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Estimating the Impact of State Policy Incentives on Wind Power Development
Wind power has recently become a viable alternative to conventional fossil fuels for electricity generation because of decreasing costs and the presence of various supportive policy incentives. Pressing environmental issues and concerns about energy security have also prompted interest in wind power as an alternative fuel source. Though less than one percent of the United States electricity supply currently comes from wind power, state policy incentives have the potential to promote the development of the significant wind resources found throughout the United States (American Wind Energy Association 2003).
Using a large data set that combines information on installed wind capacity with detailed information on the various policy incentives individual states have enacted, this paper examines the effectiveness of various policy incentives on state wind power development. It tests the hypothesis that the presence of policy incentives will not only have a positive influence on a state's decision to install wind energy capacity, but also on how much capacity a state installs. Different physical variables and socio-economic indicators are also used to control for factors other than state polices that have played a role. Regression analyses and Tobit analysis allow an assessment of the importance of each variable as well as the degree of confidence that can be associated with these findings.
This paper offers important insights into state's decisions to develop wind power. Several policies that have a particularly strong influence on wind power development are identified as well as many other policies that show some influence. Case studies provide additional insight into the specifics of not only how these policies work, but also the preconditions that help them work well. This combination of empirical work bolstered with case studies demonstrates not only that state policies are important to supporting wind power development, but also that all polices are not equal in their impact. Understanding the determinants of success and failure will be a key for designing effective polices in the future. This is a critical time because effective policies can lead to a significant amount of wind power generation and states have the opportunity to make wind power a reality, but they must have effective policies to capitalize on that opportunity.
Government polices are an important component in determining which states develop wind power, but the empirical results suggest that all government polices are not equal in their impact. This study determined that the most important policy is a Renewable Portfolio Standard, followed by green pricing. Green pricing may be especially important in a restructured electric marker as consumers are able to dictate the types of power generation supplied, but it can also have a significant impact in a regulated market. Other common measures such as state tax incentives seem to have been less effective, though they still exert a positive influence on wind power development. The case studies illustrate how crucial a state government's commitment to developing wind power can be as well as the importance of supporting that commitment with appropriate and effective policy incentives. The evidence shows that policy incentives are not only necessary, but they are effective.
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