Community Wind Power

T. Boone Pickens discussed his $10 billion plan to erect 2,700 wind turbines across the Texas panhandle, a project that will generate enough electricity to power about one million …

T. Boone Pickens discussed his $10 billion plan to erect 2,700 wind turbines across the Texas panhandle, a project that will generate enough electricity to power about one million homes, in a recent interview with The Guardian (U.K.). Pickens, founder of Mesa Petroleum and bona fide oil tycoon, presumably doesn’t have any big plans for Earth Day: “Don’t get the idea that I’ve turned green,” he told his interviewer.

Big money is excited about wind energy, which is promising for the future of the renewable energy industry. But what about smaller investors? Is 21st century energy technology doomed to be controlled by billionaire investors? Absolutely not.

Pickens’ windy ambitions rely on leasing the lands of rural farmers to use as sites for his wind turbines. However, in a growing trend, local communities are passing on the land lease option and are instead taking on ownership of the turbines themselves. The key feature of community wind, as it has been dubbed, is that “local community members have a significant, direct financial stake in the project beyond just land lease payments and tax revenue,” according to Windustry. Typically, those involved in a joint-ownership include local farmers, schools, utilities, businesses and investors. Because all of these participants have an incentive to improve the areas where they live, it is no surprise that community wind provides many social benefits to those within proximity.

Given that community wind is defined as any scenario in which one or more local investor has a considerable financial stake in the ownership of nearby wind turbines, there are infinite ways in which these projects can be structured. Some are created as partnerships with utilities, corporations or other organizations, in which case the financial hurdle to become an investor is usually lower. Other times, individual investors take on more financial responsibility and consequently enjoy more control and rewards associated with the energy produced. The structuring of these agreements is important because it can have drastic effects on which tax breaks can be utilized. Details on ownership structures and their benefits and drawbacks can be found in this 2006 study conducted at the University of Minnesota.

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In an economic utopia, individual investors of all income levels would participate in ownership of their local renewable energy production, allowing them to acquire a share that would cover their individual social costs and return a proportional social benefit. The logistics of this scenario are unrealistic, but the underlying idea is simply an exaggerated depiction of energy independence. The standard two-megawatt wind turbine can produce enough electricity to power 600 average American homes, so why don’t 600 households simply bundle enough funds to purchase their own turbine and produce their own energy? This is the exact question asked by John Farrell of the Institute for Local Self-Reliance.

In an April 2008 publication, Farrell pointed out the two major barriers that keep many individual investors out of community wind. Primarily, he said, projects are hindered by the elusiveness of a production tax credit (PTC) and the high cost and complexity of SEC registration fees. The federal renewable electricity incentive, a two-cent per kilowatt hour tax credit, is only applicable on passive income–that is, money “earned on rental property and other investments where the owner does not materially participate.” This stipulation excludes almost all of the rural population and severely impairs economic justification for community wind ownership. The same two-megawatt wind turbine that can power 600 homes generates around $125,000 in tax credits each year. If investors cannot cash in on these tax credits, they are not going to invest in the technology–it’s that simple.

As is the case with almost all renewable energy investment opportunities, viability depends largely on public policy decisions. Rep. Tim Walz (D-Minn.) has proposed a bill that “would allow wind project investors to access up to $40,000 of the PTC against ordinary income,” a move that Farrell claimed “could help as many as 30 percent of Americans access federal incentives for owning renewable power.” With the remaining U.S. presidential candidates all pledging more commitment to energy independence, it’s likely that legislation will produce a richer environment for clean energy investors in coming years.

Even under current policy conditions, community wind projects are held in high regard by both investors and local communities. Minwind Energy, one of the first farmer-owned wind farms in Minnesota, is touted by Windustry as “an innovative business model that allows local investors to own their own commercial scale wind turbines. The group installed four 950 kW turbines (Minwind I and II) in 2002 near Luverne, [Minn.] and seven 1,650 kW turbines (Minwind III-IX) in December 2004 near Beaver Creek, [Minn].”

The importance of local ownership is not simply a concern of investors, it also has an impact on the local economy. In the University of Minnesota study cited earlier, the economic benefits of a locally-owned wind farm are compared to those of corporate owned farms which have no local investment. While the findings are recognized as an upper-bound estimation, it is suggested that “community wind has 5 times the economic impact on local value added, and 3.4 times the impact on local job creation, relative to a corporate-owned development.”

Wind power is no longer alternative. According to the American Wind Energy Association (AWEA), “new wind projects added in 2007 account for about 30 percent of the entire new power-producing capacity added nationally in the year.” This growing popularity has the potential to eliminate a frequent hindrance of energy production: the “not in my backyard” attitude. With an ability to stimulate the local economy, produce clean energy and allow a disconnect from volatile fossil fuel prices, wind turbines are likely to become a symbol of pride for rural communities across the nation. With improvements to public policy, the democratic energy ownership of community wind is destined to become an enticing energy strategy. Consider this: AWEA estimated that “the total amount of electricity that could potentially be generated from wind in the United States is 10,777 billion kWh annually—three times the electricity generated in the U.S. today.” Sometimes the numbers are hard to ignore.

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