TECHNICAL MEMORANDUM

Review of Hydro Tasmanias Preliminary Socio Economic Impact Assessment TasWind King Island Tasmania
PREPARED FOR: PREPARED BY: DATE: PROJECT:

TasWind Consultative Committee (TWCC) CH2M HILL 13 May 2013 TasWind Economic Study 2013

Introduction

CH2M HILL was commissioned by the TasWind Consultative Committee (TWCC) to review Hydro Tasmanias Preliminary Socio Economic Impact Assessment TasWind King Island Tasmania (the Preliminary Assessment) (prepared by E3 Planning, April 2013), and the associated economic benefits and costs to King Island from the TasWind Project. Key observations are presented below followed by more detailed review of the Hydro Tasmania Preliminary Assessment. This review has assessed the methodology and approach used to assess economic costs and benefits, key assumptions, data and information sourced, and key findings and conclusions. This Technical Memo should be read in conjunction with the Hydro Tasmania Preliminary Assessment (April 2013). In preparing this Technical Memo, CH2M HILL undertook a desktop review of the Preliminary Assessment and met with representatives from the TWCC, Hydro Tasmania, King Island Council and various King Island industries. CH2M HILL did not undertake any additional economic modelling as part of this review. A full disclaimer is outlined at the end of this Technical Memo.

Key Observations
1. The Hydro Tasmania Preliminary Assessment (April 2013) is a high level and initial assessment to inform Hydro Tasmania and the King Island Community of the potential social and economic costs and benefits which might flow from the construction and operation of a 2400 gigawatt hour Wind Energy Project on King Island (TasWind/the project).1 2. The Preliminary Assessment was completed to a broad and largely open terms of reference and critically identifies that it is a preliminary report only and a more detailed assessment would be undertaken if the project moves to feasibility stage. 2 a. CH2M considers that a more in-depth assessment of the economic benefits and costs from the project would have been of more value to Hydro Tasmania and the King Island Community but this would have required more time and delayed community consultation on the overall project.

1 Hydro Tasmania 2013, Preliminary Socio Economic Impact Assessment TasWind King Island Tasmania, prepared by E3 Planning, p.6. 2 Ibid.

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3. Importantly, the Preliminary Assessment identifies a range of areas that would require further analysis if the project was to proceed to feasibility stage, for example, with recommendations for more detailed economic analysis including of visitor numbers and the potential impacts on the King Island Brand and tourism. 3 4. The Preliminary Assessment lacks an explicit methodology section that could have outlined the approach taken to prepare the economic and social snapshot and assess the potential economic impacts from the project. a. CH2M acknowledges that various assumptions and limitations are made through the report, for example, in terms of the use of multipliers and input-output tables 4, but these limitations and caveats would have been better grouped at the start of the report. 5. A significant challenge with preparing the Preliminary Assessment in a short timeframe would have been the size of the King Island statistical area and the degree of availability of robust economic and social data on key industries, the King Island population and demographic trends. The lack of robust data and uncertain economic projections for some industries makes it more difficult to assess the potential impacts of the project on King Island over a 25 year period. 6. The Economic and Social Snapshots in Section 5 of the Preliminary Assessment is somewhat partial with other information on key industries, employment, population and demographic characteristics and trends presented in Section 6 of the report. a. For completeness, CH2M considers that it would have been more useful to present a consolidated economic and social profile of King Island in Section 5 including the value added and level of employment for all major industries. This would have provided a better benchmark to compare the potential contribution of the project against existing industries and growth prospects. 7. Section 6.4 and 6.5 present a range of assumptions and three tables with the estimated direct spend from the project on King Island during the construction and operational phases. These sections are the critical sections in terms of the economic impact assessment of the project on King Island. However, CH2M considers that the Initial economic stimulus to King Island as derived in the report is overstated. a. Table 2 5 incorrectly combines direct economic spend as a result of the construction phase of the project with potential indirect economic benefits that would accrue to the broader King Island economy, for example, from the Port upgrade ($12.5 to $15M) and Fibre optic telecommunication cable ($1M). b. CH2M considers that a significant proportion of the spend on the Port upgrade and Cable will involve off-Island expenditure due to the requirements for specialist expertise and machinery. It is not considered appropriate to include the full spend in estimating the Initial economic stimulus to King Island in the Preliminary Assessment. This would reduce the Initial economic stimulus as presently outlined in Table 2 although this would need further analysis. However, the construction of new infrastructure will bring long term economic benefits to King Island. c. It is not clear how the spend in Table 2 on the Port upgrade, Fibre optic cable, Permanent accommodation upgrades ($4.5 to $6M) and Accommodation/visitors
3 Ibid, p.13 and p.37 respectively. 4 Ibid, pp.23-24. 5 Ibid, p.20.

