Winds of Prosperity
By: Dr. M. Ray Perryman
Published in syndication May 19, 2010
Over the past decade, clean energy has taken on new importance as a social and economic priority. The industry cluster has already experienced considerable growth, and the US now leads the world in wind capacity. Texas has been the site of much of the new development and now surpasses all other states in terms of total wind capacity.
Development of wind power and the associated transmission and other infrastructure is good for the state economy, creating jobs now and in the future. It also leads to cost savings to customers. In a recent study, my firm (The Perryman Group) estimated these economic effects. (Check our website for a complete copy of the report at www.perrymangroup.com.)
Construction and development of wind capacity prior to the recent approval of a major power transmission initiative has provided an economic stimulus including an estimated $26.1 billion in total spending, $12.6 billion in output (gross product), and 157,728 person-years of employment (full-time equivalent jobs during the build-out period). Ongoing operations of these facilities lead to gains of $1.6 billion in annual total spending, $530.9 million in output each year, and 3,876 permanent jobs. When current manufacturing and related activity is included, the total effects rise to almost 10,000 jobs.
However, expansion of wind generation has outpaced the capacity of transmission lines within the state, and investment in infrastructure is now needed to assure ongoing development. To alleviate current constraints and accommodate future growth, ERCOT (Electric Reliability Council of Texas) is reviewing several proposed transmission projects spanning the next five years, including the recommended Competitive Renewable Energy Zones (CREZ) transmission investments with an estimated cost of around $5 billion. This initiative allows the transmission of power from wind-intensive regions of the state to population centers with growing needs for power.
The Perryman Group found sizable positive economic impacts of the CREZ transmission investment on business activity. These benefits are realized across the entire ERCOT region, both near the transmission route and elsewhere. In addition, as the mix of fuels used for power generation in Texas becomes more diverse, cost savings can be expected.
Because wind turbines never have to pay for fuel, their cost of operation does not increase the more they are used. So, as more wind power becomes available on the market, it has a greater influence on wholesale market prices. The net result is a lower overall cost of electricity. This results in reductions in rates for residential, commercial, and industrial customers that exceed the long-term cost of the CREZ investments. This effect already has been seen in the West Texas wholesale market for electricity.
The three major categories of ongoing effects stemming from the CREZ transmission investment (operations and maintenance of the transmission facilities and wind farms, royalty payments, and cost savings stemming from improved fuel diversity) can be summed to obtain the total benefits the program will generate. Two scenarios were formulated to illustrate the potential gains from fuel diversity with varying assumptions regarding input fuel prices.
Assuming generation fuel prices equal the average over the 2003-2009 period, the total ongoing impact of the CREZ transmission investment is some $12.5 billion in annual total spending, $5.3 billion in output, and 61,682 jobs (approximately the size of the air transportation industry in the state). This additional business activity, in turn, leads to increased tax revenue and other receipts to various taxing entities of an estimated $365.8 million per year to the State and $160.4 million per annum to local governments.
If generation fuel prices are higher (as they were in 2008), the cost savings and overall effects rise substantially. For the state as a whole, the ongoing effect of the CREZ investment rises to an estimated $23.6 billion in annual total spending, $10.5 billion in output (gross product) each year, and 125,915 permanent jobs (about the same as computer and electronics manufacturing). The increased economic activity leads to additional fiscal receipts to the State of an estimated $758.0 million per year, with $330.2 million to local governments.
To state this another way, once the CREZ build-out occurs, the typical residential customer will save between $160.93 and $354.94 per year (fully accounting for incremental transmission costs) resulting in a stimulus to the economy of $454.44 to $995.60 in total spending and $216.76 to $478.03 in gross product.
Increased transmission infrastructure connecting CREZ with the ERCOT grid allows for greater development and utilization of the state's wind capacity, which helps conserve crucial resources (such as water) and reduce emissions. In fact, the CREZ-enabled wind development is predicted to conserve approximately 17 billion gallons of water annually and lead to reductions in emissions including up to 16% in CO2 and 13% in NOx. The CREZ transmission investment will also help solidify Texas' position at the forefront of wind power, renewables, and associated industries. If Texas becomes the leader in associated research and manufacturing, it could, under reasonable assumptions, bring more than 40,000 additional permanent jobs to the state.
Clearly, this ambitious and enlightened investment stands to pay notable dividends to Texans and permit the state to enjoy the "winds of prosperity" for generations to come.