State Policy Information

  • A Comparative Analysis of Community Wind Power Development Options in Oregon

    A Comparative Analysis of Business Structures Suitable for Farmer-Owned Wind Power Projects in the United States (November 2004) was prepared for the Wind & Hydropower Technologies Program, U.S. Department of Energy, by Mark Bolinger and Ryan Wise.

    For years, farmers in the United States have looked with envy on their European counterparts' ability to profitably farm the wind through ownership of distributed, utility-scale wind projects. Only within the past few years, however, has farmer- or community-owned wind power development become a reality in the United States. The primary hurdle to this type of development in the United States has been devising and implementing suitable business and legal structures that enable such projects to take advantage of tax-based federal incentives for wind power. This article discusses the limitations of such incentives in supporting farmer- or community-owned wind projects, describes four ownership structures that potentially overcome such limitations, and finally conducts comparative financial analysis on those four structures, using as an example a hypothetical 1.5 MW farmer-owned project located in the state of Oregon.

    Read the Report

  • Advanced Renewable Tariffs for Wisconsin Analysis and Case Study

    "Advanced Renewable Tariffs for Wisconsin: Analysis and Case Study" was prepared by the University of Wisconsin Madison Energy Analysis & Policy Certificate Capstone Project.

    ART is a policy which aims to encourage customer-sited development of renewable energy. An ART is unique because a regular customer becomes the producer (who we will refer to as a Renewable Power Producer (RPP)), and the electric utility becomes the customer. This is different than net metering and a RPS; net metering is essentially running the kWh meter backwards-thus, the value for a kWh of renewable electricity is equal to the retail rate-while a RPS establishes a quantity obligation.

    There are many ways to establish energy payments for an ART. The various methods are primarily based on:

    1. Generation cost, which provides a payment based on the cost of the technology
    2. Avoided cost, which sets the payment based on displacing fossil fuel-based generation
    3. Premium rates, which establish energy payment at a specified level above the retail rate for electricity

    This analysis uses a generation cost approach-generation cost is the most common form and is consistent with the Governor‘s Task Force on Global Warming-to determine energy payments for each renewable technology.

  • Americans Making Power Act Proposes National Net Metering

    July 8, 2010 - 12:33pm -- Anonymous

    July 2010, Washington, D.C. - Rep. Jay Inslee (WA) has introduced the Americans Making Power Act, or AMP Act, which would establish a national standard for net metering. The legislation would allow Americans to feed back into the grid excess renewable power they generate through their homes, small businesses and even places of worship. This legislation would also improve reliability of the nation's electric grid by encouraging a more diffuse means of energy production.

  • Analysis of Renewable Energy Feed-in Tariffs in the U.S.

    The National Renewable Energy Laboratory (NREL) has published a report analyzing the impacts that state level feed-in tariff policies can have on the renewable energy industry across the country. The report uses data and reports from around the world to highlight the various benefits that a feed-in tariff type of policy can have on renewable energy development.

    A feed-in tariff is an energy policy that provides for a guarantee of payment to renewable energy developers for the energy that is produced. This type of policy can be thought of as an advanced form of a production-based incentive because payments are made for the actual electricity produced and not for how much capacity is installed. The most common feed-in tariff payment is based on the actual levelized cost of renewable energy generation. This method of payment provides a price adequate to ensure a reasonable rate of return on for investors. 

    The authors of the report delve into the various advantages of feed-in tariff policies and the number of challenges to implementing feed-in tariff policies in the U.S. The report also provides a review of the current state-level and utility-level feed-in tariff policies that are currently in place across the county and compares them with the successful models found in Europe. These states include Gainesville, Florida; various Wisconsin utilities; California; Vermont (report was written prior to passage of the state-wide feed-in tariff so this analysis focuses on the two utility-specific programs); Washington; and Oregon. The authors wrap up the report with a discussion of best practices for feed-in tariff policy design and implementation, followed by an analysis on how to use a feed-in tariff policy to achieve state renewable energy goals.

    The authors highlight one of the most important elements of a feed-in tariff policy - that it allows for more participants in renewable energy project development. In their analysis the authors state that there are significant impacts of a feed-in tariff on developing community ownership, but it will depend on how the program is structured and payments determined. 

    You can read the full report here (PDF).

  • Case Studies on Iowa Wind

    These case studies are from the Iowa Energy Center. Click here to view the case studies.

