TODAY’S STUDY: WIND PROJECTS BRING ECONOMIC BENEFITS & NO PROPERTY VALUE LOSS

Wind Farm Proximity and Property Values: A Pooled Hedonic Regression Analysis of Property Values in Central Illinois
Jennifer L. Hinman, May 2010 (Illinois State University)
and
The Wind Energy Supply Chain in Illinois; Good for manufacturing jobs, good for economic growth, good for our environment
October 2010 (Environmental Law & Policy Center)

Powering Manufacturing Jobs and Economic Growth in Illinois

The wind industry means real business for Illinois. The state’s wind power supply chain comprises over 100 companies with more than 15,000 employees. About 17 manufacturing jobs are created for every megawatt of power developed, translating into over 2,500 jobs for a 150 megawatt utility-scale wind farm. Illinois is now home to 25 wind farms that generate more than 1,800 megawatts of power annually. The Chicago region is also home to 13 headquarters of major wind power companies. The growth in the wind sector in Illinois is, in part, attributable to policies such as the Illinois Renewable Electricity Standard (RES), which has helped boost manufacturing sector and corporate headquarters jobs in the state.

High paying jobs are created both at construction and during the life of the wind farm. A wind turbine has as many as 8,000 components and subcomponents, which can be categorized into four main parts: towers, blades, rotor and nacelle. Towers and blades, the largest two parts (making up approximately 75% of the turbines’ weight), are typically manufactured domestically. The rotor and nacelle are comprised of thousands of components and subcomponents, and provide a growth opportunity for domestic manufacturers.

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The majority of nacelles in the U.S. are assembled domestically, but since small components are much easier to ship, they are often imported. However, as an indicator of the opportunity for U.S. and Illinois manufacturers, domestic production of subcomponents such as bearings, electrical components and hydraulic systems enjoyed the highest growth rate of any turbine segment in 2009.

All of this means jobs for Illinois. The Environmental Law & Policy Center’s (ELPC) analysis shows that most of Illinois’ wind development jobs are created at small to medium-sized companies. Small firms (with fewer than 500 employees) represent 99.7% of all employer firms, employ over half of all private sector employees and create more than half of the nonfarm, private GDP. Of the more than 140 current and prospective Illinois companies in the wind industry supply chain, more than 80% are small businesses – machine shops, welders and metal fabricators. Wind farms also increase the property tax base of their host communities, which benefits schools and other public services.

ELPC created this report to explain the broad reach and depth of the wind industry supply chain in Illinois. This industry is about more than just wind farms and clean energy. It is also about jobs for turbine component manufacturers, tower manufacturers, cement mixers and the support services all of these industries need, from legal and banking, to engineering and accounting professionals. Wind means real business for Illinois.

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Policy Makes the Difference

Growth in the wind industry, like all of the energy sector, relates strongly to regulatory and tax policies. Federal and state policies are key to encouraging investment that can grow the many parts of the wind industry. Both federal and state renewable electricity standards are crucial to creating a stable market to support wind industry growth.

Policy Makes the Difference

Growth in the wind industry, like all of the energy sector, relates strongly to regulatory and tax policies. Federal and state policies are key to encouraging investment that can grow the many parts of the wind industry. Both federal and state renewable electricity standards are crucial to creating a stable market to support wind industry growth.

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Federal Policies

Federal Renewable Electricity Standard:

This proposed federal legislation would require all electric utilities, which act as collective power purchasing agents for consumers, to buy a growing percentage of their electricity from renewable energy resources. Creating a federal renewable electricity standard floor — which states like Illinois can exceed — would drive more national demand for wind generated electricity. That would increase export opportunities for Illinois wind power and spur the market for Illinois-manufactured wind turbine components and professional services. Illinois would benefit through more job creation and economic growth.

Production Tax Credit (PTC) and Investment Tax Credit (ITC):

The PTC is an intermittent (i.e. not permanent) tax incentive that offers a credit of 2.1 cents per kilowatt hour. In February 2009, through ARRA, Congress extended the PTC for three years through 2012. Wind developers can also opt to take a 30% ITC in lieu of the PTC for facilities placed into service before 2013, so long as construction begins before the end of 2010. The ITC can be converted to a grant that helps developers who do not have enough tax liability to effectively utilitize the tax credit.

Accelerated Depreciation:

Allowing wind generation assets to be depreciated over six years (rather than the typical 20 years) can create additional value. Again, the depreciation credit may be hard for some developers to use unless they can offset it with significant income.

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Illinois Policies

Illinois Renewable Electricity Standard:

Illinois’ electric utilities are required to purchase a percentage of their electricity from renewable energy sources. The percentage increases annually from 5% in 2010 to reach 25% by 2025. Of that total, 75% of the renewable energy must come from wind power.

Sales Tax Incentive:

A business establishing a new wind power facility in Illinois may be eligible for designation as a “High Impact Business,” which exempts the wind equipment owner from paying state and local sales taxes for building materials.

State Bond Program:

The Illinois Finance Authority can issue tax-exempt bonds and credit enhancements to renewable energy projects that meet eligibility criteria and provide significant public benefits for the citizens of Illinois.

