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Hard choices ahead on hydropower

We are approaching the moment of truth regarding cheap hydropower, the most potent economic development tool Western New York has at its disposal.

With the announcement that the New York Power Authority has awarded 18.7 megawatts of discounted hydropower to Steel Development, the region's inventory of unallocated power is 29 megawatts, down from a high of about 160 MW four years ago. That's out of a pool of 695 megawatts of so-called replacement and expansion power, WNY's share of the low-cost power produced at the Niagara Power Project in Lewiston.

At the same time, the folks at the Buffalo Niagara Partnership gave some interesting testimony last week to a group of state legislative leaders in town to hold public hearings on the nine economic development programs offered by the Power Authority.

Let me quote from the testimony:

The Buffalo Niagara Enterprise has made great strides working with solar panel and wind turbine manufacturers who have expressed interest in our region because of our proximity to both customers and supply chain, in addition to low cost hydropower. 

Currently, the BNE has nine active projects -- good projects, with real interest in our region, that come from the renewable energy industry, other advanced manufacturing sectors and that include brownfield cleanups and strong job creation as part of their plans.  Together these projects represent potential private sector investments of up to $4.7 billion here, and creation of nearly 5,500 new jobs. 

To land these projects, we (as a region) currently have approximately 40 MW of Expansion and Replacement power available…while the projects would likely require total allocations closer to 200 MW.

Indeed, Niagara Falls Mayor Paul Dyster told me the other day that he feels the region is putting itself on the map as a potential home to clean-tech industry and stands a decent shot at developing an industrial cluster -- if we play our cards right.

I don't expect that all seven of the projects mentioned by the Partnership will actually happen. Two or three, maybe.

The investment for, say, three projects, would approach 100 megawatts, with a payoff of something like 2,000 jobs, if the Partnership's numbers are in the ballpark.

Problem is, we don't have 100 megawatts to invest. Nope, we're down to 29, and that number is likely to drop further as NYPA finds additional customers before any of the big clean-tech projects advance sufficiently to obtain power allocations.

But, alas, there is a potential solution.

Long-term contracts for the major replacement and expansion power customers come due in several years and the authority is preparing for negotiations. The battle lines are being formed.

On one side are those who want to continue to treat long-term customers as though their allocations are a birthright, regardless of the bang for the buck.

On the other side are those who say we need to make the best and highest use of the power, and if that means some existing customers lose out, well, so be it, provided there is a net gain in jobs.

(News business columnist David Robinson had an interesting take in Sunday's paper.)

The reality is that a continuation of the status quo favoring legacy industries is going to limit the region's ability to attract new economy enterprises.

That's not an opinion, that's the reality.

Which means hard choices are on the horizon.

(As an aside, I've costed out the Steel Development deal, and it's on the pricey side, although less so than  Yahoo! at $810,000 per job over 15 years.

The Steel Development deal works out to a discount worth $32,325 per job per year over 10 years. The average annual cost per job for power allocated since 2006 is $11,833, so you can see the state is paying a premium for the 200 jobs that Steel Development would bring to the region.

The deal fares better, but not great, using a second measurement that considers how much investment projects generate per kilowatt of discounted power. Steel Development's $200 million investment works out to $10,695 per KW, vs. $11,451 for other projects awarded power since 2006.

In short, this is a generous deal.)



Economic Development | New York Power Authority
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