Estimating the long-run impact of guaranteed prices on wind and solar power in Germany

The purpose of this study is to analyze the dynamics between the guaranteed prices introduced by pieces of legislation and the investment in new electricity-generation facilities in Germany that can be of great assistance to policymakers in planning development strategies for green electricity sources in other countries. This article uses the guaranteed price in the source markets as a proxy for market price and estimates the effects of price changes on the investment in generation facilities for renewable energy. To avoid the possible existence of spurious relationships that may arise in time series analysis, the bounds-testing approach to co-integration was applied. The long-run elasticities for the explanatory variables were obtained from the error correction model (ECM). The results indicate that guaranteed prices have a positive effect on the installed power capacity of the two renewable electricity sources: wind and solar power. Moreover, the findings are useful to governments in order to promote renewable energy and prevent negative attitudes toward renewable energies caused by increasing energy prices.