Wind Power Investment

Thomas Covert, Ariel Pakes and Allan Collard-Wexler
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Thomas Covert: Harvard
Allan Collard-Wexler: NYU and NBER

No 679, 2011 Meeting Papers from Society for Economic Dynamics

Abstract: Due to increasing concern with climate change, producing energy from the wind has become an tool to substitute electric production away from fossil fuels. In the last decade, wind power capacity has grown tenfold, reaching 42% of newly installed electric capacity in 2008, yet accounts for less than 2% of electric generation. We study the determinants of investment choices in wind generated electricity. First we look at the permitting process for electric power by gathering information from the interconnection queues from ISO’s across the country. We find large differences in the number of proposed versus completed projects in different ISOs, with high completion rates in ERCOT versus low completion rates in NYISO and NEISO. Second, we collect extensive data on the revenues of wind farms to evaluate the entire economic costs of these wind farms to the utilities that purchase power from them, and find large dispersion in the price of wind power. Finally we evaluate the role of technological change in wind power - principally due to larger windmills which enjoy increasing returns to scale - in driving further investment into wind power. The estimated cost of wind farms is used to investigate the effect of several policies, such as increasing the production tax credit, increasing investment tax credits and introducing a European style feed-in tariff, on the long-run supply curve of wind power.

Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed011:679

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