September 1, 2008
Why are NY Political and Media Leaders Grossly Overestimating the Economic Benefits of Iberdrola’s Insistence on Investing $2 billion on Wind Farms in NY?
New York political and media leaders are grossly overestimating the favorable local and state economic benefit that would result from Iberdrola’s proposed investment of $2 billion in “wind farms” in New York.
Virtually every public comment from NY political leaders and every news story and editorial on the impending NYS Public Service Commission’s decision emphasizes that Iberdrola would invest $2 billion in “wind farms” in New York if the Spanish company is permitted by the PSC to acquire Energy East and its electric and gas distribution companies in New York, Maine, Massachusetts and Connecticut.
This heavy emphasis on the proposed $2 billion investment suggests that NY leaders do not yet understand that a $2 billion investment in “wind farms” in NY would provide have very little favorable economic in the areas where the “wind farms” would be built or in the state. The economic impacts may even be negative.
This brief paper explains that there would be little, if any, net favorable local or NY state economic impact from a potential $2 billion Iberdrola investment in NY “wind farms because:
• Potentially favorable economic impacts are typically overstated by the wind industry and its advocates within governments, and
• Other factors, often ignored, tend to offset most or all of the favorable impacts.
Overstated Economic Benefits of “Wind Farms”
1. Very little of the $2 billion “investment” would be spent locally or have local economic benefit.
This fact becomes clear when the make-up of a $2 billion investment in “wind farms” is analyzed.
Specifically, the share of total “wind farm” capital costs accounted for by the various elements of cost (i.e., turbines, blades, towers, assembly and installation, etc.) varies widely among “wind farms” depending on such factors as their size, location, terrain, distance from a transmission lines, and when turbines were purchased. (“Wind farm” capital costs have increased dramatically since 2000-2002. )
Detailed breakdowns of cost generally are not revealed by “wind farm” owners. However, a 2006 report from the National Renewable Energy Laboratory (NREL) provides rough estimates of the breakdown of total project costs based on 2000-2003 data. Undoubtedly, these costs have changed but they do permit calculating the following rough estimates of the shares of a $2 billion capital investment that would be expended for various elements of cost:
Element of Capital Cost % of total Share of $2 Billion
• Turbine, Blades & Tower 73.8% $1,476,800,000
• Foundation 3.3% 65,600,000
• Transportation 3.6% 71,300,000
• Roads, Civil Works 5.6% 112,600,000
• Assembly & Installation 2.7% 54,200,000
• Electric Interface & connection 8.7% 173,900,000
• Permits, Engineering 2.3% 45,600,000
Totals 100% $2,000,000,000
This breakdown helps identify the share of costs that might have some favorable local or state economic benefit (but note that other factors, described below, will offset the potential favorable benefits). Specifically:
a. As the above table shows, the overwhelming share of the capital cost of a “wind farm” is for turbines, blades, towers electronics, cables, etc. that are manufactured elsewhere. A majority of wind turbines being installed in the U.S. apparently are imported from other countries. Little, if any, of the money spent for the turbines, blades, towers and related components making up nearly 3/4ths of the cost would be spent in NY.
b. Foundation costs include cement and aggregate for concrete, steel rebar, and earthmoving. Aggregate and some of the workers for concrete work and operators for earth moving equipment may come from the local area or region. However, cement, rebar and earth moving equipment would originate elsewhere and may be imported.
c. Turbines, towers, and blades would be transported from ports or from manufacturing locations outside NY. Transporters probably would be located in those places, not at the “wind farm” site.
d. Roads and civil works probably would require workers and equipment from the local area or region but a significant share of the cost probably would be for the repair of existing roads that are destroyed when moving the heavy turbine and tower components over them.
e. Assembly and installation of turbines, blades, towers and related equipment generally is performed by specialists who travel to “wind farm” sites and, therefore, typically involve few local workers.
f. Electrical interface and connection costs would include cabling to collect electricity from turbines and move it to a substation, the substation itself, and transmission lines to the nearest existing transmission line that could handle the full rated output of the “wind farm.” Transmission line costs will vary widely with distance. The required equipment would not be purchased locally.
g. Permitting and licensing costs would involve owner’s project developers, as well as lawyers, consultants, government fees, and other personal service costs that would likely involve few local workers.
2. Few local jobs result from “wind farm” construction or operation. The wind industry and its advocates with governments often exaggerate the number of jobs that are likely to be filled with local workers during construction (which may take only last 6 to 9 months) and operation of the facility.
As indicated above, very few of the jobs during “wind farm” construction are filled by local workers. Instead, most jobs (often as many as 80%) are filled by specialized workers brought in from other areas. These workers often live and pay taxes elsewhere and probably go home on many weekends. Jobs that are filled locally during the construction period may include transit-mix drivers, laborers, and some heavy equipment operators. Few permanent jobs are created and many of these will be filled by technicians brought in temporarily for maintenance work.
