Economic Impact of the Shinbone Wind Energy Project on Cherokee County, Alabama

Transcription

1 Economic Impact of the Shinbone Wind Energy Project on Cherokee County, Alabama Prepared by: Jennifer Swafford, Program Coordinator Jeffrey G. Hooie, Research Analyst College of Commerce and Business Administration Through: Center for Economic Development Jacksonville State University 700 Pelham Road North Jacksonville, Alabama September 2012 *Updated December 2012

2 Acknowledgements Written research is heavily dependent upon the important contributions of many people; this study is no exception. The authors of this study are extremely grateful and appreciative to the following individuals and institutions that without their assistance this report would not have been possible: County government personnel, Officials and employees of Pioneer Green Energy who were most cooperative in providing the necessary data; Mr. Pat Shaddix, Director of the Center for Economic Development, Ms. Jennifer Swafford, Program Coordinator, and Mr. Jeffrey G. Hooie, Research Analyst, who were responsible for compiling economic data. William T. Fielding, Ph.D. Dean College of Commerce and Business Administration December 2012 *Author s Note This report supersedes the original report issued in September 2012 by correcting calculations and updating figures relating to projected tax revenues. Note that tax revenues are conservatively projected due to modeling limitations. Therefore, the overall tax effects of the Project are likely to be much higher than the updated projections.

3 Table of Contents Section Page I. Executive Summary...1 II. Shinbone Wind Project Major Findings...3 III. Introduction and Objectives...9 IV. Fiscal Impacts...10 V. Impacts of Expenditures...12 A. Construction Phase Impacts - Cherokee County...12 B. Operations and Maintenance Phase Impacts - Cherokee County...15 C. Construction Phase Impacts on the State of Alabama...18 D. Operations and Maintenance Phase Impacts on the State of Alabama...20 VI. Tourism...23 VII. Methodology...27 VIII. Limitations to Data and Modeling...30 IX. IMPLAN Model Inputs...31 X. Conclusion...32 XI. Sources of Data...33 i

4 List of Tables No. Title Page 1 Tax Impacts (Cherokee County) State of Alabama and County Tax Impacts Construction Phase Impacts Summary (Cherokee County) Construction Phase Largest Sectoral Employment Effects (Cherokee County).13 5 Construction Phase Largest Sectoral Output Impacts (Cherokee County) Operation and Maintenance Phase Impacts Summary (Cherokee County) Operations and Maintenance Phase Largest Sectoral Employment Impacts (Cherokee County) Operations and Maintenance Phase Largest Sectoral Output Effects (Cherokee County) Construction Phase Impacts Summary (Alabama) Construction Phase Largest Sectoral Employment Effects (Alabama) Construction Phase Largest Sectoral Output Impacts (Alabama) Operations and Maintenance Impacts (Alabama) Operations and Maintenance Phase Largest Sectoral Employment Impacts (Alabama) Operations and Maintenance Phase Largest Sectoral Output Impacts (Alabama)...22 ii

5 I. Executive Summary This study addresses the economic impact of the Shinbone Wind Energy Project ( Shinbone Project or Project ) on Cherokee County, Alabama, and the surrounding area. Pioneer Green Energy ( Pioneer Green ) is developing the Shinbone Project, consisting of a series of interconnected utility-scale wind turbines, on a ridgeline in southwestern Cherokee County. The power generated by the Project will be supplied to the general transmission system, as with other types of power plants. We used predictive models and other economic analysis to estimate the economic benefits of the Project, both its construction over several months and its expected operation over thirty (30) years. The study forecasts fiscal impacts in the form of new tax revenues, general economic impacts in the form of new employment and new economic activity, and possible tourism impacts associated with certain unique features of the Project. Some of the key points of our findings are the following: The Project is estimated to generate an increase in tax revenues for Cherokee County between $285,000 and $300,000 in year one (construction and first year of operation), then $225,000 in subsequent years (operation only) (+/$6.8 million over 30 years); The construction of the Project is likely to provide 113 temporary jobs in the State (30 jobs in Cherokee County) and generate an increase in economic activity of $15.9 million in the State ($3.7 million in Cherokee County); The operation of the Project is likely to provide about permanent 10 jobs in the State (8 jobs in Cherokee County) and generate an increase in economic activity, for each of the 30 years of operation, of $1 million in the State ($740,502 in Cherokee County); 1

6 Although difficult to forecast and quantify, the operation of the Project as one of the first in the Southeast U.S. and in collaboration with Cherokee Rock Village may increase economic activity from tourism by between $734,363 and $2.2 million. 2

