Conference Attendees Examine North Dakota’s Wind Energy Potential
By: CHRISTINA K. BRUSVEN
May 2009
Nearly 100 industry leaders, policymakers, developers, consultants, and landowners gathered in Bismarck, N.D., on February 23, 2009, to discuss how new federal and state policies are expected to influence wind development in North Dakota.
North Dakota Department of Commerce Commissioner Shane Goettle told attendees that North Dakota’s superior wind resource and supportive state policies make the state an ideal place to develop wind. Commissioner Goettle pointed out that the 865 MW of wind capacity currently installed or under construction in North Dakota is geographically dispersed, making wind development important to the economic development for the entire state.
Recognizing this fact, the EmPower North Dakota Commission, which Goettle chairs, supported legislative proposals to make the state’s current sales tax exemption for wind facilities permanent and extend the property tax reduction and income tax credit through 2015. Goettle believes these policies will send a clear message to wind developers that North Dakota is open for business.
Matching Economic Models With Appetites for Risk and Reward
Wind developers shared how they match their economic models with the risk/reward profile of the particular communities in which they work. Geronimo Wind, M-Power, and National Wind use community wind models in which participating landowners share in the ownership and economic benefits of the wind project. Typically, these participating landowners have capital at risk during the early stages of development and retain a percentage of ownership interest throughout the life of a project.
Tim Seck from developer Iberdrola explained how Iberdrola has partnered with local communities with lower risk thresholds to offer a revenue participation model, where Iberdrola owns 100% of the project but pays landowners a stream of revenue from the production of wind energy in a manner similar to a royalty payment from an oil and gas lease.
Analyzing Effects of Tax Credits
Developers and other industry professionals also focused on how they saw the energy provisions in the American Recovery and Reinvestment Tax Act of 2009 (“ARRA”) affecting their business models. The general consensus was that each developer would run multiple economic assumptions through a project pro forma to analyze whether the federal production tax credit, investment tax credit, or cash grant in lieu of the investment tax credit would be most beneficial for a particular project.
The strength of the wind resource, balance sheet of the developer, and the tax appetite of equity partners appear to be the key drivers in that analysis. Because the outcome of the economic analysis is likely to be very project-specific, most felt that any developer could end up with a portfolio of projects using each of the different incentives made available in the ARRA.
Addressing Challenges for Development in North Dakota
Speakers also touched on the challenges of developing wind projects in North Dakota. Transmission constraints and environmental challenges were identified as having the potential to limit future development in North Dakota. Commissioner Goettle estimated that without a buildout of high voltage transmission lines to export wind to major Midwestern cities and places farther East, North Dakota’s wind capacity could be limited to about 1500 MW, roughly double the existing installations in the state.
It was generally recognized that even if incentives included in the ARRA, recent announcements of private transmission proposals, and other recent study work and queue reforms result in the new high voltage transmission, it will be several years before the needed transmission lines will be built.
Attorney Mollie Smith of Fredrikson & Byron and Jennifer Turnbow of Kadrmas, Lee & Jackson, an environmental consulting firm, discussed environmental issues and important federal, state, and local permits needed to construct a wind farm. Smith pointed out that much of North Dakota is in the approximately 200-mile-wide migratory path of the whooping crane, which is a federally endangered species. Discussions are currently under way to establish a programmatic Habitat Conservation Plan that could be followed by all wind developers. Until such a plan is established, the current timeline for working through this issue can be between 18 and 24 months.
Due to the increasing number of interconnection requests from wind developers applying to the Western Area Power Administration (WAPA), WAPA and the U.S. Fish & Wildlife Service are currently undertaking an effort to develop a programmatic Environmental Impact Statement (EIS). This effort, too, should streamline the environmental process for wind developers.
Takeaway
Despite concern over the identified economic, transmission, and environmental challenges facing wind developers, conference participants remained optimistic that the wind resource in North Dakota would continue to drive development and that North Dakota will serve as a key resource in meeting the increasing demand for renewable energy.