The Political Economy of Offshore Wind Power: Varieties in Ownership and the Introduction of New Low Carbon Technology

Abstract

Reaching the climate goals of the Paris agreement requires massive investments in new innovative low-carbon energy technologies and projects. However, project risk is a significant factor to hold back such investments. This paper examines the crucial role of governments and public investments in the early phases of the deployment of offshore wind power (“OWP”). Following the concept of the entrepreneurial state we expect that government risk taking is essential to get a new low-carbon technology evolved to a level of maturity where stock market capital moves in to expand the diffusion of the technology. From the Varieties of Capitalism framework, we expect countries that classify as Coordinated Market Economies to be more heavily involved in the early riskful phases of technology development than Liberal Market Economies.

We empirically examine this through an analysis of all offshore wind projects in the North Sea basin from 1990 to 2020. Results show that in the riskier initial and exploratory phase until 2005, 86% of investment capital came from public sources and 14% came from private sources, with Denmark as a CME country taking the lead. From 2005 on we witness a transition where publicly owned enterprises were still leading through taking part in OWP projects abroad while also private investment was picking up. From 2015 on the declining costs of offshore wind power invited stock market capital to lead large investment growth.

These findings are relevant for organizing investments in other crucial new technologies with higher investment risk, such as the development of green hydrogen.

Keywords: offshore wind power, public ownership, innovation, energy transition, Varieties of Capitalism, climate

JEL Classification: H54, O33, O38, O43, P16, P33, P35, P48, P51