[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/rep/wpaper/2015-07.html
   My bibliography  Save this paper

All you want to know about the Economics of Wind Power

Author

Listed:
  • G. Cornelis van Kooten
Abstract
Mitigating climate change will require reduced use of fossil fuels to generate electricity. To do so and eschewing nuclear power, countries have turned to wind energy. In this paper, the economics of wind energy are investigated by first examining the social costs and benefits of replacing fossil fuels, with the deciding factor favoring wind based on externalities. The externality costs of fossil fuels relate to adverse health effects of pollutants and the contribution of carbon dioxide emissions to global warming, while the adverse spillovers from wind energy relate to the nature of wind turbines. In general, economic studies find that, when allowance is made for the negative externalities associated with fossil fuel burning, the benefits of wind energy exceed their costs, thereby justifying public intervention. Wind energy is only viable because of generous subsidies, which are shown to be generally effective in bringing about the investments governments desire. Economic studies that only examine costs and benefits on a macro scale, however, neglect or underestimate the indirect costs of wind energy, which are associated with the impact that intermittent supply has on the operation and management of an electricity grid. To gain a handle on these costs, electricity systems are discussed from generation through transmission and distribution to retail demand. One aspect of this discussion relates to the adequacy of investment in marginal (peak time) generating capacity. In the analysis, it is assumed that the wholesale market for electricity is competitive and that demand responds to changes in spot prices; the implications of these assumptions are also discussed. While most studies are generally optimistic about the potential for integrating wind energy, researchers have identified problems with the inability to store energy (except behind hydroelectric dams), the need for fast-responding backup generating capacity, network instability, low capacity factors for wind power, et cetera, that could limit the usefulness of wind at the high penetration rates now envisioned. Overall, it may turn out that there are economic and physical limits to the proportion of electricity that can be generated by wind and other intermittent energy sources.

Suggested Citation

  • G. Cornelis van Kooten, 2015. "All you want to know about the Economics of Wind Power," Working Papers 2015-07, University of Victoria, Department of Economics, Resource Economics and Policy Analysis Research Group.
    • Handle: RePEc:rep:wpaper:2015-07
    as