    Wind Projects

    Staples Residence, New Providence, IA (PDF 1.48 MB)
    Wind Turbine

    Akron-Westfield Schools, Akron, IA (PDF 174 KB)
    Wind Turbine

    Ashler Residence, Hamburg, IA (PDF 645 KB)
    Wind Turbine

    Clarion-Goldfield Schools, Clarion, IA (PDF 185 KB)
    Wind Turbine

    Eldora-New Providence Schools, Eldora, IA (PDF 170 KB)
    Wind Turbine

    Forest City Schools, Forest City, IA (PDF 171KB)
    Wind Turbine

    Hawkeye Dental, Ely, IA (PDF 1.23 MB)
    Wind Turbine

    Montgomery Residence, Bryan, IA (PDF 567 KB)
    Wind Turbine

    Neppel Energy, LCC, Armstrong, IA (PDF 236 KB)
    Wind Turbine

    Spirit Lake Schools, Spirit Lake, Iowa (PDF 151 KB)
    Wind Turbine

    Tjaden Farms, Charles City, IA (648 KB)
    Wind Turbine

    Tran Lam Residence, Vinton, IA (PDF 712 KB)
    Wind Turbine

  • Chapter 10: Tax Incentives


    In order to be financially competitive, most wind projects need to take advantage of federal and, where available, state tax incentives. It is critical to understand the role and mechanics of tax incentives while developing a commercial-scale community wind project because these incentives can represent one-half to two thirds of the total revenue stream over the first 10 years of operation due to the Federal Production Tax Credit (PTC) and Modified Accelerated Cost-Recovery System (MACRS) or other type of depreciation that can be applied to wind energy assets. You will need to consult a tax professional in the early stages of project planning to ensure that your financial projections are valid and accurately take into account the project’s tax burden and benefits.

    Ownership: 
  • Connecting Renewable Energy to a Smarter Grid

    October 14, 2009 - 5:06pm -- Anonymous

    There are many hurdles for connecting renewable energy projects to the existing electric power grid involving transmission lines, substations, regulatory processes and more. The good news is that both industry and government groups have invested in research on how to better connect renewable energy projects to the grid and how to construct a smart grid that can support a clean energy future.

  • Current Legislative Efforts to Promote Wind Energy Development

    Minnesota–North Dakota–South Dakota Network Webinar Series

    Part 1: Current Legislative Efforts to Promote Wind Energy Development in Minnesota, North Dakota, and South Dakota.

    This webinar was recorded on April 21, 2009.

    Speakers from each state will present on current legislative efforts and the status of policies that seek to promote wind energy development followed by a question and answer period. The goal of this webinar was to start a constructive dialogue and encourage teamwork between stakeholders in these states.

    Speakers:

    South Dakota: Steve Wegman, Executive Director, South Dakota Wind Energy Association, www.sdwind.org
    North Dakota: Mindi Grieve, Government Relations Specialist, Environmental Law and Policy Center, www.elpc.org

    The recorded webinar is available in audio format that can be played in a web browser using a broadband connnection.

  • Energy Self Reliant States

    If renewable energy generation can be dispersed widely, then it should be locally owned whenever possible. With local ownership, the neighbors of energy generation are also the economic beneficiaries, creating a constituency for rapidly expanding renewable power and transforming energy consumers into energy producers.

    The Energy Self Reliant States website expands on this foundation and is written by report co-author John Farrell, a senior researcher on the New Rules Project at the Institute for Local Self-Reliance. The potential for states and communities to pursue decentralized renewable energy inspired the highly acclaimed report Energy Self-Reliant States, published in late 2009.

  • Going Grid Neutral at California Schools

    December 12, 2008 - 4:55pm -- Anonymous

    State and Consumer Services Agency Secretary Rosario Marin today announced the release of California's "grid neutral" guidebook; a step-by-step guide to help California schools and community colleges cut energy costs through on-site electricity generation.

  • Harvesting Clean Energy 8

    2008

    The Harvesting Clean Energy Conference is the Northwest’s premiere gathering for agriculture and energy interests working to advance new opportunities for agriculture producers and rural communities in clean energy production. Clean energy offers real solutions – financial and practical – for our farmers, ranchers, rural utilities and towns, tribes, and regional economy.

    Event type: 
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  • Introduction to Feed-in Tariffs

    The phrase “feed-in tariff” has recently entered the daily dialogue of not only renewable energy advocates, but policy makers as well. A feed-in tariffs is a policy mechanism that provides a renewable energy facility with a guarantee of interconnection to the electrical grid and a set price paid for that renewable energy. Feed-in tariffs are proven to be the most successful policy for the rapid development of significant amounts of renewable energy world-wide, and have experienced increasing attention in North America over the last year. Feed-in tariffs work because they are more equitable than other policies. They enable everyone - including homeowners, farmers, cooperatives, and businesses large and small - to profit from renewable energy.

