Testing the Effectiveness and Consistency if Feed-in Tariffs

Growing concern for climate change and rising scarcity of fossil fuels are on the basis for governments to stimulate the development of renewables. Photovoltaic solar (PV) as one of them has made its growth spurt most recently with an average yearly growth of 47% over the last decade. The feed-in tariff (FiT) is evolved to be the most popular policy in supporting PV generation. A few studies have assessed the effectiveness of this specific policy, but the role of FiT-structure and policy-consistency are not taken into account yet. Panel data estimations are employed for 30 OECD-members over the period 1990-2011. This paper empirically tests whether feed-in tariff policies have been effective in the development of PV Solar, explicitly taking into account structure and consistency of feed-in tariffs. Two new indicators will be composed: one to measure policy-consistency and another to analyse the effectiveness of feed-in tariffs, based on six separate design features. We find a positive relation between the presence of a FiT and the development of a countries’ share of PV in the electricity-mix. The design feature that primarily explains this relation is contract duration. We find limited proof for the role of policy-consistency: there is some evidence that a sustainable FiT-policy is on average more effective than a very strong FiT.