Comparison of the effects of feed-in-premium schemes on renewable energy investment: Evidence from a laboratory experiment

Abstract

To penetrate renewable energy into electricity markets, some European countries have recently introduced a feed-in premium (FIP) policy as a successor to the feed-in tariff policy. FIP policies differ across countries in terms of how the value of the premium, which is paid in addition to a market price, is determined. Using laboratory experiments, this study attempts to reveal the difference in renewable energy investment between two different FIP schemes: fixed premium, which subsidizes a constant premium for any market price, and sliding premium, which ensures a certain minimum price by supplying a premium when the market price is less than the minimum price. We model an individual’s decision to invest in renewable energy as a linear public goods game with uncertainty in the net return on investment: the gain from the generated electricity sold at the randomly determined market price minus the cost of investment plus the gain from the increase in the public good. We find that investments are higher under the fixed-premium scheme than under the sliding-premium scheme, but this difference decreases with repetition.

Keywords: feed-in premium, laboratory experiment, public goods game, renewable energy

JEL Classification: D91, Q48, D62