Cheap hydropower for two ethanol plants
The New York Power Authority last week awarded a large allocation of low-cost hydropower to a company planning to open an ethanol plant in Niagara Falls. This follows a relatively large allocation made in 2006 to a company planning a similar venture in South Buffalo.
Is this a good use of low-cost hyrdopower, perhaps the region's most-potent economic development tool?
The latest hydropower recipient, Northern Ethanol, plans to build a $245 million plant on 47th Street that would employ 105. The other proposed plant, operated by RiverWright, is projected to cost $185 million and employ 65.
Both companies received large allocations. Northern Ethanol is getting 9,000 kilowatts hours, RiverWright 5,000. The former is the second-largest allocation awarded since at least the start of 2006; the latter ranks as forth-largest. If the two draw down the power, they have three years from the date of the award to do so, they'll rank among the 25 largest recipients of the 100-plus companies getting expansion and replacement power generated at the Niagara Power Project in Lewiston.
The authority will sell the power at a deep discount, about a quarter the market rate. Based on current energy prices, Northern Ethanol would save an estiamted $2.7 million a year, RiverWright $1.5 million.
Whether these are good deals for the public depends on how you look at it.
On a cost per job basis, probably not. The Northern Ethanol deal works about to a discount/subsidy, of about $26,000 per job per year. RiverWright comes in at about $23,000 per job. These are high figures, considering an analysis I did for my Power Failure series a year ago determined the average subsidy worked out to about $4,200 per job, and only five power recipients had discounts worth more than $20,000 per job.
There's also the federal benchmark of $35,000 per job for the lifetime of the subsidy. The authority usually awards hydropower contracts for at least five years, meaning the total subsidy will top $100,000 per job. And rest assured, these companies will come looking for an extension.
These are new facilities requiring a lot of investment, and by that standard, the projects look better. Data on power awarded since the start of 2006 shows that each kilowatt hour has leveraged an average of $14,058 in investment. The figures are about $27,000 for Northern Ethanol and $37,000 for RiverWright. That's a lot more bang for the public buck.
There's one more issue to consider: The wisdom of using public subsidies to promote the production of ethanol. It's fallen out of favor with most environmentalists because of its impact on both global warming and the world's food supply, as noted in a recent edition of Time.
"Several new studies show the biofuel boom is doing exactly the opposite of what its proponents intended: it's dramatically accelerating global warming, imperiling the planet in the name of saving it. Corn ethanol, always environmentally suspect, turns out to be environmentally disastrous."
What do you think - is this a good move by the Power Authority, in concert with the region's economic development agencies, which advise NYPA on allocations?
