Authors: Patrick Mazza et al, 25x25 Coalition - partners working together to advance renewable energy solutions from our nation’s farms, ranches and other working lands.
Title: Community Wind 101: A Primer for Policymakers
Date: September 2008
REPRINTED FROM EXECUTIVE SUMMARY:
A new model for wind development is emerging – community
wind – in which local ownership plays a major role.
Rural
landowners, consumer-owned utilities, school districts, colleges
and native tribes are putting installations on the ground ranging
from single turbines to wind plants with hundreds of megawatts
of capacity.
Community Wind 101 is intended as a primer on community
wind for policymakers and clean energy advocates, based on a
survey and synopsis of the best literature in the field. This paper:
- Looks at community wind examples;
- Overviews wind power economic benefits overall and community wind’s enhanced benefits;
Demonstrates community wind’s benefits for the power grid and wind power growth;
- Examines obstacles facing community wind developers and
details effective state and federal policies to overcome them;
- Points to ways federal power management authorities and consumer-owned utilities can join to develop wind.
Community Wind 101’s key findings:
Community wind, though small in the U.S., is
beginning to grow through successful local ownership
models.
Community wind was born in Denmark and Germany and
retains a significant share there. In the U.S. community wind is
only four percent of wind capacity but interest is surging. Many
innovative examples are emerging. They include:
- The MinWind partnerships in Luverne, Minnesota, pioneering ways for multiple rural landowners to join in wind
development;
- Pacific Northwest public utilities building what could become one of the largest wind farms overall;
- Iowa Lakes Community College’s turbine which powers the campus and wind technician training program;
- A Rosebud Sioux wind installation on their South Dakota Reservation.
Wind power is a tremendous economic boon to
rural America, and economic benefits from local
ownership are multiplied in the range of two to three
times or more.
Wind developed along standard corporate lines is producing
economic gains for rural areas across the nation:
- Annual landowner royalties of $2,000-$10,000 per turbine;
- Annual property tax payments of $500,000-$1 million per 100 megawatts (MW);
- 1-2 construction jobs per MW
- Two to five operations and maintenance jobs per 50-100 MW.
Community wind tends to be developed at a smaller scale, but
MW for MW the local economic benefits can be several times
as great, multiple studies find. Typical is a National Renewable
Energy Laboratory study which compares one 40 MW plant owned
by outside investors to 20 two MW plants owned locally:
Community wind can play a pioneering role for
all wind power by expanding local financial interest
and public support.
Community wind brings a more diverse set of players, places
and wind resources into the picture. Individual landowners and
local institutions such as schools, towns, counties, consumer-owned
utilities and tribes can bring their own assets to the table,
both financial and political.
“Community wind projects tap into a latent and potentially
lower-cost source of capital to fund utility-scale wind development,”
a group of leading community wind experts reported to the
Energy Trust of Oregon. “With local investment dollars at stake,
community wind projects may benefit from increased community
support . . . which might translate into a smoother permitting
process relative to commercially-owned projects.”
Community wind can act in a pioneering role for larger-scale
community and corporate development.
“A small-scale community wind project can be a useful tool to
gauge whether a site has potential for future expansion,” the experts
note. “A successful community wind project can be a launch pad for
streamlined future expansion of wind development on a given site.”
Diversifying the geographic spread of wind
makes the wind resource more reliable and valuable
overall.
A growing body of wind integration studies verifies that
interconnecting wind projects with greater geographic diversity
enhances wind energy production since it increases the probability
that wind energy will be generated in different locations at a given
point in time.
Wind integration experts recently wrote in IEEE Power & Energy
that “several investigations of truly high penetrations of wind (up
to 25 percent energy and 35 percent capacity) have concluded
that the power system can handle these high penetrations without
compromising system operation. . . the value of sharing balancing
functions over large regions with a diversity of loads, generators and
wind resources has been clearly demonstrated.”
Wind energy has a key element in modernizing
the power grid to create a more reliable network.
Accessing wind energy resources at all levels will require
modernizing and expanding transmission systems to carry power
from remote windy areas to cities. In places where transmission is
currently limited, community wind with its typically smaller scale
can be developed to serve local needs.
Community wind projects face large financial
hurdles that require a favorable policy environment
to overcome.
High transaction costs and related diseconomies of smaller scale
pose significant obstacles. Lawrence Berkeley National Laboratory
analysis of 28 wind projects indicates levelized costs per MW for a
9 MW installation will be six percent higher than for a comparable
50 MW project and 36 percent above a 200 MW wind farm.
Federal tax incentives including the Production
Tax Credit and accelerated depreciation vital
to all wind development are not fully usable by
many potential community wind projects – This
represents a major barrier to local ownership.
