Walton Shepherd, a staff attorney for the Natural Resources Defense Council (NRDC), has made an economic-development argument for renewable energy sources over natural gas in Virginia’s energy policy. Sandy Hausman with WVTF Public Radio quotes him as follows:
Renewable energy and energy efficiency are basically homegrown resources. If Virginia wants to produce its own power and not send dollars out of state for things like natural gas that we actually have to import, we can tap those resources right here in Virginia and keep those dollars local.
Shepherd says that Virginia should cut carbon emissions by 30%, and the state should reject any request by Dominion Virginia Power to build any new natural gas burning plants. Using similar logic, environmentalists also have argued that construction of the proposed Atlantic Coast Pipeline and Mountain Valley Pipeline, both of which would transport natural gas, is unnecessary and not in the public interest.
Shepherd raises a point worth examining: Do “home grown” energy sources like solar, wind and energy conservation create more taxable, job-creating economic activity than building pipelines and gas-fired power stations? The answer seems intuitively obvious — wind and sunshine are abundant and free here in the Old Dominion, while natural gas imported from outside the state represents a drain on Virginia’s economy.
But the truth of the matter is far from clear. The point of this post is not to settle the matter — I don’t have the data or analytical tools to do that — merely to warn against making simplistic assumptions.
Cost of capital. First, the cost of fuel is only one part of the cost of generating electricity. Two other inputs are manpower and, most important, capital. Shepherd’s argument (as filtered through Public Radio) does not consider the cost of capital. At present, solar panels and wind turbines are more expensive per unit of electricity generated than the turbines, boilers and pollution-control devices it takes to burn natural gas. Higher costs translate into higher electric rates, which come out of the pockets of businesses and rate payers, which diminishes the money they have to spend in the local economy.
Direct job creation. Once installed, solar, wind and gas facilities require employees to maintain and operate them. A billion-dollar gas power station requires only a few dozen employees to operate. A solar farm requires little more than periodic inspections to ensure everything is working properly and landscapers to keep down the grass. (Wind will be a niche player in Virginia, so I don’t give it much consideration here.) I haven’t seen an objective analysis that compares the employment levels (and payroll) of solar farms vs. gas plants. Either way, the numbers are tiny compared to the capital investment expended.
Indirect job creation. Solar farms and gas plants also have indirect, spin-off effects. For instance, corporations dedicated to green energy policies want to buy renewable energy. A case in point is Amazon Web Services, which has committed to run its Northern Virginia data centers on solar. The availability of green energy makes such companies more willing to invest in Virginia, although it is difficult to say how critical the criteria is in their location decisions.
On the other side of the argument, gas backers say that new gas-fired power stations will support construction of the Atlantic Coast Pipeline, which in turn will supply gas to industrial customers along the pipeline route and allow communities to compete for energy-intensive manufacturing prospects for the first time.
Energy efficiency. Greenies such as Shepherd tout the advantages of energy efficiency. Whether weatherizing the houses of the poor or installing state-of-the-art controls for office HVAC systems, investments in energy efficiency can create jobs and build businesses. (My wife used to work for a company that makes a software platform for building automation systems. That Henrico-based firm employs a lot of highly paid engineers.) Energy conservation programs come in many forms — from upgrading heat pumps to replacing old, energy-hogging refrigerators — and each one offers a different payback. On one extreme, the market-driven building automation business offers demonstrable savings and requires no government support. On the other hand, programs that eke out marginal improvements in appliance efficiency typically require subsidies from taxpayers or rate payers.
Subsidized conservation programs may create local jobs, but if the same sum of money were invested elsewhere, they might create just as many jobs, perhaps more. Americans normally trust the free market to allocate capital the most efficiently. When government policy overrides market dynamics via subsidies, it’s much harder to make the case that job creation will be maximized.
Intangibles. Some costs and benefits of energy sources are intangible. For instance, solar and wind are extremely land intensive, displacing other uses such as agriculture and forestry, both of which support Virginia jobs. Similarly, solar and wind, which are intermittent sources of power, create issues for maintaining the stability of the electric grid. Utilities are getting better at handling these fluctuations, but they typically must spend money upgrading their transmission and distribution systems in order to do so. Does Shepherd take these expenditures into account?
There is an environmental benefit to clean energy sources, and a cleaner environment does have an economic value. But putting a price tag on reducing CO2 emissions, the prime benefit of which is less global warming, is problematic. The benefits of Virginians’ CO2 reductions accrue to the world at large, not to Virginia. While flooding from sea-level rise is a major economic concern for Hampton Roads linked to global warming, the impact of renewable investments made here in Virginia on global temperature, and by extension sea-level rise, would be undetectable. Quantifying economic benefits to the commonwealth is an impossible task.
Stranded investments. The greatest intangible is risk. Gas-fired power plants and pipelines are multibillion-dollar investments with an economic life measured in decades. There is a chance that within a decade continued technology improvements will drive down the cost of solar electricity to the point where it would be the indisputably preferable electricity source. In such a scenario, Virginia rate payers would be stuck with enormous stranded investments in gas infrastructure that was no longer economically justifiable.
Dominion’s economic analysis says that the investment in its Brunswick and Greensville power stations will benefit Virginians to the tune of roughly $1 billion each over their economic lifetimes (the savings at Greenville will be somewhat larger than Brunswick’s), even assuming higher gas prices and lower solar prices in the years ahead. Environmental groups dispute the analysis.
Anybody can make any claim they want and back it up with sophisticated-looking charts and graphs. But any claim, by either side of the debate, depends upon two critical things: (1) how the issue is framed, in other words, which factors are included and excluded, and (2) key assumptions about unknowable things such as the future rate of technological improvement, cost of capital, and cost of energy.
So, to answer the question we started with: Will shifting to “local” energy sources like wind, solar and energy-efficiency stimulate more economic development (usually defined as jobs and tax revenue) than natural gas? The answer is, nobody knows. Indeed, the answer may be unknowable with any certainty. If you adopt a position on either side of the debate, you’ll be making a leap of faith.There are currently no comments highlighted.