Is Bigger Better? Study Grades Economic Recovery Strategies on Energy Project Size

A study by researchers from the International Institute for Applied Systems Analysis (IIASA) critically examines pandemic recovery spending in the United Kingdom, France, Germany, and South Korea—all of which poured heaps of public funds into renewable energy and decarbonization programs. 

 

Researchers compared the energy-targeted spending strategies of four countries: the U.K., France, Germany, and South Korea. Compared to large-scale “lumpy” technologies requiring high investment, the “granular” technologies were more ideal, with speedy timelines, lower risk, wider distributed benefits, and more jobs. Image used courtesy of the study authors

 

The study’s authors found that the programs’ performance depends on the size of the targeted projects, as small-scale technologies like solar panels and electric vehicles have relatively low investment costs, are quicker to deploy, and create more jobs. And the benefits are more widely distributed than large-scale nuclear or carbon capture and storage projects. 

Accordingly, technological “granularity” is a crucial design consideration for investment programs. In contrast, concentrating public funds on a small number of megaprojects (called “lumpy” projects by the authors) can be risky. 

The study, published in Joule, analyzed 93 COVID recovery programs aimed at renewable energy expansion in the four countries, which allocated $92.1 billion in green recovery spending to low-carbon projects across five sectors. They found South Korea’s “New Deal” initiative performed best in selecting granular projects, such as EV charging, distributed renewables, smart meters, and other technologies that can be deployed quickly. Meanwhile, the U.K. performed worst, focusing on a few mega-scale energy projects with higher risks. 

The four countries accounted for 46% of all green recovery spending programs announced during the pandemic. (For context: Globally, $18.16 trillion has been spent on COVID-19 recovery across advanced, emerging, and developing economies alike, according to the Global Recovery Observatory. Nearly $1 trillion was “green spending,” targeting the energy transition.)

 

Granular Portfolios: How Do Countries Stack Up By Activity?

The IIASA researchers found that the types of economic activity targeted by green recovery funding programs can explain variations in the technological granularity of countries’ overall funding portfolios. 

Comparing all green recovery portfolios, Germany, France, and South Korea were fairly similar, with granularity ranging from $16.4 to $27.8 million per unit investment. The U.K. far surpassed that, with average unit costs of $300.8 million. 

 

Renewable energy projects for decarbonization. Image used courtesy of Pexels

 

Some of the U.K.’s larger funding programs targeted granular technologies in the transportation and buildings sectors, such as $1.6 billion for EV charging stations in urban areas and another $2.5 billion for residential efficiency enhancements, heat pumps, and rooftop solar panels. But the country’s portfolio trends towards large-scale energy and industrial projects, such as nuclear power, carbon capture, utilization, and storage (CCUS), and blue hydrogen (natural gas + CCS). 

The researchers also found that nearly half of the recovery funds across all countries targeted consumption-side spending, incentivizing end-users (households and firms) with the final benefit of technologies like EVs via purchase subsidies. Another 31% focused on production, typically with large manufacturers as direct beneficiaries, while 23% targeted infrastructure. These two categories typically rack up higher per-unit costs. 

South Korea’s funding programs favored the consumption side (55%), while production and infrastructure claimed shares of about 20% each. Germany’s model allocated 51% towards production, while France spent more on consumption (around 40%). In the U.K., green recovery was weighted towards consumption (46%), though the lumpy nature of its investments on the production side (32%) drove down the overall granularity of its portfolio. 

 

Sector Comparison

The researchers also compared the average per-unit costs of low-carbon technologies/infrastructures across sectors. Variation was low for industry and land use but high for transport, buildings, and energy supply, because of the range of technologies targeted through the programs. For instance, Germany’s R&D and manufacturing funding programs for aviation, shipping, automotive, and hydrogen production facilities racked up higher costs than in other countries like South Korea, whose programs mainly targeted liquid petroleum gas conversions, distributed charging infrastructure, and EV purchases, with lower average costs. 

The transport sector claimed 51% of the total green recovery funding across all countries, followed by buildings (nearly a quarter), industry (12%), energy supply (10%), and land use (only 3%). Transport dominated Germany’s portfolio with 72%, while the U.K. had the highest share of building sector investments (nearly 40%). South Korea, where fossil fuels account for around two-thirds of electricity generation, invested a significant percentage (26%) on energy infrastructure and supply resources, such as microgrids, smart meters, and offshore wind. 

 

This chart shows the four countries' average unit costs and cumulative green recovery funding. Error bars represent uncertainty around cost estimates due to variations in discrete technologies specifications and targeted areas. Image used courtesy of the authors

 

Overall, the sector breakdowns show that building technologies are generally more granular since they target efficiency upgrades, heat pumps, solar panels, insulation, and lighting rather than the more costly manufacturing and supply chain investments. 

Investments in the transportation sector were much higher, as programs focused on consumer EV adoption and battery manufacturing, hydrogen refueling stations, and other infrastructure improvements. Likewise, the energy sector also targets consumers and producers, with unit costs ranging from small-scale smart meter installations to mid-sized investments like microgrids to cost-intensive offshore wind and nuclear projects.