    Download full text from publisher

    File URL: http://web.uvic.ca/~repa/publications/REPA%20working%20papers/WorkingPaper2015-07.pdf
    File Function: Final version, 2015
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Paul Joskow & Jean Tirole, 2006. "Retail electricity competition," RAND Journal of Economics, RAND Corporation, vol. 37(4), pages 799-815, December.
    2. Paul L. Joskow, 1997. "Restructuring, Competition and Regulatory Reform in the U.S. Electricity Sector," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 119-138, Summer.
    3. Paul Joskow & Jean Tirole, 2007. "Reliability and competitive electricity markets," RAND Journal of Economics, RAND Corporation, vol. 38(1), pages 60-84, March.
    4. Paul Joskow & Jean Tirole, 2005. "Merchant Transmission Investment," Journal of Industrial Economics, Wiley Blackwell, vol. 53(2), pages 233-264, June.
    5. Timilsina, Govinda R. & Cornelis van Kooten, G. & Narbel, Patrick A., 2013. "Global wind power development: Economics and policies," Energy Policy, Elsevier, vol. 61(C), pages 642-652.
    6. Ek, Kristina & Persson, Lars, 2014. "Wind farms — Where and how to place them? A choice experiment approach to measure consumer preferences for characteristics of wind farm establishments in Sweden," Ecological Economics, Elsevier, vol. 105(C), pages 193-203.
    7. Paul L. Joskow, 2008. "Lessons Learned From Electricity Market Liberalization," The Energy Journal, , vol. 29(2_suppl), pages 9-42, December.
    8. Groothuis, Peter A. & Groothuis, Jana D. & Whitehead, John C., 2008. "Green vs. green: Measuring the compensation required to site electrical generation windmills in a viewshed," Energy Policy, Elsevier, vol. 36(4), pages 1545-1550, April.
    9. David M. Newbery, 2012. "Reforming Competitive Electricity Markets to Meet Environmental Targets," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 1).
    10. Ben Hoen & Ryan Wiser & Peter Cappers & Mark Thayer & Gautam Sethi, 2011. "Wind Energy Facilities and Residential Properties: The Effect of Proximity and View on Sales Prices," Journal of Real Estate Research, American Real Estate Society, vol. 33(3), pages 279-316.
    11. Sheridan, Blaise & Baker, Scott D. & Pearre, Nathaniel S. & Firestone, Jeremy & Kempton, Willett, 2012. "Calculating the offshore wind power resource: Robust assessment methods applied to the U.S. Atlantic Coast," Renewable Energy, Elsevier, vol. 43(C), pages 224-233.
    12. Dhanju, Amardeep & Whitaker, Phillip & Kempton, Willett, 2008. "Assessing offshore wind resources: An accessible methodology," Renewable Energy, Elsevier, vol. 33(1), pages 55-64.
    13. Mr. David Coady & Ian W.H. Parry & Louis Sears & Baoping Shang, 2015. "How Large Are Global Energy Subsidies?," IMF Working Papers 2015/105, International Monetary Fund.
    14. Paul L. Joskow, 2011. "Comparing the Costs of Intermittent and Dispatchable Electricity Generating Technologies," American Economic Review, American Economic Association, vol. 101(3), pages 238-241, May.
    15. Jeremy Firestone & Willett Kempton & Meredith Blaydes Lilley & Kateryna Samoteskul, 2012. "Public acceptance of offshore wind power: does perceived fairness of process matter?," Journal of Environmental Planning and Management, Taylor & Francis Journals, vol. 55(10), pages 1387-1402, April.
    16. Jeremy Firestone & Willett Kempton & Meredith Blaydes Lilley & Kateryna Samoteskul, 2012. "Public acceptance of offshore wind power across regions and through time," Journal of Environmental Planning and Management, Taylor & Francis Journals, vol. 55(10), pages 1369-1386, April.
    17. Paul L. Joskow, 2014. "Incentive Regulation in Theory and Practice: Electricity Distribution and Transmission Networks," NBER Chapters, in: Economic Regulation and Its Reform: What Have We Learned?, pages 291-344, National Bureau of Economic Research, Inc.
    18. Hitaj, Claudia, 2013. "Wind power development in the United States," Journal of Environmental Economics and Management, Elsevier, vol. 65(3), pages 394-410.
    19. Andrew D. Krueger & George R. Parsons & Jeremy Firestone, 2011. "Valuing the Visual Disamenity of Offshore Wind Power Projects at Varying Distances from the Shore: An Application on the Delaware Shoreline," Land Economics, University of Wisconsin Press, vol. 87(2), pages 268-283.
    20. Landry, Craig E. & Allen, Tom & Cherry, Todd & Whitehead, John C., 2012. "Wind turbines and coastal recreation demand," Resource and Energy Economics, Elsevier, vol. 34(1), pages 93-111.
    21. Hitaj, Claudia & Löschel, Andreas, 2019. "The impact of a feed-in tariff on wind power development in Germany," Resource and Energy Economics, Elsevier, vol. 57(C), pages 18-35.
    22. Daniel T. Kaffine & Brannin J. McBee & Jozef Lieskovsky, 2013. "Emissions Savings from Wind Power Generation in Texas," The Energy Journal, , vol. 34(1), pages 155-176, January.
    23. David M. Newbery, 2012. "Contracting for Wind Generation," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 2).
