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How fit are feed-in tariff policies ? evidence from the European wind market

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  • Zhang, Fan
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    Abstract

    Feed-in tariffs have become the most widely used policy instrument to promote renewable energy deployment around the world. This paper examines the relation between tariff setting and policy outcome based on wind capacity expansion in 35 European countries over the 1991-2010 period. Using a dynamic panel data model, it estimates the long-run elasticity of wind deployment with respect to the level of feed-in support. The analysis finds that higher subsidies do not necessarily yield greater levels of wind installation. Non-economic barriers and rent-seeking may have contributed to the weak correlation. On the other hand, the length of feed-in contract and guaranteed grid access are important determinants of policy effectiveness. A one-year extension of an original 5-year agreement on average increases wind investment by 6 percent annually, while providing an interconnection guarantee almost doubles wind investment in one year.

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    Bibliographic Info

    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 6376.

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    Date of creation: 01 Feb 2013
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    Handle: RePEc:wbk:wbrwps:6376

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    Keywords: Energy Production and Transportation; Climate Change Mitigation and Green House Gases; Carbon Policy and Trading; Climate Change Economics; Markets and Market Access;

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    1. Richard Blundell & Steve Bond, 1999. "GMM estimation with persistent panel data: an application to production functions," IFS Working Papers, Institute for Fiscal Studies W99/04, Institute for Fiscal Studies.
    2. Richard Blundell & Steve Bond, 1995. "Initial conditions and moment restrictions in dynamic panel data models," IFS Working Papers, Institute for Fiscal Studies W95/17, Institute for Fiscal Studies.
    3. Mulder, Arjen, 2008. "Do economic instruments matter? Wind turbine investments in the EU(15)," Energy Economics, Elsevier, Elsevier, vol. 30(6), pages 2980-2991, November.
    4. M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers dp0007, Centre for Economic Performance, LSE.
    5. Patrik Söderholm & Ger Klaassen, 2007. "Wind Power in Europe: A Simultaneous Innovation–Diffusion Model," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 36(2), pages 163-190, February.
    6. del Rio, Pablo & Gual, Miguel A., 2007. "An integrated assessment of the feed-in tariff system in Spain," Energy Policy, Elsevier, Elsevier, vol. 35(2), pages 994-1012, February.
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