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($1.5M) was calculated. Similarly, in Table 3, it is not clear how the spend on Contracts, Vehicles, Fuel etc, Accommodation, food was calculated. This is a limitation of the Preliminary Assessment in that certain assumptions and calculations are not clearly outlined. 8. Table 3 identifies Direct payments including Community dividend, neighbor payments, and landholder payments and these represent a significant direct spend ranging from $3.2 - $4.1M p.a. over the 25 year period. The Preliminary Assessment also identifies that how the Community payment will be directed is yet to be determined 6. a. The potential for off-Island leakage of any payments to landholders, for example, to Corporations or Super Funds, has not been considered and so the direct spend on King Island is likely to have been overstated. This will be able to be further considered in any feasibility stage with a detailed analysis of payments to landholders and land ownership. b. It is also unclear what the neighbor payment might consist of and how it will be determined, for example, in terms of any compensation for indirect impacts or restricted development rights. The future restriction of development rights may also be an issue for landholders with wind towers on their property depending on the nature of existing and future activities. 9. The Preliminary Assessment presents the Initial economic stimulus and Total economic impact in todays dollars and the report identifies that no discount rate has been factored in to account for the time value of money. 7 However, it is good economic practice to apply a discount factor to reduce the values of future costs and benefits to represent their present values. a. For example, using a 7% discount rate, this reduces the Initial economic stimulus during the operation phrase in Table 3 from $116.5 -$148.8M to between $54.8 - $69.9M, and the Total economic impact from $174.8 - $223.1M to $81.6 - $103.7M. This is a significant reduction in the stimulus to King Island and the potential economic impact over the 25 year period. 10. Overall, the Preliminary Assessment identifies a Total initial stimulus ranging from $170.5 - $207.1M, and a Total economic stimulus ranging from $255.75 - $310.65M (Table 4). a. However, as noted in several points above, CH2M considers that a significant proportion of direct spend during the construction phase will be accrued off-Island, for example the Port upgrade and Fibre optic telecommunications cable, and that an appropriate discount rate should be applied to the projects future stream of costs and benefits. As such, CH2M considers that the Initial economic stimulus to King Island presented in Table 4 is overstated. The project will bring a positive economic stimulus to King Island, but further analysis would be required to more accurately ascertain the magnitude of the economic benefit from the project to King Island. 11. The Preliminary Assessment does not recognise or consider the economic costs and benefits of decommissioning of the project and this would need to be considered if the project went to feasibility. Further, the Preliminary Assessment does not consider any options as to what may happen with the project after 25 years, for example, with decommissioning or continued operation.
6 Ibid, p.6. 7 Ibid, p.20.

