The impact of a feed-in tariff on wind power development in Germany

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 (sic)-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.