Renewable Energy
Wind Power's Contribution to Electric Power Generation and Impact on Farms and Rural Communities Gao ID: GAO-04-756 September 3, 2004Wind-generated electricity--wind power--has the potential to provide electricity to homes and businesses without causing air pollution or depleting nonrenewable resources, unlike electricity generated by fossil fuels (coal, natural gas, and oil). Furthermore, because wind power has no fuel costs--wind power depends on the energy of the wind--its operating costs are lower than the costs for power produced from fossil fuels, although its capital costs are greater. Wind power relies on frequent, strong winds to turn the blades of power-generating turbines. In the United States, a wind turbine with generating capacity of 2 megawatts (MW), placed on a tower situated on a farm, ranch, or other rural land, can generate enough electricity in a year--about 6 million kilowatt hours (kWh)--to serve the needs of 500 to 600 average U.S. households. In addition to environmental benefits, wind power has the potential to contribute significantly to America's growing energy needs while providing economic benefits to farms and communities in rural America. In this connection, the Department of Energy's (DOE) "Wind Powering America" program has set a goal of producing 5 percent of the nation's electricity from wind by 2020. DOE estimates that achieving this goal would add $60 billion in capital investment in rural America, provide $1.2 billion in new income for farmers and rural landowners, and create 80,000 new jobs by that year. Congress asked us to report on (1) the amount of wind power generation in relation to all U.S. electricity generation and the prospects for wind power's growth, (2) the contribution of wind power generation to farmers' income and to the economic well-being of rural communities in the 10 states with the highest wind power generation capacity, (3) the advantages and disadvantages for farmers of owning a wind power project versus leasing their land to a commercial wind power developer, and (4) the efforts of USDA to promote the development of wind power on farms and in rural communities.
Nationwide, wind power accounted for only about one-tenth of 1 percent of total electric power generation capacity in 2003, and an even smaller percentage of electric power actually generated. However, U.S. wind power generating capacity quadrupled between 1990 and 2003--to 6,374 MW--and DOE has projected continued growth for this renewable power source through 2025. On a percentage basis, wind power capacity has been growing at a much higher rate than other sources of electric power generation--an average annual growth rate of 28 percent during the period 1999 through 2003. In addition, according to DOE, the U.S. Midwest theoretically has enough wind power potential to meet a significant portion of the nation's electricity needs; however, this potential remains largely untapped. Wind power does not currently contribute significantly to total farm income in the 10 states with the highest installed wind power capacity, but some individual farmers and rural communities have benefited considerably from this energy source. In these 10 states, net farm income was about $14 billion in 2002, but total direct income to farmers from wind power ranged from only $10 million to $45 million, representing a fraction of 1 percent of net farm income. However, wind projects located on farms have increased some individual farmers' income by tens of thousands of dollars annually. Farmers generally find leasing their land for wind power projects to be easier than owning projects. Leasing is easier because, unlike farmers, energy companies have the financial resources and legal and technical expertise to address the costs, complexity, tax advantages, and risks of wind power development. However, ownership may be more profitable than leasing. USDA has not fully utilized all of the farm bill's renewable energy provisions to promote wind power development on farms and in rural communities. For the Renewable Energy Systems and Energy Efficiency Improvements Program (Renewable Energy Program)--the key program for supporting wind power and other renewable energy initiatives--USDA offered grants totaling $7.4 million for 35 wind power projects in eight states in fiscal year 2003, the program's first year, but it has not implemented the loan and loan-guarantee components of the program. Without the latter, USDA has not fully fulfilled farm bill provisions and limits the ability of the program to promote renewable energy sources.
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Director: Team: Phone:GAO-04-756, Renewable Energy: Wind Power's Contribution to Electric Power Generation and Impact on Farms and Rural Communities
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Report to the Ranking Democratic Member, Committee on Agriculture,
Nutrition, and Forestry, U.S. Senate:
September 2004:
RENEWABLE ENERGY:
Wind Power's Contribution to Electric Power Generation and Impact on
Farms and Rural Communities:
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-756]:
GAO Highlights:
Highlights of GAO-04-756, a report to the Ranking Democratic Member,
Committee on Agriculture, Nutrition, and Forestry, U.S. Senate:
Why GAO Did This Study:
Wind power provides electricity without polluting the air or depleting
nonrenewable resources. Wind power relies on steady winds to turn the
blades of power-generating turbines. Because these turbines generally
are located on rural lands, wind power could also provide economic
benefits to farmers and rural communities. The 2002 farm bill created
a renewable energy program and authorized $115 million for the U.S.
