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| Title: | Wind Development in Minnesota: Policy and Economics |
| Authors: | Tiffany, Douglas G. |
| Authors (Email): | Tiffany, Douglas G. (tiffa002@umn.edu) |
| Issue Date: | 2006-08 |
| Series/Report no.: | Proceedings of the 10th Joint Conference on Agriculture, Food, and the Environment, August 27-30, 2006, Duluth, Minnesota |
| Abstract: | 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. |
| URI: | http://purl.umn.edu/6626 |
| Institution/Association: | University of Minnesota>Center for International Food and Agricultural Policy>Conference Papers |
| Total Pages: | 34 |
| Collections: | Conference Papers
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