Scandinavian Working Papers in Economics

Discussion Papers,
Norwegian School of Economics, Department of Business and Management Science

No 2011/17: The Decision to Scrap a Wind Turbine: Opportunity Cost, Timing and Policy

Johannes Mauritzen ()
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Johannes Mauritzen: Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Finance and Management Science, Helleveien 30, N-5045 Bergen, Norway

Abstract: This paper attempts to empirically identify the key factors involved in the decision to scrap a wind turbine using data from Denmark. The importance of the opportunity cost of operating an older wind turbine is shown to be a prominent factor in the decision to scrap. I show the strong effect that renewable energy policy plays in the decision to scrap a turbine. Through the use of both non-parametric and semi-parametric duration models and an instrumental variables approach I identify a strong effect for scrapping schemes put in place by the Danish government. I also obtain the, initially, counter-intuitive result that more effective wind turbines have a higher hazard of being scrapped.

Keywords: Wind Power; Denmark; Empirical; Duration Models; Scrapping

JEL-codes: Q00

30 pages, September 29, 2011

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