Wind Turbine Upgrades in Denmark: Timing Decisions and the Impact of Government Policies

• Environmental and Resource Economics Workshop

Date and Location

Tuesday, August 28, 2012, 12:10 PM - 1:30 PM
ARE Conference Room, 2102 Social Sciences and Humanities

Abstract

Shutting down and/or upgrading existing productive assets are important economic decisions for the owners of the assets and the markets in which they are involved. These actions are particularly relevant for equipment that produces or consumes a large amount of electricity due to their large upfront costs and long expected lifetimes. This paper uses data from Denmark to empirically estimate the factors that influence the decision to shutdown/upgrade wind turbines. Using panel data at both the turbine and turbine owner levels, results from reduced form discrete response models and Heckman selection models and a dynamic structural model indicate that the scrapping/upgrading decision is significantly influenced by government wind policies, technological change and the quality of the wind resource available. These results have important implications for optimal energy policies in countries around the world that are aiming to increase production of renewable electricity and energy efficiency.