Valuing Solar Energy as Natural Capital in Our Economic System

28th June, 2024

Valuing Solar Energy as Natural Capital in Our Economic System

If we hope to have a sustainable future, our economic models need restructuring.

Currently, models take into account financial capital (shares, bonds and banknotes); produced capital (tools, machines and buildings); and human capital (knowledge, skills and health), but we must acknowledge that nature is the basis of all production as well as life itself. Therefore, there is a monetary cost and benefit to our use of – and impact upon – nature.

Climate change and resource depletion are demonstrating in stark terms the value of natural capital. We must align our corporate and individual behaviours to the environments in which we operate.

 The Importance of Natural Capital

Natural capital refers to the world’s stocks of natural assets, including geology, soil, air, water and all living things. It provides humans with a range of essential ecosystem services, yet these assets are often undervalued or ignored in traditional economic models.

A UK Treasury report called Economics of Biodiversity, or The Dasgupta Review, found that between 1992 and 2014, produced capital per person doubled and human capital per person increased by about 13% globally; but the stock of natural capital per person declined by nearly 40%.1 With such disparity, our current globalised systems of production and consumption are unsustainable. When economic growth is achieved through the liquidation of the natural assets underlying them, that economic growth will erode at its own base. Therefore the underlying resources must be given the same value as produced and human capital.

While not an exact science, assigning a monetary value to ecosystems and biodiversity means we can calculate the true cost of our economic activities. For example, forests not only provide timber but also sequester carbon, support biodiversity and regulate water cycles. Wetlands filter pollutants, reduce flood risks and provide habitat for wildlife. These services have significant economic value, even if they don’t always have a direct market price.

Solar Energy as a Natural Capital Asset

Solar energy, in particular, offers a case study on why we must rethink how we calculate economic value. In addition to clean, renewable energy, solar farms can offer significant biodiversity net gains, creating habitats for wildlife, supporting pollination and improving soil health. Despite popular opinion, solar farms are not in competition with agriculture, they support it. Their multiple contributions to our economic prosperity should be accounted for appropriately.

Tom Lancaster, Land Analyst at the ECIU states that solar farms can:

“…lead to real benefits for nature, with wildflowers planted amongst the panels and thick hedges creating new habitats for birds, whilst screening the visual impacts of the development. And food production can also continue in many cases, with sheep and other livestock able to graze underneath and between solar panels, allowing farmers to double up on sources of income.”2

Lancaster University confirms “populations of bumble bees increased in and around solar farms, which improved crop pollination on land within a 1 km radius” (Solar Power Portal).

Meanwhile, soil health recovers as the agricultural land under a solar farm is left fallow. This “in turn increases the amount of organic matter and allows for greater soil carbon sequestration” (Solar Energy UK).

Research into “agrivoltaics” – the use of land for both farming and solar power – by The World Economic Forum found solar panels on farms makes sheep happier. They provide shade to keep the animals cool and reduce their stress; the panels drip-feed dew onto the soil, preventing parching and providing more nutritious and digestible grass; in addition, animals on fields without panels are more idle, a sign of distress.

By assigning a monetary figure to these ecological benefits, we can more accurately assess the true value of solar energy projects. This approach ensures that the environmental benefits are factored into financial decisions, making renewable energy investments more attractive.

Reevaluating  Economic Models

We need to reform our economic systems to include these values in profit and loss calculations. This shift involves developing methods to quantify and monetise the benefits provided by natural ecosystems.

Governments should integrate natural capital into national accounting systems. Companies should incorporate natural capital assessments into their operations. And the public should be better educated about the importance of natural capital, which can drive behavioural changes that support sustainability.

Solar Farms Align with an Investment in Natural Capital

By enhancing local biodiversity, reducing carbon emissions, and supporting ecosystem services, solar farms exemplify how sustainable development is not only possible but also economically viable when we account for the true value of nature.

This is before we begin to calculate the benefit to the world of cheaper energy that correspondingly decreases the need for fossil fuels and the damage their extraction and use cause, as well as its impact on climate change.

Recognising and valuing natural capital is not just an environmental necessity but also an economic imperative.

It requires us to redefine what we consider assets and how we calculate profits and losses, ensuring we make informed decisions so our economic activities contribute positively to the world in which we live. As we shift our economic models to embrace natural capital, we pave the way for a more sustainable and prosperous future.

1 Dasgupta Review – The Economics of Biodiversity (2021) https://assets.publishing.service.gov.uk/media/60182857d3bf7f70c2afe5bb/Dasgupta_Review_-_Headline_Messages.pdf

2 The I: “Tory efforts to block solar farms could cost consumers £5bn in higher energy bills, warns think-tank” (4/9/23)