Property Tax Certainty:

The Illinois property tax code provides enhanced tax certainty for wind farms by keeping the property tax assessment of wind energy devices uniform in counties across the state. Previously, property tax assessments for wind farms varied widely across the state.

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Property Values

Abstract

The objectives of this study are to examine whether proximity to the 240-turbine, Twin Groves wind farm (Phases I and II) in eastern McLean County, Illinois, has impacted nearby residential property values and whether any impact on nearby property values remains constant over different stages of wind farm development with the different stages corresponding to different levels of risk as perceived by nearby property owners. This study uses 3,851 residential property transactions from January 1, 2001 through December 1, 2009 from McLean and Ford Counties, Illinois. This is the first wind farm proximity and property value study to adopt pooled hedonic regression analysis with difference-in-differences estimators. This methodology significantly improves upon many of the methodologies found in the wind farm proximity and property value literature. This study finds some evidence that supports wind farm anticipation stigma theory and the results strongly reject the existence of wind farm area stigma theory.

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Executive Summary

The objectives of this study are to examine whether proximity to the 240-turbine, Twin Groves wind farm (Phases I and II) in eastern McLean County, Illinois, has impacted nearby residential property values and whether any impact on nearby property values changes over the different stages of wind farm development. This study uses 3,851 residential property transactions from January 1, 2001 through December 1, 2009 from McLean and Ford Counties, Illinois. This is the first wind farm proximity and property value study to adopt pooled hedonic regression analysis with difference-in-differences estimators. This methodology significantly improves upon many of the previous methodologies found in the wind farm proximity and property value literature.

The estimation results provide evidence that a “location effect” exists such that before the wind farm was even approved, properties located near the eventual wind farm area were devalued in comparison to other areas. Additionally, the results show that property value impacts vary based on the different stages of wind farm development. These stages of wind farm development roughly correspond to the different levels of risk as perceived by local residents and potential homebuyers. Some of the estimation results support the existence of “wind farm anticipation stigma theory,” meaning that property values may have diminished in “anticipation” of the wind farm after the wind farm project was approved by the McLean County Board. Wind farm anticipation stigma is likely due to the impact associated with a fear of the unknown, a general uncertainty surrounding a proposed wind farm project regarding the aesthetic impacts on the landscape, the actual noise impacts from the wind turbines, and just how disruptive the wind farm will be.

However, during the operational stage of the wind farm project, as surrounding property owners living close to the wind turbines acquired additional information on the aesthetic impacts on the landscape and actual noise impacts of the wind turbines to see if any of their concerns materialized, property values rebounded and soared higher in real terms than they were prior to wind farm approval. Thus, this study presents evidence that demonstrates close proximity to an operating wind farm does not necessarily negatively influence property values or property value appreciation rates. The estimation results strongly reject the existence of “wind farm area stigma theory” for the area surrounding Twin Groves I and II.

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Conclusion

The estimation results provide evidence that a location effect exists such that before the wind farm was even approved, properties located near the eventual wind farm area were devalued in comparison to other areas. Additionally, the results show that property value impacts vary based on the different stages of wind farm development. These stages of wind farm development roughly correspond to the different levels of risk as perceived by local residents and potential homebuyers. Some of the estimation results support the existence of wind farm anticipation stigma theory, meaning that property values may have diminished due to a fear of the unknown: a general uncertainty surrounding a wind farm project regarding the aesthetic impacts on the landscape, the actual noise impacts from the wind turbines, and just how disruptive the wind farm will actually be.

However, during the operational stage of the wind farm project, as property owners, living in close proximity to Twin Groves I and II wind turbines, acquired additional information on the aesthetic impacts on the landscape and actual noise impacts of the wind turbines to see if any of their concerns materialized, property values rebounded and soared higher in real terms than they were even before wind farm approval. Thus, this study presents evidence that demonstrates close proximity to an operating wind farm does not necessarily negatively influence property value appreciation rates or property value levels (in percentage terms). The estimation results strongly reject the existence of wind farm area stigma theory for the area surrounding Twin Groves I and II. The results from this study are consistent with the results from a recent survey conducted surrounding Twin Groves I and II. A random sample of residents of the Ellsworth, Saybrook, and Arrowsmith communities were surveyed in 2009, during the time period that Twin Groves I and II were operational; and approximately sixty percent of respondents claimed they were not concerned about their property values declining because of the wind farm (Theron, 2010).

It is recommended that authors of future studies take different stages128 of wind farm development into consideration in their analyses to allow for more precise estimations of the property value impacts from a wind farm development. Furthermore, when examining the impact of a wind farm on surrounding properties, it is recommended to compare properties near the wind farm and farther away from the wind farm, in terms of both property value levels and the appreciation rates of property values. Many more studies of properties surrounding individual wind farms around the country are recommended using the methodology adopted in this study (i.e., pooled hedonic regression analysis with difference-in-differences estimators) such that general conclusions can start to form regarding this subject. Currently, the severe lack of statistical rigor, unbiasedness, and reliable methodologies across the wind farm proximity and property value studies cannot allow any general conclusions to be made—only site-specific findings.