Department of Agriculture (USDA) to provide assistance for renewable
energy projects, including wind power. GAO was asked to examine (1)
the amount of electricity generated by U.S. wind power and prospects
for its growth, (2) the contribution of wind power to farmers‘ income
and rural communities, (3) the advantages and disadvantages for farmers
of owning a wind power project versus leasing land for a project, and
(4) USDA‘s efforts to promote wind power in rural communities.
What GAO Found:
Wind power accounted for only about one-tenth of 1 percent of total
U.S. electric power generation capacity in 2003, but wind power
capacity quadrupled between 1990 and 2003, and the Department of Energy
has projected continued growth through 2025. However, most of the
nation‘s wind potential remains untapped. Wind power‘s growth will
depend largely on the continued availability of federal and state
financial incentives, including tax credits, and expected increases in
prices for fossil fuels.
Although wind power does not contribute significantly to total farm
income in the 10 states with the highest installed wind power capacity,
it has considerably benefited some farmers and rural communities. For
example, a farmer who leases land for a wind project can expect to
receive $2,000 to $5,000 per turbine per year in lease payments. In
addition, large wind power projects in some of the nation‘s poorest
rural counties have added much needed tax revenues and employment
opportunities.
Farmers generally find leasing their land for wind power projects to
be easier than owning projects. Less than 1 percent of wind power
capacity installed nationwide is owned by farmers. Leasing is easier
because energy companies can better address the costs, technical
issues, tax advantages, and risks of wind projects. However, ownership
of a turbine may double or triple the farmer‘s expected income over
leasing.
USDA has not fully utilized all of the farm bill‘s renewable energy
provisions to promote wind power. In particular, although it offers
grants under its renewable energy program, USDA has not issued a
regulation to offer loans and loan guarantees as well. A higher program
level could be achieved by using these funding mechanisms. Loans also
may be a more cost-effective way to provide federal assistance than
grants. USDA also is missing opportunities to obtain EPA‘s assistance
in implementing the program. For example, EPA‘s Office of Air and
Radiation has extensive contacts with utilities interested in
purchasing power from renewable sources. Finally, applicants and others
have raised concerns about the complexity of the application process
and short time frame for completing applications.
Areas with Strong Wind Resource Potential:
[See PDF for image]
[End of figure]
What GAO Recommends:
To ensure USDA‘s timely and full implementation of its renewable energy
program, USDA should (1) identify ways to accelerate its development of
the program regulation, (2) work with the Environmental Protection
Agency (EPA) to determine what assistance that agency can provide, and
(3) continue to examine ways to streamline the program application
process. USDA agreed with GAO‘s recommendations.
www.gao.gov/cgi-bin/getrpt?GAO-04-756.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Lawrence J. Dyckman at
(202) 512-3841 or dyckmanl@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Wind Power Is a Small but Growing Part of the Nation's Electric Power
Generation Capacity:
Wind Power Does Not Contribute Significantly to Total Farm Income, but
Some Individual Farmers and Communities Have Benefited:
Leasing Land for Wind Power Projects Is Easier Than Owning, and Most
Farmers Do Not Qualify for Tax Credit:
USDA Can Do More to Promote Wind Power:
Farm Bill Provisions Promote Renewable Energy Systems, Including Wind
Power, but USDA Has Not Made Full Use of These Provisions:
Conclusions:
Recommendations:
Agency Comments:
Appendixes:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Sources for Information on Wind Power Generation:
Appendix III: Results of NREL Modeling on Potential Economic Impacts of
Wind Power on Rural Communities:
Appendix IV: Summary of Visits to Wind Power Projects in Five States:
Projects in California:
Projects in Colorado:
Projects in Iowa:
Projects in Minnesota:
Projects in Texas:
