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Economic and Market Analysis

 

A Data-Driven, Proactive Approach to Power Plant Closures

Establishing a data driven approach to respond to power plant closures can put communities on a path that will minimize negative impacts and amplify positive economic benefits for those involved. Understanding factors to consider early in the process can help communities proactively take steps to remain resilient in the face of an economic disruption of this kind. 

The following section provides insights on how to measure the economic impact of a closure, approaches communities can take to think about redevelopment opportunities of the physical site, and an understanding of labor trends to help manage the workforce transition from occupations in a power plant to in-demand occupations serving other industries.

Economic / Fiscal Impact

Power plants are often significant contributors to the employment and tax base of their host communities with multiplier effects that support a variety of industries and jobs throughout the region. Understanding the economic and fiscal impacts of plant decommissioning is a useful step in planning for re-employment and re-skilling of power plant workers and reuse of power plant sites.

The Power Plant Closure Calculator [XLXS] estimates both economic and fiscal impacts of plant closure. Economic impacts of plant closure include impacts on employment, earnings, and output/sales and are calculated at the county level. Direct impacts reflect the loss of on-site economic activity generated by the plant. In contrast, indirect and induced impacts result from foregone supply chain purchases made by power plants within the local economy and the loss of local household spending by power plant workers and workers at the plant’s local suppliers, respectively.

Fiscal impacts include foregone county sales and use tax revenue generated from local spending by power plant workers, and state income tax revenue on their income. The results of the calculator do not account for laid-off power plant workers finding new jobs in the county nor for new productive uses of the former plant site.

Impacts on local property tax revenue generation will vary significantly based on individual agreements between the owners of power plant sites and local taxing jurisdictions and are therefore not captured in this calculator. These impacts can be substantial, especially in smaller jurisdictions where power plant sites represent a sizable share of taxable assessed value, and they should be examined in detail.

Download the Calculator [XLXS]

Market Status by Region

Reuse opportunities for power plant sites are heavily driven by economic conditions and real estate market dynamics in the regions where they are situated. Sites located in economically dynamic regions with growing populations will be more in demand for redevelopment than those located in stagnating or declining regions.

Conducting market analysis for power plant sites is an iterative process that begins by broadly assessing economic conditions and ultimately hones in on specific uses that exhibit a sufficient level of market demand that allows for a financially viable redevelopment project.

The NYSERDA Just Transition map Link opens in new window - close new window to return to this page. shows a Market Health Score for counties throughout New York State based on population and employment growth (footnote 1). Sites located in counties with higher economic health scores will attract stronger interest within the real estate market and require less public subsidy to pencil out financially, while those located in weaker markets are likely to need significant subsidy to close the funding gap.

Case Study: Mount Tom Station

Mount Tom Project
Mount Tom Station

Mount Tom Station was a coal-fired plant that opened in 1960 in Holyoke, Massachusetts. Due to cost inefficiencies compared to natural gas facilities, the station was only operated during times of high demand. The station was fully shut down in 2014. Once the plant was closed, the City began demolition work on the site and once complete will create 12 acres for redevelopment. Due to a portion of the site being within the 100- year FEMA floodplain and protected habitat area limited the redevelopment options the City could pursue. 

Through a partnership between ENGIE North America, the City of Holyoke, and Holyoke Gas and Electric companies, they commissioned a reuse study that placed a focus on clean energy. As result of the study, plans were developed to create one of the largest solar energy sites in the state. The former coal-fired plant is now home to over 17,000 solar panels and three battery storage systems that have a capacity of 3 MW. The 3 MW storage could supply power to more than 2,250 homes. The solar farm will be used to help offset peak demand periods and will save the electric company $500,000-800,000 per year, depending on the market rate for electricity.

Plant Site Redevelopment

In addition to general economic health, other market dynamics, business climate, and site-specific considerations will factor into site reuse potential. A detailed market analysis may be conducted to assess the site’s competitiveness relative to each of these factors.

Market Dynamics

Site Considerations

Business Climate

As a next step, potential site reuse options uncovered in the market analysis may be tested for financial feasibility. A financial feasibility analysis uses estimated development costs and projected cash flows to answer three related questions:

  1. How much private investor equity would be attracted to this project? 
  2. What is the maximum loan amount that a bank would finance?
  3. How much additional capital is needed to fill any resulting funding gap? 

The Power Plant Site Redevelopment Calculator [XLXS] may be used as a “first pass” at financial feasibility modeling to understand the general order of magnitude of development costs, operating cash flows, sources of capital, property tax revenue generation potential, and the funding gap. These high-level estimates can be used for planning purposes and refined as potential projects become more concrete. 

