The cost of being green 

As renewable energy generation grows in popularity, how are wind farms affecting local house prices?

Renewable energy technology has potential global environmental benefits in terms of reduced CO2 emissions and slower depletion of natural energy resources. But like most power generation and transmission infrastructure, the associated plant, access services and transmission equipment can involve environmental costs. This is particularly so in the case of wind turbine developments, where the sites that are optimal in terms of energy efficiency are typically in rural, coastal and wilderness locations that offer natural environmental amenities. These amenities include the aesthetic appeal of the landscape, outdoor recreational opportunities and the existence values of wilderness habitats. In addition, people living close to operational wind turbines have reported health effects related to noise and visual disturbances.

The UK, Europe and parts of the US have seen rapid expansion in wind turbine developments since the mid-1990s. Although these wind farms provide some local benefits, including shared ownership schemes and the rents to land owners, new developments have faced significant opposition from local residents and other stakeholders with interests in environmental preservation.

This is controversial, given that opinion polls and surveys indicate majority support of around 70 per cent for green energy, including wind farms (Eurobarometer 2007). This contradiction has led to accusations of ‘nimbyism’ (not in my backyard-ism), on the assumption that it is the same people opposing wind farm developments in practice who support them in principle. There is perhaps less of a contradiction when it is considered that the development of wind farms in rural locations potentially represents a transfer from residents in these communities and users of natural amenities (in the form of loss of amenities) to the majority of the population who are urban residents (in the form of energy).

Preliminary research by Dr Steve Gibbons at the ESRC-funded Spatial Economics Research Centre illuminates these debates by providing quantitative evidence on the local benefits and costs of wind farm developments in England and Wales. In the tradition of studies in environmental, public and urban economics, housing costs are used to reveal local preferences for wind farm development. This is feasible, because wind farms are increasingly encroaching on rural, semi-rural and even urban residential areas in terms of their proximity and visibility, providing a large sample of housing sales that are potentially affected. Around 2.5 per cent of residential postcodes are within 4km of operational or proposed rural and semi-rural wind farm developments.

Estimation is based on ‘quasi-experimental’ research designs that compare price changes in places close to wind farms when wind farms become operational with various comparator groups. These groups include: places close to wind farms that became operational in the past, or where they will become operational in the future; places close to wind farm sites that were refused planning permission: places close to wind farms that are planned or proposed but are not yet operational; and places close to where wind farms became operational but where the turbines are hidden by the terrain.

These comparisons suggest that wind farm developments reduce house prices in places where the turbines are visible. The price reduction suggested by the initial results from the analysis is around three per cent for housing within four kilometres of a wind farm. The impact increases to seven per cent within one kilometre and falls almost to zero by 14 km, which is at the limit of likely visibility.

If we take these figures seriously as estimates of the mean willingness to pay to avoid wind farms in communities exposed to their development, the implied costs are substantial. Rough calculations based on the estimates suggest that the implied social costs on the local community (within four kilometres) amounts to about £5.6 million per operational wind farm, or about £210 per household per year. There may be some understandable economic justification for the ‘nimbyism’ of wind farm opposition.