Bringing breakthrough technologies to market: feed-in tariffs for solar power | Sugandha Srivastav

Dr Sugandha Srivastav is a British Academy Postdoctoral Fellow and lecturer in Environmental Economics at the Smith School of Enterprise and the Environment. Sugandha Srivastav will be discussing her paper, ‘Bringing Breakthrough Technologies to Market: Feed-in Tariffs for Solar Power’.

Abstract

To mitigate climate change, green industrial policy is being deployed widely but what type of intervention works best? This paper examines the relative effectiveness of long-term contracts versus market-based schemes in facilitating new technology adoption. Using data on all grid-scale solar project applications in the United Kingdom, I find significant bunching at the eligibility cut-off for long-term fixed-price contracts (feed-in tariffs), resulting in 40 times investment compared to a counterfactual with only clean energy tradable certificates. Since there is minimal strategic downsizing, I find that the feed-in tariff leads to at least 2.3 giga-watts of additional solar capacity from 2010 to 2015, enough to power approximately 5 million homes. Even when the government equalises expected revenues across the two instruments, firms continue bunching at the feed-in tariff eligibility cut-off. This suggests that for early-stage technologies, the risk characteristics of the subsidy instruments can substantially affect investment and entry. For most accepted values of the social cost of carbon, the feed-in tariff is a net benefit, and relative to clean energy tradable certificates it reflects far greater value for money.

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