Wind Development in Minnesota: Policy and Economics

The growth of wind power as an aspect of Minnesota’s portfolio of electricity hasbeen propelled to its current level by policy initiatives at both the federal and statelevels. Existing statutes establish requirements for further expansion of windenergy in this state in the years to come. Locally, production economics exert theirinfluence as wind speed and duration are translated to capacity factor, whichreveals the amount of power that can be generated at a particular site. After theflow resource is thus quantified, comes the calculus of economic viability. Thisconsists of determining the capital and operating costs and eligibility for loans andgrants as well as the negotiations of wind rights, easements, and power purchaseagreements.To date, policy initiatives have been directed toward the production, or generationside of this variable flow resource. Entrepreneurs and lawyers have become moreskillful at organizing business forms that can effectively bring together partnerscapable of utilizing the substantial tax benefits available through the federalProduction Tax Credit (PTC) as well as attractive state-sponsored incentives andtariffs offered by utilities.The variable nature of electrical power capacity from wind has been problematicfor utilities, which try to meet the variable loads required by the summed demand oftheir customers. In Minnesota, peak power demands occur in summer monthswhen wind power is the lowest. In addition to seasonal demands, daily and weeklypatterns must be accommodated by utilities serving the markets for electricity.By developing and using an investment model, it is possible to understand investormotivations driving the growth of wind energy in this state and the country. Netpresent values (NPV) and internal rates of return (IRR) are calculated over the lifeof power production projects conforming to various conditions such as windcapacity factor, the federal Production Tax Credit (PTC), state incentive plans forcommunity-based energy providers, federal grant and loan programs, as well asemerging opportunities to sell “green tags” for renewable power generation.The numerous incentives provided for windpower development on the generationside highlight the difficulties of providing sufficient transmission capacity for tocarry this power from the often remote areas where generated to load centers.Equivalent incentives deployed with similar imagination are needed to enhanceinvestment in a transmission system capable of carrying increasing volumes of windand other renewable sources of electricity.