Much talk has been engaged in concerning the employment impact of the transition to renewables. We here in these two large islands have not been particularly successful in translating wind initiatives into manufacturing employment. We persisted with competitive systems until 2004 while Germany, Denmark and Spain went with the fixed price feed in tarrif (refit) model for renewable development. Potential investors saw a steady stream of projects, with simple payment methods, in the refit countries. We in these islands put purity of ideology before effectiveness in employment creation. The ideological approach from Ministers and the Bureaucracy went somewhat as follows:
“We believe in doing renewables but not at any cost. The price of electricity cannot be negatively affected by building renewable plant. Adam Smith decreed that there must be competition in manufacturing. We will run a competitive process for awarding contracts. Even if these projects don’t get built, we will have been seen to be doing our bit.”
Trying to achieve grid parity with the new technology was a misguided policy. We delved into this in a recent blog, so no need to repeat it here.
Because of the application of ideology in Ireland and UK, we employ about two persons per megawatt (MW) installed. In Germany they employ 15.
Germany also embraces the new with enthusiasm. There are some 31,000 MW installed there. These wind farms are mainly located in the Northern half of Germany.
Manufacturing employment in a country is a function of the following factors:
• the country’s determination to foster employment in a particular sector,
• the comparative productivity of the working population,
• the stability of government and industrial policy there,
• financial and currency stability,
• the accepted ethical norms
• the industrial tradition in a country
• attitude towards innovation, including cultural and artistic tendencies,
• educational status of the population, relative to competitor nations
• industrial and societal foresight,
• the state of the infrastructure(roads, telecommunications, housing, amenities etc.)
• the size of the local market can be important for products not easily transportable
• availability of natural resources, and
• the power of dominant players in the owning class, and their ability to disallow competition.
There are massive flows of capital, seeking investment opportunities, washing across the globe. The creation of employment in a country comes down to the ability to market the desirable attributes of the country to the controllers of those capital flows. In business terminology these controllers become the customer.
Whereas each of these topics could be elaborated on at length, it behoves us to look at the factors that give rise to manufacturing employment in the renewable sector. The most important factor is: government commitment to renewable deployment. How does this manifest itself?
Firstly what conditions are the government putting in place to encourage renewable development? Are they paying enough for the electricity; enough in the sense that the reward and risks are in balance? Are they working with the industry to minimise the risks individual developers and owners face? There are risks associated with planning, currency, grid access, and electricity market rules which are in the control of government and which make the difference between widescale, or very little deployment of renewables.
Secondly; how far in the future is the government commitment to renewables going to last? An instance of this would be for a government to commit to so many megawatts being built for so many years into the future. Another way is to legislate that such and such a percentage of its electricity will be generated with renewables by a certain date.
Thirdly; is government commitment interpreted broadly or narrowly? Is it just the particular party in power now that believes in renewables or is the renewables policy well accepted across party lines? Is there a broad consensus across the political spectrum that renewables are good for the economy? In Ireland for instance policy is usually consistent from one Government to the next. Violent shifts in policy orientation are rare, and so it is made easy for foreign direct investment to be attracted.
Fourthly; how big is the local market for renewables? It is hard to see a manufacturer setting up in Cyprus no matter what ambitious plans the government might have for renewables there.
It is generally accepted, for infrastructure projects, that the biggest contributor to project risk is Government induced. Infrastructure projects involve large spends over long time periods. From the decision to build, to commissioning of the built plant can be 10 to 15 years, (with new grid for instance.) This represents at least 3 changes of government.
For the developer it is not sufficient to rely on the initial decision of Government. Often the battle is just beginning with this initial decision. The struggle for the hearts and minds of the population is as ongoing as it is imperative.
Employment content of new wind plant and grid in Ireland is for the Government to decide. If it joins up all the disparate government departments involved and folds them into a coherent organisation then employment will be maximised. This requires that the department of Energy, the Environment, Employment and Enterprise, the Taoiseach’s department and Finance are all aligned. We can continue as we have done and get two persons employed for each megawatt, or we can emulate Germany.
To quote from a recent report from the London School of Economics Growth Commission, a more energising way of looking at the issue is contained in this quote:
“Managing the substantial risks of climate change and fostering the transition to a low-carbon economy will not be easy. Failure to tackle these and other emerging challenges could compromise the sustainability of growth in the longer term…………But we cannot foresee all future challenges. There is, therefore, a premium on policies and institutions that foster anticipation, flexibility and discovery. This means creating a system that celebrates and encourages entrepreneurship, innovation, opportunity and creativity. Building a strong, stable and credible investment climate for human, physical and innovation capital will be a decisive step towards creating prosperity over the next 50 years.”