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Where does the wind blow? Green preferences and spatial misallocation in renewable energy sector

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  • Lin, Yatang

Abstract

Are "greener" investments less efficient? This paper looks at the location choices by wind power investors. I measures the efficiency loss in this sector due to wrong project location and explore the factors contributing to it. Using extensive information on wind resources, transmission, electricity price and other restrictions that might affect the siting of wind farms, I calculate the predicted profitability of wind power projects for all the possible places across the contiguous US, use it as a counterfactual for profit- maximizing wind power investment and compare it to the actual placement of wind farms. Average predicted profit of wind projects will raise by 47.1% had the 1770 current projects in the continental US been moved to the best 1770 sites. It is also shown that 80% and 42% of this observed deviation can be accounted for by within- state and within-county distortion. I show further evidence that a large proportion of the within-state and within-county spatial misallocation in wind farm siting can be attributable to green investors' “conspicuous generation” behaviour: wind farms in more environmental-friendly counties are more likely to be invested by local and non- profit investors, are closer to cities, are much less responsive to local fundamentals and have significant worse performance ex-post. Surprisingly, the implementation of state policies such as Renewable Portfolio Standard (RPS) and price-based subsidies are related to better within-state locational choices by adding more capacities in the “brown” counties and attract more for-profit investments, leading to improved observed efficiency, while lump-sum subsidies have the opposite or no effects. These findings calls for the attention from policy makers to the non-monetary incentives of renewable investors when determining the allocative efficiency of policies.

Suggested Citation

  • Lin, Yatang, 2016. "Where does the wind blow? Green preferences and spatial misallocation in renewable energy sector," LSE Research Online Documents on Economics 66442, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:66442
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    References listed on IDEAS

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    1. Jonathan A. Cook and C.-Y. Cynthia Lin Lawell, 2020. "Wind Turbine Shutdowns and Upgrades in Denmark: Timing Decisions and the Impact of Government Policy," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 81-118.
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    More about this item

    Keywords

    Spatial misallocation; renewable energy policies; productivity; green preferences;
    All these keywords.

    JEL classification:

    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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