The Cost and Wage Problem for Renewable Energy Projects

I’ve posted earlier about the wariness of unions with the renewable energy industry. Part of the problem is related to wages. Will an increase in the number of union jobs inflate project costs? 

A working paper by Princeton scientists last month claims that union jobs will result in “relatively modest increases in capital and operating costs.” “Boosting labor costs by 20% increases installed capital costs for wind and solar power projects by between 2% to 4% and operating and maintenance costs by 3% to 6%,” the study’s authors write. 

Another study released by the UC Berkeley Labor Center last year states that installation costs for large scale utility solar projects will increase by just 1% to 2% of the total cost if workers are paid a “prevailing wage” that is paid to workers in the construction and building industry. Costs for residential installation will increase by between 5% to 6%, according to the same analysis. 

These figures are good news for the Biden administration because its ambitious transition to clean energy requires workers for the industry. The 2019 renewable energy employment numbers weren’t particularly encouraging.

At the end of that year, employment in industries related to fossil fuels - including coal, natural gas, and solar - accounted for 19.8% of total energy employment. In contrast, wind and solar were responsible for 5.5% of total energy employment. Government incentives and sops should increase the number of workers in the renewable energy sector. 

Salary adjustments will be required too. 

A 2019 report by the International Renewable Energy Agency (IRENA) found that an investment of $1 trillion could produce 7.5 million full time jobs in renewable energy as opposed to 2.6 full time jobs in the fossil fuel sector. While this is good news for policy makers, it spells problems for the average worker because it means that the renewable energy industry, which is supposed to be the future, pays less.

In 2019, a worker in the oil industry earned a premium of 38.9% over the national median wage. The natural gas worker earned a premium of 58.5%. Wind and solar workers earned a premium of 35.6% and 27.9% respectively. Effectively , workers in the oil and gas industry downgrade their salary expectations to work in the renewable energy industry. 

In a New York Times interview last month, Sean McGarvey, president of North America’s Building Trade Unions, said that the union’s workers in the onshore wind and solar industry took a 75 percent pay cut and worked without benefits. 

In such a scenario, increasing overall labor costs by 20% will probably only have the effect of bringing worker salaries on par with their previous earnings in the fossil fuel industry. The study’s authors also write that an increase in labor productivity by 20% will offset the labor cost premium. But they do not define the nature or form of this productivity increase. (Hint: It has more likely to do with increased capital spending on automation and machines).