, CME and LME respectively. In addition, the contribution also looks at the status of renewable energy diffusion in the new capitalist economies of east-central Europe, described in the recent literature as DME (Nölke & Vliegenthart, 2009). The position of the east-central European countries in EU climate and energy policy is hotly debated but theoretically still poorly understood. Instead of singling out one state, the goal is to highlight the main developments and emerging trends across the DME region, which should lay the ground for more in-depth investigations in the future. A particular emphasis is placed on the interdependences and convergence/divergence dynamics among different varieties of capitalism regarding clean energy transitions. In terms of the theoretical contribution, the article advances the understanding of institutional change and continuity in different varieties of capitalism in the policy field of renewable energy. On a more practical side, the article explores what policy lessons can be drawn and what the future of renewable energy transitions for different varieties of capitalism may look like in view to the EU post-2020 climate and energy strategy.

The data for the study is based on secondary literature comprising existing scholarly studies, expert analyses, media reports and government documents. Using a longitudinal perspective that relies on historical institutionalism (Mahoney & Thelen, 2010), the article describes different temporal sequences of clean energy transitions across VOC types and highlights thereby interdependencies as well as convergence/divergence patterns. In assessing the impact of different varieties of capitalism on renewable energy transitions (independent variable), the focus is on three main components of what can be termed a comprehensive and embedded renewable energy policy (dependent variable). The first component concerns the creation of the domestic market for utilizing renewable energy potential, measured by the share of RES in the country's energy mix. The second component includes industrial policy measures aimed at promoting new jobs and technological innovations in the emerging renewable energy sectors, measured by criteria such as the number of created jobs and industrial competitiveness. Finally, the third component envisages broad societal participation in renewable energy production, measured primarily by the share of individual- and community-owned renewable energy projects. This component takes into account the positive relationship between the participative character of renewable energy deployment and public acceptance and stability of renewable energy policy demonstrated in a number of studies (Mendonça, Lacey, & Hvelplund 2009). The three components are not mutually exclusive, but closely interrelated. For instance, a stable domestic market positively affects the creation of national renewable energy industries, as shown by Lewis and Wiser (2007) using the example of wind energy. The main claim is rather, as will be discussed in the subsequent empirical discussion, that all three components should be sufficiently addressed by policy makers in order to ensure sustainable growth of renewable energy sectors.

The article is structured as follows. Section 2 briefly introduces the theoretical framework of the VOC. Sections 3, 4 and 5 apply the outlined theoretical insights to investigate processes and outcomes of renewable energy diffusion in three different political-economic settings: Germany, the UK and east-central Europe. Section 6 summarizes the main findings and discusses the implications for future trajectories of renewable energy transition across EU economies in the period through to 2030.

2. Greening the VOC framework

The VOC perspective has emerged in the last decade as the most influential research framework in comparative political economy (Hall & Soskice, 2001). Researchers associated with the VOC paradigm argue that there are important differences in how modern capitalism is organized in the Western world and that these ‘varieties’ show different but not mutually exclusive patterns to economic success (Hall & Gingerich, 2009).

The differences between developed economies concern the question of how the institutional system helps or hinders companies to solve their cooperation problems. The main focus of the approach is on firms and the institutional setting that they are embedded into. According to Hall and Soskice (2001), most developed market economies cluster into two distinct types of capitalism, CME and LME. Germany, Austria and the Scandinavian countries are considered to be the archetypal CME countries, whereas Anglo-Saxon states the UK, US or Ireland are those described as LMEs.

One central difference between these two different types of capitalism is how innovation takes place. LMEs, which are dominated by ‘cut-throat competition’ (Hall & Soskice, 2001, 40–41), typically feature a Schumpeterian process of radical reorganization and path-breaking innovation and are said to have comparative advantages in innovation-intensive high-tech industries and services. In contrast, innovation in CMEs is rather incremental, but also more continuous. Here, innovation takes place based on path-dependent cooperation between firms, banking and the research sector with long-term perspectives dominating over concerns of immediate profitability. This path of innovation is supported also by the system of vocational training, which emphasizes the interaction between industry and education and is able to produce highly skilled workforce.

