UEA POLICY BREIF: ENVIRONMENTAL ECONOMICS AND NATURAL RESOURCES
May 2020
EVALUATE THE COSTS AND BENEFITS
OF OFFSHORE WIND ENERGY AND ITS
INFRASTRUCTURE.
reduce the upfront cost and subsequently
improve market competitiveness.
Offshore wind policy focusses
on national costs and benefits
SOURCE: GETTY IMAGES
The UK’s global role in
climate change mitigation
The UK must reduce greenhouse gas emissions
to net zero by 2050 in order to comply with the
recently amended Climate Change Act 2008
(CCC, 2008; BEIS, 2019a). This is essential
for avoiding the irreversible effects of climate
change if global temperatures increase more
than 1.5ºC above pre-industrial levels
(UNFCCC, 2015).
The distribution of electricity through the
National Grid has enabled the UK’s energy
supply to transition away from carbonintensive power generation (such as coal power
stations) to more renewable energy sources in
recent decades, in order to meet emissions
reduction targets.
Wind power is the UK’s largest source of
renewable energy, and uses onshore and
offshore turbines to generate 14GW and 8GW
of electricity respectively, without emitting
greenhouse gases (BEIS, 2019b).
The present-day cost of abating greenhouse gas
emissions (by increasing renewable energy
capacity) is higher than the present-day cost of
taking no action and continuing to rely on
fossil fuels (Smith, 2011). Therefore, the
government incentivises growth in wind energy
capacity by granting access to Crown Land in
coastal waters, and applying subsidies to
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The Offshore Wind Sector Deal seeks to
increasing the UK’s offshore wind capacity to
30GW by 2030 (BEIS, 2019c) out of a current
total 73GW of electricity generating capacity
(Ofgem, 2019).
The deal subsidises offshore wind
developments up until 2030; after which time,
the expected cost reductions from economies
of scale and technological efficiencies will
allow the sector to be competitive independent
from any market regulation.
This approach aims to create a ‘policy doubledividend’ by providing both economic and
environmental positive impacts (Allan et al.,
2020) in line with the government’s Industrial
Strategy (BEIS, 2017). However, it could be
argued that government policy lacks the
consideration of both positive and negative
externalities at a local level, and that these
should be taken into account in future cost
benefit analyses (CBA).
Visual disamenity of offshore
turbines carries a social cost
The visual impact of offshore wind turbines is
a key externality which should be considered
in a CBA. Stated preference method (SPM)
studies, such as Ladenburg et al. (2020),
sample 1754 households in Denmark and
reveal an annual willingness to pay (WTP) of
up to £10.62 (KR.89) per property to locate
turbines an additional 12km offshore.
As well as impacting local residents, visual
disamenity of offshore turbines can have a
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negative economic effect on coastal tourism.
For example, in a 2017 choice experiment with
65 tourists in the USA, Fooks et al. find a WTP
of £8.18 ($10.10) more for a weekend hotel
room if it did not overlook a wind turbine.
Despite these WTP trends among households
and tourists, there is comparatively little
evidence to suggest that offshore wind impacts
coastal property value. Another Denmark study
concludes that turbines more than 9km
offshore have no impact on coastal property
prices (Jensen et al., 2018). Whilst a small
proportion of the UK’s existing offshore wind
capacity is closer than 9km to the coast,
technological advances mean almost all future
installations will surpass this distance (Vieira et
al., 2019).
Given the similar trends in public acceptance
of offshore wind energy in Western European
countries, a comparable result can be expected
from UK households as those shown in
Denmark (Prässler and Schaechtele, 2012).
Mitigating impacts of infrastructure bears local benefits
The impact of infrastructure should also be
carefully considered in a CBA, given that
offshore wind energy requires comparatively
more cabling than substitute energy sources;
fossil fuel power stations are more spatially
concentrated than wind farms and domestic
solar power can utilise existing residential
infrastructure when supplying the National
Grid through feed-in tariffs (Green and
Vasilakos, 2011).
Additionally, onshore turbines require less
cabling and can be located closer to load
centres, which enables transmission
infrastructure to be up to 50% less expensive
than offshore turbines (Hevia-Koch and Klinge
Jacobsen, 2019).
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The need for extensive cabling to connect
offshore turbines to the National Grid can
cause similar visual disamenity impacts as the
turbines themselves, when transmitted as
overhead power lines. Revealed preference
studies show that a 50 metre proximity to
electricity pylons can reduce property value in
the UK by up to 23.6% when analysed using
the hedonic pricing method (HPM) (Sims et
al., 2009).
