Yet another Canadian province is showing a serious commitment to the economic benefits of renewable energy development. Ontario’s “buy local” energy policy has the promise of 43,000 local jobs from 5,000 MW of new renewable energy. Now Nova Scotia is completing rulemaking for a provincial goal of 40% renewable power by 2020 that includes a 100 megawatt (MW) set-aside for community-owned distributed generation projects. The policy promises to increase the economic activity from its renewable energy goal by $50 to $240 million. Continue reading
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“They do cost more,” he said of purchases from small producers. “But on the other hand you don’t have to build a lot of transmission to get the power to the grid.”
Luke Busby, Lobbyist for Nevada feed-in tariff (SB 184 in 2011)
The use of tax credits as the primary federal incentive for renewable energy has often stymied cities, counties, and cooperatives from constructing and owning their own wind farm. But the temporary cash grant in lieu of the tax credit (expiring this December) has opened the door for one South Dakota cooperative and over 600 local investors:
The Crow Lake Wind Project, built by electric cooperative Basin Electric subsidiary PrairieWinds SD 1, Inc., is located just east of Chamberlain, S.D. With 150 MW of the project’s 162 MW owned by Basin Electric subsidiary PrairieWinds SD1, Inc., the facility has taken over the title of being the largest wind project in the U.S. owned solely by a cooperative, according to Basin Electric. [emphasis added]
The project is also distinguished for having local investors in addition to ownership by the local cooperative:
The entire project consists of 108 GE 1.5-MW turbines, 100 of which are owned and operated by PrairieWinds. A group of local community investors called the South Dakota Wind Partners owns seven of the turbines, and one turbine has been sold to the Mitchell Technical Institute (MTI), to be used as part of the school’s wind turbine technology program, which launched in 2009. PrairieWinds, which constructed the seven turbines now owned by the South Dakota Wind Partners, will also operate them. [emphasis added]
The key to success was the limited-time opportunity for the cooperative to access the federal incentive for wind power:
The opportunity became viable following passage of 2009’s American Recovery and Reinvestment Act, which created a tax grant option allowing small investors to access government incentives and tax benefits, making public wind ownership possible. Creating the Wind Partners for that purpose were Basin Electric member East River Electric Power Cooperative, the South Dakota Farm Bureau Federation, the South Dakota Farmers Union and the South Dakota Corn Utilization Council…
“This development model created opportunity for small local investors to have direct local ownership in wind energy and access the tax benefits previously reserved for large equity investors,” said Jeff Nelson, general manager at East River Electric. “It offers a model for others to participate in community-based wind projects.”
The South Dakota Wind Partners consist of over 600 South Dakota investors, some who host the project’s 7 turbines and many who do not. Investors bought shares in increments of $15,000 (combinations of debt and equity). Brian Minish, who manages the project for the South Dakota Wind Partners, hopes to see future opportunities for this kind of development. “There’s a lot of political benefit in letting local people become investors in the project,” Minish said in an interview this afternoon, “local ownership can help reduce opposition to wind power projects.”
Photo credit: Flickr user tinney
I participated in a roundtable discussion about the status and future of public (federal) incentives for renewable energy with Greg Jenner and Matt Rogers, moderated by David Wagman. We had a great conversation, which you can read below or click through to read at Renewable Energy World: The recession is ending and so will the… Continue reading
Last week, Brian Foley of the Sierra Club published an interview with John Farrell on “grassroots solar” on the Sierra Club blog, Compass. Read the interview below, or click through to the Compass. Interview: Grassroots Solar You hear about gigantic solar and wind farms that require vast amounts of land. But what about the decentralized… Continue reading
A new article in the journal Energy Policy supports the notion that local ownership is key to overcoming local resistance to renewable energy. The article summarizes a survey conducted of two towns in Germany, both with local wind projects, but only one that was locally owned. The results are summarized in this chart:
Guess which town has the locally owned project?
If you guessed Zschadraß, you win. With local ownership of the wind project, 45% of residents had a positive view toward more wind energy. In the town with an absentee-owned project (Nossen), only 16% of residents had a positive view of expanding wind power; a majority had a negative view.
Ownership matters, and U.S. renewable energy policy typically makes local ownership more difficult.
Solar leasing has offered thousands of homeowners a “no money down” route to go solar, broadening participation in the distributed generation revolution. Unfortunately, this revolution has been co-opted by high finance. Big banks have been able to write off millions in taxes by over-reporting the cost of financed solar PV projects in what may be the country’s next banking scandal.