While highly intuitive at first sight, the VOC framework was also confronted with substantial criticism over the last decade (for an overview, see Hancké, 2009, 7–9). Some of these critiques highlight the VOC's static, deterministic and functionalistic character that emphasizes institutional stability rather than change. Others are sceptical of the VOC framework's disregard of sectoral differences and the overemphasis of the firm level. Specifically, the treatment of innovations by authors affiliated with the VOC approach was severely criticized (cf. Taylor, 2004). By focusing on sector-level innovation only, the VOC framework is said to disregard the role of national governments, which usually play a central role in financing R&D budgets, supporting universities and encouraging the creation of new markets or the diffusion of new technologies. This role of the state is not confined to CMEs, but as argued by Block (2008), behind the ideological ‘veil of market liberalism’ even classical LMEs such as the US have established a massive ‘hidden developmental state’ in order to enhance the competitiveness of their high-tech industries (see also Weiss, 2014 for a similar argument and MacNeil, 2012 for an application to US energy innovations). Thus, while empirical evidence shows that differences between LMEs and CMEs are not so clear cut as suggested, the relevance of the VOC approach is to highlight the importance of the institutional context as an important factor supporting innovations.

Another important line of criticism points to the need to develop new categories as the existing LME–CME dichotomy does not fit several political economies, not even in Europe (Schmidt, 2003). More recently, political economists and area studies scholars have started asking whether the VOC typology can be applied to transition states. As argued by Nölke and Vliegenthart (2009), the common trait that unites the central and eastern European subtypes of capitalism is their dependence on foreign capital and investments. Such an economic model requires flexible and relatively cheap labour. The education and science base is less important because innovations and added value typically occur abroad in the headquarters of foreign corporations. Thus, in contrast to both LMEs and CMEs, foreign dependence of firms and whole political economies is a major characteristic of the region that also shapes domestic institutional arrangements. This has led to the emergence of a new variety of capitalism, termed DMEs¹.

Drawing on the theoretical reflections discussed above, the article borrows from the VOC framework but also departs from it in important ways. First, it employs one of the central arguments from the VOC literature, namely that the type or level of coordination among market actors is central to the functioning of the economy. However, unlike the exclusive focus on firms in the VOC framework, an important role is also assigned to other actors: the state, science (academia and research) and civil society. In other words, the economic development is seen to be shaped by the complex mechanisms of coordination among a large number of actors. The role of the state is considered central given its legal authority and the ability to reshape the interactions of other actors. Second, and related to the mechanism of coordination, the empirical analysis in the article is informed by the VOC concept of comparative advantage. The data shows that Germany, due to its state–industry–science base, has specialized in the exports of research-intensive medium-tech products in traditional industrial sectors including the automotive industry and mechanical and electric engineering (DB Research, 2010). This is accompanied by the high level of both public and business spending on R&D (OECD, 2015). The UK, on the contrary, has established a comparative advantage in the service sector, such as financial and business services (BIS, 2012). The number of patents and the level of R&D are comparatively lower with the largest share of innovations being performed by foreign-owned companies in few high-tech industries, particularly pharmaceuticals (OECD, 2015). The DME countries have generally specialized in industrial activities that compete on prices. The industry–science relationship is weak and domestic innovations scarce, although cross-national variations exist (OECD, 2015)². These data reveal interesting patterns of specialization across EU economies that correlate with the basic VOC proposition on comparative advantage. The article seeks to explore how the adoption of renewable energy relates to the specific positioning of the key EU varieties of capitalism. Finally, the article pays attention to broader contextual factors that affect the shape and effectiveness of coordination. Whereas coordination mechanisms and economic structure are rather stable, they are linked to the broader societal context and can be reinforced, adjusted or reshaped by the incremental or rapid disruptions in the context. Such disruptions can be, for instance, exogenous shocks, significant shifts in political power and/or technological breakthroughs. The following three sections provide empirical illustration for applying the adjusted VOC framework to renewable energy development by highlighting policy developments in CMEs, LMEs and DMEs, respectively.

