Yet another Canadian province is showing a serious commitment to the economic benefits of renewable energy development. Ontario’s “buy local” energy policy has the promise of 43,000 local jobs from 5,000 MW of new renewable energy. Now Nova Scotia is completing rulemaking for a provincial goal of 40% renewable power by 2020 that includes a 100 megawatt (MW) set-aside for community-owned distributed generation projects. The policy promises to increase the economic activity from its renewable energy goal by $50 to $240 million. … Read More
Last month, a Grist writer noted sarcastically that “Money is a miracle cure for ‘wind turbine syndrome’.” It is. And environmental advocates frustrated by the (spurious?) health and aesthetic complaints raised by not-in-my-backyard (NIMBY) actors would do well to consider why.
The implication of the Grist post (and this attitude in general) is that we can’t green our energy system without sacrifice. Getting to big carbon reductions will require enormous new renewable energy development and it will often happen in places where land was previously undeveloped (note: see this counter-argument). The folks who live there, the NIMBYs, need to do their share.
It’s awfully easy to offer sacrifice when you’re not on the altar. And it’s worth considering what’s really behind the “syndrome.”
In a recent study by the ever-methodical Europeans, they found that opponents to new wind and solar power have two key desires: “people want to avoid environmental and personal harm” and they also want to “share in the economic benefits of their local renewable energy resources.” It’s not that people are made physically ill by new renewable energy projects. Rather, they are sick and tired of seeing the economic benefits of their local wind and sun leaving their community.
Such opposition is perfectly rational, since investments in renewable energy can be quite lucrative (private developers and their equity partners routinely seek 10% return on investment or higher). And the economic benefits of local ownership far outweigh the economic colonialism of absentee owners profiting from local renewable energy resources.
Of course, NIMBY-ism only sometimes manifests itself as an economic argument, and there’s a good reason for that, too. In the project development process, there are precious few opportunities for public comment, and almost all of them represent up-or-down votes on project progress. None offer an opportunity to change the structure of the development to allow for greater local buy-in or economic returns. And no project will be halted simply because it isn’t locally owned. Projects can and have been stopped on the basis of health and environmental impacts. Enter Wind Turbine Syndrome.
There are alternatives. In Germany, Ontario, Vermont, and Gainesville, Florida, local citizens can use a renewable energy policy – a feed-in tariff – that offers them a guaranteed long-term contract if they become a renewable energy producer. This contract guarantees a reasonable, if small, return on investment and helps them secure financing. In Germany, the program’s simplicity means that half of their 43,000 megawatts (MW) of renewable energy are owned by regular farmers or citizens.
In Ontario, the provinicial clean energy program specifically requires project developers to use local content, guaranteeing a higher economic benefit for the province in exchange for its robust support for renewable energy. The program is forecast to generate 43,000 local jobs in support of 5,000 MW of new, renewable energy.
In the United Kingdom, public officials are piloting a “community wind fund” program for all new wind projects. Under the program, each wind project must pay in £1000 per megawatt (~$1600 per MW) per year, for 25 years, into a community fund where the project is located.
The impact for the community is significant. Compared to the typical land leases (often $5,000 per turbine for the host landowner), the community fund payments would increase local revenue by over 60 percent, with the additional funds spread to the entire community rather than just the lucky turbine hosts.
The impact on turbine owner net revenue is small but not negligible, reducing the net present value of the project by about 3 percent.
It’s not that any of these policies represent the silver bullet for local opposition to new renewable energy projects, but they do address the underlying problem.
The truth is that many people are frightened of being left behind by the clean energy revolution or angry that their local resources are tapped without commensurate local benefit. They find that there’s no way to be heard in the (democratic?) process without resorting to tangental arguments about health and viewsheds.
NIMBY has been misunderstood by the clean energy community. It is not a knee jerk, it’s a market failure.
When citizens see a new wind or solar energy project, it shouldn’t be from the sidelines. They should see it from the front seat, where they have hitched their wagon to environmental and economic progress by investing in a local energy project.