The model requires the following inputs:

Development Scenario

Use of Capital (Project Costs)

Financing Assumptions

Property Tax

The model uses operating assumptions based on market-specific averages for each use type (footnote 2). It should be noted that property fundamentals can differ substantially for different locations within the same market. These estimates should therefore be used for planning purposes only.

The model’s key outputs are as follows: 

Potential Reuse Options

Explore Reuse Options

Redevelopment Case Study: The Wharf at Rivertown

Wharf at Rivertown Project

The Wharf at Rivertown [PDF] is a 90-acre mixed-use office and retail project located in Chester, PA. In 1917 the Philadelphia Electric Company built a coal-to-steam-to-electricity plant along the Delaware River. In 1981, the power company decided to shutter the facility due to efficiency issues and environmental challenges. The site housed a 400,000 square foot facility that had to be demolished as part of the decommissioning and remediation process. The process to get the site to a safe condition took more than 18 months and cost nearly $10 million. The $60 million project has created more than 1.4 million square feet of space, with two marinas, restaurants and a river walk.

Due to its success and positive impact, it has gained support from all levels of government and was able to take advantage of the Keystone Opportunity Zone designation that allowed them to maximize the development opportunity by allowing tenants access to the tax incentives.

The U.S Department of Commerce has estimated that the benefit of the project will add 2,000-4,000 new jobs and produce $95 million in wages.

Project Funding Stack:

Workforce

Once the announcement has been made that a power plant will be closing, it will be time to focus on transitioning the displaced (or about to be displaced) workers into new positions. Many industries throughout New York State need workers to fill open positions. By understanding which power plant occupations align with the skill needs for occupations in other industries, there is the potential to shift workers from the closed plant to another industry.

The top occupations serving power plant operations in New York State include:

These five occupations make up over 40% of the total jobs in the Fossil Fuel Electric Power Generation Industry but can also be found serving other industries. Some of the other industries that might be a good fit for those looking to transition to new employment following a closure include the following:

While some displaced workers will be able to find jobs in other industries within their same occupation, requiring minimal re-training or upskilling, others will need to consider transitioning to a compatible occupation. A compatible occupation is one that requires similar knowledge, skills, and abilities. Examples of compatible occupations include:

These statistics are for industry and occupation needs across New York State and may vary among regions.

These statistics are for industry and occupation needs across New York State and may vary among regions.

Workforce Considerations to Prepare for Plant Closure 

Once a community is made aware that a plant will be closing, a more detailed look will be needed to understand:

Timing

When will the different occupations within the plant be displaced? Will it be phased or all at once?

Skills

What are the unique skills of the workers that will be displaced?

Alignment

How do those skills align with the regional industrial make-up and what occupations within the region are particularly in-demand by growing industries?

Training

What training will be needed to transition to the new occupation and who within the region is equipped to offer that training?

Communication

How will the new opportunities be communicated to the displaced workers, including new career pathways, access to resources, and potential transition plans?

Partners

Who can play a role in assisting with transitioning the workforce? Examples include community colleges, higher education, industry associations, apprenticeships, and more.

 

Opportunities for upskilling, retraining, and repositioning will be possible for many occupations, but it will not always be an easy transition. Certain factors such as age, pay disparities, the need to take unemployment while training, and lack of resources for additional training may make it more difficult for certain individuals to pursue a new path. Working proactively to put in place clear, accessible, and focused transition programs in advance of a major closure will make it more likely that individuals experiencing displacement will be comfortable taking the steps needed.

Communities can explore occupational data [XLSX] related to powerplant operations for more information.

For further guidance and connections to workforce training providers, the New York State Department of Labor maintains a database Link opens in new window - close new window to return to this page. of resources that are available across the state.

Sources

  1. The Market Health Score provides a broad measure of a county’s economic health. It represents the combined difference of a county’s employment change and population change from the averages for all counties in the state. For each metric (employment change and population change) a z-score was calculated that measures the distance, in standard deviations, of the county’s percent employment or population change from the average change across all counties. The two z-scores for each county were then added together to obtain the Market Health Score. 

    Percent change in total employment (2011–2021) was calculated from data as reported by the Bureau of Labor Statistics Quarterly Census of Employment and Wages. 

    Percent change in total population (2011–2021) was calculated from data as reported by the U.S. Census Bureau Population Estimates program.

  2. Cap rates, market rents, and vacancy rates are averages for 14 New York markets, as sourced from CoStar. Operating expense ratios, loan ratios, and cash-on-cash return thresholds for each property type were developed from the RealtyRates.com  Investor Survey and Market Survey. Construction costs and location adjustment factors are sourced from RSMeans. All data is current as of Q3 2022.

  3. Net Operating Income (NOI) = Potential Rental Income – Vacancy Loss + Other Income – Operating Expenses