Appendix V: The Wind Project Development Process:
Appendix VI: Comments from the U.S. Department of Agriculture:
Appendix VII: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Staff Acknowledgments:
Related GAO Products:
Tables:
Table 1: Major Steps in the Wind Power Project Development Process:
Table 2: Four Types of Lease Payment Options:
Table 3: Minnesota Initiatives That Promote Small Landowner-Owned Wind
Projects:
Table 4: Farm Bill Provisions to Further Wind Power's Growth:
Table 5: Status of USDA's Implementation of Farm Bill Provisions That
Support Wind Power's Growth:
Table 6: USDA Grant Assistance for Renewable Energy and Energy
Efficiency Projects in 2003:
Table 7: Counties Included in NREL's Economic Analysis:
Table 8: Economic Impacts during Construction Period of 150 MW Wind
Power Project Owned by Out-of-Area Energy Company:
Table 9: Economic Impacts during Construction Period of 40 MW Wind
Power Project Owned by Out-of-Area Energy Company:
Table 10: Economic Impacts during Operations Period of 150 MW Wind
Power Project Owned by Out-of-Area Energy Company:
Table 11: Economic Impacts during Operations Period of 40 MW Wind Power
Project Owned by Out-of-Area Energy Company:
Table 12: Economic Impacts during Operations Period of 20 Locally Owned
Wind Power Projects, Each with a 2 MW Capacity:
Figures:
Figure 1: Wind Farm in Lake Benton, Minnesota:
Figure 2: Horizontal and Vertical Axis Wind Turbines:
Figure 3: U.S.-Installed Wind Power Generating Capacity, 1981 through
2003, in MW:
Figure 4: Installed Wind Power Generating Capacity by State, as of
December 2003, in MW:
Figure 5: Areas with the Highest Wind Potential in the United States:
Figure 6: Leading States' Installed Wind Power Capacity Compared with
Wind Potential:
Figure 7: Renewable Portfolio Standards for 17 States, as of August
2004:
Figure 8: Fluctuations in the Installation of New Wind Power Capacity
Related to the Changing Availability of the Production Tax Credit
(PTC):
Figure 9: Horizontal Axis Wind Turbines, Altamont Pass, California:
Figure 10: Vertical Axis Wind Turbines, Altamont Pass, California:
Figure 11: Wind Turbines, Solano County, California:
Figure 12: Wind Turbines, Weld County, Colorado:
Figure 13: Wind Turbine, Dickinson County, Iowa:
Figure 14: Wind Turbines, Buena Vista County, Iowa:
Figure 15: Wind Turbines, Pipestone County, Minnesota:
Figure 16: Wind Turbine, Rock County, Minnesota:
Figure 17: Wind Turbines, Pipestone County, Minnesota:
Figure 18: Wind Turbines, Pecos County, Texas:
Abbreviations:
AWEA: American Wind Energy Association:
BSE: bovine spongiform encephalopathy:
DOE: Department of Energy:
EIA: Energy Information Administration:
EPA: Environmental Protection Agency:
kW: kilowatt:
kWh: kilowatt hour:
MW: Megawatt:
MWh: Megawatt hour:
NOFA: Notice of Funds Availability:
NREL: National Renewable Energy Laboratory:
OMB: Office of Management and Budget:
PTC: production tax credit:
RBS: Rural Business-Cooperative Service:
USDA: United States Department of Agriculture::
Letter September 3, 2004:
The Honorable Tom Harkin:
Ranking Democratic Member:
Committee on Agriculture, Nutrition, and Forestry:
United States Senate:
Dear Senator Harkin:
Wind-generated electricity--wind power--has the potential to provide
electricity to homes and businesses without causing air pollution or
depleting nonrenewable resources, unlike electricity generated by
fossil fuels (coal, natural gas, and oil). Furthermore, because wind
power has no fuel costs--wind power depends on the energy of the wind-
-its operating costs are lower than the costs for power produced from
fossil fuels,[Footnote 1] although its capital costs are greater. Wind
power relies on frequent, strong winds to turn the blades of power-
generating turbines. In the United States, a wind turbine with
generating capacity of 2 megawatts (MW),[Footnote 2] placed on a tower
situated on a farm, ranch, or other rural land, can generate enough
electricity in a year--about 6 million kilowatt hours (kWh)[Footnote
3]--to serve the needs of 500 to 600 average U.S. households. Figure 1
shows part of a wind power project, also referred to as a wind farm, in
Lake Benton, Minnesota.
Figure 1: Wind Farm in Lake Benton, Minnesota:
[See PDF for image]
Note: The farm depicted has 143 turbines producing enough electricity
annually to serve about 33,000 typical U.S. homes.
