Use of economic instruments in the German renewable electricity policy

This article surveys the Economic Instruments adopted in Germany since the start of the previous decade and analyse the factors determining their effectiveness. It is found out that their effect has always diminished in correspondence of increased uncertainty on the future of the system. In particular, while in two of these instances uncertainty was mainly due to national factors, in the other the debate on the European Renewable Directive played a very important role. Recent changes in the production incentives have introduced a process simulating the effect of competition among renewable generators. It is pointed out that the biennial revision of the rates can increase the uncertainty intrinsic in the policy. On the other hand this process also provides a forum for the debate on the future of the renewable sector. One can notice that currently Germany, the biggest renewable market in Europe, is granting one of the lowest production incentives. This is rather curious as Germany never relied on market competition in order to increase the renewable electricity production. (c) 2005 Elsevier Ltd. All rights reserved.