Therefore, a common mitigation technique is
to invest in buried cabling to abate the social
costs of visual disamenity and improve public
acceptance (Lienert et al., 2018). This
approach also reduces costs associated with
power outages, maintenance and transmission
losses (Al-Khalidi and Kalam, 2006). A CBA
should also consider welfare externalities of
underground infrastructure. Box 1 provides an
example of how these costs are mitigated.
Box 1 - CASE STUDY: Reducing capital costs and
increasing social benefits associated with
underground energy infrastructure in Finland.
Residential consultations enabled Elenia Group
(Finland’s second largest electricity distributer) to
identify the social cost of overhead power lines. In
response, the company partnered with local
telecommunications networks and co-constructed
fibre-optic cables during the installation of their
underground transmission cables.
Improved internet speeds provide a social benefit to
Finland’s rural communities, as well as reducing
Elenia’s capital costs. This approach enabled the
company to increase its total underground transmission
from 38% to 41% of its total electricity network in
2017 (Elenia Group, 2018).
SOURCE: ELENIA GROUP
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Technological innovations can
help to mitigate environmental
externalities
Floating wind turbines installed further
offshore (as exemplified in Box 2) incur higher
capital costs, but the subsequent benefits
should also be considered when determining
viability using CBA.
Box 2 - CASE STUDY: Floating wind turbines in
the North Sea.
Hywind Scotland is the world’s first economically
viable array of floating offshore wind turbines. Deeper
waters allow the turbines to operate at capacity 65%
over time, higher than the average 40-60% of fixed
turbines, providing a stronger return on investment
(Hill, 2018).
Recent studies show this approach can also abate
higher transmission costs of deep water turbines by
producing onboard hydrogen energy (Ioannou and
Brennan, 2019) but this technology could not compete
with renewable electricity substitutes.
(Castro-Santos et al., 2020). Additionally, the
ability to construct turbines in deeper water
reduces costs associated with visual disamenity
in coastal areas (Vieira et al., 2019; Ladenburg
et al., 2020).
Anticipated changes in costs
and benefits over time
Carbon emissions offset from renewable
electricity generation (comparative to fossil
fuel substitutes) are valued using the EU
Emissions Trading System to give a numerical
indication of the social cost of carbon (BEIS,
2018). These costs increase annually with a
discount rate of 3.8%, as shown in Table 1.
Table 1: BEIS updated short-term traded sector carbon
values for policy appraisal (£/tCO2e) (BEIS, 2018)
Research suggests that floating turbines could provide
a substantial of the UK’s offshore wind capacity by
2030 (Michalakakis and Miller, 2019).
SOURCE: STATOIL
A combination of positive and negative
impacts of fixed-foundation turbines on marine
ecosystems makes it difficult to quantify
externality costs and benefits of floating
structures (Snyder and Kaiser, 2008).
For example, traditional fixed turbines may
obstruct migration routes for marine mammals,
but provide artificial coral habitats to smaller
fish, which could have a positive impact on
fish populations. Research suggests floating
turbines will reduce the environmental cost of
ecosystem disturbance during construction
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In addition, other externality costs are likely to
increase over time (Zerrahn, 2017) such as a
growth in the UK’s coastal tourism, or inflating
property prices, which may increase WTP to
mitigate visual disamenity.
In contrast, capital costs are expected to reduce
as a result of technological efficiencies and
further commercialisation of new technologies
(BEIS, 2019c; Michalakakis and Miller, 2019).
Therefore, it could be argued that discount
factors should be applied to capital costs in
longer term CBA to compensate these
differential cost changes, which should help to
realise the Offshore Wind Sector Deal’s vision
of reducing subsidies by 2030.
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Concluding implications for
future policy based on CBA
BEIS (2019c). Offshore wind Sector Deal. Available at
gov.uk/government/publications/offshore-wind-sectordeal/offshore-wind-sector-deal (Accessed 28th March
2020).
Externalities lie outside of market transactions,
meaning not all costs and benefits of offshore
wind energy are considered. Energy
corporations may justify a lack of
consideration for externalities by referring to
the offshore wind sector’s inherent complexity
(Siemens, 2019, p.52). However, this can be
overcome by interdisciplinary working:
consolidating knowledge from economics,
ecology, engineering, geography and public
health (Martin-Ortega et al., 2017; Zerrahn,
2017). This comprehensive approach should
shape future policy appraisal of offshore wind
energy and its infrastructure, to enable
government intervention in order to internalise
these externalities.
Castro-Santos, L., Bento, A., Silva, D., Salvação, N. and
Guedes Soares, C. (2020). Economic Feasibility of
Floating Offshore Wind Farms in the North of Spain.
Journal of Marine Science and Engineering, 8(1), p.58.
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