[End of figure]
In addition to environmental benefits, wind power has the potential to
contribute significantly to America's growing energy needs while
providing economic benefits to farms and communities in rural
America.[Footnote 4] In this connection, the Department of Energy's
(DOE) "Wind Powering America" program has set a goal of producing 5
percent of the nation's electricity from wind by 2020. DOE estimates
that achieving this goal would add $60 billion in capital investment in
rural America, provide $1.2 billion in new income for farmers and rural
landowners, and create 80,000 new jobs by that year.
About 90 percent of wind power generation now occurs in 10
predominately midwestern and western states--California, Colorado,
Iowa, Minnesota, New Mexico, Oklahoma, Oregon, Texas, Washington, and
Wyoming--that generally have extensive open spaces with frequent,
strong winds. Areas considered favorable for wind power generation have
average annual wind speeds of about 16 miles per hour or more.
The Farm Security and Rural Investment Act of 2002 (farm bill)
authorized $115 million through fiscal year 2007 for farm-based
renewable energy initiatives,[Footnote 5] part of which will go to wind
power projects. The U.S. Department of Agriculture (USDA) is
responsible for implementing the farm bill's provisions in consultation
with DOE. While many people could benefit indirectly from the clean air
and economic growth brought about by wind power development, farmers
and other rural landowners, such as ranchers (hereafter referred to as
farmers) can benefit directly. They can receive lease payments from
commercial developers for the turbines placed on their land or own
projects outright, selling electricity to a local utility. Furthermore,
even large wind turbines use only about a quarter-acre of land each,
including access roads, so farmers can continue to plant crops and
graze livestock up to the base of the turbines.
Wind power's developers have relied on the federal production tax
credit, which provides a credit for electricity generated by renewable
energy sources such as wind turbines--about 1.8 cents per kWh during
2003. Recipients of the tax credit receive it for up to 10 years from
the project's initial operation. This credit has helped to offset the
significantly higher capital costs per unit of generating capacity
needed to start up wind power projects compared with projects for
fossil fuel power generation, according to government and industry
experts. Experts also expect that future improvements in wind power
technology and forecasts for higher fossil fuel prices will help wind
power compete with other sources of electric power generation without
reliance on the tax credit.
You asked us to report on (1) the amount of wind power generation in
relation to all U.S. electricity generation and the prospects for wind
power's growth, (2) the contribution of wind power generation to
farmers' income and to the economic well-being of rural communities in
the 10 states with the highest wind power generation capacity, (3) the
advantages and disadvantages for farmers of owning a wind power project
versus leasing their land to a commercial wind power developer, and (4)
the efforts of USDA to promote the development of wind power on farms
and in rural communities.
To conduct this work, we interviewed officials or reviewed
documentation from DOE's Energy Information Administration (EIA),
Office of Energy Efficiency and Renewable Energy, and National
Renewable Energy Laboratory (NREL); USDA's Economic Research Service,
Office of Energy Policy and New Uses, Farm Service Agency, National
Agricultural Statistics Service, and Rural Business-Cooperative
Service; the Environmental Protection Agency (EPA); the Federal Energy
Regulatory Commission; commodity groups such as the National Corn
Growers Association; the Union of Concerned Scientists; the American
Wind Energy Association (AWEA); the Edison Electric Institute; the
Electric Power Research Institute; and Windustry (a rural-based, wind
stakeholder organization). We also visited nine wind power projects in
five states with substantial installed wind power generating capacity:
California, Colorado, Iowa, Minnesota, and Texas. At these locations,
we generally met with landowners, project investors and owners, state
and local taxing authorities, community leaders, and electric utility
officials. To some extent, our work was limited because we did not have
access to some proprietary cost and income data. We focused on utility-
scale wind power projects--projects that generate at least 1 MW of
electric power annually for sale to a local utility. Utility-scale
projects account for most U.S. wind power generation. In addition, we
reviewed our own past work, relevant publications of the Congressional
Budget Office and the Congressional Research Service, and applicable
laws, regulations, and executive orders. We conducted our review from
February 2003 through August 2004 in accordance with generally accepted
government auditing standards. We did not independently verify the data
obtained from any of these sources. However, as appropriate, we
discussed with these sources the measures they take to ensure the
accuracy of these data. These measures seemed reasonable. Appendix I
provides additional information on our scope and methodology. Appendix
II provides further information on the sources used in our work.
