State and Federal Incentives Driving the Development of Wind Energy

1. State and Federal Incentives Driving the Development of Wind Energy Julie Dick Energy Law April 2007 juliedick@gmail.com

2. What is Driving the Installation of Wind Capacity? • Driving Forces: • Production Tax Credit • Renewable Portfolio Standards • others • Is wind development happening where the best wind resources are?

5. Growth In Installed Capacity • National installed capacity (megawatts) of wind power grew from 1,525 megawatts in 1990 to 2,578 megawatts in 2000, an increase of 69 percent. • From 2000 to 2004, capacity increased to 6,740 megawatts, another 4,162 megawatts or 160 percent.

6. Production Tax Credit

7. Federal Production Tax Credit “The single most important federal incentive to invest in wind is the Production Tax Credit (PTC) of 1.9 cents per kilowatt-hour (adjusted for inflation), which was extended in July 2005 until December 31, 2007.” http://www.ef.org/documents/Wind_Energy_Tax_Credit_Report.pdf

8. The Federal Production Tax Credit Significantly Impacts Growth

9. PTC Not Fully Available to All Wind Energy Providers • Local Investor ownership - projects owned by communities who have shares in a project; or • Sole ownership – outside manager hired to run the project: • Owner considered a passive investor • PTC can only be used to offset income tax liability associated with other passive income

10. PTC Not Available to All Wind Energy Providers The following cannot utilize the PTC or favorable depreciation rules • Rural Electric Cooperatives • Municipal utilities These entities may be eligible for the Renewable Energy Production Incentive

11. Renewable Energy Production Incentive • REPI subject to annual Congressional appropriations • Cash incentive program parallel to PTC • Available for smaller scale/community wind developments

12. State Incentive Programs

14. Incentives • Renewable Portfolio Standards • Production Tax Credit • Direct income tax credits • Property and sales tax exemptions • state-level small producer incentive payments • Grants and rebates • Rural Development Grants • Loans • Production incentives • Accelerated depreciation opportunities

15. Financial Incentives For Renewable Energy by State S = State/Territory L = Local U = Utility P = Private

16. Incentives in Top 20 States for Wind Capacity in Development • Illinois – 5,468 MW – Property Tax (1-S), Rebates (1-S), Grants (3-S 1-P) • New York – 3,906 MW – Personal Tax (2-S), Corp Tax (1-S), Sales Tax (1-S), Property Tax (2-S), Rebates (3-S, 2-U), Grants (1-S), Loans (2-S), Industry Recruit. (1-S) • South Dakota – 3,860 MW – Property Tax (2-S) • Texas – 3,508 MW – Corp Tax (1-S), Property Tax (1-S), Rebates (6-U), Industry Recruit 1-S) • California – 2450 MW – Rebates (19-U, 3 – S, 2-L), Grants (1-L), Loans (1-U, 1-S), Production Incetives, (1-U) • Oregon – 1895 MW – Personal Tax (1-S), Corp Tax (1-S), Property Tax (1-S), Rebates (2-S, 6-U), Grants (2-P, 1-S), Loans (1-S, 5-U) • Iowa – 1590 MW – Personal Tax (1-S), Corp Tax (1-S), Sales Tax (1-S), Property Tax (3-S), Rebates (3-U), Grants (1-S), Loans (2-S) • Wisconsin – 1327 MW - Property Tax (1-S), Rebates (1-S, 2-U), Grants (2-S, 1-U), Loans (1-U), Production Incentives (2-U) • Montana – 1153 MW – Personal Tax (2-S), Corp Tax (1-S), Property Tax (3-S), Rebates (1-U), Grants (2-P, 1-U), Loans (1-S) • Washington – 1070 MW – Sales Tax (1-S), Rebates (S-U), Grants (2-P), Loans (6-U), Industry Recruit (1-S), Production Incentive (3-U, 1-S) • Nevada – 990 MW – Property Tax (3-S), Rebates (1-S), Production Incentives (1-S) • Colorado – 977 MW – Rebates (4-U, 1-L), Loans (3-U, 1-L), Production Incentive (1-L) • Maine – 969 MW – Rebates (1-S), Grants (1-S) • Kansas – 954 MW – Property Tax (1-S), Grants (1-S) • Pennsylvania – 954 MW – Property Tax (1-S), Grants (3-S, 4-L), Loans (2-S, 5-L, 1-U) • Missouri – 924 MW – Corp Tax (1-S), Rebates (3-U), Grants (1-S), Loans (1-S) • Massachussets – 838 MW – Personal Tax (3-S), Corp Tax (5-S), Sales Tax (1-S), Property Tax – (1-S), Rebates (1-S, 1-U), Grants (3-S), Loans (2-S, 1-U), Production Incentive (1-S, 1-P) • Wyoming – 792 MW – Sales Tax (1-S), Rebates (1-S, 1-U) • Minnesota – 748 MW – Sales Tax (2-S), Property Tax (1-S), Rebates (1-S, 18-U), Grants (3-U), Loans (3-S, 1-U), Production Incentive (1-S, 3-U • West Virginia – 738 MW – Corp Tax (1-S), Property Tax 91-S)

17. Renewable Energy Funds • Public investments to assess wind resource potential - Fifteen states have renewable energy funds, which are estimated to grow to $3.8 billion by 2012. http://www.ef.org/documents/Wind_Energy_Tax_Credit_Report.pdf

18. CALIFORNIA EXAMPLE • Wind energy development began in the early 80s. CA had 1822 MW installed capacity at end of 2002. • Development in CA attributed to state and federal tax incentives and 1978 Public Utility Regulatory Policies Act (“PURPA”) (strong implementation of PURPA by state public utility commission) • 25% investment tax credit (1980-83) (combined w/ federal tax credit =effective tax credit of 50%) • States wind capacity grew from 176 MW in 1982 to 1015 MW in 1985

19. California Example More recent increases attributed to the systems benefits charge on electricity sales • System benefits charge (debt or equity financing, production incentives, grants, or support for the development of green markets).

