The theoretical analysis thus reveals a variety of possible benefits of technology-specific RES-E schemes which need to be put in relation to the commonly discussed costs of technology differentiation. Due to market and policy failures, a cost-effective RES-E technology mix for power generation cannot be identified on the basis of generation costs. Notably, the impacts of market and policy failure are heterogeneous across RES-E technologies. This implies that a proper correction may call for the differentiation between energy sources (e.g. intermittent vs. non-intermittent), technologies (e.g. by type of photovoltaic module), size (e.g. height of wind turbine) and location (e.g. wind onshore and offshore) of a RES-E plant. Theoretically, technology differentiation can be implemented under any type of RES-E policy – under fixed feed-in tariffs as well as under more market based approaches, such as quotas or tenders. Presumably, however, transactions costs of technology differentiation are higher under market-based approaches. Moreover, these approaches lose a lot of their appeal (in terms of reducing RES-E support costs) when technology-specific constraints are incorporated. Thus, it may be argued that the more important technology differentiation is, the less appropriate are market-based approaches.Obviously, this is not to say that technology differentiation of RES-E support schemes is by definition welfare-improving. To the contrary, existing technology-specific RES-E subsidies are usually the outcome of political negotiations and interference from affected stakeholders. This practical caveat notwithstanding, this paper illustrates that technology differentiation cannot be ruled out per se on the basis of cost-effectiveness concerns.
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