7 II. Shinbone Wind Project Major Findings This study addresses the economic effect of the Shinbone Wind Energy Project on Cherokee County, Alabama. Pioneer Green Energy (PGE), a Texas headquartered corporation, has commissioned this study. PGE is a renewable energy development company active since 2009 in select markets across the United States. Prior to forming PGE, their team helped develop numerous renewable energy projects. Each of those projects is now owned by leading energy companies and producing clean, domestic energy, used in thousands of homes and businesses. PGE is currently developing high-quality wind and solar projects in key electricity markets around the country. These projects will help meet the growing demand for clean, competitively priced electricity, reduce our dependence on foreign energy sources, and cut our greenhouse gas emissions. The Shinbone Wind Energy Project consists of the installation of eight (8) to 10 wind turbines on approximately two miles of mountain ridge located in the south-west portion of Cherokee County with the possibility of a name-plated generating capacity of 2,000 2,400 kilowatts each or approximately 20 megawatts in total. This project will have an estimated installed cost of $31.6 million dollars. This report evaluates the effects of this project on employment, labor income, and output and the likely fiscal effects at the County level. The primary impact area examined in this study is Cherokee County, Alabama with a population of approximately 25,989 according to the 2010 US Census. The State Legislature created Cherokee County on January 9, Cherokee County is located in the northeast portion of the state, in the Appalachian Mountain Region. Its county seat is Centre with a population of 3,489. The county has two main Federal highways, U.S. Highway 278 and 411, as well as three state routes, State Route 9, 35, and 68. The county encompasses 599 square miles 3

8 and is bordered by the following six counties: north DeKalb County; west Etowah County; south Calhoun and Cleburne Counties; east Chattooga and Floyd Counties, Georgia. The Alabama Department of Industrial Relations lists civilian employment in the county as of June 2012 at 11,759 workers. The unemployment rate for the county for the first half of 2012 (January June) was 7.6 percent which is slightly lower than the state level at 7.8 percent and also is lower than the U.S. average at 8.2 percent. Median household income for Cherokee County residents in was $40,690, only slightly lower than the state average at $42,081. Persons living below poverty level stood at 19.7 percent over the same period. The Shinbone Wind Energy project introduces a new technology and economic activity into the County, State and Region. With this form of energy initiative, additional jobs in a new industry sector introduce new employment and income for the proposed area. This study will identify the economic impact that this project will have on Cherokee County in two phases: the construction and the operation stages. To explain the major terms that will be used in this study, a brief, generalized, set of definitions is given below: Direct effects - take place only in the industry immediately affected: if ACME Corporation lays-off 45 employees, the manufacturing industry loses 45 employees. Indirect effects - concern inter-industry transactions: because ACME Corporation is closing, it will no longer have a demand for locally produced materials needed to produce its product. This will affect all of its suppliers, possibly resulting in a further loss of a few more jobs. Supplier employment loss as a result of the direct effects would be the indirect effects. 4

9 Induced effects - measure the effects of the changes in household income: employees laid-off by ACME Corporation and suppliers may reduce their expenditures in restaurants and shops since they are no longer employed. These changes affect the related industries. Impacts - the total changes to the original economy as the result of a defined event. i.e. Direct effects + Indirect effects + Induced effects = Impacts Employment the number of payroll and self-employed jobs, including part-time jobs. Labor Income wages and salaries and benefits, as well as proprietors income. Output represents the value of industry production. In the IMPLAN model used in this analysis, these are annual production estimates for the year of the data set and are in producer prices. For manufacturers this would be sales plus/minus change in inventory. For service sectors production = sales. For retail and wholesale trade, output = gross margin and not gross sales. Shinbone Wind Project Major Findings: The installed project cost is estimated to be $31.6 million dollars. In Cherokee County, the construction phase of the project is expected to require an expenditure of $2.8 million; it will generate 30.9 jobs, add $744,165 to labor income and generate a total of $3.7 million in additional economic activity. The following charts reflect the construction impact numbers: 5

10 Construction Phase Impact - Employment Cherokee County, Alabama Direct Effect Indirect Effect Induced Effect Total Effect Construction Phase Impact - Labor Income Cherokee County, Alabama $744,165 $496,853 Direct Effect Indirect Effect Induced Effect Total Effect $103,115 $144,197 6

11 Construction Phase Impact - Output Cherokee County, Alabama $3,713,686 $2,827,830 Direct Effect Indirect Effect Induced Effect Total Effect $357,277 $528,580 At the State level, jobs will be created in the construction phase, labor income will increase by $5.3 million and the total increase in State output will be $15.9 million The ongoing operation and maintenance phase of the project will create 8.8 long term jobs in Cherokee County and add $196,262 to labor income and increase economic activity by approximately $740,502. At the State level, the ongoing operation and maintenance phase of the project will create 10.7 long term jobs, increase labor income by $259,445 and increase economic activity by $1 million. The increases in employment and economic activity created during the construction phase are projected to add $509,741 to state and county taxes, of which $59,846 will 7

12 be received by Cherokee County (coming from property/land tax and employment tax). In the operation and maintenance stage, expenditures made by the Shinbone Wind project will ultimately generate $463,856 in additional taxes at the State and county government, of which $223,198 will be received by Cherokee County. Due to limitations of the model, the complete economic impact and tax effects are likely to be understated since the multiplier effects of the taxes are not adequately captured. Year one tax revenue to Cherokee County is estimated to be between $285,000 - $300,000 (Phase 1 and 2); then will be $225,000 in subsequent years (Phase 2 only). These figures are based on property taxes, employment taxes, etc. This will vary from year-to-year based on jobs created/sustained and any fluctuations in property and land taxes. Over a 30-year period, that could equate to +/- $6.8 million in tax revenue from ongoing operations in Cherokee County. Property/Land owners will also see a benefit from this project. It is estimated, per outputs from the JEDI model used for this analysis, that with the instillation of each turbine, there will be a yearly payment of around $7,000 per turbine, per property owner. Over a 30-year period, that could equate to +/- $210,000. Cherokee County is considered to be the crown jewel of Northeast Alabama; it contains Weiss Lake as well as parts of the nationally protected areas of the Little River Canyon Reserve and the Talladega National Forest. Since rock climbers, campers, nature seekers, and water enthusiast already heavily visit the area, this study will also briefly address the potential for ecotourism that this project may produce. It is estimated that the potential in economic activity from tourism could be in the range of $734,363 and $2.2 million annually. 8