    24. George C. Ledec & Kennan W. Rapp & Roberto G. Aiello, 2011. "Greening the Wind : Environmental and Social Considerations for Wind Power Development," World Bank Publications - Books, The World Bank Group, number 2388.
    25. Scorah, Hugh & Sopinka, Amy & van Kooten, G. Cornelis, 2012. "The economics of storage, transmission and drought: integrating variable wind power into spatially separated electricity grids," Energy Economics, Elsevier, vol. 34(2), pages 536-541.
    26. Paul Joskow & Jean Tirole, 2006. "Retail electricity competition," RAND Journal of Economics, The RAND Corporation, vol. 37(4), pages 799-815, December.
    27. Gagnon, Luc & Belanger, Camille & Uchiyama, Yohji, 2002. "Life-cycle assessment of electricity generation options: The status of research in year 2001," Energy Policy, Elsevier, vol. 30(14), pages 1267-1278, November.
    28. G. Cornelis van Kooten & Craig Johnston & Linda Wong, 2013. "Wind versus Nuclear Options for Generating Electricity in a Carbon-Constrained World: Strategizing in an Energy-Rich Economy," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 95(2), pages 505-511.
    29. Kevin Novan, 2015. "Valuing the Wind: Renewable Energy Policies and Air Pollution Avoided," American Economic Journal: Economic Policy, American Economic Association, vol. 7(3), pages 291-326, August.
    30. Andrew D. Krueger & George R. Parsons & Jeremy Firestone, 2011. "Valuing the Visual Disamenity of Offshore Wind Projects at Varying Distances from the Shore: An Application on the Delaware Shoreline," Working Papers 11-04, University of Delaware, Department of Economics.
    31. Lund, Henrik, 2005. "Large-scale integration of wind power into different energy systems," Energy, Elsevier, vol. 30(13), pages 2402-2412.
    32. Oswald, James & Raine, Mike & Ashraf-Ball, Hezlin, 2008. "Will British weather provide reliable electricity?," Energy Policy, Elsevier, vol. 36(8), pages 3202-3215, August.
    33. Martin D. Heintzelman & Carrie M. Tuttle, 2012. "Values in the Wind: A Hedonic Analysis of Wind Power Facilities," Land Economics, University of Wisconsin Press, vol. 88(3), pages 571-588.
    34. Richard J. Vyn & Ryan M. McCullough, 2014. "The Effects of Wind Turbines on Property Values in Ontario: Does Public Perception Match Empirical Evidence?," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 62(3), pages 365-392, September.
    35. van Kooten, G. Cornelis & Wong, Linda, 2010. "Economics of wind power when national grids are unreliable," Energy Policy, Elsevier, vol. 38(4), pages 1991-1998, April.
    36. Severin Borenstein, 2012. "The Private and Public Economics of Renewable Electricity Generation," Journal of Economic Perspectives, American Economic Association, vol. 26(1), pages 67-92, Winter.
    37. Joskow, Paul L., 2008. "Capacity payments in imperfect electricity markets: Need and design," Utilities Policy, Elsevier, vol. 16(3), pages 159-170, September.
    38. Roth, Ian F. & Ambs, Lawrence L., 2004. "Incorporating externalities into a full cost approach to electric power generation life-cycle costing," Energy, Elsevier, vol. 29(12), pages 2125-2144.
    39. Anthony D. Owen, 2004. "Environmental Externalities, Market Distortions and the Economics of Renewable Energy Technologies," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 127-158.
    40. Paul Miskelly, 2012. "Wind Farms in Eastern Australia — Recent Lessons," Energy & Environment, , vol. 23(8), pages 1233-1260, December.
    41. van Kooten, G. Cornelis, 2012. "Natural Gas, Wind and Nuclear Options for Generating Electricity in a Carbon Constrained World," Working Papers 122353, University of Victoria, Resource Economics and Policy.
    42. Robert S. Pindyck, 2017. "The Use and Misuse of Models for Climate Policy," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 11(1), pages 100-114.
    43. McWilliam, M.K. & van Kooten, G.C. & Crawford, C., 2012. "A method for optimizing the location of wind farms," Renewable Energy, Elsevier, vol. 48(C), pages 287-299.
    44. Ladenburg, Jacob & Dubgaard, Alex, 2007. "Willingness to pay for reduced visual disamenities from offshore wind farms in Denmark," Energy Policy, Elsevier, vol. 35(8), pages 4059-4071, August.
    45. DeCarolis, Joseph F. & Keith, David W., 2006. "The economics of large-scale wind power in a carbon constrained world," Energy Policy, Elsevier, vol. 34(4), pages 395-410, March.
    46. Kennedy, Scott, 2005. "Wind power planning: assessing long-term costs and benefits," Energy Policy, Elsevier, vol. 33(13), pages 1661-1675, September.
    47. Paul L. Joskow & Catherine D. Wolfram, 2012. "Dynamic Pricing of Electricity," American Economic Review, American Economic Association, vol. 102(3), pages 381-385, May.