20. Renewable Portfolio Standards

21. Renewable Portfolio Standards • A renewable portfolio standard (“RPS”) is a requirement that utilities purchase a certain percentage their electricity portfolios from renewable energy. • Increase demand for renewables • The percentage of energy required to come from renewables often goes up over time. • Some RPS specify types of renewables. One proposed bill in Illinois would require 75% of the renewable portfolio to come from wind. (H.B.1871) • 21 states and the District of Columbia have RPSs. Two states, Illinois and Vermont set goal RPSs.

23. Renewable Portfolio Standards in States with Installed Wind Capacity

24. Effect of Renewable Portfolio Standards • RPSs have not been the primary drivers in the installation of wind capacity across the board. • Not all states with installed wind capacity have RPSs. • Of the 31 states that currently have installed wind capacity, 16 have do not have a RPS. • Several states with RPSs do not have any installed wind capacity • Illinois the state with the most wind capacity in development only has a goal RPS.

25. Effect of Renewable Portfolio Standards In some states considerable growth in wind capacity and wind capacity in development is attributable to RPSs.

26. Effect of RPS Crosses State Borders • Large percentage of growth in wind development in Iowa has been to meet demand from Wisconsin’s RPS • Iowa has superior wind resources • Fewer siting problems than in Wisconsin • Available transmission to transmit from Iowa to Wisconsin • New Jersey RPS has driven development of wind energy in Pennsylvania

27. RPS in Texas • Polling of customer demand for renewables laid groundwork for RPS in Texas • Strong customer support • Willingness to pay more for renewables • Great acceptance of energy development in Texas because of oil and gas industries in the state

28. RPS in Texas • In Texas RPS requires 2000 MW by 2009 • Texas has already exceeded that goal. • Effectiveness of RPS related to high quality of wind resources in the state.

29. RPS in Texas • RPS has teeth - Penalties for noncompliance • Flexible system: • Market-based approach • Credit trading system – “allows utilities to purchase renewable energy certificates (RECs) from wind energy generators to meet the goal”

30. Wind Energy Potential Where are the Wind Resources?

31. Some Say Wind Cannot Meet Our Energy Needs Right now humans globally require 13 trillion watts (or terawatts) of power. By 2050, we’ll need 28 terawatts. These technologies [wind, biomass, nuclear power, and dams] don’t scale up realistically, so we must look to the sun, which in one hour puts out as much energy as humans use during an entire year.” Daniel Nocera, W. M. Keck Professor of Energy and Professor of Chemistry, MIT

32. Terra Watts of Wind Potential • Significant potential in US Great Plains • Use 6% of land suitable for wind energy development; practical electrical generation potential of ≈0.5 TW • Dispatchability problems – the wind is not always blowing when we need electricity • Intermittent source; storage system could assist in converting to baseload power • Wind energy is part of a flexible approach to meet more and more of our energy needs Source: the Lewis Group, Division of Chemistry and Chemical Engineering California Institute of Technology, http://nsl.caltech.edu/energy.html

35. THE TOP TWENTY STATES for wind energypotential, as measured by annual energy potential in the billions of kWhs, factoring in environmental and land use exclusions for wind class of 3 and higher. • 1 North Dakota 1,210 11 Colorado 481 • 2 Texas 1,190 12 New Mexico 435 • 3 Kansas 1,070 13 Idaho 73 • 4 South Dakota 1,030 14 Michigan 65 • 5 Montana 1,020 15 New York 62 • 6 Nebraska 868 16 Illinois 61 • 7 Wyoming 747 17 California 59 • 8 Oklahoma 725 18 Wisconsin 58 • 9 Minnesota 657 19 Maine 56 • 10 Iowa 551 20 Missouri 52 Source: An Assessment of the Available Windy Land Area and Wind Energy Potential in the Contiguous United States, Pacific Northwest Laboratory, 1991. For more information, see AWEA's web page at http://www.awea.org.

36. Illinois – 5,468 (16) New York – 3,906 (15) South Dakota – 3,860 (3) Texas – 3,508 (2) California – 2450 (17) Oregon – 1895 * Iowa - 1590 (10) Wisconsin – 1327 (18) Montana – 1153 (5) Washington – 1070 * Nevada – 990 * Colorado – 977 (11) Maine – 969 (9) Kansas – 954 (3) Pennsylvania – 954 * Missouri – 924 (20) Massachussets 838 * Wyoming – 792 (7) Minnesota – 748 (9) West Virginia – 738 * *NOT IN TOP TWENTY FOR POTENTIAL TOP TWENTY STATES FOR WIND CAPACITY IN DEVELOPMENT (MW) (wind resources rank in parenthesis)

38. Wind Energy Potential v. Wind Energy In Development • The states with the top wind resources are not necessarily the states with the most wind energy in development by state. • What is driving wind development? • Are local programs and incentives the driving force behind where wind energy is developed? • Is enough focus put on where the actual wind resources are?

39. What Else Impacts Where Wind Capacity is in Development? • Green tag trading industry booming right now – increasing demand • Proximity to large demand centers plays a big role • Places like the Dakotas that have great resources pose transmission issues. It is are hard to get power from there to where it is going to be consumed. • Wind development happens where energy can be sold for higher prices. • Illinois wholesale price 2-3x more price than in the Dakotas. Can get more $ for wind power in Illinois.

40. With Questions Please Contact:juliedick@gmal.com