“Just because the authors say they use “rigorous methodologies widely accepted and recommended by the economic literature” does not make it so.” Dr. Ross McKitrick
Lake Superior Action Research Conservation was recently made aware of a report prepared for The Ontario Ministry of Natural Resources by the Crupi Consulting Group titled “Economic Impact of the Greenwich Wind Farm” dated June 2012. The report can be found at http://www.mnr.gov.on.ca/stdprodconsume/groups/lr/@mnr/@renewable/documents/document/stdprod_098657.pdf
Upon reading the report we were struck by the lack of consideration of the costs associated with the project and by the extremely optimistic assertions for the Greenwich Wind Farm’s positive impact on the Regional and Provincial economy and job creation, given local experience with the Prince Wind Farm, the numerous peer-reviewed economic studies which have found just the opposite effect from Wind Farm construction and the reports coming out of Europe where the consequences of Wind Farm development are more advanced than here in Ontario.
One exaggerated benefit is the claim for the $31.8 million dollar potential value of “carbon credits” over the 20 year contract with the OPA, made on page 17 of the report, paragraph 4.4: “Carbon Credit Generated by the Project”.
The Greenwich project has a nameplate capacity of 99MW (Mega Watts). Over the 20 year predicted life of the project, which recent studies have shown to be overly optimistic by 8 to 10 years (The Performance of Wind Farms in the United Kingdom and Denmark by Gordon Hughes, Renewable Energy Foundation, 2012) and assuming Wind Farm output remained at the average capacity factor of 27.5% for Wind Farms in Ontario since 2006 – the Gordon Hughes study found Wind Farm output declined by 37.5% by age 10 and 54.17% by age 15 – the Wind Farm should produce:
99 x 0.275 x 24 x 365.25 x 20 = 4,773,087 MWh (Mega Watt hours) of electricity.
The Ontario grid’s current CO2 intensity is approximately 130.5Kg/MWh, based on the extant generating mix and data shown on the IESO’s website.
The predicted electricity from the Greenwich Wind Farm would thus theoretically save us:
4,773,087 x 130.5 = 622,887,853.5 Kg of CO2
or 622,888 tonnes of CO2 which at $15/tonne is only $9,343,318 over 20 years or $467,166/year, if it displaced 100% of the equivalent fossil fuel generation.
The only way to arrive at the figure of $31.8 million over 20 years is to assume that the electricity generated by the Greenwich project will displace 100% of fossil fuel generation only and that the CO2 intensity saved is 444.16Kg/MWh, which is completely contrary to the facts, given that the IESO has complained about Wind generated electricity regularly displacing base load Nuclear and Hydro generated electricity (Integrating Renewable Generation, SE-91 Presentation of Design Principles, IESO, December 16, 2010).
Furthermore, we know it is impossible to completely displace fossil fuel generation, given the need for spinning reserve to backup wind generation’s unpredictable variability (Inhaber, 2011 and Bentek, 2011).
With Ontario closing its Coal generating plants within the next 2 years, the CO2 intensity of our fossil fuel generation will never rise above 550Kg/MWh, the average intensity of Natural Gas generation. Currently Wind generation represents approximately 5% of the electricity on our grid. That number will increase to 10% within the next few years. The equation given by Inhaber 2011 for the approximate CO2 savings from using Wind generated electricity on the grid is:
Q = 200/(1+e^cx)
where Q is the percent CO2 saved, c = 0.2, a constant, x is the percent wind penetration on the grid and e is Euler’s number, a constant equal to 2.71828.
Applying this equation to the Ontario grid means that the greatest approximate CO2 savings to be expected from Wind displacing Natural Gas alone would be about 28.34% or 131.12Kg/MWh, not the 444.16Kg/MWh inferred from the report. At Wind’s current 5% grid penetration the theoretical maximum CO2 intensity displaced is still only 295.83Kg/MWh.
Therefore, notwithstanding our very generous assumptions, the $31.8 million claimed value of carbon credits is completely unfounded and impossible to realize – should Alberta companies even want to buy these carbon credits.
Wishing an expert opinion we contacted Dr. Ross McKitrick, Professor of Economics and CME Fellow in Sustainable Commerce, who obligingly reviewed it. His analysis, which confirms our opinion of the worth and relevance of this study produced for The Ontario Ministry of Natural Resources, follows (or download PDF). His final comment was:
“Taking into account the tragic harm this project will do to the priceless North Superior landscape and ecology, you and your colleagues are right to oppose any such projects as strongly as you possibly can. I wish you every success.”
We wish to thank Dr. McKitrick for his time and invaluable help.
We are disappointed that public money should have been spent on such a poor report. We would be even more disappointed were public policies to be informed by and based on such a flawed analysis, as the waste of public money would be orders of magnitude greater.
UNIVERSITY of GUELPH
COLLEGE OF MANAGEMENT AND ECONOMICS
Department of Economics and Finance
Ross McKitrick, Professor
March 28,2013
Mr. George Brown Lake Superior Action Research Conservation
RE: “Economic Impact of the Greenwich Wind Farm”
Dear Mr. Browne
Thank you for sending me a copy of the above report (herein the EIGWF). I have read it as you requested, and I offer the following opinions on its methods and findings.
