The Windy Commons?

Abstract

Wind power generation is growing rapidly in the United States, doubling nearly every three years since 1998. Yet, wind is an open access resource, and past experiences with open access resources suggest that tragedies of the commons may occur. While the engineering literature has focused on turbine siting within a wind farm to maximize profits and minimize interaction effects, the economics literature has overlooked interaction effects between windfarms. We provide a qualitative framework for measuring wake externalities and use simulation modeling to determine their magnitude. We find that: a) turbine wake externalities (and thus losses) to downwind sites increase with the square of wind velocity and can be substantial, b) decentralized ownership across wind farms leads to overcapitalization in upwind sites and undercapitalization in downwind sites relative to sole ownership, c) when multiple potential patches are considered, more land will be used upwind for wind power under decentralized ownership, and d) numerical simulations suggest that total rents are reduced under decentralized ownership by up to 12%, while total power produced increases by approximately 10%. Under our central parameters, decentralized ownership may be preferred to a sole owner, depending on the value society places on clean power relative to dirty power.