Wind-electricity subsidies – A windfall for land owners? Evidence from a feed-in tariff in Germany

Subsidies for renewable energy sources are increasing around the globe and amounted to more than 100 billion euro in 2013. This study aims to answer whether the subsidies only ensure that green electricity plants are profitable or whether other market participant – as, for example, landowners – benefit from the subsidy in the form of windfall gains as well. To identify the causal effect of the subsidies, we investigate the impact of the introduction of a price guarantee in the form of a feed-in tariff for wind electricity in Germany on land prices. We employ two different approaches. Both approaches exploit quasi-experimental variation in wind strength across 260 non-urban counties in combination with the introduction of the subsidies. Based on a difference-in-differences design, we find that land prices increased by roughly 1100 euro in high-wind areas after the introduction of the subsidy. Further, using an instrumental variable estimator we document that around 18% of expected wind turbine profits are capitalized into land prices. Finally, we show that wind turbine subsidies account for 4% of overall agricultural income in 2007.
 

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.

Peter Haan 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.