271 INPUT-OUTPUT ANALYSIS FOR INSTALLING RENEWABLE ENERGY SYSTEMS Yoshinori Itoh and Toshihiko Nakata 49 Management of Science and Technology, Graduate School of Engineering, Tohoku University, Sendai, Japan ABSTRACT Renewable energy facilities have been installed in many regions, because of their possibility to be an alternative to fossil fuels for mitigating global warming. Besides the profitability of renewable energy businesses, indirect economic effects of installing renewable energy facilities should be clarified. This study examines the possibility that the renewable energy facilities give renewed impetus to regional economic progress. The economic effects are analysed with input-output techniques in a rural area in Japan. As a consequence, both positive and negative effects on the rural economy are derived. In addition, we will focus on the changes in sectors such as construction, business services, banking, etc. as a result of economic activities for renewable systems. The business benefits of renewable energy system are discussed. Keywords. Input-output analysis, renewable energy, economic effect, employment effect, rural area, Japan, INTRODUCTION In order to minimize CO 2 emissions and prevent the fossil fuels depletion, renewable energy represents an alternative for fossil fuels, which have been installed in many regions. For municipal corporation which intend to install renewable energy facilities, it is important to grasp the economic impacts on peripheral areas. The expense of renewable energy facilities will affect peripheral economy and employment through the demand for construction and maintenance of the renewable facilities, and the changes in the demand for fossil fuels and grid electricity. In the past, Ziegelmann et al. (2000) analysed the net employment effects of renewable energy system in the Federal Republic of Germany with input-output techniques, and reported that positive employment effects were derived by the installation of renewable energy facilities. According to the report of the EC (1997), renewable energy such as wind power, biomass generation, photovoltaic, and geothermal heat pump (GHP) have positive 49 Corresponding author. Tel.: +81-22-217-7004; fax: +81-22-217-7004. E-mail address: nakata@cc.mech.tohoku.ac.jp (T. Nakata).
272 Energy & Environment Vol. 15, No. 2, 2004 economic and employment effects. They targeted EC member nations, however, and economic effects in rural areas were not analysed. In addition, the economic effects are different among municipal corporations or countries according to the local manufacturing capacities. Hence, the economic effects derived by the installation of renewable energy facilities should be examined at each regions and countries. In Japan, no study has been conducted which investigate the economic effects derived from the installation of renewable energy in rural areas. Nakata et al. (2003) have depicted an integrated renewable energy system that provides electricity and heat with minimum cost in a rural Japan. They showed that, an objective rural town could reduce the expenses of energy system by 44.1%. In this study, we have analysed the economic and employment effects on peripheral area with input-output analysis in the case of installing the integrated renewable energy system in the rural town. As a consequence of the analysis, we have obtained the following results. The positive economic effect of US$ 2.1 million is derived by the demand for the construction and operation of the system. On the other hand, the negative economic effect of US$ 3.5 million is derived by the reduction of the demand for grid electricity and petroleum. Saving for the purchase of grid electricity creates the additional consumption of US$ 2.7 million. Enormous negative economic effect appears in the gas and electricity sector. Outstanding positive employment effects appears in the construction and installation sector, the trade sector, and the personal services sector. The energy expenditure of the town having the renewable energy system is reduced by US$4.3 million. Furthermore, the peripheral area has the positive economic effect of US$ 2.7 million and the positive employment effect of 35.1 jobs. In the peripheral area, few manufacturing industries exist, and the characteristic industries are agriculture, stockbreeding, forestry, mining, and construction. Positive economic effect will be seen on other municipal corporation which industrial structure and renewable resources are similar to that of Iwate prefecture. TARGET AREAS The objective area installing a renewable energy system is Kuzumaki town, which Figure 1. Location of Kuzumaki town and Iwate prefecture
Input-output analysis for installing renewable energy systems 273 locates in Iwate prefecture, the northeast part of Japan, and has abundant wind and biomass resources. The annual mean temperature is 8.8 C. There are 8,961 people and 10,700 cows in the town. The annual electricity demand is 38,079 MWh and the total annual demand for heating is estimated to be 40,579 amwh. The amount of dairy mean global solar radiation is 3.32 kwh/m 2. In the town, three wind turbines was already installed at a plateau where the mean wind speed is 7.9 m/s at a height of 36 m. Figure 1 shows the position of Kuzumaki town and Iwate prefecture. Iwate prefecture is chosen to analyse the economic effects derived from the installation of renewable energy system in Kuzumaki town. Iwate prefecture is a governing agency of Kuzumaki town and peripheral towns. Figure 2 shows the selfsufficiency rate of industries of Iwate prefecture. 