Results in Brief:
Nationwide, wind power accounted for only about one-tenth of 1 percent
of total electric power generation capacity in 2003, and an even
smaller percentage of electric power actually generated. However, U.S.
wind power generating capacity quadrupled between 1990 and 2003--to
6,374 MW--and DOE has projected continued growth for this renewable
power source through 2025. On a percentage basis, wind power capacity
has been growing at a much higher rate than other sources of electric
power generation--an average annual growth rate of 28 percent during
the period 1999 through 2003. In addition, according to DOE, the U.S.
Midwest theoretically has enough wind power potential to meet a
significant portion of the nation's electricity needs. However, this
potential remains largely untapped: Many of the states with the
greatest wind potential, such as North Dakota and South Dakota, have
seen little investment in wind power projects. Several factors
constrain growth in these states, such as the lack of (1) nearby
significant population centers with the large electric power demand
needed to justify substantial investments in wind power and (2)
adequate transmission capacity to carry electricity produced from wind
power in sparsely populated rural areas to distant cities.
Other factors, however, promote growth, such as state financial and tax
incentives and environmental and energy security concerns. For example,
state incentives have promoted wind power projects in California,
Texas, and Minnesota--the leading states in installed wind power
projects. In addition, wind power does not create the pollution or
greenhouse gas emissions associated with fossil fuel power generation,
and expanded use of renewable energy sources such as wind power can
help reduce the nation's dependence on imported fossil fuels. Still,
according to DOE and industry sources, the principal factor encouraging
investment in wind power projects will be the continued availability of
the federal production tax credit. If this credit is available for
projects initiated through 2010, DOE estimates that wind power
generation capacity could increase to 48,000 MW or more by 2025, enough
to power about 13 million U.S. homes, based on current usage rates;
without it, this generation capacity is likely to increase to 11,000
MW. As with any federal tax credit, there are impacts on the nation's
budget. For example, the Congressional Joint Committee on Taxation
estimates that if the authorization for the production tax credit were
extended through 2006, its cost to the Treasury for the 10-year period
ending in 2013 would be $3 billion, or about $300 million annually.
Wind power does not currently contribute significantly to total farm
income in the 10 states with the highest installed wind power capacity,
but some individual farmers and rural communities have benefited
considerably from this energy source. In these 10 states, net farm
income was about $14 billion in 2002, but total direct income to
farmers from wind power ranged from only $10 million to $45 million,
representing a fraction of 1 percent of net farm income. However, wind
projects located on farms have increased some individual farmers'
income by tens of thousands of dollars annually. For example, a farmer
who leases land to a wind project developer can generally expect to
obtain $2,000 to $5,000 per turbine per year in lease payments,
depending on factors such as the size of the project, the capacity of
the turbines, and the amount of electricity produced. In addition,
lease arrangements generally assure farmers that they will have a
relatively stable income from wind power generation for the life of the
lease, which may exceed 20 years. Furthermore, large wind power
projects have been established in some of the nation's poorest rural
counties. In general, these rural communities have little industry, but
have benefited from the tax revenues and employment opportunities
associated with these wind projects. For example, in 2002, the school
districts in Pecos County, Texas, received about $5 million in property
tax revenues from wind power projects. These projects also created
about 30 to 35 full-time permanent jobs to operate and maintain the
projects.
Farmers generally find leasing their land for wind power projects to be
easier than owning projects. Wind power projects owned or partly owned
by farmers account for less than 1 percent of utility-scale wind power
capacity installed nationwide. Leasing is easier because, unlike
farmers, energy companies have the financial resources and legal and
technical expertise to address the costs, complexity, tax advantages,
and risks of wind power development. However, ownership may be more
profitable than leasing. For example, whereas lease payments for a
single turbine may provide several thousand dollars a year to a
landowner, a farmer's ownership of the turbine may double or triple
that income. On the other hand, a farmer-owner may be able to afford
the installation of only one or two turbines, but leasing land to an
energy company could result in the installation of a dozen or more
turbines. In the latter case, although the farmer's income per turbine
would be less, the total income received by the farmer would be
substantially greater. Although the federal renewable energy production
tax credit is usually considered crucial for wind power development,
individual farmers generally cannot use this credit because they lack
sufficient tax liability. One state--Minnesota--provides a financial
incentive to overcome this obstacle. Specifically, Minnesota offers a
renewable energy cash incentive--1.5 cents per kWh of electricity
produced--for wind projects up to 2 MW, regardless of income. In
addition, some Minnesota farmers have entered into equity partnerships
with other investors to benefit from the production tax credit
indirectly. In these cases, the investor generally owns a majority
interest in the project for the first 10 years, receiving most of the
project income and the benefits of the credit. After this 10-year
period, the majority ownership is transferred to the farmer, who will
receive most of the associated income.