3. Coordinated market economies: Germany

German renewable energy policy is the most studied case of the successful promotion of new renewable energy sectors and technologies. In 2015, Germany had the largest overall amount of installed non-hydro renewable power capacity in the EU and second behind Denmark in terms of the installed capacity per capita (REN21, 2015). Germany's leading role, both in terms of renewable energy deployment and industrial growth, particularly solar and wind, has been explained by the existence of a set of conducive factors, the most important being comprehensive and stable government support (Lema, Nordensvärd, Urban, & Lütkenhorst, 2014). Since the late 1980s, a number of demand-side and supply-side policy measures have been applied and continuously refined aiming to expand the domestic renewable energy sectors. In terms of the supply-side, the policy framework for renewable energy utilization has been in place since the first Feed-in Law in 1990. This was replaced by a more favourable Feed-in Law in 2000 that guaranteed a fixed above-market price for electricity from RES over the period of 20 years. The establishment of a policy framework has been accompanied by state-funded pilot projects, such as programmes for 100 MW in wind power and ‘1,000 Roofs’ for solar photovoltaics implemented between 1991 and 1995 (Lauber & Metz, 2004). In parallel to national policies, support schemes at federal and municipal levels played an essential role in maintaining the momentum of renewable energy sector development during the formative phase, given the occasional uncertainties and political disputes at the national level (Bruns, Ohlhorst, Wenzel, & Köppel, 2011). Interestingly, the two programmes for solar and wind projects, as well as early subnational policies, had elements of supply-side support since German companies were clearly favoured in the procurement process (Jacobsson & Bergek, 2004). The stable regulatory framework facilitated relatively easy access to loans and credits for renewable energy investors. Here the state played critical role mainly through the activities of the government-owned development bank (Kreditanstalt für Wiederaufbau ( KfW)), which provided concessionary loans for more than 80% of installed wind generators in Germany (Tisdale, Grau, & Neuhoff, 2014). Another recent initiative administered by KfW has been the Offshore Wind Energy Programme designed to reduce the financing risk for the planned offshore wind energy projects in Germany (KfW, 2015).

Additional measures for boosting the supply and competitiveness of renewable energy technologies in Germany include public spending on RD&D activities that promote cooperation in the form of clusters and alliances between business, academic and non-academic research institutes (Lema et al., 2014). An example of such cooperation schemes includes the Energy Research Programme launched by several federal ministries with the overall annual budget of around EU€1 billion (GTAI, 2015). Germany has seen the largest and most steadily increasing share of both state and private RD&D funding for RES (OECD iLibrary, 2015). Furthermore, the Federal Ministry for Economic Affairs and Energy and German Trade and Invest Agency have been active in facilitating foreign direct investments in the renewable energy sector together with the support to domestic renewable energy companies in their positioning in external markets. A case in point is the Renewable Energies Export Initiative, which operates under the Ministry for Economic Affairs and Energy. As a result, in 2013 the renewable energy sector in Germany employed 363,100 people, by far the highest number in the EU (Eurobserver, 2014, 136). Germany also records the largest number of technological patents in solar and wind energy in the EU (European Commission, 2014, 109) and hosts several leading global manufacturers of renewable energy components, particularly in wind energy (REN21, 2015, 71). The new renewable energy sectors have thus been able to build upon the strong mechanical and electronic engineering tradition in Germany.

