Energy transition in Germany and regional spillovers: What triggers the diffusion of renewable energy in firms?

The success of an energy turnaround towards renewables highly depends on the willingness and ability of firms to adopt energy technologies using renewable sources. Existing studies focused on the role of regulation and energy markets (e.g. the price for fossil energy) to explain the diffusion of green energy technologies. The present paper tries to give a more comprehensive view on the determinants of renewable energy innovations focusing on the crucial role of firms' regional environment (role of regional spillover effects, the greenness of a region and the regional endowment with green energy plants). We use a unique database combining the Community Innovation Survey 2014 for Germany and NUTS 3 data on renewable energy plants, the greenness of a region and other economic control variables. We find that geographical proximity to electricity production based on renewable energy sources and the orientation of a region towards 'green issues' (measured by the share of green party voters) are both major drivers for such innovations. Furthermore, our results show that in addition to regulation, government subsidies for eco-innovation, high energy costs and regional knowledge spillovers contribute to a rapid adoption of renewable energy. The reinforcing nature of this process leads to a diverging regional development of renewable energy innovations.