     

    Once a feed-in tariff is implemented, utilities are required to purchase the electricity produced from a qualified renewable energy facility at a set price, or tariff, per kilowatt-hour generated. The cost of purchasing this energy is paid for by the utility and energy consumer, just like any other electricity generation source, and not with government incentives paid for by taxpayers who may not be using the energy. To ensure the tariff rate is successful, it should be set at a level that allows recovery of the cost of the facility plus a return on the investment. This is similar to how regulations of utility rates happen in many parts of the country and is a familiar concept for the industry. A feed-in tariff is separate from net-metering because the electricity generated is not used on-site. All of the output from the facility is purchased by the utility and the facility owner continues to pull electricity from the grid as before.

     

    This type of policy has had notable success in Europe, particularly in Germany where as of 2008, over 75 percent of the electricity generated from renewable sources was purchased according to the tariffs under the Renewable Energy Sources Act (EEG), Germany’s feed-in tariff. The additional costs associated with this program for 2008 accounted for an additional 1.05cent/kWh. An average German household had an increase of 3.10 euro in their monthly electricity bill as a result of the feed-in tariff. The German Ministry for the Environment, Natural Conservation and Nuclear Safety issues an annual report on the status of renewable energy in Germany that analyzes these figures. You can read the 2008 preliminary report here.

     

     

    In North America this type of policy has been slow to gain support despite efforts on both the federal and state levels. However, the past year has witnessed major strides in implementing feed-in tariff policies. According to the Alliance for Renewable Energy, there are 20 states that have considered feed-in tariff style policies. Below are some highlights from a few of these efforts: California’s Start; The Gainesville Story; Vermont Joins In; The Canadian Perspective. 

     

    California’s Start

    In early 2008 the California Public Utilities Commission announced the availability of two expansions of a tariff designed to support and encourage the development of up to 480MW of renewable energy from small generating facilities throughout the state. This program is targeted specifically to the publicly owned water and wastewater treatment facilities.

    The key elements of the tariff are:

    -        

    A fixed price, non-negotiable contract for 10, 15, or 20 years

    -        

    A project size cap of 1.5MW

    -        

    According to the order establishing this tariff, an eligible facility is one that is defined in PUC code § 399.12 which requires the facility to meet the definition of § 25741 of that code. The definition includes wind facilities that are located within the state of California and generally requires the first point of interconnection to be within the state.

    -        

    Any customer may sell to Edison or PG&E

    -        

    Only water and waste water customers may sell to the other four utilities: San Diego Gas and Electric Company, PacifiCorp, Sierra Pacific Power Company, Bear Valley Electric Service Division of Golden State Water Company, and Mountain Utilities

    -        

    The tariff rate is determined by the following formula:

    o      

    Price paid in $/kWh = (kWh of energy distributed onto the grid at a certain time) * (the baseload market price reference fixed at time of actual commercial operation) * (the time of delivery adjustment)

    o      

    More information on these factors can be found in the order establishing the tariff from the CA PUC 

    Electricity purchased by the utility under this tariff may be used to satisfy the state renewable energy standards.

     

  • Minnesota Energy Legislation in 2007

    2007 was a landmark year for energy policy in Minnesota. The legislature passed the strongest renewable energy standard in the nation with overwhelming support from both sides of the aisle. This law makes Minnesota a leader in clean energy policy and creates a great opportunity for our state to reap the rewards of the booming renewable energy industry. With the passage of The Next Generation Energy Act of 2007, the legislature made sure much of the economic benefits of the increased renewable energy would stay in our rural communities.

    The bill also contains real solutions to global warming that will create tangible cost savings for Minnesotan families and businesses.

    The Renewable Energy Standard

    The strongest renewable energy standard (RES) in the nation became law this session when Gov. Tim Pawlenty signed a requirement that the state’s electric utilities obtain 25% of their energy from renewable resources by 2020. Minnesota’s utilities currently get about 6% of their energy from renewable sources. Under this new law, Minnesota will add between 5,000 and 6,000 MW of new renewable energy, a large part of which is expected to come from new wind turbines in our rural communities.

    The renewable energy standard is a market-based mechanism that requires utilities to gradually increase the portion of their energy that is produced from renewable sources like wind, solar, biomass, and geothermal energy. The RES uses tradable renewable energy credits to achieve reductions in a flexible, low-cost manner that creates competition among renewable energy generators and provides them with an incentive to continually drive costs down. Minnesota’s Renewable Energy Standard will help keep electricity costs low, spur economic development, increase energy independence and security, and lead to cleaner air.

