Where do all the windmills go? Influence of the institutional setting on the spatial distribution of renewable energy installation

- Studies the influence of institutional setting on spatial distribution of wind power
- Focus on spatial distance between load centers and best wind sites
- Institutional setting has a great influence on spatial distribution and system costs.
- Under market premium variance and correlation of wind power output influence distribution
- Market premium leads to greater distribution when wind conditions do not differ greatly.

Promoting renewable energy sources is one policy response to climate change. Not only is there currently a debate over the best policy instrument, it is also discussed whether the renewable energy production should be expanded centralized at locations with the highest production potential or decentralized close to load. It is yet not fully understood what influences the spatial distribution of renewable energy installation.I assess the effect of subsidy scheme and market design on the spatial distribution of wind energy installations by comparing (a) feed-in tariffs versus market premiums and (b) uniform versus nodal pricing. The analysis is based on theoretical considerations and using a six-node test model that reflects the consumption and renewable resource distribution in several countries and regions.The institutional setting has great influence on the spatial distribution and resulting system costs. With uniform pricing, a market premium only leads to a more decentralized expansion of renewable energy production than a tariff when sites share similar wind conditions. Spatially more distributed expansion of wind power performs better in terms of total costs and share of wind power in final demand when networks are restricted.