Wind industry lobbyists typically overstate the number and economic benefit of “indirect” jobs (e.g., those in restaurants and hotels because of construction activity) because the construction activity is short lived and project workers brought in from other areas are likely to go home on many weekends and their wages are spent (and taxes paid) in their home towns.
3. Few supplies and services are procured locally and the favorable economic impact is small. Wind energy advocates often overstate the favorable local economic benefit of “wind farms” because they pretend that the full cost of anything procured locally provides a favorable economic benefit. In fact, very little money is spent locally for supplies and services and, importantly, even with these local purchases only the local value added portion (not the whole cost) may provide some local economic benefit.
4. Rental income paid to land owners may have little or no local economic benefit. “Wind farm” developers often claim that rental or lease payments to landowners who permit construction of wind turbines on their property provide a significant local economic benefit. In fact, any income received by landowners has local economic benefit only if that money is spent or saved locally. Money received by absentee landowners or that is spent or invested elsewhere doesn’t help the local economy.
Negative Economic Impacts that Offset Favorable Impacts.
In addition to the adverse environmental ecosystem impacts that are increasingly being documented (e.g., noise, impact on birds, bats, wildlife habit, and scenic impairment), “wind farms” have significant adverse economic impacts that are often ignored by the wind industry and overlooked by government officials.
1. NY and other states are likely to lose significant corporate income tax revenue. As explained in a separate paper, Energy East companies that would be acquired by Iberdrola paid about $114 million in federal and state corporate income taxes in 2007. However, because of extraordinarily large federal and state tax breaks and subsidies, companies owning “wind farms” are able to avoid paying millions of dollars in federal and state corporate income tax. Therefore, if Iberdrola is permitted to own “wind farms,” the company would almost certainly be able to avoid, for years, paying corporate income tax on the electricity and gas distribution companies obtained through its Energy East acquisition. (Note that tax burden avoided by “wind farm” owners is shifted to ordinary taxpayers who do not enjoy such tax shelters.)
2. Local governments may also lose tax revenue if Iberdrola was exempt from avoid paying property tax on “wind farms.” New York law permits exemption from property taxes for “wind farm” equipment, subject to agreement with local governments and school districts. This exemption authority has been exercised in some cases and has resulted in PILOT (payment in lieu of tax agreements) that result in some payments by “wind farm” owners to local governments and non-profit groups. Such agreements – which may be attractive to local officials now in office – are not necessarily in the long run best interests of local governments, or taxpayers who must pick up the tax burden escaped by wind farm owners.
3. Profits from the Energy East electricity and natural gas distribution companies that would be acquired by Iberdrola probably would flow out of New York and out of the US. These profits are derived from electric and gas customers in the states where Energy East companies now operate.
4. Electric customers would almost certainly experience higher monthly electric bills. Electric customers in New York are likely be affected adversely in three ways by the addition of more “wind farms”:
a. The full, true economic cost of electricity from wind is higher than electricity produced from traditional generating sources. Also, the value of electricity produced from wind is lower because it is produced only when wind speeds are within a certain range. Therefore, the electricity is intermittent, volatile, and unreliable. It is most likely to be produced at night in colder weather rather than on hot summer late afternoons in July and August when demand is highest.
b. Wind turbines cannot be counted on to produce electricity at the time of peak demand. Therefore, reliable (“dispatchable”) generating capacity – not intermittent, unreliable wind turbines – will have to be added to meet increases in peak electricity demand in NY and/or to replace existing generating capacity. Electric customers could end up paying twice; once for unreliable wind capacity and again for capacity than can be counted on to meet peak demand.
c. The subsidies paid to “wind farms” in New York by NYSERDA and paid for with money collected from electric customers via a surcharge added to their monthly bills.
5. Money is drained from local economies. New York residents are already paying some of the very highest electricity prices and taxes in the nation. The adverse economic impacts listed above could result in an even greater drain on the disposable income of citizens in much of New York. When more money must be paid in taxes and for month electric bills, less in available to pay for food, clothing, shelter, medical expenses, education, for saving, for contributions to charities, or for spending with local businesses. The inevitable result is further downward pressure on local economies in upstate and western New York.
6. Loss of value for property near “wind farms.” While the wind industry has sought to claim otherwise, there is no longer any serious doubt that “wind farms” have an adverse effect on the value of neighbor’s property and, often, their quality of life.
Conclusion. Political and media leaders’ misperceptions about the true economic benefits of “wind farms” are unfortunate – especially for New York’s taxpayers and electric customers, and for local economies that are being drained of their economic lifeblood. Hopefully, these leaders will soon catch up with the facts about the true economic impacts of “wind farms.”
Glenn R. Schleede (former New Yorker now living at)
18220 Turnberry Drive
Round Hill, VA 20141-2574
540-338-9958
1NYLEA%7E1.pdf
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