A distinctive feature of the German transition towards RES has been the broad participation of a variety of actors such as local communities, households, farmers and domestic companies across the entire supply chain. This decentralized, bottom-up development path has not only strengthened the public acceptance of renewable energy technologies, but has also contributed to the expansion of the domestic market as well as industrial growth and innovations. According to a survey from 2013, over half of the renewable energy production capacity in Germany is privately owned (BEE, 2015). In addition, CME-related peculiarities of the banking sector, more specifically Germany's wide network of regional and locally-embedded banks, have played an important role in making this happen. Not only that the large majority of energy cooperatives are financed by regional banks (DGRV, 2015a), but there has also been a close cooperation between local governments, banks, citizens and small and medium-sized firms in financing, supplying and managing renewable energy facilities (The Energiewende Blog, 2014; Wieg, 2013).

Overall, the success of Germany's ‘Energiewende’ in advancing all three dimensions of the renewable energy transition can be attributed to the strong industrial base and the developed system of state-enhanced industrial promotion together with the locally-embedded state–market–society coordination mechanisms. The progress in each of the three dimensions has had a reinforcing effect on the other two contributing to the stable and sustainable expansion of renewable energy. A range of supporting contextual factors has enabled Germany to utilize and further develop the existing coordination mechanisms for renewable energy policy (Laird & Stefes, 2009). The most notable were changes in global energy prices (Cheon & Urpelainen, 2012) as well as the nuclear accidents in Chernobyl and Fukushima that raised public awareness about energy-related environmental risks and facilitated the acceptance of renewable energy technologies (Jahn & Korolczuk, 2012).

Recent developments, however, indicate a shift in the policy strategy with important implications for the future trajectory of renewable energy transition, particularly concerning its participatory dimension. Instead of non-conventional price-based and locally driven approach that transformed renewable energy from a niche sector to an important component of the prevailing regime, the current strategy for turning renewables into a dominant energy source is set to increasingly rely on market mechanisms and concentration of energy production. The government has announced plans to replace the feed-in-tariff (FIT) scheme with an auction mechanism as means of ensuring cost-effectiveness (Lang & Lang, 2015). This is expected to favour large energy companies at the expense of smaller private investors. There is already a trend of distributed renewable energy deployment being replaced by large-scale projects, particularly in the wind energy sector. This will affect the type of technological innovations from German companies that are heavily reliant on meeting the needs of the domestic market (see Lema et al., 2014). The number of newly formed energy cooperatives has also seen a large drop in 2014 compared with 2013 (DGRV, 2015b).

4. Liberal market economies: The UK

The UK has long been regarded as a laggard when it comes to promoting RES and decarbonizing the energy sector. Although some experimentation with public spending in RD&D projects in renewable energy had been practiced after the oil crisis in 1970s (Kern, Smith, Shaw, Raven, & Veerhes, 2014, 18) more concentrated government efforts to develop the domestic market and explore economic opportunities in the renewable energy sector have begun to gain ground only recently. The reasons for this can largely be attributed to the in-built reluctance of the UK political-economic setting towards non-market and targeted industrial policy measures (Mitchell, 2008; Mitchell & Connor, 2004) and the related resistance of interests groups, such as the Energy Intensive Users Group and the trade unions (Cheon & Urpelainen, 2013, 891). Contrary to the proactive role of CME countries such as Germany and Denmark, which were able to ‘upload’ their ambitious renewable energy policies to the EU level, the UK government adopted renewable energy targets mainly in response to EU and international climate and energy policy commitments. Even then, the underlying principle behind the UK renewable energy policy was almost exclusively cost-effectiveness, rather than innovation, job creation or societal participation. This was visible in the support scheme for renewable electricity generation, called Renewables Obligation (RO) and adopted in 2002. The scheme required energy suppliers to increase the share of RES in their portfolio. Initially, the RO scheme was entirely market-based and technology-neutral. This eventually proved to be inadequate for meeting the national renewable energy targets as it provided little incentive for more costly and less mature technologies such as solar and offshore wind. To address this problem, the government amended the RO scheme in 2009 offering different levels of support to different groups of technologies. The real expansion of the domestic renewable energy market and industry did not take place, however, until the UK employed some of the targeted CME-style institutional and policy mechanisms.

