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Green Jobs Aren't Renewable Energy's Value Proposition

The recession and its aftermath have been simply awful for the emerging renewable energy industry, even though governments have tried hard to insulate the industry from the worst effects of the slowdown. Not only did the recession make it much harder for renewable energy projects and technologies to secure financing, due to weak demand and the hangover from the financial crisis, but it has focused the industry’s management on a counterproductive metric: green jobs. Factories and projects are pitched on the basis, not of their efficiency and profitability, but of adding jobs that “can never be outsourced.” Tell that to the 3,000 Danes who are being laid off by wind turbine maker Vestas, or the Scots whose jobs are in jeopardy due to the financial problems of a smaller wind supplier, Skykon. This problem isn’t unique to renewables, but the misplaced emphasis on green jobs makes them particularly vulnerable to the collision of this aspiration with the realities of global energy markets.

I don’t blame the industry for picking up on this theme. Politicians hit on it first as a way to justify continuing to invest taxpayer money in the subsidies required to keep renewables growing. That included the large infusions that became necessary when the “tax equity” market upon which project developers had depended to convert future tax credits into current cash became frozen after the bankruptcy of Lehman Brothers. As of this month, the US government has spent $5.4 billion on these renewable energy grants to fill this gap, with nearly half of that awarded in the second, third and fourth quarters (to date) of this year, even though tax equity transactions are showing signs of life again. Without a compelling story linking this money to employment, which understandably remains one of the primary economic concerns of voters, this would have been an even harder sell than it was.

One problem with this rationale is that the world has changed a lot since most of the current members of Congress came to Washington. Supply chains for practically every industry have become globalized, and renewables are no exception. If anything, as renewables increasingly become a global industry–growing out of their localized roots in places like Denmark and Silicon Valley–that trend will accelerate. The lion’s share of future demand will likely be focused on Asia and Latin America, because of their higher economic growth rates and the related need to add enormous amounts of new energy infrastructure. That’s a very different proposition than replacing existing energy infrastructure in the mature, developed economies because we don’t like its emissions or its dependence on unsustainable fuels. Vestas understands that to serve the market in China, it needs more factories in China, and fewer in Denmark.

An even bigger problem is that making renewable energy more, rather than less labor-intensive works against it in the long run, by increasing its costs relative to conventional energy. In a recent analysis on green jobs the Geothermal Energy Association (GEA) touted its finding that geothermal power plants create more than 10 times as many person-years of employment per megawatt of capacity as equivalent natural gas-fired power plants. Unfortunately for the GEA, outside the Washington beltway and the state capitals where this message might play well that counts as a disadvantage, not an edge, because it translates into higher construction and operating & maintenance expenses. In order to arrive at the point at which they can compete without subsidies that look increasingly unsustainable in light of the large fiscal deficits in the developed economies, renewables must focus on driving down these costs and improving their productivity.

I am sympathetic to the plight of the millions of unemployed workers in this country and elsewhere in the developed world, and cognizant of their effect on the overall economy. However, energy is by its nature a capital-intensive business, and not a particularly labor-intensive one. To the extent its capacity to provide low-cost energy to the rest of the economy is influenced by the number of workers it takes to produce a megawatt-hour of electricity or a barrel of oil, fewer are generally better. Without diminishing the value of the jobs involved, I can only hope that once the economy resumes creating many kinds of jobs at a decent rate the renewable energy industry will return its focus to its primary value proposition for consumers and investors: providing low-emission, diverse and secure–and hopefully someday cost-effective–sources of energy for the economy, rather than putting more people to work.

Geoffrey Styles's picture

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Rick Engebretson's picture
Rick Engebretson on Oct 28, 2010 10:32 am GMT

From my rural perspective, I think Anto’s “OpenaADR” article helps redefine where the jobs are.

The oil industry is famous for working where the resources are. Rural areas are where renewable energy resources are. But we have suffered from armies of “experts” exporting their bad ideas and refusing to understand the rural growth process.

In my area, we have profound biofuels capability. The stuff needs to be nurtured and managed or we’ll br burned out, much like fires in the west. Driving tractors to raise corn and beans for feedlot operations keeps the brush down, but has limits. So rural areas are very eager to become suppliers of new energy resources.

On demand electrical generation from distributed rural biofuels resources is one possibility. With OpenADR we can be integrated into baseload and gas and solar and sensible wind. And I think we can be competitive.

The problem is a labor shortage in rural areas. It is hard work. Sweat, bugs, and dirt. Most young people want to wear nice clothes and be an Executive Director of something.

Perhaps all the debt has made Executive Director city jobs scarce. But out here, not only is the brush a fire concern, but wolves and even cougars have returned. Without labor to help, we go back to tractors and chemicals.