13 III. Introduction and Objectives The economic impact of this project will be studied in two phases, construction and operation. The first phase is the construction phase. A project of this type generates considerable construction activity at the onset to include site preparation, access road construction, support structure and turbine assembly as well as additions to existing high-voltage (HV) transmission lines. The construction portion of the project is projected to require $21.2 million dollars. This initial investment will provide employment for a large number of workers during the construction phase. The most important benefit will come from the direct employment the construction workers and the materials and services that are purchased during this phase. The second phase addresses the ongoing operation of the wind turbines and subsequent employment for management and maintenance. Once construction is completed, and the turbines are brought online for power generation, it will provide for jobs in management, operations, and maintenance of the plant. The wind turbines will also provide a source of income for the landowners who will be receiving payment for the use of their land. The benefits of this project do not end there. As the money that is received by these workers and businesses, both during and after construction, makes its way into the local economy, and in turn is spent on subsequent purchases, the original expenditures foster an impact that is amplified by the multiplier effect. The components of the economic impacts within the State of Alabama and primarily within Cherokee County will be estimated and analyzed in the sections that follow. 9

14 IV. Fiscal Impacts The Shinbone Wind project is a large investment in Cherokee County and will contribute more than $223,000 to the County s tax revenues and $463,000 in combined County and State taxes during its initial year of operation. During the construction phase it will contribute an estimated $60,000 to Cherokee County taxes and a combined contribution of $509,740 in County and State taxes. Due to modeling limitations, this is a very conservative estimate and the overall tax effects are expected to be much larger. The IMPLAN models used for this study do not fully reflect the multiplier effects of the taxes collected. Since taxes are in fact spent to purchase goods and services, the multiplier effect is larger than the effect indicated by these models. This occurs because each of the activities that occur as expenditures is received and in turn spent again, to generate additional rounds of economic output and taxes, which are paid to County, State and Federal Governments. Tables 1 and 2 provide summaries of the tax impacts on the budgets of Cherokee County and on the State of Alabama and Cherokee County collectively. The IMPLAN model does not provide a separate summary of county taxes, so the entries in Table 1 were for the most part calculated from the IMPLAN tax summary output. The exception is the business property tax portion. What IMPLAN captures is the typical expenditures including additional taxes paid of the sectors that experience gains in activity. This in all accounts is indirect business tax; those being the combination of excise, sales and property taxes, as well as, fees, fines, licenses and permits. What it does not properly capture as modeled, is the additional taxes paid by the new industry under study. The Shinbone Wind project s investment is subject to taxation by the County in the form of taxes on the assessed value of property improvements. 10

15 The property tax impact of the Shinbone Wind project is substantial. Although the actual amount may vary depending on the assessed value, an estimate of the taxes was computed based on the projected $31.6 million dollar installed cost. Given an assessed value based on state and county estimates of the installed cost, the taxable amount after 20 percent assessment is $6.32 million dollars in the first year of operation. From this, the total taxable amount directly attributable to the Shinbone Wind Project will be around $283,000 (total from Phase 1 & 2) in the initial operating year and then will be around $225,000 (Phase 2 only) in subsequent years. Description ~ Table 1 ~ Tax Impacts (Cherokee County) Phase 1: Construction Phase 2: Operations and Maintenance Indirect Business Taxes $ 42,681 $ 218,687 Personal Taxes $ 17,165 $ 4,511 Total County Taxes $ 59,846 $ 223,198 Source: IMPLAN and author estimates ~ Table 2 ~ State of Alabama and County Tax Impacts Combined State and County Taxes Construction Operation and Maintenance Dividend Taxes $ 1,149 $ 64 Social Insurance Contributions $ 8,458 $ 604 Indirect Business Taxes $ 360,526 $ 456,483 Corporate Profits Tax $ 22,400 $ 1,181 Personal Taxes $ 118,357 $ 5,524 Total State and County Tax $ 509,740 $ 463,856 Source: IMPLAN and author estimates 11

16 V. Impacts of Expenditures A. Construction Phase Impacts Cherokee County The complete construction of the Shinbone Wind project is projected to cost $31.6 million of which more than $2.8 million will be construction expenditures within Cherokee County. As shown in Table 3, the impact on the County in dollar terms is much larger than the $2.8 million expenditure, generating an additional $.5 million in indirect output and $.4 million in induced output through the multiplier effect. The total output generated is projected to exceed $3.7 million. The impact on employment is similar, with a direct impact of 21 jobs. An additional 6 jobs are predicted through indirect effects and 3.8 jobs via the multiplier effect. The total job impact in Cherokee County is projected to be 31 jobs. In view of the current construction employment base of approximately 96 jobs, this represents a large impact on employment in the County even though some of the jobs will be filled from outside the County and many of the jobs are not permanent. The total impact on labor income is $.7 million dollars. ~ Table 3 ~ Construction Phase Impacts Summary (Cherokee County) Impact Type Direct Effect Indirect Effect Induced Effect Total Effect Employment (# of Jobs) Labor Income $ 496,853 $ 144,197 $ 103,115 $ 744,165 Output $ 2,827,830 $ 528,580 $ 357,277 $ 3,713,686 Source: IMPLAN 12