76.8% of the demand for manufacture flow out to other prefecture because of poor manufacturing capacity in the prefecture. The self-sufficiency rates of construction and installation and gas and electricity are 100% and 54.5%, respectively. The gross product of Iwate prefecture is US$ 41.2 billion in 2003. METHOD AND DATA In order to assess the economic effects on Iwate prefecture derived by the changes in the expenditure of Kuzumaki town, we used a 35 x 35 input-output table published by Iwate prefecture in 1998. Additional disaggregated subsectors of renewable energy facilities are not included in the table, since there is no industry related to those facilities in Japan. The expenditure on renewable energy system was estimated as the final demand of input-output analysis. SYSTEM CONFIGURATION The configuration of the integrated renewable energy system was based on the previous research by Nakata et al. Figure 3 shows the system configuration. Without the installation of renewable energy, electricity was entirely supplied from grid electricity. On the contrary, wind power of 9.6 MW was introduced in the renewable Figure 2. Self-sufficiency rate of industries of Iwate prefecture
274 Energy & Environment Vol. 15, No. 2, 2004 Figure 3. Configuration of renewable energy system Table 1. The expenses of the energy systems in Kuzumaki town
Input-output analysis for installing renewable energy systems 275 energy system. Concerning about heating configuration, GHP of 1.7 MW (10.1% of whole demand) was introduced and petroleum covers the demand of 89.9%. Excess electricity generated by the wind power is sold to electric power company, so that the town obtains the annual income of US$ 0.7 million. Table 1 shows the break-down of expenses of the energy system in the town. From this table, we see that the cost of construction and installation (C&I) reaches US$ 2.8 million for the renewable system, and the cost of operation and maintenance (O&M) of the facilities was increased to US$ 0.16 million per a year, and the cost of purchasing for fuel was decreased to US$ 1.2 million per a year, and the cost of purchasing grid electricity was decreased by 71% to US$ 2.0 million per a year. In sum, the total changes in costs amount to saving of about US$ 5.3 million for the people in the town. Let us suppose that these savings will be transferred to additional consumption by the people. Furthermore, it is assumed that the consumption propensity in the town equals that in Iwate prefecture. RESULTS Economic and employment effects on sectors by the expenditures on renewable energy facilities Figure 4 shows the major sectors in Iwate prefecture which had positive economic effects by the expenditure on renewable energy facilities. It should be noted that the amount of the expenditure on the O&M of the facilities is based on the annual expenditure. The benefit in construction and installation stood out, and the main economic effect of this sector was derived from the expenditure on the construction of wind power. Positive economic effect appeared in Business services. This effect was derived from the demand for the consulting or maintenance work of renewable energy facilities. Positive economic effect appeared in Banking and insurance, and the main Figure 4. Economic effects on the major sectors in Iwate prefecture from expenditure on renewable energy system
276 Energy & Environment Vol. 15, No. 2, 2004 economic effect of this sector was derived from the income of interest rate on loans and discounts. In this study, it was supposed that the half of expense on the C&I of renewable energy facilities were supplied by loans and discounts from financial facilities. Consequently, a total of economic effect of US$ 2.0 million was derived from the expenditure of US$ 2.8 million on the C&I. A total of economic effect of US$ 0.3 million was derived from the expenditure of US$ 0.2 million on the O&M of renewable energy facilities. Since Iwate prefecture did not manufacture any equipments of wind power, and the whole of wind turbines (9.6 MW, US$ 0.9 million) are imported from abroad, the local economic effect of the C&I was estimated lower. Figure 5 shows employment effects derived from the expenditure on renewable energy facilities. The affected major sectors were similar to that of economic effects. The reason why little employment effect appeared in real trade was that the employment coefficient of this sector was 1.4 (jobs/us$ million), which was smaller than the average of employment coefficient of 8.7 (jobs/us$ million) in Iwate prefecture. The employment coefficient of trade, banking and insurance, and transportation are 17.1 (jobs/us$ million), 11.0 (jobs/us$ million), and 6.9 (jobs/us$ million), respectively. The employment effect on trade was estimated larger than that of banking and insurance and transportation. Comparison of the economic and employment effects between renewable energy system and non-renewable energy system Figure 6 shows the changes in the economic and employment effects by switching from non-renewable to renewable energy system in Iwate prefecture. The economic effect of US$ 2.1 million was induced by the demand for the C&I of renewable energy facilities. The economic effect of US$ 0.3 million was induced by the expenditure on the O&M of the facilities. The economic effect from the additional consumption was Figure 5. Employment effects on the major sectors in Iwate prefecture from expenditure on renewable energy system
