The Impact of a Feed-In Tariff on Wind Power Development in Germany

35 Pages Posted: 24 Jun 2014

See all articles by Claudia Hitaj

Claudia Hitaj

U.S. Department of Agriculture (USDA) - Economic Research Service (ERS)

Michael Schymura

ZEW – Leibniz Centre for European Economic Research

Andreas Löschel

University of Muenster - Chair of Microeconomics, esp. Energy and Resource Economics

Date Written: May 23, 2014

Abstract

We estimate the impact of a feed-in tariff for renewable power on wind power investment in Germany at the county level from 1996-2010 controlling for windiness and access to the electricity transmission grid. After the Renewable Energy Law (EEG) was passed in 2000, the feed-in tariff became linked to wind power potential, such that more windy locations received a lower incentive per unit of output. We find that a 1 e-cent/kWh increase in the feed-in tariff rate would increase additions to capacity at the national level by 764MWper year from 1996- 2010 or 1,528 MW per year from 2005-2010. We analyze counterfactual scenarios, in which a uniform incentive is offered instead of the wind-dependent EEG incentive. Significantly more wind power plants are installed along the northern coastal counties in the uniform incentive scenario. We find that while the uniform incentive results in greater total wind power output per installed capacity, the EEG is ultimately more efficient by achieving 1% greater wind power output per euro and 3.7% greater reductions in power sector emissions per euro. In addition, we find a significant response from investors to an EEG provision that shifted the cost of transmission system upgrades from wind power developers to grid operators in 2000. The lack of a signal on scarcity of transmission capacity has likely resulted in a distribution of wind power plants that makes suboptimal use of existing infrastructure, necessitating investment in new transmission corridors.

Keywords: wind power, feed-in tariff, electricity transmission

JEL Classification: Q0, Q42, Q50

Suggested Citation

Hitaj, Claudia and Schymura, Michael and Löschel, Andreas, The Impact of a Feed-In Tariff on Wind Power Development in Germany (May 23, 2014). ZEW - Centre for European Economic Research Discussion Paper No. 14-035, Available at SSRN: https://ssrn.com/abstract=2457779 or http://dx.doi.org/10.2139/ssrn.2457779

Claudia Hitaj

U.S. Department of Agriculture (USDA) - Economic Research Service (ERS) ( email )

355 E Street, SW
Washington, DC 20024-3221
United States

Michael Schymura (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Andreas Löschel

University of Muenster - Chair of Microeconomics, esp. Energy and Resource Economics ( email )

Universitätsstr. 14-16
48143 Munster
Germany

HOME PAGE: http://www.wiwi.uni-muenster.de/eroe

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