Impact of the Feed-in Tariff Policy on Renewable Innovation: Evidence from Wind Power Industry and Photovoltaic Power Industry in China.

• Author: Lin, Boqiang

1. INTRODUCTION

   With the growing consensus of environmental protection, energy security, and emission reduction, increasing the share of renewable energy can significantly contribute to sustainable development (Liu and Wei, 2016; Wang et al., 2018). The generation of wind power and photovoltaic power in China accounts for the vast majority of renewable energy generation, so it is important to develop wind power and photovoltaic power industries. In the last decades, wind power and photovoltaic power in China have developed rapidly. As shown in the data from National Energy Administration (NEA), the newly installed capacity of wind energy in China increased to 19.5 GW in 2017, which accounted for 37% of newly installed capacity of wind power in the world, and ranked first globally. Similarly, the newly installed capacity of photovoltaic power in China reached up to 53.06 GW in 2017, which accounted for 54% of newly installed capacity of photovoltaic power in the world, and also ranked first globally. Therefore, the development of wind power and photovoltaic power in China has great potential.

   The wind power industry and photovoltaic power industry have broad market sizes, which calls forth the innovation in wind power and photovoltaic power technologies to seize the domestic and foreign markets. In general, the indicator of patent counts is widely used as a proxy variable for technological innovation in some existing empirical literature (Griliches, 1990; Lach, 1995; Archibugi and Pianta, 1996; Park and Park, 2006; Braun et al., 2011; Lindman and Soderholm, 2016; Lam et al., 2017; Schleicha et al., 2017; Bohringer et al., 2017a; Grafstrom and Lindman, 2017; Hu et al., 2018; Kim et al., 2018; Su and An, 2018; Lin and Chen, 2019). Patent counts represent the output of technological innovation and are important indicator, which is better than the input of technological innovation. Though patent counts of technologies differ significantly in quality, most of all inventions have been patented (Bohringer et al., 2017a). Patent counts relating to inventions can be divided into different technological areas, and the data on patent counts are discrete and available (Johnstone et al., 2010). From the above advantages, patent counts are suitable to be a proxy for technological innovation. In addition, the International Patent Classification (IPC) code of wind power technologies is F03D, while the IPC codes of photovoltaic power technologies are H01L31/04-058, H02N6, and H01L27/142 (Lindman and Soderholm, 2016; Schleicha et al., 2017; Popp et al., 2011; Fu et al., 2015).

   Figure 1 shows the annual trends of patent counts of wind power and photovoltaic power technologies during the period from 2005 to 2017 in China. Seen from Figure 1, the annual trends of patent counts of the wind power and photovoltaic power technologies are basically the same, and have upward trends in the period from 2005 to 2013. However, in Figure 1, the patent counts of the wind power and photovoltaic power technologies declined sharply during 2013-2014. This is precisely because the wind power industry and photovoltaic power industry faced the serious problem of the international market demand shrunk (Ibarloza et al., 2018). The large-scale production of wind power and photovoltaic power manufacturers has led to the excess stock of products and the falling product price, which have ultimately led to a decline in the profit margin (Fujii and Managi, 2019). Therefore, the incentive for innovation in wind power and photovoltaic power technologies decreased. Especially, the photovoltaic power industry mainly depends on the foreign market and export photovoltaic units. The patent counts of photovoltaic power technologies sharply decreased due to the fact that the speed of foreign market expansion for photovoltaic power industry has changed to be relatively slow after 2013.

   After 2014, the international markets of wind power and photovoltaic power industry continued to pick up, and the market scale continued to expand. China's markets of wind power and photovoltaic power industry also have strong growth, which has effectively increased the capacity utilization rate and profit of wind power and photovoltaic power enterprises and promoted the wind power and photovoltaic power technological innovation. Hence, the patent counts of the wind power and photovoltaic power technologies increased in the period 2014-2017.

