Economics and wind power: Mines graduate research at the forefront of field

Over the past decade, the influence of wind power has grown, currently providing 3% of energy production in the United States. With this growth has come a demand for information about the economics behind wind energy. At the forefront of producing this information is Dr. Dan Kaffine, associate professor for the division of economics and business and Chris Worley, a 2011 doctoral student. The two have spent the past six years applying microeconomic techniques to the analysis of wind power. In that span, the duo has published three papers based on their research.

Their research began with a lingering interest expressed by Kaffine. “One of the observations when I came here six years ago was that there wasn’t a lot of economic research on wind power at the time… it seemed like a good area to dig into and look at some of the economics associated with wind power.”

Kaffine emphasizes that the link between all three research papers is the innovative approach of applying microeconomic analysis to wind power. Or in other words, looking at wind power from the perspective of individual wind farmer’s incentives.

Their first project studied the impact of spatial wake externalities generated by wind turbines. “The basic idea is that up-wind wind farms slow down the wind speed at the down-wind wind farms.” Kaffine explained that as wind production grows, this could become a serious issue. “The idea there was to bring classic externality analysis and put it into this new context of wind energy.”

The second project considered spatial diversification. “One of the issues with wind power is it’s intermittent. There is a lot of interest in spreading wind farms out in space, and the idea being that somewhere the wind is going to be blowing, so we can reduce the volatility of wind power if we spatially diversify. We argue that this is true, but that private wind developers won’t do this on their own.” Kaffine and Worley’s second paper argues that to avoid the problem of private wind farms clustering around “jackpot” areas, other outside incentives need to be created.

The third project focused on the issue of split estate. Split estate is a long-standing legal precedent which traditionally allowed for the rights to the minerals below ground be separated from the ownership rights of the land above ground. In this application Worley and Kaffine considered the economic incentives of splitting property rights to land and the air above the land. “What is interesting about this project is that different states have gone different ways, some states have said, ‘yes, you can do that,’ while others have ‘no, you can’t do that.’ Wyoming just forbid it last year, and Colorado had a bill a couple of years ago endorsing the practice, and a recent bill forbidding the practice. So there is a lot of legal attention paid to this, but no one had really looked at it from an economic perspective.”

Kaffine’s and Worley’s research has created a new knowledge base certain to be applied by government regulatory agencies as well as private energy companies as the demand for clean energy continues to grow. In fact, Worley now works as a regulatory analyst at the Govenor’s Energy Office looking to turn his research at Mines directly into policy.