4. Assessment of actual and potential effects
4.1 Puketoi Wind Farm and the local economy
The proposed Puketoi wind farm would be located in the Tararua District in the southern Manawatu region. Its impact on the local economy will depend on the nature of the expenditures on the project and the characteristics of the economy receiving the impact. The area falls on the boundary of the Manawatu-Wanganui Region and Wellington Region. Work on construction is likely to draw from a proximate region covering Tararua, Masterton and Manawatu districts and also Palmerston North City, where there are already businesses oriented to servicing the wind farms in the region. It may also draw specialist input from further afield, but the new wind farm development is most likely to be felt in the closer proximity than the full region.
New developments provide a stimulus for economic activity in the locality, because of the additional spending on supplies of labour and materials during both the construction and operational phases of the project. The current project plan for Puketoi wind farm entails around $432 to $701 million capital expenditure over an 18 month period to construct and commission the wind farm. Once in operation it would require operation and maintenance expenditure of about $12 to $21 million per year.
In terms of employment the construction phase could result in about 200 full time equivalent jobs that might not otherwise occur in the district, roughly split between civil engineering for installation of the plant and transmission works. Once in operation this would drop to 20 full time equivalents engaged in maintenance and environmental monitoring. Around 68% to 76% of wind farm costs are typically associated with imported components, such as turbines and towers and some electrical gear, and in this case the local non-imported component is likely to be around $138 to $171 million24.
In assessments of economic effects of new developments it is common to see an economic impact analysis, which summarises the effects on output, incomes and employment after taking account of the indirect flow-on effects of new business in the economy stimulated by the initial direct effect of the project works. These flow-on effects are summarised in economic multiplier coefficients which vary with the extent to which industries’ expenditure leaks out of the local economy on imported products.
Ideally they are specific to the area and the sectors most affected by the particular development. Calculating multiplier coefficients requires building an input-output model of the local economy that can capture the inter-industry transactions stimulated by the project’s injection of funds into the local economy.
There are practical and theoretical limitations to such analyses. The practical one is that in New Zealand, the inter-industry tables used to estimate multipliers are not regularly updated by Statistics New Zealand and represent an industry structure which is now outdated. Various partial updates and adjustments can be made to
24 But see footnote 2 page 8.
remedy this, but cannot eliminate approximation and inconsistency in the estimates.
A theoretical one is that multiplier analysis assumes there is spare capacity in input resources, so that all sectors can expand their output in response to the initial stimulus. But once a development is big enough to encounter resource constraints, the additional demand for inputs like labour and land increases prices and costs for all other sectors in the local economy, reallocating resources across sectors that creates offsetting reductions as well as gains for some sectors. When developments are examined through a computable general equilibrium model of the economy, a more sophisticated model that specifically allows for price changes and resource reallocation, multipliers are generally much smaller because of offsetting effects, than they are in input-output models. General equilibrium models are more costly to prepare and suffer some of the same practical issues over data relevance as the input output models.
Multipliers in regional input-output models are typically around 2, so as a rule of thumb the indirect flow on effects double the direct effect of the development’s injection of funds into the local economy. In a much cited but now rather dated study of regional and sector-specific multipliers, the electricity, gas and water industries in Manawatu were estimated to have an output multiplier of 1.6 and the construction industry had an output multiplier of 2.4. 25 The national multipliers exceed regional multipliers because the smaller the region of interest, the greater the proportion of expenditure “leakage” as more supplies are sourced from outside the region. If these output multipliers still apply, the $138 to $171 million of regional project construction expenditure could stimulate a further $193 to $239 million of indirect activity, and the
$12 to $21 million of annual operational expenditure could stimulate a further $7 to
$13 million per year in the region.
The rentals to landowners participating in the wind farm and transmission line would also generate further indirect expenditures, bringing the total impact from that source to about $4 million per year.26 The employment multipliers are similar and if they still apply, the total (direct and indirect) impact would be approximately 500 full time equivalent (FTE) jobs during the construction phase, and 35 FTE jobs per year during the operational phase27.
At the height of the construction stage Puketoi wind farm will be stimulating employment equivalent to 24% of the current construction labour in the proximate sub-region, and 2.0% of total employment as identified in Figure 5. During the operational phase it will have less impact on total employment (0.2%), but still stimulate employment equivalent to up to 50% of current employment in electricity,
25 Recent regional multipliers for specific industries in New Zealand are hard to come by because of limitations in the collection of inter-industry transactions statistics needed to calculate them, but the MAF publication “Regional Income Output and Employment Multipliers” (1985) estimates output and employment multipliers for 26 sectors, including the electricity, gas and water sector and the building sector.
26 Calculated using the Manawatu pastoral sector output multiplier of 1.9.
27 Again see footnote 2 page 8.
gas and water supply. These are sizeable additions to local employment in these industries.
The industry composition of New Zealand, the wider Manawatu-Wanganui region and proximate sub-region is presented in Figure 5. Using employment as a proxy for economic activity, compared to the national population, the proximate sub-region has a strong primary sector complexion with more than 25% of employment in agriculture and forestry, compared to 6% in the country at large. It also has a higher share of employment in the construction trades (9%) than the national average (6%) so may be expected to do better from the construction stage of the project than had the region less local capacity and a need to import labour.
Figure 5 Employment in national and local economies
Data type
New Zealand
Manawatu- Wanganui Region
Proxima te Region A Agriculture, Forestry and Fishing 108530 8720 5912
B Mining 6090 80 32
C Manufacturing 216560 10440 930 D Electricity, Gas, Water and Waste Services 12550 670 65 E Construction 114230 7110 2095 F Wholesale Trade 101280 4150 709 G Retail Trade 194640 10670 1413 H Accommodation and Food Services 130990 6240 758 I Transport, Postal and Warehousing 80840 3220 639 J Information Media and Telecommunications 39580 1320 96 K Financial and Insurance Services 52020 1360 874 L Rental, Hiring and Real Estate Services 26750 1040 4421 M Professional, Scientific and Technical Services 139640 4190 1172 N Administrative and Support Services 86730 3020 408 O Public Administration and Safety 107060 9530 226 P Education and Training 164900 10360 502 Q Health Care and Social Assistance 204470 12280 809 R Arts and Recreation Services 37850 1710 388 S Other Services 65180 3320 1040
Grand Total 1889890 99430 22489
100.00% 5.26% 1.19%
1 22.62%
1
Notes: (1) Industry level is classified by ANZSIC 06
(2) Proximate Region = Horowhenua District + Manawatu District + Palmerston North + Tararua District + Masterton District
Source: NZIER
The existence of other wind farms in the vicinity may mean some support services are already present in the area, although the proportion of employment in the electricity gas and water supply sector is about the same in the proximate region as in the wider region and New Zealand at large.
Although economic impact analysis is of interest to local communities as an indication of likely additional business in their area, it is not directly informative of the resource use efficiency implied by section 7 (b) RMA. This, and the difficulties of
constructing multipliers from a dated base model, mean it would not be a major part of an economic assessment of the Puketoi wind farm.
4.2 Value of wind generation obtained from Puketoi wind