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12. The Preliminary Assessment does not recognise or consider the strategic implications of the project in terms of potentially providing a connection with north-west Tasmanian wind farms and sending additional renewable energy to mainland Australia. 13. If the project moves to feasibility, full and accurate identification of the range and magnitude of social and economic costs and benefits will be critical along with appropriate mitigation measures. A social impact management plan (or similar) that details mitigation measures, benefit strategies, mechanisms and accountabilities will be essential. 8

Detailed Review: Preliminary Assessment

[CH2M has made various comments on the Preliminary Assessment by section.] Section 2: Project description 14. Section 2 lacks a detailed project description with instead information presented in several sections through the report. It is acknowledged that the project is evolving but a consolidated section and table of detailed facts and figures on the project area, cost, wind tower dimensions, materials required (for example, amount of gravel, sand, water etc), indicative timeline, etc would have been useful. 15. Some indication of technical and labour skills required for the construction and operating phases of the project could have been provided. This has implications for employment on King Island and potential impacts on existing industries with increased demand for nonskilled and skilled labour. 16. The project phase diagram should include decommissioning with the economic costs and benefits of decommissioning discussed later in the report. 17. Section 2 could also consider the strategic implications of the project and potential future connections to other Tasmanian based wind farms and sending additional renewable energy to mainland Australia. This would likely also need to be considered later in the report in terms of impacts and the opportunity cost of the project. Section 4: Context Summary 18. The purpose of the Context summary 9 is unclear as it lacks detail and cross-referencing and is not sufficient as a standalone summary. 19. In paragraph 2, p.9, it is suggested that the project will provide a Total economic return to King Island. Technically, the economic return is to Hydro Tasmania as the project proponent and on behalf of the project investors. It will provide an economic stimulus to King Island and have a range of economic impacts but it will not be an economic return per se. 20. In paragraph 2, p.9, the Total economic returns from the project are contrasted with the size of individual sectors of the economy and are considered substantial but the size of some of the individual sectors is not outlined in detail in Sections 4 or 5 and so this comparison cannot be made (also see comments on Section 5 below). 21. In paragraph 3, p.9, Other societal and environmental impacts, such as visual landscape impacts, ... are not as quantifiable ... but they could be quantified using non-market

8 For example, see the Queensland Governments Social impact assessment: Guideline to preparing a social impact management plan (Department of Infrastructure and Planning 2010). 9 Ibid, pp.9-10.

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economic valuation techniques. This could have been briefly discussed with a recommendation for future analysis. 22. Summary potential economic impacts from the project are presented in Table 1. 10 However, Table 1 would have benefited from indicating the relative size and nature of the different impacts and cross-referencing to other sections of the report. It is not clear how some of the impacts were derived, such as in the Construction phase with Total jobs created 600 FTEs as there is no cross-referencing or assumptions provided as to how this number was calculated. Section 5: King Island 23. The Economic Snapshot (Section 5.1) does not adequately present in a systematic way the current level of economic activity, value, employment, number of businesses and future growth prospects and lacks sufficient detail and supporting data to provide a robust economic profile. There is also a lack of contextual information as to how the King Island economy has changed over time and growth prospects for the future for all industries. 24. For example, in terms of Dairying, background information could have been provided on: a. the number of dairy farms over time, and average herd size; b. the estimated size of the sector in annual turnover; and c. the number of people employed across the sector. This approach could have been adopted for all industries in this section of the report. 25. There is some discussion of the potential impact of restarting the Scheelite Mine at Grassy but a similar discussion could have been provided on the potential growth in the tourism sector from the two links golf courses and other tourism developments to balance the report. 26. A summary table of the local economy would have been useful to provide a clear snapshot of the local economy and enable comparison with the relative potential benefits and costs of the project. 27. The Societal Snapshot (Section 5.2) contains some information on the local population but other demographic information in Section 6 could have been presented in a consolidated community profile for example, covering population, demographics, age profile, education level, household and individual incomes, housing etc. Table 5 and discussion of population and trends could have been included in the snapshot as well as Tables 6 to 8 and discussion of employment and trends that are presently in Section 6. Section 6: Potential Benefits and Costs 28. Section 6 is a key section of the Preliminary Assessment and outlines the potential benefits and costs to King Island which may result from the project, and also considers some of the opportunities and risks but these are less apparent. Various data gaps and recommendations for future analysis if the project proceeds to feasibility could have been grouped in a concluding section to inform future research and analysis. 29. Section 6.3 with project related information could have been grouped with the project description in Section 3 of the report. The impacts of sourcing local gravel, sand, water and other natural resources could have been discussed in more detail in Section 6.