In 2010, the government introduced a FIT for small-scale renewable energy technologies up to 5 MW of installed capacity. This particularly benefited the solar photovoltaic (PV) sector, which began to expand rapidly due to the offered subsidies (Smith, Kern, Raven, & Veerhes, 2014). Starting from a virtually zero base, the total capacity of solar PV increased to as much as 5228 GW at the end of 2014 (UK Government, 2015). Although the FIT scheme came under critique and had been reviewed on several occasions, it still remains the main support mechanism for small-scale renewable energy investments. Whereas solar PV technology continues to be controversial due to higher costs and mostly imported equipment, offshore wind has been increasingly recognized by the government as the key sector for strengthening energy security and boosting industrial competitiveness. In 2013, the British government published the Offshore Wind Industrial Strategy, which points out that ‘offshore wind power represents a unique opportunity for the UK to support thousands of highly skilled jobs, increase energy security and vastly reduce carbon emissions’ (UK Government, 2013, 4). The document stresses that the government and industry will work together to enhance domestic manufacturing capacities and local supply chains in the offshore wind energy sector. One of the probable reasons behind the government decision to prioritize comparatively costly and high-risk offshore wind technologies is the influence of domestic industries that have expertise in the offshore business from oil and gas drilling. A range of new institutional bodies and government-funded initiatives have been launched to ensure the realization of the offshore wind development strategy, including education programmes, investment grants and R&D projects (Kern et al., 2014, 21). Among the most prominent is the GROW Offshore Wind programme, supported by the UK Regional Growth Fund, which provides grants, expertise and other services to interested manufacturing companies and investors (GROW: Offshore Wind, 2014). In addition – and similar to the role of KfW in Germany – the UK government founded a state-owned Green Investment Bank in 2010 with the purpose of financing and mobilizing private capital for selected green investment sectors. The effects of the new policy strategy on the renewable energy deployment and industrial growth have been notable. Alongside Germany, the UK is now the fastest developing renewable energy market with by far the largest offshore wind power sector (Eurobserver, 2014, 13). In 2013, the UK ranked third in terms of the number of renewable energy jobs in the EU, surpassing countries such as Denmark, Italy and Spain. Out of 98,700 renewable energy jobs in the UK the highest employment has been created in the wind sector with 36,000 jobs (Eurobserver, 2014, 136). The manufacturing sector, however, is still underdeveloped as shown by the large trade deficit of the UK in wind energy components recorded in the period 2007–2011 (European Commission, 2014, 111).

Progress in the area of decentralized renewable energy generation and community-owned renewable energy projects in the UK has been lagging behind. The dominant RO support scheme has favoured large-scale projects implemented and owned by large power utilities. The enactment of the FIT in 2010 has improved the conditions for individuals and cooperatives to engage in building and operating renewable energy facilities. The change in the support instrument alone, however, does not appear to be sufficient. A number of obstacles for community-led renewable energy development still remain to be tackled, particularly the investment conditions, planning procedures and infrastructure (Nolden, 2013). The UK government has undertaken some steps to address these problems. In 2014, the Department of Energy and Climate Change published a Community Energy Strategy highlighting the government's ambitions to facilitate community renewable energy projects. The Green Investment Bank, for instance, has dedicated substantial financial assistance to community-scale projects in hydropower and wind. The success of these measures to promote community energy in a centralized energy regime is still highly uncertain.