    The Next Generation Energy Act of 2007

    The Next Generation Energy Act, signed into law this May, provides for concrete actions that will set Minnesota on a path to achieve 80% reductions in greenhouse gas emissions by 2050. Key components of the law include:

    Three times the current amount of investment in energy efficiency measures that will produce a 25% energy savings by 2025.

    • A goal to aggressively reduce our global warming pollution to reach an 80% reduction below 2005 levels by 2050.
    • The creation of an economy-wide climate change action plan by February 1, 2008. Arizona’s climate action plan will result in an estimated overall net economic cost savings of more than $5.5 billion from 2007 to 2020.
    • Required reductions in CO2 from the power sector. After August 1, 2009 there will be a moratorium on new power plants unless they can offset their CO2 emissions

    The Next Generation Energy Act also includes critical provisions that will help rural communities plan, build, and own renewable energy facilities themselves, thereby keeping energy dollars in local communities. The Act:

    • Allows counties to take over permitting authority to site wind energy facilities up to 25MW in size, an increase over the previous 5MW, and impose higher standards than state laws.
    • Allows local governments to own wind energy projects with more than two turbines without partnering with other entities.
    • Requires utilities to study the amount of renewable energy that can be connected to existing local transmission lines and substations with minimal upgrades, thereby using existing utility infrastructure more efficiently and delaying the need for new large transmission lines.
    • Requires that developers finish projects within 7 years or renegotiate land development agreements with landowners to extend these agreements.
    • Requires the Department of Commerce to consider the Community-Based Energy Development (C-BED) economic benefits that flow to all local interests, not just the project developer, when approving C-BED projects.
    • Allows C-BED developers to negotiate market-based rates unhindered by out-of-date price caps.
    • Requires utilities to consider contracting with C-BED projects to comply with the Renewable Energy Standard.
    • Allows utilities to partner with C-BED projects.
    • Requires a variety of studies on emerging community energy issues.

    “These changes in law will help cities, counties, school districts, and other local agencies develop, own, and benefit from wind farms. Local ownership of wind projects helps ensure that a broader spectrum of Minnesotans benefit financially from renewable energy, and it also helps make rural communities more energy independent.”

    -David Benson, Nobles County Commissioner


    More Information
    For more information about the benefits of community wind, click here.

    For the full text of the Renewable Energy Standard bill click here.

    For the full text of The Next Generation Energy Act, click here.

  • Minnesota Passes New C-BED Legislation

    September 18, 2007 - 1:52pm -- Anonymous

    New Law Passed to Advance Community Energy Projects
    Next Generation Energy Act Helps MN Farmers and Small Businesses Build Renewable Energy Projects

    St. Paul, MN – (5/25/07) Today Governor Tim Pawlenty signed the Next Generation Energy Act (SF145), which includes critical provisions that will help rural communities build wind farms, biomass power plants and other renewable energy facilities.

  • Nebraska Farmer's Union Convention

    2007

    The theme of this year's convention will focus on renewable energy economic opportunities for farmers, ranchers and rural communities.

    Ethanol, cellulosic ethanol, biodiesel, carbon sequestration, and farmer- and community-owned wind (technology) each represent a new renewable energy based market with new sources of revenue.

    In order to maximize the long-term economic benefits of these new value-added renewable energy opportunities for rural communities, the converence will focus on farmer and community ownership of this new renewable energy development.

    Event type: 
    Geographic Area: 
  • Net Metering

    Net metering is a way for you to connect your small wind turbine behind the meter at your home, business or farm.  This system is designed to allow energy generated at your home farm or business to offset some or all of the electricity you use.  If your generator is producing more electricity than you can consume the excess is sold back to the utility.  The price that a project receives for the excess electricity varies from state to state and from utility to utility.

      Net metering can be very helpful for the economics of a wind project because it allows a qualifying facility to receive retail rate for a portion or all of the electricity generated.  Currently more than 35 states and the District of Columbia have net metering programs requiring utilities purchase power from systems that qualify for the program.  Each state has different rules and regulations.  To find out if net metering is available in your state, what systems qualify and how to take advantage of the programs visit the Database of State Incentives for Renewable Energy.

    Read more about net metering on the Green Power Network or find a summary of net metering programs by state from AWEA.

  • New Energy Video Broadcast

    2011

    New Energy Video

    New Energy tells the story of how wind, biofuels, and other renewable energy technologies are contributing to the region’s energy security, economic sustainability, and integrity of our natural resources. This half-hour documentary offers a fresh look at how the Midwest is leading the nation’s transition to a cleaner, safer, more stable, and more secure energy system. 

