Published on Wednesday, 30 November -0001 00:00
President Obama's vision of making progress toward energy independence and his recognition of the important role renewable energy can play in the nation's economic recovery should be applauded. But going forward, we need to let smart policy, not politics, determine our country and state's energy policies. Wind energy will feature prominently in the shift from fossil fuel to renewable forms of energy. According to the U.S. Department of Energy, wind has the potential to supply up to 20 percent of the nation's electricity by 2030. In Minnesota, wind supplies nearly five percent of state's energy, and utility companies are required to generate 25 percent of their power from renewables by 2025. But the viability of wind as a major contributor to Minnesota's economic recovery depends on smart policy that encourages the growth of community-based wind projects-wind farms owned by local citizens rather than foreign companies. Community-based wind farms, like Woodstock Windfarms, developed by Juhl Wind Inc. and located in Woodstock, Minnesota, capture and retain more of the economic benefits locally. A recent study by University of Minnesota-Morris estimated the local economic benefits from community-based wind to be as much as five times that of wind projects owned by an outside corporation. The state and federal government can make small changes to existing laws to boost lucrative community wind farm development right here in Minnesota. In 2005, the Minnesota Legislature adopted the Community-Based Energy Development (CBED) program to promote the development of community wind facilities in Minnesota. Almost any Minnesota resident, small business, local government, cooperative, nonprofit or school is eligible to participate in the CBED program as long as 51 percent of wind farm revenues flow to local entities. The key advantage of the program is that utility companies are required to negotiate a 20 year power purchase agreement with CBED projects and frontload the payments to improve cash flow during the early years of operation. Rates decrease over the life of the contract, but greater cash flow early on also helps projects secure more attractive bank loans. CBED is a great step forward in the promotion of community-based wind farms that bring millions of dollars to ailing local economies. However, one potential problem is that the CBED program does not actually require the qualifying owner to own the land where the turbine is located. The Minnesota Legislature should amend the CBED statute to require at least one or all of the qualifying owners to live in the community or to own the land where the wind turbines are located. This small change would ensure that revenue from the wind farm drives reinvestment in the local community and fulfills the law's original intent. At the federal level, the federal tax credit needs to be restructured to allow investors--big and small--to develop wind farms. Most individuals in rural America do not qualify for the federal tax incentive--the production tax credit (PTC)-and so raising capital for community-backed wind projects is a challenge. The federal tax incentives account for 30 to 50 percent of the rate of return on investment from a big wind project, which means wind developers need to attract equity from big corporations with the tax appetite to utilize the PTC. Finding a tax-motivated investor is one of the greatest barriers facing the development of community wind projects because the pool of investors for these projects is small. Furthermore, partnering with an outside investor means that a significant portion of the revenue stream from the wind project will not be captured and retained locally and will not drive reinvestment in the local community. To open the door to new sources of capital for community wind development, federal legislation should be introduced to expand eligibility for the PTC by allowing individuals to apply the PTC against ordinary income. The development of wind energy provides opportunities for obtaining energy independence and creating good jobs for Americans. However, maximizing the benefits to Minnesotans requires smart policy at both the state and federal levels. Minnesota must amend the CBED statute to ensure profits flow back to the local community, and the federal government needs to expand eligibility for the PTC to encourage a variety of investors at a time when capital and credit are hard to come by. As the country's economy continues to falter, Minnesota cannot afford to ignore a golden opportunity to generate jobs and bolster local economies by supporting locally-owned wind energy.