   Due to the subsidy policies, Germany has boosted renewable energy in the past decade (Bohringer et al., 2017b). Although renewable energy development depends on subsidy policies, it is uncompetitive without subsidies (Farrell et al., 2017; Hartley et al., 2017). Subsidy policies can also promote the implementation of renewable energy technologies (Raven and Gregersen, 2007; Negro et al., 2012), like FIT policy, and accelerate the development of wind power industry and photovoltaic power industry (Shen and Luo, 2015). As indicated above, the FIT policy plays a significant role in promoting wind power and photovoltaic power technological innovation. Among the renewable energy technologies, the wind power technologies are first to implement the FIT policy at fixed prices in China. The Notice on Improving Wind Power Pricing (Price [2009] NO.1906) was published by the National Development and Reform Committee (NDRC) in 2009 and benchmark prices of four zones were 0.51 CNY/kwh, 0.54 CNY/kwh, 0.58 CNY/kwh and 0.61 CNY/kwh, respectively. Until 2014, the benchmark prices of wind power were adjusted. The benchmark prices in Zone 1, Zone 2 and Zone 3 declined, while those in Zone 4 were not changed. Not only that, in 2015 and 2016, the NDRC released two notices, respectively (Lin and Chen, 2018), and make the benchmark prices of wind power in 2016 and 2018 in four zones have a drop. On the FIT policy of photovoltaic power side, the NDRC issued the Notice on Playing the Role of Price Leverage in Promoting Healthy Development of Photovoltaic Industry (Price [2013] NO.1638) in 2013, and set benchmark prices of three zones were 0.9 CNY/kwh, 0.95 CNY/kwh and 0.1 CNY/kwh, respectively. Afterward, in 2015, 2016 and 2017, the NDRC released three notices and adjusted the benchmark prices of three zones. Though the benchmark prices of wind power and photovoltaic power have the downward trend, the real feed-in tariffs (FITs) of wind power and photovoltaic power in provinces in China are generally higher than the benchmark prices. The FIT policy guarantees the market's investment in wind power and photovoltaic power. In other words, the parts of FITs higher than those of thermal power are paid by the government, which is conducive to making wind power and photovoltaic power more competitive and call forth innovation in wind power and photovoltaic power technologies.

   Technological innovation is the key to develop the wind power industry and photovoltaic power industry. In China, the FIT policy as a demand-pull policy is an important policy to promote renewable energy's investment, thereby improving renewable energy technological innovation. Hence, the effect of the FIT policy on wind power and photovoltaic power technological innovation is investigated in this paper. First, based on "difference-in-differences" (DID) method, this paper selects the patent counts of wind power technologies into the experiment group and the patent counts of photovoltaic power technologies into the control group and examines the effect of FIT policy of wind power on wind power technological innovation. Additionally, our paper analyzes the impact of the FIT policy designed according to differences in the distribution of resources on technological innovation. Finally, this paper also uses a fixed effect negative binomial regression model to examine the impact of feed-in tariffs (FITs) of photovoltaic power on patenting in photovoltaic power technologies.

   The remainder of this paper is as follows: Sections 2 briefly reviews the existing research. In Section 3, this paper shows the design of the model and describes the variables and data. Section 4 presents the empirical results and method applicability tests and further discusses the effects of zoning FIT policy of wind power and the FITs of photovoltaic power on innovation. The conclusions and some targeted policy recommendations are presented in Section 5.

2. LITERATURE REVIEW

   The promotion policies of innovation in renewable energy technologies can enlarge the scale of the renewable energy market and stimulate learning-by-doing and technological innovation. According to Costantini et al. (2015), the FIT policy as one of the demand-pull policies can make fossil fuels and renewable energy reach their optimum performances and make renewable energy more competitive. Moreover, Menanteau et al. (2003) investigated that FITs could produce greater incentives for fostering innovation activities than green certificates scheme, in other words, price-based support policies are more effective than quantity-based support policies.

   When discussing the innovation effect of FIT policy, some literature has introduced a dummy variable to measure FIT policy. Their conclusions are different. Schleich et al. (2017) illustrated that FIT policy had no effect on patenting in wind power technologies in 12 OECD countries over 1991-2011. Nonetheless, based on 16 countries for solar PV and 14 countries for wind power during the period 1991-2008, Kim and Kim (2015) found that tariff incentive policy had significantly positive effects on wind power and solar PV technological innovation. Furthermore, most of the studies pay attention to the FITs. Based on the patent data of 25 countries over the period 1978 to 2003 to study the effect of FITs on innovation, Johnstone et al. (2010) indicated that there was a significantly negative correlation between wind power technological innovation and FITs, while the FITs had a significantly positive effect on patent counts...