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  • New Report from ILSR: "Minnesota Feed-In Tariff Could Lower Cost, Boost Renewables and Expand Local Ownership"

    This January 2008 policy brief from the New Rules Project of ILSR highlights how several European countries, and more recently the Canadian province of Ontario, have adopted a simple yet powerful strategy to expand renewable energy and benefit local economies. It is called a feed-in tariff: a mandated, long-term premium price for renewable energy paid by the local electric utility to energy producers. Evidence shows that a feed-in tariff achieves greater results at a lower cost than do other strategies like tax incentives or renewable electricity standards.

    Click here to go to the New Rules Project website and download a copy of the report.

  • Office of Energy - Minnesota Department of Commerce

    The Office of Energy at the Minnesota Department of Commerce is working to move Minnesota toward a sustainable energy future, managing energy assistance funds, advocating in the public interest on energy utility rates and facility siting. We provide information and assistance to residents, builders, utilities, non-profits and policy-makers on home improvements, financial assistance, renewable technologies including wind energy information, policy initiatives, and utility regulations.

  • Property Tax Financing Authorization

    More states authorizing local governments to provide loans for small-scale renewable energy projects

    In collaboration with Amanda Zidek-Vanega (DSIRE)

    A growing number of states have adopted a policy that encourages development of renewable energy and energy efficiency projects: Property Tax Financing Authorization. The concept began in Colorado and California and has now gained momentum in a number of other states. These policies begin with the state legislature granting local units of government the authority to create a program that provides loans to property owners for the installation of energy efficiency upgrades and distributed renewable generation projects. It is then up to the local government to decide if and how they want to implement such a program. The key element of these programs is that repayment of the loan is through a special assessment fee on the property tax. Participation by local government is voluntary and only a handful of communities, described below, have implemented such programs.

    The authorizing statutes promote on-site distributed renewable energy generation in addition to energy efficiency improvements. The authorizing statute may not specify the eligible renewable energy project size and instead leave that determination to the local government. Distributed generation projects are generally smaller-scale projects that consist of one to two wind turbines or solar panels that are geographically dispersed and located near the site of electricity demand. This type of project differs from large-scale solar arrays and corporate wind farms which are often located in remote, sparsely populated areas and can require transmission lines over significant distances to deliver the electricity.

    The upfront costs of distributed generation can be, and often are, a significant barrier to homeowners and small businesses. Although many states offer tax credits, rebates, incentives and grants, these incentives only cover a portion of the costs of purchasing and installing a wind or solar system for on-site use. At some point an individual will need to come up with cash to move the project forward.

    Property Tax Financing programs provide a direct way for individuals to cover some, if not all, of the costs of energy efficiency upgrades and distributed generation systems. This type of financing mechanism offers several major benefits. First, access to credit can help cover much of the upfront costs, and during tough economic times this program offers an alternative to people who cannot tap into home equity lines or gain low-interest personal loans. Second, the obligation to repay the loan stays with the property. Therefore, payments become the responsibility of whoever owns that property and is benefiting from the on-site electricity generation.

    This type of program encourages participation by providing a way for individuals to access financing for the development of small-scale distributed renewable energy generation projects in their community. This in turn promotes local economic development by allowing energy dollars to remain in the community. It also provides opportunities for job creation in manufacturing, installation, and maintenance of the renewable energy systems. Local distributed generation projects can also decrease reliance on an overburdened and congested transmission grid and may reduce the need for expensive new high-voltage transmission lines. Distributed renewable energy generation teaches individuals and communities about the impact of human activity on our natural resources by self-generating a portion of their own electricity. To learn more about the benefits of local-ownership, visit:
    www.windustry.org/communitywind

    State

    Authorizing Statute

    Available for wind energy?

    Local Government Programs Implemented as of July 09?

    California

    CA Streets and Highways Code § 5898.10 et. seq.

    TBD at local level

    Berkeley;
    Palm Desert;
    Sonoma County

    Colorado

    CRS § 1-24-38.7

    Yes

    Boulder County

    Louisiana

    Act 348 R.S. 33:130.790

    Yes

    None

    Maryland

    Md Code: Property Tax § 9-1501-743-24

    TBD at local level

    None

    New Mexico

    S.B. 647

    Yes

    None

    Ohio

    HB 1

    No

    None

    Oklahoma

    S.B. 668

    TBD at local level

    None

    Texas

    Texas Statutes § 12-A-376

    TBD at local level

    None

    Vermont

    H.B. 446

    Yes

    None

    Virginia

    Va. Code § 15.2-958.3

    TBD at local level

    None

    Wisconsin

    Wis. Stat. § Act 11

    TBD at local level

    None

     

    As of July 2009, 11 states have passed legislation authorizing local units of government to provide loans to their residents for renewable energy and/or energy efficiency improvements: California, Colorado, Louisiana, Maryland, New Mexico, Ohio, Oklahoma, Texas, Vermont, Virginia, and Wisconsin. As seen in the chart above the details of each program, including eligible technology, project size, loan amount, repayment terms, are often determined at the local level. So far, only two of these states have local governments that have implemented such loan programs: Colorado and California.