Our energy policy should make that possible. It doesn’t.
Federal tax policy makes it very difficult to share renewable energy tax incentives among multiple investors. Federal and state tax-based incentives preclude many local organizations (nonprofits, cities, schools) from owning wind turbines or solar panels. And utility billing rules make it nearly impossible (in most states) to share the electricity output from a shared project that isn’t utility owned.
There are brilliant examples of entrepreneurs overcoming these barriers to install community-based projects. Developer Dan Juhl and others have a record of success with community wind in Minnesota. The Clean Energy Collective is piloting a new community solar program in Colorado.
There are even some policy ideas bringing hope. Virtual net metering laws in eight states allow for sharing electricity output. Colorado’s solar gardens bill enshrines a small amount of community solar.
But the theme is one of triumph over adversity, with local ownership the exception rather than the norm. And without better energy policies that give locals a chance to buy in, the wind turbine syndrome epidemic will likely continue.
Methodical as ever, a European research group has published a study of “benefit-sharing mechanisms” to help renewable energy project developers gain local acceptance of their projects.
Communities have three types of objections to renewable energy projects – environmental, NIMBY, and opportunism. The study examines eight ways that developers can share benefits with the local community in order to address their objections to renewable energy projects.
In a sentence: people want to avoid environmental and personal harm and share in the economic benefits of their local renewable energy resources and developers will increase their chances of success by addressing local desires.
U.S. developers should take note that opposition to wind farms may not seem so perverse when seen in the context of trying to use a community’s “free” renewable resource.
The majority of studies indicate that the range of increased operations-period [economic] impact [of community wind] is on the order of 1.5 to 3.4 times…and operations-period [job] impacts are 1.1 to 2.8 times higher for community wind.
Can a state with a renewable energy mandate require green jobs to stay at home? Litigation has made states into tepid defenders of their job rights, but states have the legal ground to go great lengths to keep more of the economic development from their renewable energy industry inside their borders.
No renewable energy mandate passed a state legislature without the promise of thousands of new jobs, but many states have shared the recent experience of Massachusetts: the state’s largest solar manufacturing plant announced that it is moving production to China. Evergreen Solar is moving despite the state’s commitment of $44 million in subsidies to support the plant and its manufacturing jobs. The state is losing out on manufacturing jobs despite its citizens’ commitment to (if necessary) pay more for electricity from renewable sources.
In contrast, last week I wrote about Ontario’s clean energy program, well on its way to 5,000 megawatts of new renewable energy production and supporting over 40,000 new jobs. Over 20 new manufacturing plants have been announced. The keystone of this program is a ‘buy local’ rule that requires wind and solar power projects who want the province’s attractive power payments to be constructed with at least 60 percent of their materials ‘made in Ontario.’ Ontarians are getting cleaner electricity and significant economic development for their clean energy commitment.
U.S. states can do much more to secure the economic benefits of their clean energy mandates, even if they can’t copy Ontario’s law verbatim (see our recent report on Ontario’s program for more on the international trade controversy).
Traditionally, U.S. states have limited their economic development policy to subsidy programs, offering grants, loans, and tax breaks to manufacturers to locate within the state. Businesses let states bid against one another for scarce jobs. The result is a repeat of Massachusetts’ experience with Evergreen Solar. Manufacturers accept subsidies and then leave when it suits their bottom line.
Some states have tried more. Ohio and Illinois require part of their renewable energy standard to be meet with in-state projects. Other states provide greater credit toward compliance with their renewable energy standard for in-state projects. One state, Washington, offers multipliers to a state tax credit for projects with “made in Washington” parts.
Massachusetts tried to require its utilities to sign long-term contracts with in-state renewable energy suppliers, but the state backed down in the face of a lawsuit from renewable energy supplier TransCanada.
No state has gone as far as Ontario to require local purchasing of components, partly because more robust policies to require in-state development have often been threatened with lawsuits under the Supreme Court’s Dormant Commerce Clause.