Input-output analysis for installing renewable energy systems 277 US$ 4.3 million. The economic effect of expenditure on purchasing grid electricity was a decrease of US$ 3.5 million, because the expenditure on the sector was decreased by US$ 4.9 million (71.0%). The expenditure on petroleum was slightly decreased by US$ 0.4 million, and the economic effect on this sector was a decrease of US$ 0.4 million. Additional 18.0 jobs were created by the expenditure on both the C&I and the O&M of renewable energy facilities. 33.8 jobs were created by the additional consumption. On the other hand, 11.4 jobs were lost by the decrease in the demand for purchasing grid electricity. Consequently, a total of the economic effect was increased by US$ 2.7 million and a total of the employment effect was increased by 35.1 jobs in Iwate prefecture. Changes in the economic and employment effects on each sectors derived by the changes in the expense of energy systems We have analysed detailed coverage of the effects derived from the changes in the expense of energy systems. Figure 7 shows the changes in the economic effects on each sector. The additional consumption had significant impacts on many sectors, and the outstanding positive economic effect of US$ 1.1 million appeared in real estate. The largest negative economic effect of US$ 2.7 million appeared in gas and electricity. Large positive and negative economic effects appeared in trade by Figure 6. Changes in the economic and employment effects derived by switching the expense of energy systems
278 Energy & Environment Vol. 15, No. 2, 2004 additional consumption and the decrease in the demand in petroleum purchase. Figure 8 shows the detailed employment effects on each sector. Outstanding positive effects appeared in construction and installation, trade, and personal services. Large negative effects appeared in gas and electricity, however, this effect was smaller than that of economic effect. The reason is as follows. The average of employment coefficient of sectors in Iwate prefecture is 8.7 (jobs/us$ million), on the other hand, that of gas and electricity is 1.8 (jobs/us$ million). Gas and electricity Figure 7. Changes in the economic effects on sectors derived by the changes in the expense of energy systems Figure 8. Changes in the employment effects on sectors derived by the changes in the expense of energy systems.
Input-output analysis for installing renewable energy systems 279 does not need many labours as compared with other sectors. Hence, the decrease in the demand for purchasing grid electricity had strong impact on the decrease in the income of electric power company. Since the demand for purchasing petroleum & gas were decreased, large negative employment effect appeared in trade. Changes in the economic and employment effects on six prefectures in Tohoku region Table 2 depict that the changes in economic and employment effects on six prefectures in Tohoku region through the ripple effects of the expenditure on renewable energy systems in Iwate prefecture. An interregional input-output model of Tohoku region, which had 52 sectors was used to estimate the ripple effects. A glance at Table 2-(a) reveal that Aomori and Miyagi prefectures have the larger positive changes in the economic and employment effects. Aomori prefecture was affected by a part of the demand for glass products and non-ferrous products in Iwate prefecture, and Miyagi prefecture was affected by a part of the demand for eating and drinking places in Iwate prefecture. If we look at Table 2-(b) we see that Aomori and Miyagi prefectures have positive changes in the economic and employment effects, however, Akita, Yamagata, and Fukushima prefectures have negative changes in the economic effects. Aomori and Miyagi prefecture were affected by a part of the demand for eating and drinking places in Iwate prefecture. The other prefectures were affected by a part of the demand for grid electricity in Iwate prefecture. Since there were insufficient power plants in Iwate prefecture, large amount of grid electricity was supplied from peripheral prefectures, in particular Fukushima. As employment coefficient of the sector was low, the scale of negative employment effect of the sector was smaller than that of economic effect. In fact, the interregional input-output model used in this study did not consider the actual current of grid electricity. If we consider the actual current, the negative effect may affect on Akita or Miyagi prefectures rather than on Fukushima prefecture. There are a few aging power plants in Akita and Miyagi prefectures, which cost of power generation are rather higher than that of other power plants. Fukushima prefecture has many nuclear power plants and few aging power plants, as a consequence, reduction of the demand for purchasing grid electricity will affect on the economy in Akita or Miyagi prefectures. Table 2. Changes in the economic and employment effects on six prefectures in Tohoku region (a) C & I cost (U S $ m illion, job s) Aomori Akita Iwate Miyagi Yamagata Fukushima Economic effect 0.22 0.03 2.00 0.28 0.01 0.05 Employment effect 2.3 0.4 15.2 2.7 0.2 0.4 (b ) A n nu al cost Aomori Akita Iwate Miyagi Yamagata Fukushima Economic effect 0.52 0.12 0.60 0.91 0.27 2.41 Employment effect 12.1 1.1 19.9 24.3 1.2 5.9
