Discussion of Results and Future Research Agenda

Valuing renewable energy assets is complicated by the nascent state of renewable energy markets and technologies.

Hydroelectric assets have considerable value in every country studied. This provides empirical evidence confirming the theoretical notion that resource rent should rise in mature renewable electricity markets. There are several other studies of hydroelectric asset values against which the results here can be compared.

Gillen and Wen (2000) propose a method for estimating hydroelectric resource rent in the Canadian province of Ontario (which holds a substantial share of Canada’s hydroelectric resources) using the cost of electricity imports as the least-cost alternative. Gillen and Wen’s rent estimates suggest that Ontario’s hydroelectric asset was worth about Can$33 billion in 199522 (US$37 billion in 2018 US dollars). The province’s installed hydroelectric capacity grew by approximately 17 percent between 1995 and 2017,23 suggesting a value of around US$43 billion for its hydroelectric asset in 2017. Ontario held 11 percent of Canada’s installed hydroelectric generating capacity in 2017,24 suggesting a rough estimate of US$378 billion for Canada’s hydroelectricity asset in that year. This figure compares reasonably well with the estimate here of US$456 billion based on RVM.

In a study for the United Kingdom, the UK Office for National Statistics prepared an estimate of the value of the country’s hydroelectricity asset using the RVM (ONS 2016). Data on revenues and costs were sourced from annual corporate reports and the asset was valued using a 3.0 to 3.5 percent discount rate25 and an assumed lifetime of 50 years (which differs from the approach taken here of assuming infinite lifetimes for renewable energy assets). The estimated value of the United Kingdom’s hydroelectric asset in 2014 was £9.2 billion (US$16.5 billion in 2018 US$), which is about double the estimate here of US$8.5 billion. Further investigation would be required to explain the discrepancy in the two estimates.

Solar and wind electricity assets were found to have negative market values in every country and year studied, with a few exceptions (onshore wind assets in the United Kingdom and Turkey) due to high production costs, especially in the early years of generation, and relatively high producer electricity prices. These findings are expected, given that both industries are nascent, although rapidly maturing, and the markets remain in a state of flux. Positive resource rents are not expected to rise under such conditions. Marshallian or quasi-rents may explain why there is some evidence of rents associated with onshore wind resources in a few countries, as early movers in the onshore wind electricity industry may have had opportunities to earn quasi-rents by capturing prime generating sites. The fact that rents arose in some countries for onshore wind electricity but not at all for solar electricity is explained by the higher private production costs of solar electricity on average than onshore wind electricity. Offshore wind rents, for their part, were negative everywhere, as would be expected given that offshore production began only relatively recently and involves high costs and risks.

Evidence supporting the findings for the value of wind energy is provided by the same UK study mentioned earlier (ONS 2016). Using an RVM approach in which subsidies were not accounted for (meaning the asset values were “social”26 rather than market values), it finds that the value of UK wind electricity assets in 2014 was £45.3 billion, or US$81.6 billion in 2018 US dollars.27 This compares reasonably well with the estimate here of US$55.3 billion for the United Kingdom’s combined onshore and offshore wind electricity assets (excluding subsidies). As in the case of hydroelectric assets, further investigation would be required to determine why the estimate here is lower than the UK ONS estimate.

Further evidence supporting the findings for wind here come from a Statistics Netherlands (2011) study that estimates the value of the Dutch wind electricity asset using an RVM approach. Market and social asset values are estimated using a nominal discount rate of 6 percent. The authors find that the market value of the Dutch wind electricity asset is negative in every year from 1990 to 2010. Its social value, in contrast, is consistently positive after 2004. They estimate it to be worth more than 5 billion euros in 2010. Although this study does not consider the Netherlands, these results are largely consistent with the findings here for other European countries: little or no market value associated with wind electricity assets in any year, but positive asset values on the order of US$10 billion to US$100 billion (depending on the country) emerging consistently in the 2000s.

Although the results here are broadly borne out by those elsewhere, improvements could be made to the methodology that would provide greater confidence that no potential positive values for solar and wind electricity assets have been missed. These improvements relate mainly to the validity of RVM, treatment of subsidies, and depreciation and cost profiles and are discussed in the underlying technical paper (Smith et al. 2021).

Future values of renewable energy assets will depend on the policy framework under which they will operate. Wealth analysis helps distinguish policies that are successful in increasing clean energy generation from those that also create wealth to society and hence are sustainable in the longer term. Renewable energy subsidies have proven to reduce sharply the cost of clean energy generation and facilitate their scaling-up. As renewables such as onshore wind and solar PV are coming of age, however, going forward, power production subsidies can make renewable electricity profitable, but they do not create sustainable assets for nations (this argument holds for capex or price subsidies of power plants and not for upstream research and development subsidies). Competitive electricity markets with carbon pricing can make clean energy not only profitable but also wealth-creating without subsidies and even before counting local external environmental benefits. One of the main obstacles to sustainable value creation by renewable electricity is noneconomic dispatch of power plants in most developing countries, whereby power plants (including thermal) are built under long-term power purchase agreements that give them contractual rights (or political privilege in case of state-owned plants) to minimum operating hours and/or minimum offtake prices.