Jesse Jenkins's picture
Jesse Jenkins on Oct 28, 2010 5:33 pm GMT

The idea that “green jobs can’t be shipped overseas” is wrong on it’s face, as you accurately point out here Geoff, and as I wrote about back in April in a column entitled, “Clean energy jobs CAN be shipped overseas (and what to do about it).” The focus shouldn’t be on creating short-term jobs — the green jobs metric that has been vastly oversold — but on building globally competitive, innovation-fueled, export-oriented clean energy industries for the long-run.

Jesse Jenkins's picture
Jesse Jenkins on Oct 28, 2010 5:37 pm GMT

Geoff, you write that “the US government has spent $5.4 billion on these renewable energy grants.”

While accurate, that figure is a little misleading however, without noting that those grants are in lieu of equivalent tax credits that firms would have claimed in normal economic times, and which would have cost the federal treasury comparable amounts. Claiming a 30% cash grant or a 30% investment tax credit makes little difference to government coffers, but one can be a much more effective form of incentive for firms. Direct cash grants or cash production incentives (as in the feed-in tariffs paid throughout much of the world) remove a key and costly step in project financing for renewable energy developers — securing a tax equity partner — that merely adds additional costs to the final price of a renewable energy project. Why wouldn’t we want to cut out this unecessary step?

Jesse Jenkins's picture
Jesse Jenkins on Oct 28, 2010 5:42 pm GMT

Geoff, you write:

Unfortunately for the GEA, outside the Washington beltway and the state capitals where this message might play well that counts as a disadvantage, not an edge, because it translates into higher construction and operating & maintenance expenses.

Yes, higher labor and capital intensity is the halmark of many renewable energy projects, as well as nuclear power.  But that comes along with essentially no fuel costs and pretty much fixed operating costs throughout their lives, leading to stable power costs (and levelized cost of electricity generation much lower than you would assume if you just compare capital and labor costs). Natural gas plants require little capital to construct but fuel costs make up a huge share (the majority I believe) of the levelized cost of electricity generation from a gas plant. So yes, it takes more labor, but if that means less fuel and less total cost, that can actually be a net boon to the economy (particularly when labor markets are in “oversupply” – aka unemployment is high).  I know you know these nuances, but they were absent from your piece, leading to a bit of a miscomparison in my view.

Later you write this:

In order to arrive at the point at which they can compete without subsidies that look increasingly unsustainable in light of the large fiscal deficits in the developed economies, renewables must focus on driving down these costs and improving their productivity.

Now this is unequestionably true. To become truly competitive and to tap major export markets in the developing world, where the vast majority of energy demand (and BAU emissions growth) will occur, requires a disciplined focus, both on the part of firms and policymakers, on making clean energy cheaper in real, unsubsidized terms — aka “driving down costs and improving productivity.”

Jim Warden's picture
Jim Warden on Oct 28, 2010 8:02 pm GMT
If jobs can or cannot be exported is not the question,,Please everyone focus. We are at the formative stages, not expected to be perfection or economic in such a short time,, magazine Scientific American (September 2010 issue) suggests peak oil will strike in the year 2014. If you are standing on the side of the interstate out of fuel in 2015 having just passed another sold out gas station, do you really care what the price is ?  In Canada the group GreenGas.cc have a green zero emission fuel they are making and using today, apparently lower cost than gas and diesel, Investors are not rushing to make it widespread, others use electric cars for shorter trips, As the oil in the ground declines and these new technologies increase there will be times that the overlap will be in shortfall,, I am sure, Come on people get out your thinking caps and figure out how we can get these new technologies moving, not stand and criticize that they are not less cost than the declining one that has been around forever. These will soon not be alternatives, but only ones available.
Geoffrey Styles's picture
Geoffrey Styles on Oct 29, 2010 2:04 am GMT

JimW,

Your comment seems to reflect some significant misunderstandings of how Peak Oil would likely play out. Production won’t fall off a cliff, though prices may react as if it had. Nor does anyone know the timing of Peak Oil, no matter what SciAm might suggest–the field is littered with predicted peak dates that have come and gone.  In any case, renewable electricity is a poor substitute for oil, and I say that as a long-time advocate of renewables.  We burn very little oil to make power and have many others ways to make the power that EVs will need more cost-effectively–so Peak Oil makes a poor justification for renewable electricity, no matter when the former might occur.

As for the alternative fuel technology of the company that you have plugged in every comment of yours that I’ve read on this site, I intend to devote a posting soon to the topic of using anhydrous ammonia as a fuel.  I see two obvious pitfalls and apologize in advance if it appears easier to criticize than to set aside one’s critical judgment and support everything in sight. Problem 1: nearly all ammonia production is currently based on natural gas, which because of its present abundance will likely continue to set the price of ammonia and render renewables-based ammonia as uncompetitive as renewables-based electricity, without subsidies.  (Why not just use the gas directly?)  Problem 2: anhydrous ammonia is very different from the dilute ammonia solutions with which consumers are familiar; it is not a substance that most of us would want to see in service stations where it would be handled by the public and subject to spills.  If you doubt that, check out any MSDS sheet for it: low exposure limits and severe effects are a bad combination in a mass market fuel.  

