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Consistent subsidy policy crucial to wind power investment

30 June 2017
Source: Nationale Beeldbank

Stable financial support continues to be an important incentive for smaller and specialized businesses to invest in wind power. Changes in feed-in tariffs result in less new capacity for wind power generation. This is the outcome of a recent study by Lone Werner and Bert Scholtens into the effect of changes to legislation on investment in wind capacity in Germany. Investment by conventional energy suppliers is less sensitive to changes to subsidies. For the traditional energy giants, it is primarily the volatility of electricity prices and construction and pollution costs that determine whether they invest in wind.

Bert Scholtens
Bert Scholtens

Werner and Scholtens studied the effects of changes to feed-in tariffs (a government payment scheme to accelerate the adoption of renewables) in the period 2000–2014. What made this study unique was that they analysed how different types of organization respond to such changes. The organizations included energy suppliers, small private investors, diversified businesses and independent energy producers. ‘We show that the exact size of the subsidy is less relevant than we would have expected. Our results suggest that policymakers should continue to try to reduce uncertainty by being clear about the risks for each type of investor. The main way the government can achieve this is by being transparent and consistent’, says Scholtens.

Werner and Scholtens conclude that the different company types have different reasons for investing in wind power. Although profitability plays a role for all types of company, the environment and local area are powerful incentives for the smaller and independent producers. The intrinsic motivation of conventional energy suppliers to invest in wind power proved limited during the period of study. It tended to be pressure from legislation or shareholders that prompted them to invest in wind power.

About the researchers

Lone Werner conducted this research as part of the Bachelor’s Honours programme at the Faculty of Economics and Business. She holds a Master’s degree in Sustainable Energy Systems from the University of Edinburgh and currently works at Denker & Wulf AG in Sehestedt (Germany). Bert Scholtens is Professor of Sustainable Banking and Finance at the University of Groningen and the University of St Andrews (Scotland). The researchers’ findings were published the Journal of Industrial Ecology.

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