    Colorado

    In Boulder County residents can obtain a loan for a variety of energy efficiency improvements and renewable energy technologies. The loans are available in amounts ranging from $3,000-$50,000 and repaid over 15 years through a special assessment on the property tax. Applications for the first round of funding were due on April 10, 2009. According to the ClimateSmart Loan Program staff, 394 projects were funded. Two-thirds of the projects were directly related to energy efficiency, and one-third were directly related to solar installations. There were no applications for wind energy projects in this first round because of publicity and timing—the majority of the applications came from property owners in the city of Boulder, an urban area that is not suitable for wind energy installations. Although the ClimateSmart Loan Program focused heavily on energy efficiency improvement in this first round of funding, it hopes to reach out to rural areas in their county to encourage more applicants interested in wind energy.

    See the Database of State Incentives for Renewables and Efficiency for more information on the Boulder County ClimateSmart Loan Program.

    California

    Three communities in California have implemented clean energy financing programs: Palm Desert, Berkeley, and Sonoma County. Specifics of their programs vary; in Berkeley financing is only available for photovoltaics, while in Palm Desert and Sonoma County certain energy efficiency technologies and solar water heating are eligible as well. The diversity of these programs highlights the importance of allowing individual local governments to create and implement their own program. This flexibility allows local governments to tailor their programs to promote certain renewable or efficiency technologies over others based on resource availability and conditions or preferences of the community.

    See the Database of State Incentives for Renewables and Efficiency for more information on:

    For more information and updates on these types of financing programs across the country, see the recent report published by the Institute for Local Self Reliance "Municipal Energy Financing: Lessons Learned".

    Frequently Asked Questions

    1. How is this different from other loans for home improvements?

     The major differences are that repayment happens through a special assessment on the homeowner's property tax and that the loan would transfer (along with the distributed generation benefits) to the new homeowner if the property were sold before the loan matures. These loans are intended to be low-interest loans, but that does not guarantee that they are the lowest available. Interested applicants are advised to shop around as they would normally do when seeking a loan (the local bank might have lower rates). Keep in mind that unlike the Property Tax Financing programs which are repaid through taxes on the particular property, you will remain personally responsible to pay off a lower interest bank loan even if you sell the property.

    Additionally, a study by the Lawrence Berkeley National Laboratory and the Clean Energy States Alliance has found the interest paid on Property Tax Financing loans will likely be tax deductible for federal tax purposes. As more states adopt this policy, the IRS may specifically address this issue. However, until they do be sure to consult with a tax professional to discuss your particular situation.

    2. What about using rebates and grants to help pay for these improvements?

    In the states that offer rebates and grants, the available funding is usually limited—leaving some interested parties without support. When grants and rebates are available, they cover only a portion of cost of the distributed generation system and significant up-front costs can remain. Property Tax Financing programs can help cover these remaining costs and fill-in gaps that grant and rebate programs may not cover, such as for certain technologies or renewable energy applications. However, keep in mind that the local government will implement their own Property Tax Financing program and the rules may vary from location to location.

    3. How does the local government get the money for these loans?

    It depends; in certain states local governments are authorized to issue bonds to cover the costs of the programs. In other states local governments are authorized to enter into a partnership with a local financial institution to implement the program, where the financial institution would issue the loan but repayment would still happen via an assessment on the property tax.

    4. Can a business owner access this type of financing for renewable energy sited at the business?

    Local and state governments determine eligible participants. For example, the Boulder program is only open to residential customers; while the programs in California are open to commercial and residential (and in Palm Desert agricultural property owners as well). The state laws in New Mexico and Wisconsin limit the programs to providing financing to residential property owners. In the other states, commercial and residential property owners would be eligible if the local government program implemented includes them—that determination would be up to the local government.

    5. When will there be a clean energy financing program near me?

    If you live in one of the states where this policy has been adopted, you may be able to expect certain local governments to start adopting and rolling out programs over the next year. It takes time for the local governments to get approval (in some states, they need voter approval or they have to pass an ordinance) and develop the program specifics. Some local governments do not even know about this yet, so there can be a time lag before some local communities realize they can implement such programs. There may also be other concerns the local government is likely to address first, such as a troubled housing market or significant job losses. And, even though a state may have a policy authorizing this type of program, local governments are not obligated to participate. If you are interested and you live in a state that has authorized local governments to implement these programs, encourage your local officials to explore the possibilities.