17 ~ Table 4 ~ Construction Phase Largest Sectoral Employment Effects (Cherokee County) ~ Description Employment Labor Income Output Construction of other new nonresidential structures 12.1 $ 164,917 $ 1,245,899 Ready-mix concrete manufacturing 2.9 $ 118,849 $ 738,229 Retail Stores - Building material and garden supply Other state and county government enterprises 2.3 $ 80,939 $ 170, $ 109,081 $ 561,493 Legal services 2.1 $ 38,530 $ 178,145 Employment services 1.2 $ 9,056 $ 18,104 Maintenance and repair construction of nonresidential structures 0.9 $ 11,685 $ 74,034 Food services and drinking places 0.6 $ 8,172 $ 27,609 Real estate establishments 0.5 $ 3,191 $ 46,979 Transport by truck 0.4 $ 17,281 $ 46,510 Source: IMPLAN Table 4 provides information on the distribution of the employment gains across economic sectors. The ten sectors experiencing the largest impact are shown in a disaggregated form. The largest employment impact is within the construction sector as expected with 12.1 jobs accompanied by a $1.2 million increase in output. At this level of decomposition, other sectors experience job increases on the order of less than four (4). The ready-mix concrete manufacturing sector shows the second largest impact with three (3) jobs and an increase in economic activity of $.7 million. In the construction phase, other sectors benefit from the economic activity created as the construction firms and workers employed as a result of the construction activity make purchases in the County. 13

18 Table 5 presents the top sectors ranked by output. Again, the largest amount of economic activity gain appears in the construction sector with an output of $1.2 million. Second is readymix concrete manufacturing with an impact of $.7 million and a job gain of three (3) followed by other state and county government enterprises having an impact of over $.5 million. The other state and county government enterprises category consists of water/sewage, sanitation, gas supply, airports and housing and community development. ~ Table 5 ~ Construction Phase Largest Sectoral Output Impacts (Cherokee County) Description Employment Labor Income Output Construction of other new nonresidential structures 12.1 $ 164,917 $ 1,245,899 Ready-mix concrete manufacturing 2.9 $ 118,849 $ 738,229 Other state and county government enterprises 2.2 $ 109,081 $ 561,493 Legal services 2.1 $ 38,530 $ 178,145 Retail Stores - Building material and garden supply Monetary authorities and depository credit intermediation activities Maintenance and repair construction of nonresidential structures Imputed rental activity for owneroccupied dwellings 2.3 $ 80,939 $ 170, $ 8,245 $ 80, $ 11,685 $ 74,034 0 $ - $ 69,113 Real estate establishments 0.5 $ 3,191 $ 46,979 Transport by truck 0.4 $ 17,281 $ 46,510 Source: IMPLAN It is worth emphasizing the significance of the contributions of the construction phase of the Shinbone Wind project. An additional 21 jobs and $3.7 million increase in economic activity is a major contribution to the economy of the County. 14

19 B. Operations and Maintenance Phase Impacts - Cherokee County Upon completion of the construction phase, the Shinbone Wind project will continue to contribute to the economy of the County through the operations and maintenance of the facility. Even though the wind turbine itself is the most visible component of a wind facility, it does not function on its own. Wind turbines require routine maintenance, as with any other production process, there is an ongoing need for property maintenance and management of the operation. Over time, turbine components, especially drive train components such as gears and bearings are subject to wear and need replacement. This maintenance requires additional labor inputs and parts purchases that are not part of this model. Obvious County beneficiaries of these future expenditures are the wholesale sector and machine shops. Each of these county expenditures can be expected to contribute additional economic activity beyond the direct expenditures through the ripple effects of additional rounds of receipts and expenditures when those repairs are made. ~ Table 6 ~ Operation and Maintenance Phase Impacts Summary (Cherokee County) Impact Type Direct Effect Indirect Effect Induced Effect Total Effect Employment (# of Jobs) Labor Income $ 125,357 $ 30,034 $ 40,871 $ 196,262 Output $ 472,849 $ 125,139 $ 142,514 $ 740,502 Source: IMPLAN Table 6 lists the impacts on employment and output predicted by the IMPLAN model. The model predicts an initial direct impact of 5.7 jobs and a total effect of 8.8 jobs through the 15