    48. Lindman, Åsa & Söderholm, Patrik, 2012. "Wind power learning rates: A conceptual review and meta-analysis," Energy Economics, Elsevier, vol. 34(3), pages 754-761.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jon Duan & G. Cornelis van Kooten & A. T. M. Hasibul Islam, 2023. "Calibration of Grid Models for Analyzing Energy Policies," Energies, MDPI, vol. 16(3), pages 1-21, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Zerrahn, Alexander, 2017. "Wind Power and Externalities," Ecological Economics, Elsevier, vol. 141(C), pages 245-260.
    2. Petrova, Maria A., 2016. "From NIMBY to acceptance: Toward a novel framework — VESPA — For organizing and interpreting community concerns," Renewable Energy, Elsevier, vol. 86(C), pages 1280-1294.
    3. Lauren Knapp & Jacob Ladenburg, 2015. "How Spatial Relationships Influence Economic Preferences for Wind Power—A Review," Energies, MDPI, vol. 8(6), pages 1-25, June.
    4. Chiang, Amy C. & Keoleian, Gregory A. & Moore, Michael R. & Kelly, Jarod C., 2016. "Investment cost and view damage cost of siting an offshore wind farm: A spatial analysis of Lake Michigan," Renewable Energy, Elsevier, vol. 96(PA), pages 966-976.
    5. Boyle, Kevin J. & Boatwright, Jessica & Brahma, Sreeya & Xu, Weibin, 2019. "NIMBY, not, in siting community wind farms," Resource and Energy Economics, Elsevier, vol. 57(C), pages 85-100.
    6. Petter Gudding & Gorm Kipperberg & Craig Bond & Kelly Cullen & Eric Steltzer, 2018. "When a Good Is a Bad (or a Bad Is a Good)—Analysis of Data from an Ambiguous Nonmarket Valuation Setting," Sustainability, MDPI, vol. 10(1), pages 1-16, January.
    7. Richard J. Vyn & Ryan M. McCullough, 2014. "The Effects of Wind Turbines on Property Values in Ontario: Does Public Perception Match Empirical Evidence?," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 62(3), pages 365-392, September.
    8. Brennan, Noreen & Van Rensburg, Thomas M, 2016. "Wind farm externalities and public preferences for community consultation in Ireland: A discrete choice experiments approach," Energy Policy, Elsevier, vol. 94(C), pages 355-365.
    9. Timilsina, Govinda R. & Cornelis van Kooten, G. & Narbel, Patrick A., 2013. "Global wind power development: Economics and policies," Energy Policy, Elsevier, vol. 61(C), pages 642-652.
    10. Severin Borenstein & James Bushnell, 2015. "The US Electricity Industry After 20 Years of Restructuring," Annual Review of Economics, Annual Reviews, vol. 7(1), pages 437-463, August.
    11. García, Jorge H. & Cherry, Todd L. & Kallbekken, Steffen & Torvanger, Asbjørn, 2016. "Willingness to accept local wind energy development: Does the compensation mechanism matter?," Energy Policy, Elsevier, vol. 99(C), pages 165-173.
    12. Mier, Mathias, 2021. "Efficient pricing of electricity revisited," Energy Economics, Elsevier, vol. 104(C).
    13. Zerrahn, Alexander & Krekel, Christian, 2015. "Sowing the Wind and Reaping the Whirlwind? The Effect of Wind Turbines on Residential Well-Being," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112956, Verein für Socialpolitik / German Economic Association.
    14. van Kooten, G. Cornelis, 2009. "Wind Power: The Economic Impact of Intermittency," Working Papers 54370, University of Victoria, Resource Economics and Policy.
    15. Peri, Erez & Becker, Nir & Tal, Alon, 2020. "What really undermines public acceptance of wind turbines? A choice experiment analysis in Israel," Land Use Policy, Elsevier, vol. 99(C).
    16. Xuejuan Su, 2015. "Have customers benefited from electricity retail competition?," Journal of Regulatory Economics, Springer, vol. 47(2), pages 146-182, April.
    17. Peter Cramton & Axel Ockenfels & Steven Stoft, 2013. "Capacity Market Fundamentals," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 2).
    18. Wolfgang Buchholz & Jonas Frank & Hans-Dieter Karl & Johannes Pfeiffer & Karen Pittel & Ursula Triebswetter & Jochen Habermann & Wolfgang Mauch & Thomas Staudacher, 2012. "Die Zukunft der Energiemärkte: Ökonomische Analyse und Bewertung von Potenzialen und Handlungsmöglichkeiten," ifo Forschungsberichte, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 57, September.
    19. Griffin, Robert & Chaumont, Nicolas & Denu, Douglas & Guerry, Anne & Kim, Choong-Ki & Ruckelshaus, Mary, 2015. "Incorporating the visibility of coastal energy infrastructure into multi-criteria siting decisions," Marine Policy, Elsevier, vol. 62(C), pages 218-223.
    20. Fabra, Natalia, 2021. "The energy transition: An industrial economics perspective," International Journal of Industrial Organization, Elsevier, vol. 79(C).

    More about this item

    Keywords

    Electricity; regulated industries; peak load pricing; intermittent energy; storing wind energy; climate change; wholesale spot market for electricity; demand management; fossil fuels and externalities;
    All these keywords.

    JEL classification:

    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rep:wpaper:2015-07. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: G.C. van Kooten (email available below). General contact details of provider: https://edirc.repec.org/data/devicca.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.