In a phone conversation last month, Jigar Shah of Carbon War Room (formerly chief of solar-as-a-service company SunEdison) disclosed that while solar leasing companies can install residential solar for between $4.00 and $5.00 per Watt, they routinely claim federal tax credits on the “fair market value,” a price nearly twice as high. A solar tax lawyer confirmed this practice and that it also applies to the program providing cash grants in lieu of the federal Investment Tax Credit. “The equipment may be financed in a way that allows the solar company to calculate Treasury cash grants on the fair market value of the systems rather than their cost,” he wrote to me this week.
The practice boost banks’ bottom line at the expense of federal taxpayers and unnecessarily increases the cost of public subsidies for renewable energy.
In California, for example, 15 percent of small-scale PV projects completed in 2010 were “third party owned” – code words for a solar leasing arrangement. If banks used “fair market value” rather than the actual system cost for the tax credits on those systems, the inflated tax credits could have totaled as much as $30 million instead of the $18 million justified by the actual project costs.
That’s just the tip of the iceberg. This $12 million difference only reflects about one-third of the U.S. residential solar PV market. In other words, the over-payment to banks financing solar leasing could be as much as $36 million in 2010 alone. It’s no wonder U.S. Bank just announced a new commitment to finance $200 million of residential solar PV.
The problem isn’t unknown to the federal government. The solar tax lawyer I spoke to noted that “Treasury has been pushing back on some fair market value claims as too high.”
Treasury should push a little harder. Why should big banks get a bigger tax credit for the same size solar PV array than a homeowner?
The lone bright spot is that the growth in solar leasing has slowed somewhat in the past two years. Previously, solar leasing may have been the only way for some individuals to capture the federal solar tax credits, if they didn’t have enough tax liability. As an alternative, big banks would provide up-front financing in exchange for the tax credits (and the opportunity to inflate their value). We’ve previously discussed why tax credits make for lousy renewable energy policy. In 2009 and 2010, however, changes to the federal tax credits allowed people to take a cash grant instead, reducing the need for third party ownership. That ends in December.
Long before that, Treasury should shut down the practice of over-estimating project costs with “fair market value.” Solar energy incentives have built the American solar market and helped drive down the cost of solar. Banks shouldn’t be allowed to subvert these public incentives.
From Dr. Norbert Rottgen, German Federal Minister for the Environment, in a discussion of baseload fossil fuels versus decentralized renewable energy:
It is economically nonsensical to pursue two strategies at the same time, for both a centralized and a decentralized energy supply system, since both strategies would involve enormous investment requirements. I am convinced that the investment in renewable energies is the economically more promising project. But we will have to make up our minds. We can’t go down both paths at the same time.
After 10 years of battling incumbent utilities, Marin Clean Energy became California’s first operational community choice aggregation authority in 2010. Already, local ratepayers can opt to get 100 percent of their electricity from renewable resources.
Community choice aggregation (CCA) offers an option for cities, counties, and collaborations to opt out of the traditional role of energy consumers. Instead, they can become the local retail utility, buying electricity in bulk and selecting their power providers on behalf of their citizens in order to find lower prices or cleaner energy (or even reduce energy demand). Marin Clean Energy started operations last year:
“When it launched last fall, Marin Energy Authority’s goal was to offer 20% renewable energy to its customers,” said Ms.Weisz. “We were able to offer 27.5% compared to the state-mandated 20%.” The state recently increased the mandate to one third. PG&E has about 17% under contract, according to Ms. Weisz.
Customers can also opt for the “deep green,” 100% renewable service for a 10 percent premium.
Marin Clean Energy not only contracts for a higher portion of renewable energy than PG&E, it’s trying to increase its share of local, distributed generation.
“We are filling a niche market for mid-sized renewable energy generation in the 20 to 60 MW range,” said Dawn Weisz, interim director… “When we went out to solicit renewable power offers, Pacific Gas & Electric told us we would not get any bids. We were looking for 40 MW. We were offered over 600. Almost all was solar.”
The local “utility” is also trying to maximize energy efficiency. Currently, a public benefits fund pools ratepayer dollars for energy efficiency programs run by PG&E. However, such programs tend to work against the bottom line of the utility, but not against Marin’s CCA.
Marin Clean Energy thinks it can do a better job and create more local jobs with the money.
It’s a promising start for California’s first community choice authority.
