Institutional Innovation for Technological Transition: A Taxation Principle for Renewable Energy Systems

The technological transition towards a renewable energy supply requires institutional innovation in the energy system. Based on recent insights from technical system analysis, this paper proposes a new electricity tax model. The concept is developed on basis of a case study of the Danish district heating sector. However, it addresses a wider and more permanent allocative issue for a renewable energy system; the competition between biomass and wind energy. The concept is designed to achieve parity between biomass and wind energy without boosting the demand for fossil fuel based electricity. The effect of the tax concept is analysed. The proposal secures desirable private economic incentives while improving the tax revenue for the state, compared to the current empirical trend.