USDA has not fully utilized all of the farm bill's renewable energy
provisions to promote wind power development on farms and in rural
communities. For the Renewable Energy Systems and Energy Efficiency
Improvements Program (Renewable Energy Program)--the key program for
supporting wind power and other renewable energy initiatives--USDA
offered grants totaling $7.4 million for 35 wind power projects in
eight states in fiscal year 2003, the program's first year, but it has
not implemented the loan and loan-guarantee components of the program.
Without the latter, USDA has not fully fulfilled farm bill provisions
and limits the ability of the program to promote renewable energy
sources. For example, USDA budget documents indicate that the addition
of loans and loan guarantees would increase the program level to about
$200 million annually. Direct loans would be made from funds borrowed
from the U.S. Treasury. Guaranteed loans would be made from funds
loaned by banks and other private lending institutions. Loans also may
be a more cost-effective way to provide federal assistance than
outright grants. USDA has not offered loans and loan guarantees because
it has yet to issue a regulation for the program. It had planned to
issue the proposed and final regulations in the Federal Register during
fiscal year 2004. However, the agency was unable to hold to this
schedule and, as a result, announced only the availability of grants
again in fiscal year 2004. USDA officials cited several factors as
delaying the agency's completion of the program regulation, including
the notice and comment provisions of the Administrative Procedure Act,
delays in hiring a contractor to help develop the regulation, and the
newness and uniqueness of the program.
In addition, USDA may be missing opportunities to leverage information,
resources, and expertise available from EPA to implement the Renewable
Energy Program. It also may have further opportunities to simplify the
application process for the program. USDA invited only one EPA office
to participate in USDA's Rural Energy Working Group. This office
promotes energy generation from the anaerobic digestion of biomass.
However, other EPA offices may be able to assist the program's
implementation as well, including providing specific assistance for
wind power. For example, officials in EPA's Office of Air and
Radiation, which works with electric power utilities interested in
purchasing electricity from renewable sources, said they could assist
wind power applicants in locating potential buyers for the electricity
to be produced. Regarding the application process, applicants and other
stakeholders have expressed concerns about the complexity and time
constraints of completing required feasibility studies, negotiating
tentative agreements with an electricity buyer, preparing the required
financial information to demonstrate need under the program, and
compiling information needed for environmental assessments. Although
USDA acknowledges these concerns and made changes to its implementation
of the program in fiscal year 2004 based on these concerns, there may
be further opportunities to simplify and streamline the application
process.
In light of these issues, we are recommending that USDA identify ways
to accelerate the development of the regulation for the Renewable
Energy Program in order to make loans and loan guarantees available to
program applicants expeditiously. In addition, we are recommending that
USDA work with EPA to identify other EPA offices that may be able to
assist USDA in implementing the program and that USDA continue to
examine ways to simplify the application process for the program based
on input from applicants and other stakeholders.
In commenting on a draft of this report, USDA agreed with the
recommendations and stated the agency would take every opportunity to
expedite the rule making process, increase coordination with EPA, and
examine ways to simplify the grant application process. USDA's comments
are reprinted in appendix VI. USDA also provided us with suggested
technical corrections, which we incorporated into this report as
appropriate.
We also provided a draft of this report to DOE and EPA for review and
comment. Their clarifying comments were incorporated into this report,
as appropriate.
Background:
Description of Wind Power:
Wind power is one of several renewable energy options. Other renewable
sources include sunlight (photovoltaics), heat from the sun (solar
thermal), naturally occurring underground steam and heat (geothermal),
plant and animal waste (biomass), and water (hydropower). Unlike fossil
fuels,[Footnote 6] renewable energy sources are continuously
replenished.
Wind turbines can be used by themselves or be connected to a utility
power grid. Stand-alone turbines can be used for pumping water--for
example, to irrigate fields. However, homeowners and farmers in windy
areas can also use stand-alone turbines to generate electricity for
their own personal or on-farm use. For utility-scale sources of wind
power, a number of turbines are usually built close together to form a
wind farm. Currently, more than 50 electric power utilities use wind
farms to produce part of the electricity supplied to their customers.
