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Demand-Pull Instruments and the Development of Wind Power in Europe: A Counterfactual Analysis

Baudry, Marc, Bonnet, Clément
Environmental and resource economics 2019 v.73 no.2 pp. 385-429
energy, learning, models, public policy, technology, wind power, Denmark, France, Germany, Italy, Portugal, Spain
Renewable energy technologies are called to play a crucial role in the reduction of greenhouse gas emissions. Since most of these technologies did not yet reach grid parity, public policies have been implemented in order to foster their deployment. The approach that has been privileged in Europe is the demand-pull approach that aims at creating a demand for these new technologies and at stimulating their diffusion. This paper examines the effect of demand-pull policies on the diffusion of onshore wind power technology in six European countries: Denmark, France, Germany, Italy, Portugal and Spain. In a first step, a micro-founded model of diffusion is calibrated in order to replicate the observed diffusion of wind power in these six countries. In a second step, a counterfactual analysis is conducted by investigating several scenarios. By taking into account the complex self-sustained dynamics of diffusion and the learning spillovers that operate in the wind power sector, we can derive several insights about demand-pull policies. First, the impact of a demand-pull policy on the diffusion of wind power is determined by the stage at which it comes to support it. The effect seems to be stronger at the beginning of the diffusion. Second, international spillovers do operate in the wind power sector. These international spillovers however are not strong enough to foster the diffusion of wind power in a country having no demand-pull support. We can derive from these two statements that a strategy consisting in not implementing any demand-pull policy, with the expectation that international spillovers will reduce the cost of wind power and foster the diffusion of the technology that then shall become competitive, is not a good option for a country targeting a high share of wind power in its energy mix.