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

Lin, Yatang (2016) Where does the wind blow? Green preferences and spatial misallocation in renewable energy sector. CEP Discussion Paper (1424). Centre for Economic Performance, London School of Economics and Political Science, London, UK.

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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.

Item Type: Monograph (Discussion Paper)
Official URL:
Additional Information: © 2016 The Author
Divisions: Centre for Economic Performance
Subjects: H Social Sciences > HC Economic History and Conditions
JEL classification: F - International Economics > F3 - International Finance > F37 - International Finance Forecasting and Simulation
O - Economic Development, Technological Change, and Growth > O3 - Technological Change; Research and Development > O34 - Intellectual Property Rights: National and International Issues
Sets: Research centres and groups > Centre for Economic Performance (CEP)
Date Deposited: 10 May 2016 09:54
Last Modified: 26 Apr 2021 12:06
Funders: Economic and Social Research Council, Economic and Social Research Council

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