Incentives for Small Scale Wind Energy Development - Minnesota
Updated August 2007: Prior to the 2007 legislative session, Minnesota had a renewable energy mandate that applied to one electric utility and also a 10 percent renewable energy goal that applied to all utilities. Since Minnesota has an enormous wind energy potential, most of the renewable energy development built to satisfy these requirements will come in the form of wind energy.
The 2007 legislature adopted a stronger renewable energy standard that applies to all the state's utilities - 25% by 2025 (30% by 2020 for Xcel Energy).
Recognizing the benefits that small-scale and locally-owned wind projects can have, Minnesota lawmakers also enacted an incentive program targeted at wind energy projects sized at 2 MW or less that were built in the state. Minnesota's Renewable energy production incentive statute (MN Statutes §216C.41) provides qualfied facilities a 1.5 cent per kilowatt-hour production payment for 10 years provided the facility is in place by 2007. The program was originally limited to a total of 100 MW worth of small-scale projects. But that limit was quickly reached and lawmakers expanded the program to 200 MW.
Comments from New Rules Project
The New Rules Project is supportive of renewable energy development and generally supports this effort in Minnesota to support small-scale dispersed wind energy. However, we feel that a better approach is to require electric utilities to create a community based energy development tariff - with higher payments in the first 10 years of the power purchase agreement.
The primary reason for the production incentive program was to help project owners deal with the high initial capital costs incurred when setting up a wind energy project. Typically, project owners will see small positive cash flows in first 10 years of the project and will begin to see a significant positive cash flows after their debt is paid off (after 10 years).
If a production incentive approach is adopted, states should consider making the program into a revolving loan type arrangement where some or all of the incentive is paid back after the 10 year period. That would still allow small-scale wind projects to deal with their up front capital cost needs and be brought on-line, yet it would result in a program that could fund even more small-scale wind projects without needing to continually get legislative appropriations.
Another Approach: C-BED Tariffs
June 2006 Update: Minnesota has adopted legislation that eliminates the need for the small wind incentive program altogether. Community Based Energy Development (C-BED) tariffs in Minnesota are replacing the incentive program. The C-BED initiative eliminates the need for a 10-year state incentive payment by allowing wind projects to negotiate PPAs that are front loaded with higher payments for the first 10 years of a 20-year contract.
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