    View full size

  • Property Taxation of Wind Generation Assets

    "Property Taxation of Wind Generation Assets," North American Windpower, May 2006, Vol. 3, No. 4, pp. 31-34. This article, written by Warren Ault, summarizes research he did for Windustry in 2005 into the actual and potential local economic benefits of wind power, focusing particularly on a survey of the varieties of approaches throughout the United States to the use of local property taxes. Click on the link below to download a PDF copy of the article.

  • Renewable Portfolio Standard (RPS)/Renewable Electricity Standard (RES)

    A minimum renewable energy requirement for a region's electricity mix. Under an RES, electricity suppliers are required to provide some percentage of its supply from renewable energy sources. RPS proposals frequently ease that requirement by including a tradable credit system under which electricity suppliers can meet the requirement by buying and selling renewable energy credits (RECs).

  • South Dakota PUC Interconnection Workshop

    2008

    The South Dakota Public Utilities Commission will host an interconnection workshop March 18-19, 2008, in Pierre. The workshop will be held at the Kings Inn Hotel and Conference Center, 110 E. Sioux Ave. This will be the first of several workshops designed to develop a statewide best practices model for connecting small generating facilities to the electric grid.

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  • States Advancing Wind Peer Network

    February 1, 2010 - 11:04am -- Anonymous

    Clean Energy States Alliance (CESA) would like to invite you to join a new States Advancing Wind Peer Network group as part of the DOE's Wind Powering America State Outreach Project. The goal of this initiative is to create a peer-to-peer network for sharing information on the merits, approaches, best program practices, and policy tools available for states to accelerate wind project development.

  • Understanding C-BED (2005)

    Minnesota’s original (2005) Community-Based Energy Development (C-BED) legislation offers some important benefits to community wind projects, but understanding how it works can be a little challenging. This article will try to explain the major aspects of the C-BED program and illustrate how community projects are helped with a simple example.

    (Please note that the C-BED legislation was updated in 2007 and that parts of this article are no longer applicable, although many of the concepts are.)

    Summary
    Nuts and Bolts - Net Present Value

    Example

    Further Reading


    Summary

    First, the legislation sets out ownership rules in its definition of C-BED projects, defining “qualified owners” as Minnesota residents, nonprofits, LLCs, non-electric co-ops, local governments and school systems, and tribal councils. No single qualified owner may control more than 15% of the project (except for one- and two-turbine projects), and the project must obtain the support of the county board where it will be installed. If new transmission lines must be built for the project, landowners whose property will be crossed by the lines must be given an opportunity to invest. The upshot of these rules is that more individuals are given a stake in the project, and its benefits will flow broadly to the community. (Projects can be joint ventures between qualified and non-qualified owners, but qualified owners must have the majority share, and the C-BED tariff benefits will not be received by the non-qualified owners.)

    Second, public utilities are required to set out a C-BED tariff. This tariff has two important differences from other tariffs. First, it has to allow for rates with a net present value of up to 2.7 cents per kilowatt hour over the 20-year life of the power purchase agreement (more on this shortly). Second, the tariff must provide for a higher rate in the first ten years of the contract than in the second ten years. The higher early rates will make it easier for project to obtain financing, while the use of net present value calculations makes sure that the utility’s bottom line is not jeopardized. While utilities are required to file a C-BED tariff and are directed to give consideration to C-BED projects when looking for new generation, they are not obligated to enter into any contracts with a C-BED project. This, too, helps make sure that C-BED contracts will be fair to all parties. Finally, C-BED projects have the option of negotiating a rate with different provisions than those specified in the legislation if they wish (for instance, choosing not to vary the rate over time). Any contracts which include the “front-loaded” rate must be approved by the Public Utilities Commission.

    Nuts and Bolts – Net Present Value

    The key to understanding the advantages of the C-BED tariff is the concept of net present value rates. This is a common financial tool, which basically reflects the idea that having a given amount of money today is more valuable than receiving the same amount of money in the future. That is, I’d rather have $100 right now than know I’ll receive $100 in five years, because I can put that money to work in the meantime. Similarly, in order to understand how much a series of payments is worth, all of the amounts need to be converted to their “present value” by applying a discount factor to the future payments. The further into the future the payment is, the less it’s worth today. By adding up the present values, we can determine the “net present value” of all the payments. So, would I rather have $400 today, or $100 a year for five years? That depends on the discount I apply to the future payments (or, put another way, how much interest my $400 will earn if I put it in my savings account or some other investment).