Overall, the case of renewable energy in the UK demonstrates the significant capacity of LMEs for policy learning and strategic adjustments necessary to develop the renewable energy market and enhance industrial capacities. Multiple factors have enabled policy learning, such as the influence of EU policy, the economic crisis and renewed interest in industrialization, the sufficiently large domestic market and abundance of natural resources (especially wind). Political changes at the national level have also been important, particularly the role of liberal democrats who were in charge of the Department for Energy and Climate Change in the period 2010–2015. Although the UK has been to some extent successful in catching up with renewable energy forerunners among CME countries, particular features related to its latecomer position and broader liberal market setting continue to shape and constrain the pace and direction of the renewable energy transition. The insufficient experience of national and local administration with renewable energy projects and the related delays in local planning and issuing of permits illustrate the longer time scope needed for building administrative capacities for renewable energy. Furthermore, the lack of vocational training and the associated lack of a qualified workforce in the renewable energy sector (Renewable UK, 2013), together with the limited coordination mechanisms among the state, industry and the financial sector, are typical characteristics of LMEs that prevent the UK from fully replicating the renewable energy development path of CME states.

5. Dependent market economies: The new EU member states

Although the transition towards a market economy has largely been completed in all DME countries, their level of economic development measured by the GDP per capita is still well beyond the one found in the older EU member states. As a consequence, the quest for boosting short-term economic growth and competitiveness remains the central priority of DME governments. The goal of promoting RES has not always resonated well with such a political agenda and economic logic. All DME countries have adopted national renewable energy targets and related policy frameworks as required by the EU renewable energy acquis. The pace and shape of renewable energy deployment has varied considerably among countries but the ‘stop and go’ approach has been a common phenomenon. Hungary, for instance, increased its wind power capacity to 331 MW in 2011 (Eurobserver, 2013) but by 2014 no additional wind power had been added (Eurobserver, 2015a). Interestingly, although it is endowed with significantly higher potential in solar energy, the installed solar PV in Hungary was only 38.2 MW in 2014 (Eurobserver, 2015b). Slovakia and Czech Republic, on the other side, have witnessed rapid increase in solar energy utilization in the past years but this trend has come to a halt. In 2014, no new solar power plants were registered in Czech Republic whereas in Slovakia only 2 MW of new solar PV capacity was added. Poland has been somewhat more successful in maintaining the growth of its wind energy sector, but investments in the solar power sector have been limited with only 24.4 MW of the installed capacity in 2014 (Eurobserver, 2015b). Bulgaria and Romania have seen the highest growth rates in wind and solar energy in the EU over the past few years. Bulgaria reached 1020 MW in solar power in 2014 while Romania recorded 1292 MW (Eurobserver, 2015b). Only Czech Republic had a larger solar power sector than Bulgaria and Romania among DME countries. In terms of wind energy, Romania had as much as 3221 MW of cumulative capacity at the end of 2014, while Bulgaria had 686 MW (Eurobserver, 2015a). Only Poland had more installed wind energy among DMEs. These trends, particularly for Bulgaria, have turned out to be highly unsustainable. In 2014, Bulgaria added only 1.3 MW in solar power capacity and 10.1 MW in wind power (Eurobserver, 2015b).

Although EU pressure has clearly been the dominant force behind opening up the domestic renewable energy market in DMEs (for Poland, see Skjærseth, 2014), a number of national-level factors have contributed to the uneven and unstable deployment of renewable energy. These factors, common for DMEs, include a lack of transparency and policy stability, high corruption, weak state capacity, low environmental awareness, financing constrains and strong state involvement in the traditional power sector. Regulatory instability and insufficiently transparent administrative procedures have been highlighted as major obstacles to sustainable renewable energy growth in DMEs (EU Tracking Roadmap, 2014). There have been reports about corruption related to the politically motivated approval process of renewable energy projects in countries like Slovakia and Czech Republic (Ecologic & Eclareon, 2013a; Meza, 2013). The most extreme case of political instability and lack of state capacity has been witnessed in Bulgaria, where the surge in electricity prices, partly attributed to the booming renewable energy sector, has led to the dissolution of the government and new parliamentary elections. Following the initial expansion of RES that helped DME countries to fully or partly meet their obligatory national targets, virtually all governments introduced measures that have either reduced subsidies for green electricity or entirely abolished the support for new facilities. Furthermore, some countries introduced retroactive taxes on renewable energy production, such as the tax on solar power in the Czech Republic in 2011 (Ecologic & Eclareon, 2013b).