In general, wind turbines are divided into two major categories:
horizontal axis turbines, which resemble a windmill, and vertical axis
turbines, which resemble an eggbeater. Figure 2 depicts each type of
turbine.
Figure 2: Horizontal and Vertical Axis Wind Turbines:
[See PDF for image]
[End of figure]
The horizontal axis turbine is the most commonly used, constituting
nearly all utility-scale turbines in the United States. To generate
electricity, this type of turbine captures the wind's energy with two
or three propellerlike blades that are mounted on a rotor. These rotors
sit atop towers, taking advantage of the stronger and less turbulent
wind at 100 feet (30 meters) or more above ground. The turbine blades
generally are constructed of fiberglass, may be up to 20 meters in
length, and may weigh several thousand pounds each. A horizontal axis
turbine typically has a mechanism to keep the rotor headed into the
wind, while a vertical axis turbine can accept wind from any direction.
Federal Role in Promoting the Use of Wind Power:
The federal government represents the largest institutional user of
energy in the world, and thus it is potentially a large market for wind
and other renewable energy sources.[Footnote 7] Specifically, through
its purchasing decisions, the federal government has the opportunity to
affirm its energy and environmental policies and goals, including its
goals for promoting the use of renewable sources such as wind power. In
this regard, Executive Order 13123, issued in 1999, requires federal
agencies to increase their use of renewable energy to a percentage
determined by the Secretary of Energy. In 2000, the Secretary directed
that federal agencies obtain the equivalent of 2.5 percent of their
electricity from renewable sources by 2005.[Footnote 8] As of March
2003, federal agencies were using about 663 million kWh of renewable
energy, or about 48 percent of the goal established by the Secretary.
For example, according to Department of Defense officials, 15 military
bases, including Edwards Air Force Base in California, Shriever Air
Force Base in Colorado, and Ellsworth Air Force Base in South Dakota,
use wind power to varying degrees. In addition, one of these bases,
Dyess Air Force Base in Texas, bought 78 million kWh of wind power-
produced energy in 2003, meeting the base's entire electricity needs
for that year. In addition, other federal agencies, including DOE, EPA,
and USDA, are using wind power for part of their energy needs. For
example, USDA's Animal and Plant Health Inspection Service purchases 25
percent of the electricity used at its National Wildlife Research
Center in Colorado from wind-generated sources.
The federal government is also the nation's largest landholder,
controlling nearly 700 million acres of land.[Footnote 9] Much of this
land is in the western United States and includes some areas of the
country with the highest wind potential.[Footnote 10] Thus, according
to federal and industry officials, areas on these federal lands could
be leased to wind power or other renewable energy developers, with the
federal government collecting substantial land rental payments. For
example, the Department of the Interior's Bureau of Land Management
(Bureau) has rented some of the land that it manages in California and
Wyoming for wind projects. Overall, these projects include more than
1,300 turbines with a total production capacity of nearly 900 MW, and
the associated rental payments provide more than $800,000 in income to
the Bureau annually.[Footnote 11] The administration's National Energy
Policy also recognizes this potential.[Footnote 12] For example, the
policy recommends that the Secretaries of the Interior and of Energy
re-evaluate access limitations to federal lands in order to increase
renewable energy production, such as biomass, wind, geothermal, and
solar, on these lands.[Footnote 13] Although the establishment of
renewable energy production on federal lands would result in some
environmental impacts, some federal and industry officials note these
impacts would be far less than the mining, drilling, and hauling
associated with fossil fuel extraction.
In addition, through various programs, the federal government has
helped to promote the use of wind power by municipal electric
utilities; rural electric cooperatives; state, local, and tribal
governments; businesses; and consumers. For example, DOE, in
conjunction with wind stakeholders across the country, launched the
Wind Powering America program in 1999 to increase the use of wind
energy in the United States in order to promote rural economic
development, protect the environment, and increase the nation's energy
security.[Footnote 14] The program's original goals included (1)
providing 5 percent of the nation's electricity from wind by 2020, with
near-term goals of 5,000 MW by 2005 and 10,000 MW by 2010; (2)
increasing the number of states with at least 20 MW of installed wind
capacity to 16 by 2005 and 24 states by 2010;[Footnote 15] and (3)
increasing the federal government's use of wind power to 5 percent of
its annual consumption of electricity by 2010. The program's work is
organized under four themes: state-based activities, rural economic
development, greening federal electricity consumption, and utility
partnerships. Among other things, the program encourages partnerships
between government and industry; educates, equips, and supports state
wind working groups; and develops innovative pilot projects, such as
identifying rural ownership options for small wind systems.
