Wind Development in Minnesota: Policy and Economics

The growth of wind power as an aspect of Minnesota’s portfolio of electricity has been propelled to its current level by policy initiatives at both the federal and state levels. Existing statutes establish requirements for further expansion of wind energy in this state in the years to come. Locally, production economics exert their influence as wind speed and duration are translated to capacity factor, which reveals the amount of power that can be generated at a particular site. After the flow resource is thus quantified, comes the calculus of economic viability. This consists of determining the capital and operating costs and eligibility for loans and grants as well as the negotiations of wind rights, easements, and power purchase agreements. To date, policy initiatives have been directed toward the production, or generation side of this variable flow resource. Entrepreneurs and lawyers have become more skillful at organizing business forms that can effectively bring together partners capable of utilizing the substantial tax benefits available through the federal Production Tax Credit (PTC) as well as attractive state-sponsored incentives and tariffs offered by utilities. The variable nature of electrical power capacity from wind has been problematic for utilities, which try to meet the variable loads required by the summed demand of their customers. In Minnesota, peak power demands occur in summer months when wind power is the lowest. In addition to seasonal demands, daily and weekly patterns must be accommodated by utilities serving the markets for electricity. By developing and using an investment model, it is possible to understand investor motivations driving the growth of wind energy in this state and the country. Net present values (NPV) and internal rates of return (IRR) are calculated over the life of power production projects conforming to various conditions such as wind capacity factor, the federal Production Tax Credit (PTC), state incentive plans for community-based energy providers, federal grant and loan programs, as well as emerging opportunities to sell “green tags” for renewable power generation. The numerous incentives provided for windpower development on the generation side highlight the difficulties of providing sufficient transmission capacity for to carry this power from the often remote areas where generated to load centers. Equivalent incentives deployed with similar imagination are needed to enhance investment in a transmission system capable of carrying increasing volumes of wind and other renewable sources of electricity.