10 Ibid, p.10.

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30. Section 6.4.1 with various assumptions is a key section of the economic impact assessment. Comments on this section include: a. Average incomes payable to workers is assumed to be $75,000 p.a. but this may be too low compared with around $160,000 p.a. for larger resource projects. b. Some $20,000 of income payable to workers during the construction phase is assumed to be spent on King Island. However, it is suggested that this will depend on whether workers are accommodated locally or Fly in/Fly out (FIFO). Further explanation of this assumed weekly spend of $385 per worker is required as this affects the amount of stimulus on King Island. 31. Potential problems with the use of multipliers are discussed in Section 6.5 of the report but these could have been addressed in an earlier methodology subsection. A conservative multiplier has been used which is good practice for a rapid economic assessment and to avoid overstating project benefits. 32. Section 6.6 discusses population changes from the project and also the operational phase. It suggests that half of the 15 to 20 operating employees will be from outside of King Island. Given the ratio of local to FIFO workers, it is unclear if the operational phase of the project will generate an increase in 45-60 FTEs on King Island. 33. Section 6.7 Employment could identify which existing sectors would experience problems with a potential shortage of labour because of the Project for example, from additional demand for construction, labouring, cleaning, food service workers etc. 34. In Section 6.9 Accommodation, further discussion is required on the potential negative impact on the tourism industry from potential use of visitor accommodation for workers. This would balance the overall discussion on accommodation changes that may result from the project. 35. There have been several Australian and international studies that have reviewed the impacts of wind farms on property prices and these could have been referenced in Section 6.10. This section could also discuss potential constraints on future property development in the project area and potential approaches in terms of compensation. 36. Section 6.10 introduces an innovative concept of neighbouring property payments but lacks detail as to what these payments are and how the payments might be applied. It is uncertain as to how the potential stimulus from the project in terms of community and neighbouring property payments may be distributed across the King Island community. 37. Section 6.11 Infrastructure identifies that some of the infrastructure upgrades could benefit King Island into the future. While this is likely there would also be increased maintenance costs that are not discussed. Appropriate handover of any assets would also be required. 38. Various sections of the report could have explored additional issues including: a. Section 6.12.1 Telecommunications there is no discussion of the potential adverse impacts of the wind towers on telecommunications. b. Section 6.12.2 and 6.12.4 Health and Administration these sections could have discussed requirements for emergency services relating to the project especially during construction this is recognised but not discussed in Section 6.12.4. c. Section 6.13.2 Air Travel there is no discussion of the potential King Island airport upgrade and different options for transport of workers, such as commercial or charter flights.

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d. Section 6.13 Transport could also have discussed the range of positive and negative impacts on local roads with road and bridge upgrades but potential traffic delays from construction. 39. Section 6.16 King Island Brand could have described and referenced the Brand from the King Island Place Brand Project 2006 and related documentation. On page 39 it is suggested in the report that renewable energy strongly associates with the King Island Brand but this would likely depend on the scale, location and nature of the renewable energy development as recognised in the following paragraph of the report. It is clear that further research will be required on the potential impact on the King Island Brand and different industries as acknowledged in the Preliminary Assessment 11. 40. Section 6.18 Opportunity cost identifies that new economic stimulus is necessary to avoid negative trends but this section does not adequately recognise the potential of the links golf courses and associated tourism developments. 41. Additional information and identification of potential impacts on the golf course developments could have been included in Section 6.20.3 and in relevant sections through the report. General observations 42. There is a lack of references in some sections of the report, for example, the background Section 3 regarding renewable energy and wind power and in sections discussing different impacts from wind towers, such as on property prices (Section 6.10). 43. There are various typos through the report and incorrect headings for example, a Services subheading should have been inserted on page 34 with subsections on telecommunciations, health etc sitting under this subheading and not Manufacturing.