There is little evidence about comprehensive policy efforts in DME countries aimed at promoting renewable energy innovations and involving domestic companies in the supply chain. Given the relatively small markets, high dependence on foreign direct investments and finances together with the inadequate state–industry–science collaboration, the conditions for enhancing manufacturing and export of renewable energy technologies are not particularly favourable. The data on the number of direct and indirect jobs created in the renewable energy sector shows that Poland ranks highest among the DME states with 34,850 jobs while Slovakia has the least number (4,450) of renewable energy jobs (Eurobserver, 2014). The largest share of jobs is located in the already well-established biomass sector. It is difficult to distinguish between the number of jobs in the manufacturing and service sector, although it is reasonable to assume that most jobs are created in the latter. The figures related to the trade balance in wind and solar components for the period 2007–2013 show that only Slovakia has a positive trade balance in both sectors, while the Czech Republic has a positive trade balance in wind components. Romania and Bulgaria display the largest trade deficits in both solar and wind energy components (European Commission, 2014, 111). This indicates the higher capacity of those DMEs that became EU members in 2004 to compete in the global renewable energy market given their comparatively stronger industrial base. The DME states, OECD members excluding Bulgaria and Romania, have also witnessed considerably less RD&D spending on new RES (wind and solar) compared with more developed EU states (OECD iLibrary, 2015).

Civic participation in renewable energy production in DMEs is still a marginal phenomenon. The relatively recent expansion of renewable energy deployment characterized by top-down policy-making, lack of transparency and the dominant role played by large power utilities has provided little incentive for decentralized community-owned projects. A recent analysis highlights the inadequate state–society policy dialogue and complicated administrative barriers as major impediments to decentralized renewable energy generation in Bulgaria and Poland (EESC, 2014, 18). Other studies also find scarce decentralized renewable energy initiatives across DME countries (Kunze & Becker, 2015).

By and large, many DME countries have seen impressive but unstable increases in electricity produced from RES. Renewable energy promotion has, however, often not correlated with countries’ natural potentials and has been one-sidedly driven by the need to meet national renewable energy targets that lack efforts towards stronger involvement of domestic companies and citizens. It is mainly foreign investors and privileged domestic actors that have benefited from renewable energy policy. Low rates of RD&D spending, especially in solar and wind, reflect the general economic model and signify a weak base for technological modernization and industrial competitiveness.

6. Discussion & conclusions

The presented analysis has contributed to the current theoretical and policy debates on clean energy transitions in several important ways. First, it has introduced an innovative and comprehensive way of assessing renewable energy policies that goes beyond the focus on the utilization of RES by emphasizing the role of industrial interests and positive effects of societal participation on policy stability and technological innovations. Second, the article has demonstrated that some EU varieties of capitalism face less structural constraints than others and are thus better equipped to achieve economic, social and environmental benefits from advancing renewable energy sectors. It has been argued demonstrated that the success of the renewable energy transition in Germany can be attributed to the country's specialization in innovative mechanical and electrical products supported by the coordinated and locally embedded government–industry–finance–science–society interactions and the established government mechanisms for promoting the supply and creating markets (both nationally and internationally) for new technologies. This has been facilitated by favourable contextual factors and multiple decision-making centres, which allowed for technological and policy experimentation and diffusion. The lack of such facilitating structural and contextual conditions in LMEs (in this case, the UK) and particularly DMEs has implied more serious obstacles and less success in embracing renewable energy technologies. This finding is in line with the evidence from other political–economic analyses that show the advantage of CMEs in green industries (Bernauer & Böhmelt, 2013; Lachapelle & Paterson, 2013) and challenges the assumption of the VOC literature about the complementarity among different VOCs regarding economic development. One should be cautious, however, in generalizing this observation to other policy fields, given the distinctiveness of the energy sector and renewable energy innovations.

