Wind Turbine End-of-life Clean-up Regulation Cost-benefit Analysis (18 Marks Total) The Saskatchewan Government Is Planning To Introduce

Wind turbine end-of-life clean-up regulation cost-benefit analysis (18 marks total) The Saskatchewan government is planning to introduce a regulation requiring the wind energy industry to establish a fund to be used to decommission old wind turbines. These are the old turbines that have reached the end of their useful life. The regulation will require wind energy companies to pay money into a fund that will then be used to finance clean-up of wind energy sites. This clean-up involves removing all of the materials on the wind energy sites and returning the land to its original state. This will impact SaskPower since it produces electricity using wind energy. Using the following information and equation 3.4 from the Boardman textbook, calculate the change in consumer surplus that will result from the wind turbine clean-up regulation.

Original price of electricity per kilowatt-hour (P*): $.15 (15 cents per kwh)

Change in the price of electricity per kilowatt-hour: .01 (an additional 1 cent per kwh)

Original quantity of electricity sold in the market (X*): 25,000,000,000 kwh

Elasticity of demand for electricity (Ed): -.1

a) What is the annual change in consumer surplus resulting from the regulation? (2 marks)

b) Using a social discount rate of 5%, what is the present value of the change in consumer surplus if this regulatory charge begins in t=1 and lasts until t=20? (Hint: use your answer from 2 a) and assume that the annual change in consumer surplus you calculated in 2 a) is equal in each year from t=1 to t=20). (2 marks)

c) How much government revenue would be generated by the surcharge? (Hint: be sure to account for the price elasticity of demand in your response) (2 marks)

d) What is the present value of the change in government revenue assuming this regulatory charge is collected annually beginning in t=1 and ending after the t=20 regulatory charge is collected? Use a social discount rate of 5%. (2 marks)

e) SaskPower will face a loss of profits worth $2,000,000 per year from t=1 until the additional surcharge on wind energy expires after t=20. Using a social discount rate of 5%, what is the present value of the change in producer surplus for SaskPower that will result from this policy? (2 marks)

f) The policy will produce environmental benefits worth $500,000 per year. These benefits will begin in t=1 and last in perpetuity. Using a social discount rate of 5%, what is the present value of the perpetual stream of environmental benefits that will result from this policy? (2 marks)

g) Using a party-by-party approach, indicate the change in consumer surplus, change in government surplus, and change in producer surplus that would result from this policy. You can count the environmental benefits as accruing to consumers. Use a marginal cost of public funds of 1.2 in your calculations. (2 marks)

h) What is the Net Present Value of the wind turbine clean-up regulation? (2 marks)

i) Will the wind turbine clean-up regulation result in a Pareto improvement, Potential Pareto improvement, or neither? Explain. (2 marks)