Who benefits from subsidies for renewable energy?

Countries around the world subsidise investment in renewable energy sources (RES) as part of strategies to alleviate global warming. One often-overlooked dimension of such subsidies is who benefits from them. For example, in the case of wind turbines, is it the electricity producer or the owner of the windy plot of land? This research investigates this question in the context of a feed-in tariff, which guarantees a fixed wholesale price for green electricity for a certain period after the construction of a plant and obliges grid operators to accept the feed-in of green electricity and to compensate  producers at a fixed price. Such a tariff was introduced in Germany in 2000.

The research focuses on the price of agricultural land (the main site for wind turbines) before and after the introduction of the scheme. The research shows that agricultural land prices increased in areas with above average wind strength after 2000, which suggests that at least part of the subsidy is capitalised into land prices and thus benefits land owners. To quantify the land owners’ share of the subsidy, the research constructs a measure of the potential income of wind turbines in a particular area, and hence the size of the subsidy. This suggests that land prices increased by almost 20% of expected wind turbine profits or 10% of the expected subsidy paid. The research finds that agricultural income in Germany increased by 4% between 2000 and 2007 due to the subsidies.

These results have two main implications. First, since a nonnegligible part of RES subsidies is reaped by land owners, there is a case for using land taxes to finance the subsidy. Second, RES subsidies also have implications for other land and property prices. A higher value of agricultural land reduces the likelihood that the land is used for residential or commercial purposes. As a result, residential and commercial property prices are higher in areas with suitable conditions for RES electricity production.

Haan, Peter and Martin Simmler, “Wind-electricity subsidies – A windfall for land owners? Evidence from a feed-in tariff in Germany”, Journal of Public Economics 2018, 159,16-32.