The linchpin to a commerce clause dispute is whether the law in question discriminates against out-of-state economic interests and, in particular, whether it burdens them while benefitting in-state interests. Enacted in a U.S. state, Ontario’s buy local requirement would likely trigger than discrimination clause, requiring the state to prove that the law “advances a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives.” (Source: Richard Lehfeldt, Woody N. Peterson, and David T. Schur. Commerce Clause Conflict. (Public Utilities Fortnightly, December 2010)). Success in this situation is rare, and yet clean energy economic development may meet the requirements. A recent article in Public Utilities Fortnightly magazine on the Massachusetts case highlights how states could move beyond jobs subsidies:
First, be explicit about the incentives being offered for in-state investment. In particular, “The opportunity to enter into a long-term PPA should be one of the benefits offered to successful bidders as part of the state’s development initiative, not the starting point.” In fact, the article notes, this is exactly what happens in regulated electricity markets, where the state provides a utility franchise and the exclusive right to build and rate-base new power generation. The PPA follows from the commitment to local development.
The state must also be explicit about the functional difference between a power plant developed in-state as opposed to out-of-state, with specifics about the technology and the site. For example, redeveloping a brownfield site in state is much more valuable than simply importing clean electricity.
Finally, states have legitimate environmental objectives for in-state power generation. “A state that seeks new in-state renewable power plants may increase its reserve margins, improve its air quality, displace fossil-fuel based generation, avoid transmission congestion charges that may apply, and may also avoid or defer the need to build new transmission lines.” All of these are “legitimate local purpose[s] that cannot be adequately served by reasonable nondiscriminatory alternatives.”
In other words, under the strict discrimination clause there is room for states to favor local development. But there are also several nondiscriminatory strategies that can also pass legal muster.
States that favor in-state production without placing an “excessive burden” on out-of state entities have nondiscriminatory policies. There are several illustrations of this at work. In Minnesota, an ethanol producer incentive provided 15 cents per gallon of ethanol produced in-state and nothing for out-of-state suppliers, who were still allowed to sell in Minnesota. The state of Washington provides a significant multiplier to its solar PV incentives for domestically produced inverters and solar modules.
If U.S. states fear the legal conflict over a discriminatory clean energy policy, they could instead emulate Turkey. Turkey provides renewable energy producers a standard offer, long-term CLEAN contract for anyone who builds in the country, but they provide bonus payments for renewable energy projects that are “made in Turkey.” These payments increase the per kWh contract anywhere from 32% to 146%, depending on the renewable technology.
Over thirty states have committed themselves to renewable energy and potentially higher electricity costs. In exchange, states should consider their legal authority to keep those jobs within state borders and to the economic advantage of its citizens.
Over 30 U.S. states mandate renewable energy and are willing to pay higher prices for clean electricity. But most states lack a jobs and economic development strategy for renewable energy, and must watch helplessly as manufacturers like Evergreen Solar move production to China. Instead, state legislators should emulate the Canadian province of Ontario by passing a comprehensive policy to capture the jobs and economic value of their clean energy transformation.
Ontario’s bold clean energy program – in just over a year – has resulted in the promise of 43,000 clean energy jobs in support of 5,000 MW of clean energy projects. The centerpiece of the program is a simple, long term contract for renewable energy developers with a price sufficient to attract investment. To qualify for a contract, developers must get 60 percent of their project’s value from inside the province. The rule effectively means that no solar or wind project built in Ontario can obtain a contract without having some components manufactured locally.
This domestic content or “buy local” rule has spurred a fast-growing renewable energy industry in the province, with over 20 new manufacturing plants scheduled to open in the next two years. The new plants will manufacture solar modules, inverters, racking systems, and wind turbine blades and create thousands of jobs. The spillover effects from the new manufacturing facilities will multiply the job impacts across the province.