    C-BED requires utilities to determine the net present value of their rate schedule using the standard discount factor that they apply to their other business decisions. That means calculating the expected payments over the life of the contract and applying the discount to find the net present value of the series of payments. The net present value is then divided by the total energy produced over the 20 years, resulting in the “net present value rate” – the present value of every kilowatt-hour the project will produce over its lifetime. C-BED requires that the utility offer a tariff that provides for a rate schedule resulting in a net present value rate of up to 2.7 cents per kilowatt-hour.

    Different payment schedules can result in the same net present value. Since utilities are concerned with long-term planning, they are more concerned about protecting the net present value of a contract than about the specific amount of each payment. For community wind projects, however, the payment schedule can be very important, since they are faced with high capital costs and need to make large debt payments in the first part of the project’s life. By providing for a front-loaded payment schedule, in which the utility pays a higher rate early on and a lower rate later, the net present value of the payments can be maintained, while allowing a C-BED project to increase its income while its expenses are high. This higher income during the debt-service period can help make the project more attractive to lenders and improve access to financing.

    Example

    The simple C-BED spreadsheet contains a comparison of the front-loaded rate with a fixed rate, and may make it easier to understand how the net present value rate works. For this example, we’ve assumed a single wind turbine producing 5,200 MWh per year and annual debt payments of $150,000 for the first ten years. We’ll use 3% as the utility’s discount rate (a fairly standard rate for businesses), 3.5 cents/kWh for the flat rate example, and 4.2 and 2.8 cents/kWh for the rates in the front-loaded example. (You can plug in your own numbers in the Assumptions tab and see how the outcome changes on the other tabs.) To keep things simple, we’ll ignore insurance, maintenance, etc. and assume that debt service is the project’s only expense and that the turbine produces the same amount of electricity every year for twenty years.

    Looking at the Summary Comparison tab (copied in the table below), we can see that the total amount of cash received (the “nominal sales”) by the project is greater under the fixed rate, by about $100,000. After debt service, the fixed rate comes up with nominal net revenue of about $2.24 million, while the front-loaded rate results in net revenue of $2.14 million. Why, then, would the project opt for a front-loaded rate?

    Flat Rate Front-Loaded Rate
    Total Nominal Sales $3,744,000.00$3,640,000.00
    Nominal Net Revenue(afterDebtService)$2,244,000.00$2,140,000.00
    Present Value of Total Sales $2,785,063.29 $2,787,159.11
    Present Value of Net Revenue $1,505,532.87 $1,507,628.68
    Net Present Value Rate ($/kWh) $0.0268 $0.0268
    Sales:Debt Service ratio (years 1-10) 1.248 1.456

    Despite the higher nominal value of the fixed rate, the front-loaded rate has nearly the same present value (actually higher by about two thousand dollars). Providing higher dollar amounts in the first half of the project means that the money paid early on can go to work for the project, rather than having its value reduced by discounting over several years. In other words, the sooner the project can get its hands on the money, the more it’s worth. The increased value of the high payments early on are enough to outweigh the lower payments in the second half of the contract.

    Comparing the detail pages for each structure, we notice that the annual nominal revenue after debt service is nearly twice as much under the front-loaded scenario. By delivering more money early on, the front-loaded rate achieves a higher income-to-debt-service ratio, a key ratio banks consider when evaluating whether to issue a loan. A strong revenue stream early in the project’s life will make it easier for the project to get financing. Later, after the debt has been retired, the project can afford to accept a lower rate, since it will have fewer expenses.

    That explains why a wind project might opt for a front-loaded rate even if the nominal value of the payments is lower. Why would a utility be willing to consider such a payment structure? Well, as we saw, the net present value of both cash flows is nearly the same. On a per-kilowatt-hour basis, the utility would be faced with a net present value rate of 2.68 cents per kWh in both cases (just under the C-BED maximum). From a long-term perspective, the contracts would cost the utility about the same amount, and so they’re likely to be relatively indifferent between the two structures. Thus, the front-loaded rate creates a tremendous benefit for community wind projects in terms of helping them achieve financial feasibility, while not increasing the long-term cost to utilities.

    All utilities are faced with slightly different financial situations, and have differing expectations for the future. Therefore, they’ll each have different discount rates. Still, the general principle demonstrated here will apply to each. And again, the C-BED legislation explicitly states that while the utilities are required to develop a tariff offering a front-loaded rate, they are not required to enter into any contracts using it. So if a community wind project chooses to negotiate a front-loaded rate, the utility will have plenty of opportunity to make sure that the structure is workable for them and fits into their long-range financial planning.

    Further Reading

    Additional information about C-BED can be found at www.c-bed.org

    Wikipedia has a good entry on net present value, which includes links to additional information about cash flows and discount rates: http://en.wikipedia.org/wiki/Net_present_value

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