20 multiplier effects. The anticipated impact is an increase of $740,502 in output; $196,262 is predicted as the total increase in labor income. Additional jobs and additional economic activity is unquestionably important to Cherokee County s economy. Tables 7 and 8 provide information on the top ten sectors impacted by the operations and maintenance phase within the County, ranked by employment and output respectively. There is almost complete overlap between the two tables although the rankings of the sectors differ due to differences in labor components of production across the sectors. The largest employment impacts occur in the services sectors that are directly related to the operation and management of the facility. Taking the employment effects in the services to buildings and dwellings, and the other state and county government enterprises, there is an employment increase of 5.2, which is largely the result of the operation and management effects of the wind turbines. ~ Table 7 ~ Operations and Maintenance Phase Largest Sectoral Employment Impacts (Cherokee County) Description Employment Labor Income Output Services to buildings and dwellings 2.9 $ 19,047 $ 122,372 Retail stores - Building material and garden supply 1.4 $ 48,446 $ 102,260 Other state and county government enterprises 0.9 $ 42,326 $ 217,872 Employment services 0.4 $ 3,255 $ 6,508 Retail stores - Motor vehicle and parts 0.4 $ 8,496 $ 26,780 Retail Stores - Gasoline stations 0.3 $ 11,863 $ 23,865 Maintenance and repair construction of nonresidential structures 0.3 $ 3,981 $ 25,221 Food services and drinking places 0.2 $ 2,816 $ 9,514 Real estate establishments 0.2 $ 1,210 $ 17,820 Employment and payroll only (state & county government, non-education) 0.1 $ 5,141 $ 6,131 Source: IMPLAN 16

21 ~ Table 8 ~ Operations and Maintenance Phase Largest Sectoral Output Effects (Cherokee County) Description Employment Labor Income Output Other state and county government enterprises 0.9 $ 42,326 $ 217,872 Services to buildings and dwellings 2.9 $ 19,047 $ 122,372 Retail Stores - Building material and garden supply 1.4 $ 48,446 $ 102,260 Imputed rental activity for owner-occupied dwellings 0 $ - $ 27,026 Retail Stores - Motor vehicle and parts 0.4 $ 8,496 $ 26,780 Maintenance and repair construction of nonresidential structures 0.3 $ 3,981 $ 25,221 Monetary authorities and depository credit intermediation activities 0.1 $ 2,469 $ 24,014 Retail Stores - Gasoline Stations 0.3 $ 11,863 $ 23,865 Real estate establishments 0.2 $ 1,210 $ 17,820 Non-Depository credit intermediation and related activities 0.1 $ 7,351 $ 12,624 Source: IMPLAN Viewed from the perspective of output, the greatest impact occurs in the other state and county government enterprises sector. The total increase in output is $217,872. The imputed rental activity of $27,026 can be interpreted as additional home ownership. Unlike the construction phase, employment resulting from the ongoing operations of the Shinbone Wind project is long-term, not temporary. Therefore it is reasonable to accept the additional home ownership output at face value. The three retail sectors listed above contribute $152,905 dollars in economic activity during the first year of operation. The addition of $.6 million dollars in economic activity and an additional 7.1 permanent jobs are large numbers when compared to the economic scale of Cherokee County. 17

22 C. Construction Phase Impacts on the State of Alabama As with the Cherokee County analyses, the largest effects on employment and economic activity in the State are seen during the construction phase. The State level effects clearly include the effects within Cherokee County, but there are larger effects in the State level analyses. The differences arise because there are additional products and services not currently available in Cherokee County, which can be provided by sources within the State. The most notable examples are legal and engineering services, which are more likely to be provided within the State, but not within the County. As a consequence of the additional goods and services available at the State level, the projected total impact on the State created by the construction phase of the project is noticeably larger. A summary of the effects is shown in Table 9. The IMPLAN model predicts a total employment impact of jobs. The total effects on labor income and economic activity are $5.2 million and $15.9 million, respectively. ~ Table 9 ~ Construction Phase Impacts Summary (Alabama) Impact Type Direct Effect Indirect Effect Induced Effect Total Effect Employment (# of Jobs) Labor Income $ 3,156,605 $ 1,089,889 $ 1,008,567 $ 5,255,062 Output $ 9,803,445 $ 2,996,525 $ 3,119,400 $15,919,369 Source: IMPLAN The relationship between the direct impact on labor income and the total effect on labor income demonstrates the importance of the multiplier effect. As the original expenditures make their way through the economy, the total impact of $5.2 million is $2 million in addition to the 18

23 direct impact of $3.1 million. A similar comparison can be made between the $9.8 million dollar direct effect on output, and the total effect of $15.9 million total increase in output. The clear point to be taken is that this project creates jobs and injects far more money into the economy than merely the direct effects generated by constructing the wind turbines and supporting infrastructure. The ten sectors with the largest gains in employment are listed in Table 10. More than half of the employment gains occur within the construction sector. The model also predicts gains of 12.5 jobs in the Legal services sector. ~ Table 10 ~ Construction Phase Largest Sectoral Employment Effects (Alabama) Description Employment Labor Income Output Construction of other new nonresidential structures 36.8 $ 1,544,793 $ 4,886,787 Legal services 12.5 $ 902,212 $ 1,757,626 Ready-mix concrete manufacturing 9.2 $ 501,792 $ 2,461,151 Retail stores - Building material and garden supply 4.3 $ 157,044 $ 324,731 Food services and drinking places 4.3 $ 72,738 $ 220,429 Real estate establishments 2.8 $ 34,293 $ 288,647 Transport by truck 2.7 $ 135,474 $ 312,237 Architectural, engineering, and related services Other state and county government enterprises 2.7 $ 207,132 $ 342, $ 150,765 $ 631,702 Wholesale trade business 1.8 $ 120,973 $ 256,738 Source: IMPLAN 19

