Capturing the broader benefits of wind in shadow prices for macroeconomic metrics

By Julia Wdowin

Shadow prices are value estimates of capital assets, goods and services that include the value of externalities associated with them. In other words, they aim to capture the social worth of assets, which is important for getting a better idea of the economy-wide contributions to social welfare.

Some things have more or less social worth than their market price (which could even be zero) might indicate. Wind is a relevant example. When viewed as an economic service, wind benefits us in countless ways – many of them hidden and potentially overlooked or undervalued by National Accounts. Beyond powering turbines, wind naturally cools our environment, disperses seeds, aids crop pollination, and even enables recreational activities like sailing and windsurfing. These contributions play a vital role in our ecosystems and daily lives.

How do National Accounts capture the benefits of wind?

National accountants focus on isolating the measure and value of economic benefits of goods and services, for their inclusion in National Accounts. While this informs measures of economic welfare, not all the ways in which we benefit from wind are accounted for in National Accounts. There are also a number of satellite accounts used in the UK, including Natural Capital Accounts. Whilst these are technically part of the National Accounts, they sit outside the core framework. The Natural Capital Accounts are the place where, for example, the value of wind in generating renewable electricity is recorded as a provisioning service (the direct, usable outputs that nature supplies). Read about ESCoE work on natural capital accounting.

One of the most significant ways we capitalise on wind is through energy generation. Commonly associated economic benefits include reduced dependence on (imported) fossil fuels; increased domestic energy security; health and environmental cost savings; and potential lower energy costs over time. There are also economic costs, such as grid infrastructure upgrades and decommissioning and recycling costs as well as broader effects such as visual or noise impacts. 

For its wide range of economic costs and benefits, wind has come to be explicitly recognised in National Accounts (SNA2025) as a renewable energy asset (In the SNA2008 and current SEEA-CF, wind resources were/are captured in the value of associated land. This will be revised in the upcoming SEEA-CF revision). This is in addition to the inclusion of wind turbines as produced capital assets. It is now recognised that excluding the contribution of wind for its role in generating wind energy would lead to a downward bias in the economic valuation of a country’s assets.

Which benefits of wind are missing from National Accounts?

Even if wind will now be recognised as a renewable asset on countries’ balance sheets, this will take a few years to implement. However, the conventional methods used to estimate the economic value of wind in wind energy production for its inclusion in National Accounts do not capture the value of all the associated costs and benefits. The current methods are limited to capturing only private costs and benefits, expressed as market price equivalents. By omitting this broader value, estimates of wind’s contribution risk being inaccurate and therefore misleading when assessing its overall impact on social welfare.

As a result, these value estimates are less comprehensive than they could otherwise be, particularly for applications such as informing infrastructure investment decisions, or estimating the relative trade-offs in policy-making scenarios. Shadow price estimates in complementary accounts could be helpful for such cases.

Given the urgency of addressing environmental degradation and climate change, underestimating the broader economic costs and benefits linked to wind may be particularly costly. Careful, systematic consideration is therefore essential to ensure that valuations of wind and wind energy accurately reflect their contribution to social welfare, above and beyond what is shown in the National Accounts. 

How can shadow prices reveal wind’s true value?

Shadow prices are important here because they go beyond market prices to capture the broader social value of an asset. They incorporate the value of externalities (broader impacts) – both positive and negative – associated with a given capital asset and reflect its marginal social costs and benefits. In doing so, shadow prices provide a more complete picture of an asset’s contribution to economic welfare (Coyle and Wdowin, 2025).

Conceptual challenges in valuing wind

However, developing a systematic approach to valuing capital assets, goods or services in terms of their shadow value raises several thorny conceptual issues. Taking wind alone as an example demonstrates a number of these issues in practice, many of which can be extended to other environmental or, more broadly, non-capital assets. Key issues include:

1. Defining the scope of externalities
   
   Firstly, the range of broader impacts (externalities) linked to capital assets can be vast. Common externalities associated with wind energy generation include: positive externalities like reduced carbon emissions and air pollution, reduced pollution-related healthcare costs, or negative externalities such as visual pollution, noise pollution, affected property values, environmental costs linked to turbine production and decommissioning at end of life, and damages to wildlife and biodiversity.
   
   In incorporating these externalities into a shadow price estimate, where should the line around what to include in the estimate be drawn? Which externalities should be included, and how should these be identified and prioritised? If conventional valuation methods are used, what happens when we exclude externalities that cannot easily be monetised? A systematic approach is needed to identify, categorise and determine which externalities to include. Even if we categorise the externalities on paper, we must then consider the likely overlap between the externalities and how their value is recorded in order to avoid double counting. For instance, reduced house prices linked to nearby wind turbines likely capture the value of some externalities such as noise or visual pollution.
   
    
2. Choosing the right valuation method
   
   A second challenge in valuing wind lies in selecting an appropriate valuation method and maintaining conceptual clarity about which externalities are being measured. One approach to estimating a value that incorporates the broader benefits of wind involves estimating the social resource rent of wind energy, which involves including the value of government subsidies for wind-generated energy and using this to estimate the value of wind energy’s contribution to social welfare (Statistics Netherlands, 2010). This approach assumes that subsidies are used to offset harmful side effects and, in doing so, represent what society values.
   
   If subsidies target only one externality (such as reduced carbon emissions), standard economic theory suggests that the value of that externality can be inferred from the estimated value of the subsidies. But when subsidies aim to tackle several issues at once, they do not just reflect the value of carbon reductions; they also include other benefits. Without clear categories of externalities, and available valuation methods and data on each category, isolating the value of specific externalities using a subsidy-based approach becomes challenging.
   
   
3. Selecting key variables
   
   Finally, several choices need to be made about which variables to use when estimating the value of wind energy. For example, regarding energy market prices, should spot market prices, balancing prices (the cost of electricity used to keep the power grid stable when supply and demand do not match in real time) or forward market prices be used? If we want to measure the benefit of cutting carbon emissions, what number should we use for the cost of carbon? Or, if we are looking at a specific technology, would it be better to use the cost of reducing emissions instead? We also need to decide which fossil fuel to compare against as the alternative, when this is required for calculations in a given methodology such as employing the least cost alternative method. These questions illustrate the need to consider a nuanced selection of variables based on the specific context and objectives of the wind asset valuation.

Towards a systemic framework

This list of key considerations in estimating shadow prices illustrates several complexities for valuing individual assets. It also shows where more work is needed to develop a consistent shadow price valuation approach that extends across a range of different capital asset types. Starting with shadow price estimates for specific assets could pave the way for creating a broader, systematic framework that works for a wide range of assets.

Ongoing ESCoE work on shadow prices in collaboration with the University of Cambridge aims to measure and estimate the value of different capital assets and build a rigorous framework for classifying missing capitals.

Summary

This blog explains why valuing wind in National Accounts, or complementary ones, is complex and why current methods may underestimate, or potentially overestimate, its contribution to social welfare. While wind is included as a renewable asset, most valuations ignore wider social and environmental impacts. Shadow pricing offers another approach by accounting for these externalities. However, challenges remain, such as defining what to include, choosing valuation methods, and selecting key variables. Starting with individual assets like wind can help build a systematic framework for more accurate and policy-relevant economic indicators.

ESCoE blogs are published to further debate.  Any views expressed are solely those of the author(s) and so cannot be taken to represent those of ESCoE, its partner institutions, the Office for National Statistics, or the UK Endorsement Board.