280 Energy & Environment Vol. 15, No. 2, 2004 CONCLUSION With the installation of the renewable energy system in Kuzumaki town, the additional demand such as construction and maintenance were created, and the demand for purchasing grid electricity was decreased, creating the additional consumption. Therefore, the expense of the energy system was decreased by US$ 4.3 million (44.1%) at the first year. Because of the changes in the expenditure on the energy system, the total of economic effects was increased by US$ 2.7 million, and the total of employment effects was increased by 35.1 jobs. As for the detailed economic effects on each sectors, positive economic effect of US$ 1.1 million appeared in construction and installation, and real estate. In contrast, the largest negative economic effect of US$ 2.7 million appeared in gas and electricity. The negative influence at gas and electricity will affect peripheral prefectures because the self-sufficiency rate of the sector in Iwate prefecture is 54.5% (the selfsufficiency rate of grid electricity is 52.5%). According to the analysis using the interregional input-output model, Fukushima prefecture had the largest negative economic effect among Tohoku region. However, if we consider the actual current of grid electricity, negative economic effect will appear in Akita or Miyagi prefectures. Since the sector does not need many labours as compared with other sectors, the scale of negative employment effect at the sector is smaller than that of negative economic effect. DISCUSSION According to an annual report of the European Wind Energy Association (2003), wind energy has created more than 30,000 jobs in Europe. The EC s report mentioned that, if 12% of the world s electricity demand is supplied from wind power, 1.8 million jobs will be created around the world by 2020. The installation of other renewable energy facilities, such as biomass generation and photovoltaic, will create large amount of employments (The European Biomass Association, 1997; The European Photovoltaic Industry Association, 2001). Renewable energy facilities are considered to be installed in many regions in the future. The economic effects derived from the demand for the installation of renewable energy facilities are different among each region according to the local manufacturing capacities. It should be noted that the quality of economic effects depend on the coverage area of analysis. Industrial characteristics of Iwate prefecture are primary industry, and a selfsufficient rate of manufacture is 23.2%, which is as low as compared with other sectors. With the installation of renewable energy system, the demand for construction, installation and maintenance of the facilities are created. The expenditure on purchasing grid electricity is reduced remarkably, however, an additional consumption will be transferred by the people in the town. Hence large positive economic effect and employment effect finally appear in Iwate prefecture. The expense of wind power is US$ 2.4 million, and the annual decrease of demand for purchasing grid electricity is US$ 24.3 million. If the manufacturing sector in Iwate prefecture has enough capacity to produce the facilities of wind power, the local economic effects would have been greater. There are 155 wind turbines in Japan. By the end of 2010, the installed capacity of
Input-output analysis for installing renewable energy systems 281 wind power will be 3,000 MW which is 38 times more than that of 1999. Almost wind turbines installed in Japan are imported from abroad. It is important for Japan s economy to increase the self-sufficiency rate of wind turbine for obtaining the enormous positive economic effect and employment effect. Proceeding the installation of renewable energy facilities, more negative economic effects will appear on electricity sector by the decrease in the demand for purchasing grid electricity. However, positive economic effects will appear on business services sectors by the demand for operation and maintenance of renewable energy facilities. Additional employment which requires professional electricity management will be created on the sector. Iwate prefecture has abundant woody biomass resources. If the cost of biomass facility is lowered and the installations of the facilities are proceeded, economic benefit will appear the industries in Iwate prefecture. Furthermore, through the vitalization of forestry, current forests in Iwate prefecture will be recovered from devastation. The electricity from biomass generation contributes to both the reduction of the load on centralized electricity system and the reduction of CO 2 emissions. The system configuration will be different among each region by the difference of renewable energy resources. There are many combinations of energy system and economic effects in each region. REFERENCES Bentzen, J.; Smith, V.; Dilling-Hansen, M., (1996), Regional income effects and renewable fuels. Energy Policy 25 (2), 185 191. Cosmi, C.; Macchiato, M; Mangiamele, L.; Marmo, G.; Pietrapertosa, F., (2003), Environmental and economic effects of renewable energy sources use on a local case study. Energy Policy 31, 443 457. The European Biomass Association, (1997), Green paper of the European Commission. EC, (1997), Energy for the future: Renewable sources of energy. White paper for a community strategy and action plan. The European Photovoltaic Industry Association, (2001), Solar generation. The European Wind Energy Association, (2003), Wind force 12. Nakata, T.; Kubo, K.; Lamont, A., (2003), Design for renewable energy systems with application to rural area in Japan. Energy Policy, Article in press. Northwest Economic Associates, (2003), Assessing the Economic Development Impacts of Wind Power. Vancouver, WA. Ziegelmann, A.; Mohr, M.; Unger, H., (2000), Net employment effects of an extension of renewable-energy systems in the Federal Republic of Germany. Applied Energy 65, 329 338.