Buffet’s Clean Energy Project in the Coal State of Ohio — The Economics and Why it Matters to Malaysia
As the smoke bellows above,
The people down coughs,
Shoveling coal, digging for oil,
To power nations, addicted to,
Producing and consuming,
When will it end?
I find myself attracted to articles that talk about renewable projects these days. Maybe it’s my wife’s influence as she is a strong believer in zero waste and anything to do with the environment.
Imagine my amusement when I came across this article talking about Warren Buffet’s renewable energy project in the coal state of Ohio.
First of all, if you tell me that a Republican-majority state in the U.S. is allowing a renewable project, I might be sceptical. But if you add in the fact that it is Ohio where 90% of its energy is from coal, I want to know what you are smoking. Maybe I get a hit or two.
But here we are in these times. Looking at it, I had the urge to write on how we in Malaysia could learn from this project considering that we are, after all, a nation addicted to fossil fuel.
Buffet’s companies are building a manufacturing hub powered by renewable energy
The story goes that Republican Senator Gillen Jeffries wrote a letter to Warren Buffet to invest in West Virginia. Just like that, BHE Renewables was riding up and down the mountains in the state looking for a suitable site. They settled on a site in Ravenswood, where it was a town down on its luck along the Ohio River Valley.
The project was to build a factory producing titanium products for the aircraft industry, and energy will be generated by solar panels and rechargeable batteries. This project is estimated to cost US$400 million and provide 300 jobs to the local community.
Here’s the context. According to Wisevoter, West Virginia has the 4th highest poverty rate in the U.S. at 15.8%. It is coal country, and many of the people there depend on coal and heavy industries.
However, with the discovery of cheaper fuel sources such as crude oil, natural gas and some renewable energies, West Virginia’s fortunes dwindled. The rise of China being the factory of the world also meant that many of the heavy industries closed shops.
The Republican state passed laws in 2020 to allow for more large-scale solar projects and residents to install low-cost rooftop solar. Hence, Buffet’s project was greenlighted for the amount of money coming in and the potential jobs that it could offer.
A main project could catalyse more industries to build around it
Here’s where it gets interesting. While 300 jobs aren’t much, the establishment of a major manufacturing project could catalyse the development of the surrounding industries. In economics, we call this the spillover effect or backward- and forward linkages.
Backward linkages are when the production by a company requires raw materials from the surrounding areas. The construction of the factory would require construction raw materials and services from local contractors. When the factory produces titanium, it will need to purchase raw materials, machinery and equipment from local suppliers.
Forward linkages are when the production from the titanium factory supports the development of other industries. There will be some companies which are buying titanium to make other products, and that results in more companies being established close to the factory to take advantage of it.
Furthermore, this could spill over to the local community as more workers and companies setting up shops mean more demand for essential items. Supermarkets, hospitals, schools, and many other services will spring up to fulfil the demand created by the establishment of the factory.
Malaysia, being a fossil fuel-dependent country, could use renewable energy to develop rural industries
It is no secret that Malaysia is addicted to fossil fuels. We subsidise petrol. We have a national oil company engaged in oil & gas exploration around the world. We drive cars everywhere.
Fossil fuel (coal, crude oil, natural gas) encompasses about 96% of Malaysia’s power mix. Renewable energy is only 4%. While the oil & gas industry has enabled the development of the country, it requires companies to go where the oil is.
Renewable energy has that advantage, especially solar. Before this, rural areas didn’t benefit directly from the development of oil & gas as the areas of development were mainly offshore, cities or ports. You can get solar energy from everywhere in Malaysia.
Not only that, you can power factories using solar energy rather than build them in cities connected to the overall electricity grid. On that front, the government has embarked in large-scale solar projects in Malaysia but the projects are still not enough.
Many companies and factories still prefer to locate their sites close to cities connected to the grids. Maybe it’s high time that we learned from Buffet project in Ohio in how to revive struggling rural towns and cities.
If Buffet is doing it, why shouldn’t Malaysia do it? We shouldn’t look at renewable energy such as solar as something that reduces carbon emissions only but rather as a development policy that could enable the revival of rural areas in Malaysia.