Last month, a Grist writer noted sarcastically that “Money is a miracle cure for ‘wind turbine syndrome’.” It is. And environmental advocates frustrated by the (spurious?) health and aesthetic complaints raised by not-in-my-backyard (NIMBY) actors would do well to consider why.
The implication of the Grist post (and this attitude in general) is that we can’t green our energy system without sacrifice. Getting to big carbon reductions will require enormous new renewable energy development and it will often happen in places where land was previously undeveloped (note: see this counter-argument). The folks who live there, the NIMBYs, need to do their share.
It’s awfully easy to offer sacrifice when you’re not on the altar. And it’s worth considering what’s really behind the “syndrome.”
In a recent study by the ever-methodical Europeans, they found that opponents to new wind and solar power have two key desires: “people want to avoid environmental and personal harm” and they also want to “share in the economic benefits of their local renewable energy resources.” It’s not that people are made physically ill by new renewable energy projects. Rather, they are sick and tired of seeing the economic benefits of their local wind and sun leaving their community.
Such opposition is perfectly rational, since investments in renewable energy can be quite lucrative (private developers and their equity partners routinely seek 10% return on investment or higher). And the economic benefits of local ownership far outweigh the economic colonialism of absentee owners profiting from local renewable energy resources.
Of course, NIMBY-ism only sometimes manifests itself as an economic argument, and there’s a good reason for that, too. In the project development process, there are precious few opportunities for public comment, and almost all of them represent up-or-down votes on project progress. None offer an opportunity to change the structure of the development to allow for greater local buy-in or economic returns. And no project will be halted simply because it isn’t locally owned. Projects can and have been stopped on the basis of health and environmental impacts. Enter Wind Turbine Syndrome.
There are alternatives. In Germany, Ontario, Vermont, and Gainesville, Florida, local citizens can use a renewable energy policy – a feed-in tariff – that offers them a guaranteed long-term contract if they become a renewable energy producer. This contract guarantees a reasonable, if small, return on investment and helps them secure financing. In Germany, the program’s simplicity means that half of their 43,000 megawatts (MW) of renewable energy are owned by regular farmers or citizens.
In Ontario, the provinicial clean energy program specifically requires project developers to use local content, guaranteeing a higher economic benefit for the province in exchange for its robust support for renewable energy. The program is forecast to generate 43,000 local jobs in support of 5,000 MW of new, renewable energy.
In the United Kingdom, public officials are piloting a “community wind fund” program for all new wind projects. Under the program, each wind project must pay in £1000 per megawatt (~$1600 per MW) per year, for 25 years, into a community fund where the project is located.
The impact for the community is significant. Compared to the typical land leases (often $5,000 per turbine for the host landowner), the community fund payments would increase local revenue by over 60 percent, with the additional funds spread to the entire community rather than just the lucky turbine hosts.
The impact on turbine owner net revenue is small but not negligible, reducing the net present value of the project by about 3 percent.
It’s not that any of these policies represent the silver bullet for local opposition to new renewable energy projects, but they do address the underlying problem.
The truth is that many people are frightened of being left behind by the clean energy revolution or angry that their local resources are tapped without commensurate local benefit. They find that there’s no way to be heard in the (democratic?) process without resorting to tangental arguments about health and viewsheds.
NIMBY has been misunderstood by the clean energy community. It is not a knee jerk, it’s a market failure.
When citizens see a new wind or solar energy project, it shouldn’t be from the sidelines. They should see it from the front seat, where they have hitched their wagon to environmental and economic progress by investing in a local energy project.
Our energy policy should make that possible. It doesn’t.
Federal tax policy makes it very difficult to share renewable energy tax incentives among multiple investors. Federal and state tax-based incentives preclude many local organizations (nonprofits, cities, schools) from owning wind turbines or solar panels. And utility billing rules make it nearly impossible (in most states) to share the electricity output from a shared project that isn’t utility owned.
There are brilliant examples of entrepreneurs overcoming these barriers to install community-based projects. Developer Dan Juhl and others have a record of success with community wind in Minnesota. The Clean Energy Collective is piloting a new community solar program in Colorado.
There are even some policy ideas bringing hope. Virtual net metering laws in eight states allow for sharing electricity output. Colorado’s solar gardens bill enshrines a small amount of community solar.
But the theme is one of triumph over adversity, with local ownership the exception rather than the norm. And without better energy policies that give locals a chance to buy in, the wind turbine syndrome epidemic will likely continue.