24 Table 11 contains the top ten sectors in terms of gains in total output. The construction sector experiences more than 50 percent of the total output gain. The ready mix concrete manufacturing and legal services sector see gains of $2.4 million and $1.7 million respectively. In overall terms, the IMPLAN model analyses strongly indicates that the construction of the Shinbone Wind project will have a large impact on the economy of both Cherokee County and the State as a whole in terms of employment, employee income and increased output. ~ Table 11 ~ Construction Phase Largest Sectoral Output Impacts (Alabama) Description Employment Labor Income Output Construction of other new nonresidential structures 36.8 $ 1,544,793 $ 4,886,787 Ready-mix concrete manufacturing 9.2 $ 501,792 $ 2,461,151 Legal Services 12.5 $ 902,212 $ 1,757,626 Other state and county government enterprises Imputed rental activity for owneroccupied dwellings Architectural, engineering, and related services Retail stores - Building material and garden supply 2.3 $ 150,765 $ 631,702 0 $ - $ 432, $ 207,132 $ 342, $ 157,044 $ 324,731 Transport by truck 2.7 $ 135,474 $ 312,237 Real estate establishments 2.8 $ 34,293 $ 288,647 Wholesale trade businesses 1.8 $ 120,973 $ 256,738 Source: IMPLAN D. Operations and Maintenance Phase Impacts on the State of Alabama The total impact on employment predicted for Alabama from the operation of the Shinbone Wind project is 10.7 jobs. Table 12 summarizes the key projections showing a total increase in output of over $1 million and $259,445 in labor income. 20

25 ~ Table 12 ~ Operations and Maintenance Impacts (Alabama) Impact Type Direct Effect Indirect Effect Induced Effect Total Effect Employment (# of Jobs) Labor Income $ 168,756 $ 44,428 $ 46,261 $ 259,445 Output $ 674,049 $ 189,030 $ 166,007 $1,029,086 Source: IMPLAN The individual entries in Table 13, showing the top ten sectors by employment will not be directly comparable to the analysis for the County due to differences in the underlying multipliers. This is not unexpected in the IMPLAN models. Nonetheless, many of the same sectors appear among the top ten affected sectors. The services to buildings and dwellings show an increase of 3 jobs. The other state and county government enterprises sector shows an increase of 1.5 jobs. These are long-term jobs. ~ Table 13 ~ Operations and Maintenance Phase Largest Sectoral Employment Impacts (Alabama) Description Employment Labor Income Output Services to buildings and dwellings 3 $ 19,222 $ 123,497 Other state and county government enterprises 1.5 $ 72,771 $ 374,589 Retail Stores - Building material and garden supply 1.4 $ 48,639 $ 102,666 Employment services 0.6 $ 4,176 $ 8,349 Maintenance and repair construction of nonresidential structures 0.5 $ 6,659 $ 42,192 Machine shops 0.5 $ 16,058 $ 58,000 Retail Stores - Motor vehicle and parts 0.4 $ 8,732 $ 27,524 Retail Stores - Gasoline stations 0.3 $ 12,015 $ 24,170 Real estate establishments 0.2 $ 1,591 $ 23,416 Food services and drinking places 0.2 $ 3,463 $ 11,698 Source: IMPLAN 21

26 Results in relation to the top ten output effects appear in Table 14. The other state and county government enterprises sector experiences the largest increase in terms of output, with a projected $374,589 gain. ~ Table 14 ~ Operations and Maintenance Phase Largest Sectoral Output Impacts (Alabama) Description Employment Labor Income Output Other state and county government enterprises 1.5 $ 72,771 $ 374,589 Services to buildings and dwellings 3 $ 19,222 $ 123,497 Retail Stores - Building material and garden supply 1.4 $ 48,639 $ 102,666 Machine Shops 0.5 $ 16,058 $ 58,000 Maintenance and repair construction of nonresidential structures Monetary authorities and depository credit intermediation activities Imputed rental activity for owneroccupied dwellings 0.5 $ 6,659 $ 42, $ 3,592 $ 34,933 0 $ - $ 32,271 Retail stores - Motor vehicle and parts 0.4 $ 8,732 $ 27,524 Retail stores - Gasoline stations 0.3 $ 12,015 $ 24,170 Real estate establishments 0.2 $ 1,591 $ 23,416 Source: IMPLAN As with the Cherokee County analysis, this does not reflect the increase in maintenance that will take place as the equipment wears, so the overall increase in jobs and output is not fully reflected in these projections. For that reason, the gains to the State in terms of output will be greater than projected with this analysis. 22

