Abstract
We estimate the impact of a feed-in tariff (FIT) on wind power investment and emission reductions in Germany from 1996–2010. We find that a 1 €-cent/kWh increase in the FIT rate would increase additions to capacity by 796 MW on average per year from 1996–2010. In addition, we find that proximity to existing transmission lines became less of a consideration in determining the location of new wind power plants, after a Renewable Energy Law (EEG) provision shifted the cost of transmission system upgrades from wind power developers to grid operators. The lack of a signal on scarcity of transmission capacity may have contributed to a distribution of wind power plants that makes suboptimal use of existing infrastructure, necessitating investment in new transmission corridors. In 2000, the EEG also replaced the uniform feed-in tariff with one linked to wind power potential, such that more windy locations received a lower incentive per unit of output, in order to contain costs and spread investment across the country. We compare the wind-dependent EEG incentive with a counterfactual scenario, in which a uniform incentive is offered, and find that the EEG is slightly more cost-effective, achieving about 4% greater reductions in power sector CO2, SOx, NOx, and PM10 emissions.
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