The key difficulty facing prospective community wind
developers is lack of tax liability sufficient to take full advantage of
federal tax incentives. These incentives represent a large portion of
the financial return of a wind project and generally are needed to
make projects of any size under any ownership model economically
feasible.
To fully utilize PTC incentives for a two MW project,
an investor must owe $125,000 in federal taxes on income from
the wind project itself or from “passive income.” This is defined
as income from a rental property, limited partnership or other
business in which they are not actively involved.
Fixing the PTC to apply to a broader range of
income types and levels could generate widespread
community wind ownership.
A complementary
option is producer payments and other incentives
targeted specifically at community wind.
Proposals before Congress would allow tax credits to be deducted
against income from wages or a business in which the taxpayer is
actively engaged. For example, Rep. Tim Walz (D-Minnesota)
proposes in H.R. 2691 to allow investors to claim up to $40,000
in tax credits against ordinary income tax liability.
The Center on American Progress and the Institute for Local
Self-Reliance propose to make the PTC more usable for community
wind projects by:
- Establishing a two-tiered producer payment that provides greater tax credit benefits to community wind owners in the
range of a 2.5 cents/kilowatt hour (kWh)
- Providing producer payments for on-site power generation.
- Allowing tax credits to be taken against ordinary wages and business income.
Congress might also consider providing a program offering
financial assistance targeted specifically to community wind
projects.
Another PTC fix most observers consider vital for steady wind
growth in the U.S., both corporate and community, is simply a
long-term extension of the existing credit. If the U.S. is serious
about building its manufacturing presence in wind, it will put a
long-term PTC in place to provide manufacturers with investment
certainty.
Feed-in tariffs are successfully used in Europe
to promote community wind. Advanced renewable
energy tariffs that guarantee grid access and a high
rate could be one of the most powerful tools to
promote community wind in the U.S.
.... (See original .pdf for more details)....
In late June Rep.
Jay Inslee (D-Washington) led introduction of perhaps the first
6
feed-in proposal to reach Congress, the Renewable Energy Jobs and
Security Act, H.R. 6401, to:
- Guarantee interconnection to the grid and long-term, fixed payments for renewable projects up to 20 MW;
- Minimize the impact on utilities and ratepayers through regional cost-sharing.
- Standardized procedures for interconnection and
net metering improve community wind economics,
as would net metering that allows larger projects.
Complex procedures that make it difficult to connect to the grid
drive up costs and strangle many community wind projects in the
crib. The more the interconnection process can be standardized and
made predictable, the higher the chances for putting community
wind projects on the ground.
At least 37 states have interconnection standards. The Interstate
Renewable Energy Council notes that while evolving national
standards are overcoming technical interconnection barriers,
“many of the diffi culties associated with interconnection now lie in
the legal and procedural areas. Interconnection standards adopted
by different governments are largely disparate.”
Net metering, which lets distributed generators deliver surplus
power to the grid and receive a retail or near retail rate in return, is
in effect in at least 40 states and the District of Columbia. But as of
late 2007 only 11 allow installations larger than one MW, smaller
than most utility-scale wind turbines.
Rules for both net metering and interconnection vary from
state to state, though more are employing templates such as model
standards adopted by New Jersey and Colorado which allow up to
two MW in net metered installations.
A bill setting forth national
interconnection and net metering standards would make a great
contribution to removing community wind barriers.
States have moved to fill policy gaps with
production incentives and other supports.
Minnesota has developed the most successful model
in the U.S.
Minnesota has at least 320 MW of community wind, over
40 percent of the national total, with hundreds more in the
works.
“Minnesota provides the best example of a state that has
implemented a variety of community wind incentives, making it
a leader in community wind development in the United States,”
Farmers Legal Action Group observes.
Minnesota has offered
production incentives, guaranteed markets, standardized legal
agreements, capital support and other assistance. Through this
package the state has developed a supportive business infrastructure
that has reduced installation and operating costs.
Federal power authorities and consumer-owned
utilities are natural partners to promote wind
power in some of the nation’s windiest regions.
In the 1920s and ‘30s federal power authorities including Western
Area Power Administration and Bonneville Power Administration
joined consumer-owned utilities to provide affordable power
through hydroelectric generation and transmission.
This same array
of institutions should be at the forefront of developing the greatest
emerging new power source, wind. Repurposing federal authorities
to promote wind and the range of renewables through transmission
upgrades and power purchases could unleash new community and
corporate wind development.
The benefits of locally-owned projects justify an
increased priority on community wind.
Obstacles to community wind, though formidable, are not
insurmountable. With smart policies for community wind based
on demonstrated success by leading states and nations, community
wind can make significant contributions to energy security and
reliability, energy price stability, pollution reduction and rural
economic revitalization.
Community wind makes for more
prosperous rural economies, stronger power grids
and the growth
of wind power overall. |