Geoffrey Styles's picture
Geoffrey Styles on Oct 28, 2010 10:16 pm GMT

Jesse,

That’s a helpful clarification, though I’d also point out that person-years/MW is a less useful indication of labor productivity that person-years/MW-hour, on which metric I suspect nuclear would probably knock all other low-carbon technologies out of the box. 

Geoffrey Styles's picture
Geoffrey Styles on Oct 28, 2010 10:48 pm GMT

Jesse,

This deserves a posting of its own, but in brief I see differences that matter from a taxpayer perspective, for which I think your “merely” omits the value added by those extra steps.  First, although I can’t provide a specific example of this, it’s very likely that grants have been given to projects that would not have survived the vetting involved in lining up tax equity from banks or other investors.  With all due respect to the folks reviewing these projects in the government, they simply don’t have the same perspective as those investing their own money or accountable for investing their company’s money in these projects.  The grants thus result in more money being paid out, by some unknown percentage, than would have been returned as tax credits later.  I see additional value in the rigor of that “unnecessary step”, as you put it, because it would likely have resulted in improvements to the projects that survived vetting.  That has certainly been my experience in extensive corporate project reviews and approvals. 

I understand that when the tax equity market shut down the alternative to the grants would have been the implosion of the US renewable energy industry last year.  So the trade-offs and extra costs I cite above are at least defensible under the circumstances.  However, I don’t see that that applies to extending the grants or making them permanent, now that the tax equity market is starting to revive. The grants should be viewed as a temporary measure, taken in extremis.

Jesse Jenkins's picture
Jesse Jenkins on Oct 29, 2010 7:28 pm GMT

Agreed there. X per MWh is the right metric to compare apples-to-apples on most things electricity related…

Jesse Jenkins's picture
Jesse Jenkins on Oct 29, 2010 7:31 pm GMT

Hmm, interesting points. I’ll have to mull the relative value and costs of the third party tax equity partner here a bit further. But I should also note that the tax equity partners are not the only market tests these projects are given. Even with a cash grant in hand worth 30% of capital costs, project developers must find equity or debt financing for the remaining 70%, and they must secure power purchase agreement or ownership agreements with utilities (and they in turn must demonstrate fiscal responsibility to shareholders and/or public utility commissions). So plenty of tests for fiscal viability going on here already. Why introduce another?

Geoffrey Styles's picture
Geoffrey Styles on Oct 29, 2010 9:48 pm GMT

I see your point, though these other parties may not have the same exposure to a wide mix of projects, enabling cross-fertilization of best practices/concepts.  The other issue here is where does this stop?  If we institutionalize cash grants in lieu of ITC for renewable energy projects, who else should get their tax credits accelerated to cash?  I’m sure there are many companies and startups in other fields that would find this very helpful. 

It was expedient to offer this benefit on a temporary basis in the aftermath of the worst financial crisis since the Great Depression, but I don’t consider it appropriate as an ongoing policy.  It seems like an invitation to abuse eventually, if that hasn’t already occurred here.  At a minimum, any consideration of extending the grants should include means testing: If an applicant has enough taxable income to benefit from the entire ITC, and if their balance sheet indicates they can wait to apply it against their next tax return, then that’s what should happen.

Jesse Jenkins's picture
Jesse Jenkins on Oct 29, 2010 10:23 pm GMT

I’d prefer a cash production incentive to a cash grant up front…

Geoffrey Styles's picture
Geoffrey Styles on Nov 4, 2010 6:12 pm GMT

While Ms. Bode is right that tax credits and portfolio standards (with tradable credits) work through the market, she appears to hold an unorthodox view of what a more-or-less free market looks like, as well as the basis of fair competition between different energy sources and technologies.  There’s too much religious fervor in her statement, and not enough effort to convince the public that her industry’s technology, in contrast to many other renewables, needs the least support from the government to compete on its merits. (If it were truly competitive, it wouldn’t need tax credits or grants at all.) 

Her message would go down better if it included a firm target for when wind subsidies should be phased out for good, rather than seeking the extension of an emergency stimulus measure (the 1603 credits) that was necessary when financial markets froze and the tax equity market disappeared, but not today.  Offering tax credits and requiring companies to seek investors with whom to exchange them for cash, if they that can’t wait to collect them after the fact or don’t have enough taxable income to take full advantage of them, is a useful way to ensure that only the best projects go forward, and that taxpayers’ funds are invested well. 

Geoffrey Styles's picture
Geoffrey Styles on Nov 4, 2010 6:14 pm GMT

By the way, it looks like the link to AWEA’s statement changed after you posted your comment.  Here’s the new one: http://www.americanwindenergyassociation.net/rn_release_11-03-10.cfm

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