Technology learning in the presence of public R&D: The case of European wind power

The objective of this paper is to analyze the role of technology learning in European wind power generation in the presence of public R&D. A Cobb-Douglas cost function is employed to derive a learning curve model for wind power, thus illustrating how the investment costs for this technology are influenced by global learning-by-doing, scale effects, and a European R&D-based knowledge stock. We assume that public R&D expenses targeting wind power add to the above stock, and these R&D outlays are in turn hypothesized to be influenced by technology cost levels, the opportunity cost of public R&D as well as by government budget constraints. We estimate the learning and the R&D model, respectively, using a panel data set covering five European countries over the time period 1986-2002. The empirical results confirm the importance of both learning-by-doing and public R&D support in the cost reduction process, and governments' R&D expenses have declined in response to lowered investment costs. This is efficient in the sense that public funds are best targeted at technologies which are far from being commercial. The results also illustrate that governments in Europe have been sensitive to the opportunity cost of public R&D in the energy R&D budget process. (C) 2010 Elsevier B.V. All rights reserved.