In contrast, the third largest solar manufacturer in the U.S., Evergreen Solar, is shifting its production to China, laying off 800 workers and closing its Massachusetts-based manufacturing plant. This announcement is on the heels of two other solar plant closures in New York and Silicon Valley.
The bleeding of jobs won’t stop unless state lawmakers enact new rules to make renewable energy easier to develop and manufacturing harder to outsource.
While Ontario provides an all-in-one contract for its wind and solar producers, developers in the United States must cobble together a hodgepodge of federal, state, and utility incentives to access financing. And while Ontario also provides a guaranteed grid connection and long-term contract for qualified projects, U.S. developers typically negotiate their interconnection and power purchase agreements with the utility individually.
Additionally, no U.S. state has married economic development and renewable energy policy as has Ontario. The most desirable, long-term jobs in renewable energy are in manufacturing and states do provide manufacturing job subsidies, such as the $44 million provided to Evergreen Solar’s Massachusetts facility. But these payments are separate from the state’s renewable energy program, with no guarantee of sufficient local demand to maintain the plant.
Only two states – Washington and Michigan – provide financial incentives for renewable energy that also encourage in-state manufacturing. In both cases, the incentive programs are too small to have much impact.
In contrast, Ontario’s clean energy program is built around a strong commitment to local manufacturing and it has attracted as many as 43,000 new jobs at a reasonable cost per job, according to the Institute for Local Self-Reliance. We estimate that Ontario pays $143,000 per job created, a cost comparable to job subsidy programs in the United States and less than some recent U.S. state clean energy job creation efforts. And unlike U.S.-based job subsidy programs, the price of Ontario’s new jobs includes thousands of megawatts of clean electricity.
Conveniently, employing the Ontario strategy in the U.S. would almost certainly cost less because of stronger renewable energy resources and higher electricity prices. For example, Colorado’s solar resource alone would allow it to provide solar developers a similar return on investment at a 33% lower price for power and its higher retail electricity price would further reduce the marginal costs of the program and the resulting jobs compared to Ontario.
Ontario’s strategy is not without controversy, and the buy local rule has drawn a World Trade Organization complaint filed by Japan and the United States. However, other countries have found ways to favor local manufacturing and production without the trade dispute, including Turkey, whose policy offers higher incentive payments for locally-produced projects, rather than requiring domestic content. Such a policy would likely also pass interstate commerce muster in the United States.
U.S. states forgo jobs and economic development because their clean energy policies lack sufficient coordination. The Canadian province of Ontario has demonstrated the power of comprehensive clean energy policy, and their lesson should be replicated by American legislators.
The bottom line is that Frame and other critics of the plan seem to think that electricity policy alone is what determines the survival of Ontario industry. It’s an important component, but the price on a bill doesn’t reflect other programs and initiatives in place to help alleviate the economic strain. Sure, looked at in isolation it may seem scary, and it’s easy to criticize something in isolation of other facts, but it’s not constructive to the debate…
Historically there have always been U.S. states and Canadian provinces with lower — in some cases much lower — electricity rates. Have we seen a mass exodus of industry into Quebec, or Manitoba, or Wyoming? No, because electricity rates are one of many factors that are weighed by companies. Ontario is still very much competitive with many of the states that count, including Michigan and Pennsylvania, and we’re far cheaper than New York State, New Jersey and California. The claim that our industries are going to pick up and run is scaremongering.
In reference to Japan’s World Trade Organization complaint against Ontario’s feed-in tariff (with its domestic content provisions):
“Why should the Ontario taxpayer be paying high rates for clean energy if it is going to the profit margins of big corporations from Japan or Europe?”
For Immediate Release PRESS RELEASE CONTACT: 612-276-3456 NEW REPORT ARGUES FOR A RENEWABLE ENERGY POLICY THAT PUTS RURAL COMMUNITIES FIRST Minneapolis, MN—(September 8, 2008). The next 20 years could generate as much as $1 trillion in new renewable energy … Read More