Another key finding concerns the interdependences among different varieties of capitalism and the ability for mutual policy learning and policy diffusion. The possibility of replicating institutional and policy mechanisms from one type of capitalism to the other, nonetheless, continues to be constrained by domestic political–economic settings. As has been shown, the prevailing LME context has long influenced the renewable energy policy paradigm in the UK by prioritizing market-based and technology-neutral policy approaches. Once the consensus has emerged that more targeted and comprehensive policy strategy is needed to meet national targets and maximize benefits for local economy, the UK has proved capable of adopting some CME-style policy mechanisms and advance the domestic market and job creation, especially in the offshore wind energy sector. The policy choice of offshore wind has been motivated by the number of reasons, not least because of industrial interests and expertise from offshore drilling. However, the lack of manufacturing base, vocational training and state-facilitated finance, typical for LMEs, still pose barriers for realizing the full potential in the area of renewable energy in the UK. Interestingly, the offshore wind market in the UK has so far largely benefited German (Siemens) and Danish (Vestas) companies as the dominant suppliers of offshore wind turbines.³ Some of the DME countries have also adopted the policy instruments for promoting renewable energy that proved effective in Germany and other pioneering CME countries, such as FiTs. Due to the insufficient presence of other facilitating factors, especially state capacity and state–industry–science collaboration, the results have been only partial success, limited to renewable energy deployment. This shows the importance as well as the limits of the EU energy and climate policy, which has been one of the driving factors behind the diffusion of renewable energy policies, but has been less concerned with building national capacities for a comprehensive and context-tailored renewable energy growth, most notably in the DME countries. The interlinkages of renewable transitions across EU member states, as well as the role of domestic interest groups and external shocks, stress the importance of embedding the analysis of the VOC into dynamic external and internal processes.

The recent developments are also telling for the domestic–external dynamics and the future of the renewable energy transition in the EU. A strong convergence pressure can be noted towards a more uniform and market-based renewable energy governance, both at the national and EU level. This has come as a result of the increased global competitiveness, divergent positions of EU members, financial constraints and growing pressure for promoting cost-effectiveness and reducing market distortions caused by the subsidized renewable power production. At the EU level, this has resulted in the abolishment of national renewable energy targets and the focus on common energy market in the new EU energy and climate package (Szulecki & Westphal, 2014). However, in the absence of strong EU conditionality, there is a risk that the already weak incentive for policy learning and comprehensive renewable energy efforts across EU economies will be reduced. This implies that the unequal capacity for capturing the value from renewable technologies among the EU countries will be maintained, if not amplified. Therefore, if balanced renewable energy development in the EU is to be achieved, it will require going beyond the common market model towards common industrial and innovation policies aimed at building local capacities, enhancing policy and technology diffusion, ensuring broader societal participation and exploring the comparative advantages of different national economies.

This article hopes to stimulate further research aimed at investigating the changing state–industry–finance–science–society relationship in renewable energy sectors within and across different varieties of economies. More in-depth studies of renewable energy innovations and industrial building in emerging markets, such as in east-central Europe, that would test some of the propositions made in this article by taking into account country-specific features, are particularly needed.

Disclosure statement

No potential conflict of interest was reported by the authors.

Acknowledgements

This work occurred with the framework of the Political Economy of Clean Energy Transitions project, which is jointly managed by the World Institute for Development Economics of the United Nations University and the Joint Institute for Strategic Energy Analysis with the National Renewable Energy Laboratory of the United States. Financing from UNU-WIDER is gratefully acknowledged.

Notes

1 Relying on the work of Nölke and Vliegenthart (2009), who include only Visegrad states in their analysis, we understand the DME category to include the Visegrad states as well as Romania and Bulgaria.

2 For instance, the Czech Republic and Hungary have considerably higher business R&D expenditures than Slovakia and Poland.

3 See the database on UK offshore wind projects including information on the supply-chain: http://www.4coffshore.com/windfarms/windfarms.aspx?windfarmid=UK60.