Solar farm policy and farmland price - A land zoning perspective

Abstract

Photovoltaic or solar energy is recognized as a significant source of renewable energy on a global scale. The utilization of ground-mounted solar panels is closely associated with the use of farmland, as solar power generation typically requires vast expanses of farmland. While previous studies have explored the use of price incentives to regulate the adoption of solar panels, little is known about the impact of land zoning policies on farmland prices. The relationship between farmland use policies and farmland prices is well-documented, with policies often capitalizing into the value of the land across various countries. The deployment of ground-mounted solar panels has raised concerns about the potential loss of farmland and the degradation of the farming environment. However, the policy debate has largely overlooked the price capitalization effect of solar panel installations. In an effort to mitigate the adverse effects of solar panels on agriculture, the Taiwanese government implemented revised zoning regulations that impose stricter limitations on small-scale ground-mounted type solar panels installed on farmland. As a result of this policy reform, solar panels are no longer permitted on farmland areas measuring less than 660 square meters. While it is expected that the installation of solar panels will slow down, the resulting price effects on farmland remain poorly understood. This paper measures the impact of the land zoning regulation on farmland prices in Taiwan. By utilizing nationwide data on farmland transactions and employing the difference-in-differences method, we discover that the tightened regulations pertaining to solar panel installation have led to a 21.8% reduction in farmland prices. Furthermore, the negative price effect is found to be least pronounced in high-productivity farmland. We also find that the decline in prices commenced two months after the reform and continued to intensify over time. Additionally, we identify a distributional effect concerning price, whereby farmland with higher prices per hectare experiences the most significant impact. Consequently, our study contributes an empirical analysis that confirms the substantial price capitalization effects of land zoning policies on farmland.

Keywords: Difference-in-differences method; Land zoning; Renewable energy; Solar panel.