27 VI. Tourism Tourism is one of the largest industries in Alabama. According to the 2010 Alabama Travel Economic Impact Report, there were $9 billion in expenditures in travel spending in 2010, which created 156,899 jobs in Alabama. For every $1 in travel related spending, workers in Alabama earn 39 cents, state government collects 5 cents and county governments collect 2 cents. It is estimated that 23 million people visited the State during North Alabama is one of the centers of this activity. During 2010, while the State overall saw a 2% drop in tourism, North Alabama experienced a 5% increase. North Alabama has become not just a tourism destination but also an ecotourism destination, offering a wide variety of natural outdoor recreational destinations. Much of this is attributable to the natural beauty of the area as the southern end of the Appalachian Mountains. Cherokee County is one of the prime locations of this eco-tourist activity in North Alabama. The centerpiece is 30,000-acre Lake Weiss, crowned locally as the Crappie Capital of the World, which offers a vast array of opportunities for outdoor sports and recreation over a vast area. The County also benefits from other signature features such as the National Park Service s Little River Canyon and Preserve and the 335-mile-long Pinhoti Trail, which is the regional connector to the Appalachian Trial. One of the most unique outdoor venues in the area is Cherokee Rock Village, a county park located on Lookout Mountain near the town of Leesburg. For years, this location has been a regional favorite because of its striking vistas. But it also has been a favorite of rock climbers and is experiencing a growing reputation, even internationally, for its superb rock-climbing challenges. With strong support from the County, the park currently is undergoing 23

28 substantial renovations and improvements, and has a bright future for continuing to draw visitors to Cherokee County. The Shinbone Project will be located on a ridge near Cherokee Rock Village and might be accessed through the same road that terminates at the park. Modern wind turbines are no longer an uncommon sight in some areas of the country, such as western Texas, the plains states and parts of California. According to the American Wind energy Association, however, the only project currently operating anywhere in the Southeast is one north of Knoxville, Tennessee. Thus, the Shinbone Project may be one of the first, if not the first, modern wind energy project in the State and possibly one of the first in this region of the country. The possibility is being explored of coordinating the operation of the Shinbone Project with the park so as to offer the public a superb opportunity to view a modern wind turbine up close. This viewing opportunity may be combined with museum-quality educational displays and materials on the subjects of wind energy and wind turbine technology. Such a unique attraction could add another marquee destination to the County. In addition to individual and family visitors, such an attraction could draw organized groups such as school field trips, college and university classes, senior groups and other tour groups. No comprehensive studies have been conducted on the tourism potential of a modern wind project in a new area of the U.S. Other wind projects that are the first in their area, however, have experienced significant public curiosity and interest, and it seems reasonable that such attention would be given to the Shinbone Project. For instance, about 15,000 people a year have taken one of the tours offered by the Atlantic County Utilities Authority of the first modern wind energy project in New Jersey. Also, the company developing the first offshore wind project in the U.S and a major ferry service announced last year the joint development of an Eco- 25

29 Tour and Visitors Center to provide guided tours of the turbines. The first wind project built in Victoria, Australia has offered regular tours for many years. Being potentially one of the first modern wind projects in the Southeast offers a similar potential for the Shinbone Project to bolster Cherokee County tourism. According to the Cherokee County s Industrial Development Authority, Cherokee County, experiences approximately 15,000 visitors per year. Although difficult to forecast, it does not seem unreasonable based on the experience of other, similar areas to assume that Cherokee County may enjoy an increase of 5% to 15% in additional visitors annually as a result of hosting the Shinbone Project, especially in coordination with Cherokee Rock Village. Thus, the County might experience an increase in visitors of between 750 and 2,250 annually. Such an increase in tourism activity would provide a significant economic boost to Cherokee County. Based on figures from the 2010 Alabama Travel Industry Economic Impact, we estimate the average outside visitor to spend $ daily. Assuming an average stay of three days, the total estimated amount spent would be $ If only 5% - 15% of the current number of visitors to Cherokee County were drawn to vacation in the area in order to see the Shinbone Project, the result would be an economic impact of approximately between $293,745 and $880,425 annually. Using a multiplier of 2.5 the total tourism economic impact would be between $734,363 and $2.2 million each year. 25

30 Potential Tourism Economic Impacts 750 new tourists Yearly Economic impact potential: $734,363 Tourism increase of 5% Tourism increase of 15% 2,250 new tourists Yearly Economic impact potential: $2.2 million 26

31 VII. Methodology In order to estimate the economic impact of the Shinbone Wind Project on Cherokee County and on the State of Alabama, this report employs IMPLAN software and data from Minnesota IMPLAN Group (MIG). The analysis in this report takes into account the two phases of the project, the construction phase and the ongoing operations phase, for the county and state. This study utilizes the standard regional economics modeling method of input/output (I/O) analysis to quantify the direct and indirect multiplier impacts of the construction and ongoing operations of the wind energy project. It employs IMPLAN Alabama and IMPLAN Cherokee County economic I/O models that quantify the relationships between the two entities. The I/O data show the flow of commodities to the industries from producers and consumers for any given state, region, or county involved. The data show consumption activities by workers, owners of capital, and imports of one sector on all other sectors, which interact with the project. The I/O model analyzes the flow of funds that originate from the direct expenditures related to the construction and operation of the wind turbines with the multiplier effects of those expenditures. When the project is in full operation, the Shinbone Project will generate some revenue from the ongoing operational expenditures, which will in-turn enter into the local economy. This specific activity and tax effects of that revenue are not represented within the model, as this data cannot be fully estimated by the model. The I/O analysis represents the standard for the measurement of economic impacts and is the generally accepted methodology for measuring such projects of this nature. 27

