Incentives for Small Scale Wind Energy Development -
Updated August 2007: Prior to the 2007 legislative
session, Minnesota had a renewable
energy mandate that applied to one electric utility and also a
10 percent renewable energy goal that applied to all utilities.
Since Minnesota has an enormous wind energy potential, most of the
renewable energy development built to satisfy these requirements
will come in the form of wind energy.
The 2007 legislature adopted a stronger renewable energy standard
that applies to all the state's utilities - 25% by 2025 (30% by 2020
for Xcel Energy).
Recognizing the benefits that small-scale and locally-owned wind
projects can have, Minnesota lawmakers also enacted an incentive
program targeted at wind energy projects sized at 2 MW or less that
were built in the state. Minnesota's Renewable energy production
incentive statute (MN Statutes §216C.41) provides qualfied
facilities a 1.5 cent per kilowatt-hour production payment for 10
years provided the facility is in place by 2007. The program was
originally limited to a total of 100 MW worth of small-scale
projects. But that limit was quickly reached and lawmakers expanded
the program to 200 MW.
Comments from New Rules Project
The New Rules Project is supportive of renewable energy
development and generally supports this effort in Minnesota to
support small-scale dispersed wind energy. However, we feel that a
better approach is to require electric utilities to create a
community based energy development tariff - with higher payments in
the first 10 years of the power purchase agreement.
The primary reason for the production incentive program was to
help project owners deal with the high initial capital costs
incurred when setting up a wind energy project. Typically, project
owners will see small positive cash flows in first 10 years of the
project and will begin to see a significant positive cash flows
after their debt is paid off (after 10 years).
If a production incentive approach is adopted, states should
consider making the program into a revolving loan type arrangement
where some or all of the incentive is paid back after the 10 year
period. That would still allow small-scale wind projects to deal
with their up front capital cost needs and be brought on-line, yet
it would result in a program that could fund even more small-scale
wind projects without needing to continually get legislative
Another Approach: C-BED Tariffs
June 2006 Update: Minnesota has adopted legislation that
eliminates the need for the small wind incentive program altogether.
Based Energy Development (C-BED) tariffs in Minnesota are
replacing the incentive program. The C-BED initiative eliminates the
need for a 10-year state incentive payment by allowing wind projects
to negotiate PPAs that are front loaded with higher payments for the
first 10 years of a 20-year contract.