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Assessing the Strength and Effectiveness of Renewable Electricity Feed-In Tariffs in European Union Countries

39 Pages Posted: 7 Jan 2012  

Felix Groba

German Institute for Economic Research (DIW Berlin)

Joe Indvik

ICF International

Steffen Jenner

University of Tuebingen; Harvard University

Date Written: December 1, 2011

Abstract

In the last two decades, feed-in tariffs (FIT) and renewable portfolio standards (RPS) have emerged as two of the most popular policies for supporting renewable electricity (RES-E) generation in the developed world. A few studies have assessed their effectiveness, but most do not account for policy design features and market characteristics that influence policy strength. In this paper, we employ 1992-2008 panel data to conduct the first analysis of the effectiveness of FIT policies in promoting solar photovoltaic (PV) and onshore wind power development in 26 European Union countries. We develop a new indicator for FIT strength that captures variability in tariff size, contract duration, digression rate, electricity price, and electricity generation cost to estimate the resulting return on investment. We then regress this indicator on added RES-E capacity using a fixed effects specification. We find that FIT policies have driven solar PV and onshore wind capacity development in the EU. However, this effect is overstated without controls for country characteristics and may be concealed without accounting for the unique design of each policy. We provide empirical evidence that the interaction of policy design and market dynamics are more important determinants of RES-E development than policy enactment alone.

Keywords: Renewable energy, Feed-in tariff, Panel data models

JEL Classification: C23, H23, Q42, Q48

Suggested Citation

Groba, Felix and Indvik, Joe and Jenner, Steffen, Assessing the Strength and Effectiveness of Renewable Electricity Feed-In Tariffs in European Union Countries (December 1, 2011). DIW Berlin Discussion Paper No. 1176. Available at SSRN: https://ssrn.com/abstract=1980682 or http://dx.doi.org/10.2139/ssrn.1980682

Felix Groba (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

Joe Indvik

ICF International ( email )

1725 I Street N.W.
Washington, DC 20006
United States

Steffen Jenner

University of Tuebingen ( email )

Wilhelmstr. 19
72074 Tuebingen, Baden Wuerttemberg 72074
Germany

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

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