1. Just because the authors say they use “rigorous methodologies widely accepted and recommended by the economic literature” does not make it so. In fact the methodology of this report bears no relation to conventional economic analysis and has yielded grossly misleading results.
2. The conventional method for assessing the economic impact of a public project is called a Cost- Benefit Analysis. As the name implies, it entails surveying the costs as well as the benefits. In the EIGWF report, the authors have only added up the alleged benefits and have ignored all of the costs. This alone discredits its findings, even before enumerating the many flaws in its analysis of the benefits. I am at a loss to understand how a study could claim to have quantified the net economic benefits of a public project without having taken account of its costs, including the direct and indirect tax burdens, the marginal cost of public funds, electricity price increases for consumers, reductions to the rate of return to capital for the mining and forestry sectors, the costs of building new grid capacity to remote generating sites, and so forth. These should have been elementary components of the project evaluation and I am mystified not only at how they could all have been overlooked, but at the fact that the Ontario Ministry of Natural Resources has attached its imprimatur to such a flawed analysis.
3. A simple way to illustrate the foolishness of the authors’ methods is to point out that, if it cost just as much to dismantle and remove the wind turbines as it did to build them, applying the methodology of this report would lead to the conclusion that the “regional economic benefit” of building the wind farm could be doubled by ordering it to be taken down and discarded.
4. The authors’ parenthetical comment (p. viii) that reductions in greenhouse gas emissions due to the use of wind energy will lead to additional health benefits, that would add to the overall project benefits, shows how far out of their depth they are with this material. Health consequences of air emissions are associated with Criterion Air Contaminants such as ground-level ozone and aerosols, not greenhouse gases. Remote communities in Northern Ontario do not have levels of CAe’s associated with any health effects, and have not for many years. The 2005 Cost-Benefit Analysis to which the province routinely appeals in defence of the Green Energy Act assumed there were no health-related economic benefits arising from reducing CAC emissions in Northern Ontario. With regard to the provincial electricity grid as a whole, the more wind energy is added, the more natural gas-fired backup generators are required to manage the fluctuating power levels, and as has been pointed out on many occasions, most recently by the Wind Energy Task Force of the Ontario Society of Professional Engineers, the overall result is that air pollution emissions will likely not be reduced and in many places will increase.
5. The “multipliers” upon which the study is based are derived using fixed input-output coefficients that assume either that there will be no price changes as a result of the project implementation, or that people do not respond to price changes. Either way the assumption is false. Fixed-coefficient input- output modelling of the kind used in this study has not been acceptable methodology in economics for many decades. It was already obsolete when I began studying economics nearly 20 years ago.
6. Among the other elementary errors, the cost of labour associated with the project is deemed a benefit rather than a cost. In any ordinary project evaluation, it is understood that the cost of labour belongs on the cost side of the ledger, which is why it is referred to as the “cost” of labour. The corresponding “benefit” is the value of whatever the labour produces. In this case, the labour is being hired to produce wind turbines that lose so much money, the province has to bribe people to build them and then force the grid operator to buy the output, at well over twice the wholesale cost. 80% of the power being produced by Ontario wind turbines is surplus baseload that gets dumped on the export market at a considerable loss to the system. So the “benefit” of the labour is negative.
7. Notwithstanding these errors, the EIGWF report still reveals some of the economic damage associated with wind farms, by examining its cost-of-jobs estimates. Tables 1.1 and 1.2 report the “employment multipliers” associated with every $1million in expenditures. Without endorsing these groundless claims, they nonetheless imply that the project will “create” 6.75 jobs per million$ in construction spending and 8.72 jobs per $million in operational spending. This implies a cost per job of $148,000 and $115,000 respectively. The Auditor General has noted (and the province has acknowledged) that the jobs associated with wind energy projects are temporary, most of them lasting only a few years at most. If the jobs pay a median wage of $40,000 per annum, the job subsidies likely cost more than the entire earnings. In other words, the region would derive a comparable benefit at a lower cost if the workers who would have been hired were simply paid to stay at home.
8. However, the incoherence of the methodology is revealed by the fact that the job-creation figures are amplified as the regional scale goes up to the provincial level (Tables 3.1-3.3). While it might be possible to argue that the costs of the project can be ignored at the Dorion level if the politicians are able to foist them entirely on the rest of the province, it is obvious that the same trick cannot apply to the province as a whole because there is nowhere else to foist the costs on. The EIGWF report, at this point, apparently resorts to fantasy to make the costs to the province disappear and the job gains increase.
9.The private sector creates jobs free of charge, when it is profitable to do so. The fact that the Greenwich project needs to be subsidized by such enormous amounts in order to create small numbers of jobs shows that it is a wealth-destroying undertaking that must harm the economy, locally and provincially. Taking into account the tragic harm this project will do to the priceless North Superior landscape and ecology, you and your colleagues are right to oppose any such projects as strongly as you possibly can. I wish you every success.
Yours truly,
Ross McKitrick
Professor of Economics
(519) 824-4120 Ext. 52532
ross.mckitrick@uoguelph.ca