Synopsis
44. The Preliminary Assessment is a high level and initial assessment of the potential social and economic costs and benefits of the TasWind project. A more in-depth socio-economic assessment of the project would have been of more value to Hydro Tasmania and the King Island Community but this would have required more time and delayed community consultation on the overall project. 45. A lack of robust economic data and uncertain economic projections for some King Island industries makes it more difficult to assess the potential impacts of the project over a lengthy 25 year period. Importantly, the Preliminary Assessment identifies a range of areas that require further economic analysis if the project was to proceed to feasibility stage. 46. CH2M considers that the Initial economic stimulus and Total economic impact to King Island as derived in the report is overstated. No discount rate has been factored in to reduce the values of future costs and benefits to represent their present values. For example, using a 7% discount rate, this reduces the Initial economic stimulus during the operation phrase from $116.5 -$148.8M to between $54.8 - $69.9M, and the Total economic impact from $174.8 - $223.1M to $81.6 - $103.7M. 47. CH2M considers that a significant proportion of direct spend during the construction phase will be accrued off-Island, for example the Port upgrade and Fibre optic telecommunications cable. As such, CH2M considers that the Initial economic stimulus to

11 Ibid, p.37.

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King Island presented is overstated. The project will bring a positive economic stimulus to King Island, but further analysis would be required to more accurately ascertain the magnitude of the economic benefit from the project to King Island. 48. The Preliminary Assessment could be improved with: a. Inclusion of an explicit methodology section to outline the approach taken to prepare the economic and social snapshot and assess the potential economic impacts from the project. b. A more detailed and consolidated project description in Section 2 including an assessment of resource inputs, such as gravel, sand, water etc. c. A consolidated economic and social profile of King Island in Section 5 including value added and level of employment for all major industries. This would have provided a better benchmark to compare the potential contribution of the project against existing industries and growth prospects. d. Consideration of the potential for leakage of any payments to off-Island landholders, for example, to Corporations or Super Funds, as the direct spend on King Island is likely to have been overstated. This will be able to be further considered in any feasibility stage with a detailed analysis of payments to landholders and land ownership, as well as the costs of any restrictions on development rights. e. Consideration of the economic costs and benefits of what may happen with the project after 25 years, for example, with decommissioning or continued operation. 49. If the project moves to feasibility, full and accurate identification of the range and magnitude of social and economic costs and benefits will be critical along with appropriate mitigation measures. A social impact management plan (or similar) that details mitigation measures, benefit strategies, mechanisms and accountabilities will be essential.

Disclaimer
This Technical Memo has been prepared by CH2M HILL Australia Pty Ltd (CH2M HILL) for the TasWind Consultative Committee (TWCC) in accordance with an agreement between CH2M HILL and the TWCC. The Technical Memo may only be used and relied on by the TWCC in terms of a review of Hydro Tasmanias Preliminary Socio Economic Impact Assessment TasWind King Island Tasmania, April 2013, and the associated economic benefits and costs to King Island from the TasWind Project (the Purpose) and may not be used by, or relied on by any person other than the TWCC. The services undertaken by CH2M HILL in connection with preparing the Technical Memo were limited to those specifically outlined in the Technical Memo. The Technical Memo is based on conditions encountered and information reviewed, including assumptions made by CH2M HILL at the time of preparing the Technical Memo. To the maximum extent permitted by law, CH2M HILL expressly disclaims responsibility for or liability arising from any error in, or omission in connection with assumptions, or reliance on the Technical Memo by a third party, or use of this Technical Memo other than for the Purpose.

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