Externalities in wind power generation

Externalities in wind power generation

INTRODUCTION

Corporate organisations are generally run to maximise profit, either by reducing cost, increasing revenue or both. In Business, the cost incurred by an organisation stems from capital expenditures and operational expenditures only. However, in the field of Environmental Economics, these two branches of expenditures only make up the private cost.

Externalities as we know it, exist when a party does not bear all the associated costs or receive all the benefits of their action(s). Costanza et al., (2007) in their research portrayed externalities as the positive or negative consequences of an economic activity on the quality of life of another party. These additional costs are generally referred to as external cost.

Therefore, the more accurate valuation of total cost of production for an organisation is the summation of the private and external costs, and this results in the social cost.

Private cost + External cost = Social cost

Unlike private cost, social cost considers the externalities that come as a result of an organisation’s physical operations and economic decisions.

DISCUSSION

The UK government has publicly expressed its commitment to attain net zero carbon by 2050 (Gov.uk, 2019), this will result to the transition of energy generation from fossil fuel sources to cleaner sources like renewables. With the Prime Minister Boris Johnson taking this challenge further, announcing the UK’s plan to achieve 100% generation of its electricity from clean energy by 2035, the United Kingdom is expected to generate its electricity exclusively from nuclear, solar energy, wind energy other renewable energy sources (Reuters, 2021).

As at second quarter of 2021, the UK’s total installed capacity of wind power was 24.7 GW (onshore wind – 14.2 GW, offshore wind – 10.5 GW) (Gov.uk, 2021a). For the UK to successfully run a 100% clean energy grid by 2035, there is need to increase its installed renewable energy capacity, with plans being made to scale up offshore wind power capacity to 40 GW by 2030, and an additional 3.5 GW increase in onshore wind power capacity (Gov.uk, 2021b).

According to Hall (1990), the private cost is not the accurate representation of the total cost of production, as there are external costs that are unaccounted for, or cannot be measured with the conventional financial valuation methods. In the development, construction and operation of wind farms, the private cost refers to the proposed capital and operational expenditures physically incurred during the installation, operation, maintenance and decommissioning of these facilities. These generally include the following: procurement of materials and manpower, cost of land (for onshore wind turbines), installation of wind turbines and associated maintenance costs. According to Phelan and Jacobs (2016), externalities are typically not reflected in economic transactions. They do, however have a direct impact on the welfare and social benefits of neighbouring parties, and thus on economic value.

The private cost of wind farms can be determined by summing up the cost of materials, machines, manpower used throughout the lifecycle of the wind turbines that make up the wind farm. However, this paper focuses on the external cost incurred in the development of wind farms.

The external cost investigated in this paper can be grouped into two major categories: quality of life (human and wildlife) and technical (wake effect).

• Quality of Life

Zerrahn (2017) highlighted some sources of external cost associated with the installation of wind turbines. In his research, he identified noise emissions as one of the direct external impacts of wind turbines. However, General Electric (2014) argues that wind turbines are installed at a distance of at least 300 meters from residential areas, and at this distance, the noise level reduces to about 43 decibels. Putting this in context, this noise level is in the same range of an average air conditioner (50 decibels) and refrigerator (40 decibels).

Standing at 80 meters in height, the average wind turbine has a physical presence on the vicinity, and in the case of a wind farm containing about 20 – 50 wind turbines, Hevia-Koch and Ladenburg (2019) stated that the installation can pose a visual impact in the host community; a deterioration of the aesthetic quality of landscapes which in the long run impacts the quality of life of the indigenes residing in that area.

Wind power has been opposed by critics of visual and noise pollution, rallies and protests have been held to this effect, with the most recent protest in south Wales, a campaign against plans to build a wind farm comprising 26 of the tallest turbines (250 meters) in the United Kingdom (Wales Onli