32 The operation of the IMPLAN model can be explained as the following. As payments are received by businesses, each of these in turn make additional expenditures that follow a predictable pattern, or flow, that can ultimately be estimated based on past spending patterns of the economic sector in which they operate. The key is that when this pattern continually repeats its self, the original dollar spent results in considerably more than one dollar of local economic activity. Within each economic sector, there is a set of multipliers that can be used to predict the overall economic impact. These multipliers vary by the type of business, differences in spending, and local employment indices. Thanks to the IMPLAN model, we are able to divide the economy into its respective sectors by use of NAICS codes to assign the multipliers for each. The primary measures that are analyzed are: employment, employee compensation, and output. For these measures, there are three types of impacts that are looked at (the total impact is the combination of these): 1. Direct Impacts the effects of the initial expenditures that are paid to those sectors within the area of study (i.e., the money received by a Cherokee County based construction firm for foundation construction). 2. Indirect Impacts the result of expenditures that are made within the study region by firms associated with activities that are under analysis (i.e., purchases of materials within Cherokee County by a construction firm would be classified as an indirect impact when looking at Cherokee County). 3. Induced Impacts the result of subsequent rounds of receipts and expenditures within the region of study (i.e., the Cherokee County based concrete plant will in-turn make payments to Cherokee County employees who will spend some of their wages on additional good and services in Cherokee County). 28

33 For the use of the IMPLAN model, it is necessary to have input estimates of the regional expenditures that will be made in each of the economic sectors. Since this project is not in the implementation phase, projecting actual expenditures is required. In order to address this issue, the inputs that are needed for the IMPLAN model will come from the Job and Economic Development Impacts (JEDI) software model, which is designed for use in the analysis of wind energy projects. Input is also taken from the PGE development team and the consultants working on the project. 29

34 VIII. Limitations to Data and Modeling This study utilizes two models, IMPLAN and JEDI, which indicate the economic impacts of the project. To estimate the economic impacts of the two regions that are being analyzed, Cherokee County and that Sate of Alabama, it is necessary to examine a fraction of each expenditure that will in-turn be spent in each of the regions and sectors within this study. Given the small scale of the overall economy of Cherokee County, some of the proposed area may be affected greater or lesser than the model predicts. It should also be noted that the overall multipliers that are used in this specific project might be different than that of other industries and or entities. The data available from PGE relative to business expenditures as well as the data from regional and County entities were for the past two fiscal years, 2010 and Since some of this data is limited, it has been used for the estimation of short-term economic impact. In this present form, the data cannot be used for long-term prediction unless the user assumes that any future changes in value would not be biased and leave the functional relationships among the variables unchanged. The models do not predict political, social, or aesthetic impacts. However, they do provide a means for evaluation within a short time span and are credible devices for estimating expenditures and cash flow as they flow throughout the region of study. In addition, the models serve as a flexible and comprehensive measurement of the dollar outlay. 30

35 IX. IMPLAN Model Inputs In order to construct the IMPLAN model for the Shinbone Project, the data was obtained from the JEDI model data that was provided by PGE and the consultants assigned to the project. The JEDI inputs include the capacity of the plan in megawatts and the installed project cost per kilowatt in order to determine construction and ongoing operational cost components. PGE plans to install between eight (8) to 10 turbines with the possibility of a total capacity of up to 20 megawatts at a projected cost of $1,579 per kilowatt. The line items from the first stage are then analyzed to determine the portion of this item likely to be obtained in Alabama, in Cherokee County, or from outside Alabama. Most of the expenditures will arise from the initial purchases, infrastructure, and transportation costs at the site of each turbine. The turbines and most of the turbine related equipment will not have a State or County component but a percentage of the infrastructure and transportation costs are estimated to occur in Alabama. The remaining expenditures will encompass the State and County components and so are allocated respectively. The labor component is assumed to be residents of Cherokee County during the construction phase of the project. 31

36 X. Conclusion The purpose of this study was to obtain an approximate measure of the economic impact of the Shinbone Project on Cherokee County, Alabama. This impact occurs as a result of the construction and ongoing operations of the wind turbines installed by PGE. However, this study has analyzed only the economic effects of the PGE project on Cherokee County. The statistical models used in this study do not consider political, psychological, aesthetic, or sociological factors. It should be emphasized that the impacts obtained from the IMPLAN model are an understatement of the gains that likely will arise from the project. As explained above, the ongoing operational expenditures and taxes that will be paid by the Shinbone Project are substantial and not reflected in the impacts estimated by the IMPLAN models. Taking the employment gains, increases to employee income and additional economic output, the Shinbone Project will be very beneficial to Cherokee County and the State of Alabama as a whole. From this study, it is shown that the instillation of the wind turbines will have a significant economic contribution to this locality. The Shinbone Project by PGE will not only be a major economic component for the area, but also, and just as important, will be an integral part of Cherokee County and is one of the contributing forces that will serve to shape and define the area of energy generation through the use of wind power. 32

37 XI. Sources of Data Alabama Department of Archives and History, Cherokee County. The Alabama Department of Industrial Relations, 2011 Civilian Labor Force. The Alabama Department of Revenue, 2011 Annual Report. The Alabama Tourism Department, 2010 Economic Impact Alabama Travel Industry. The U.S. Bureau of the Census, Census, The U.S. Bureau of the Census, Economic Census, Jobs and Economic Development Impact (JEDI), Wind Energy Impacts. IMPLAN (IMpact analysis for PLANning), Economic Impact Modeling System. 33