In another case, EPA promotes the use of wind power and other renewable
sources of electricity--collectively known as green power--through its
Green Power Partnership Program. Specifically, EPA provides technical
assistance and public recognition to companies and organizations that
make a commitment to using green power for a portion of their
electricity needs. More than 200 companies, including a number of major
corporations, participate in this program. In addition, the Department
of Housing and Urban Development's community development block grants
have been used to assist municipal-owned utilities to purchase wind
turbines. For example, in Iowa, three cities received community
development block grant funds in either fiscal year 2002 or fiscal year
2003 to erect wind turbines for energy generation;these grants totaled
about $1 million. Furthermore, as discussed later in this report, USDA
has several programs that can be used to provide financial assistance
for renewable energy projects on farms or other rural lands.
Wind Power Is a Small but Growing Part of the Nation's Electric Power
Generation Capacity:
Although wind power accounted for about one-tenth of 1 percent of total
U.S. electric power generation capacity in 2002, it had quadrupled in
generating capacity between 1990 and 2003, and has been growing at a
much higher rate than other sources of electric power generation.
Nevertheless, wind power's potential remains largely untapped. A number
of factors, including limited transmission capacity and the higher
capital start-up costs of wind power compared with fossil fuels in some
markets, hamper wind power's expansion, although other factors, such as
federal and state financial incentives, have helped spur expansion.
According to DOE estimates, the nation's wind power generation capacity
will continue to grow through 2025, but higher levels of production
depend on the continued availability of federal and state financial
incentives, particularly the federal production tax credit, expected
price increases for fossil fuels, and continued research and
development leading to further improvements in wind turbine technology.
Wind Power Accounts for Less Than 1 Percent of Total U.S. Capacity, but
Has Quadrupled Since 1990:
As of December 2003, wind power capacity accounted for about one-tenth
of 1 percent of total U.S. generating capacity[Footnote 16]--about
6,370 MW--up from 1,525 MW in 1990. This growth exceeds the goal
established by DOE's Wind Powering America program for wind energy
generation of at least 5,000 MW nationwide by 2005. This rate also
makes wind power the fastest growing source of electric power
generation, on a percentage basis, in the United States in recent
years.[Footnote 17] For example, from 1999 through 2003, the average
annual growth rate of wind power was 28 percent, and in 2003 alone,
enough new wind turbines were erected to provide electricity to 400,000
to 500,000 U.S. homes.[Footnote 18] Figure 3 shows the growth in U.S.
wind power generating capacity from 1981 through 2003.
Figure 3: U.S.-Installed Wind Power Generating Capacity, 1981 through
2003, in MW:
[See PDF for image]
[End of figure]
As of the end of 2003, about 90 percent of wind power generation
occurred in 10 predominantly midwestern and western states--California,
Colorado, Iowa, Minnesota, New Mexico, Oklahoma, Oregon, Texas,
Washington, and Wyoming. Two of these states--California and Texas--
accounted for about one-half of the nation's 6,374 MW of installed wind
generation capacity, as of the end of 2003. Figure 4 shows installed
wind power generating capacity in these 10 states and other states with
at least 0.1 MW of installed capacity, as of December 2003.
Figure 4: Installed Wind Power Generating Capacity by State, as of
December 2003, in MW:
[See PDF for image]
[End of figure]
The nation's wind potential--particularly in areas with frequent,
strong winds needed to generate electricity from wind power--remains
largely untapped.[Footnote 19] According to a DOE study, the Midwest,
including the Great Plains, theoretically has more than enough
potential wind energy to fulfill the entire nation's electricity needs.
Specifically, just three wind-rich states--North Dakota, Texas, and
Kansas--could accomplish this. Figure 5 shows areas of the United
States with the highest wind potential.[Footnote 20]
Figure 5: Areas with the Highest Wind Potential in the United States:
[See PDF for image]
[End of figure]
A Number of Factors Act to Either Constrain or Promote Wind Power's
Growth:
As a comparison of figures 4 and 5 shows, states with the greatest
installed wind power capacity are not necessarily the states with the
greatest wind potential. In addition, figure 6 shows this discrepancy
for the leading states in each category.
Figure 6: Leading States' Installed Wind Power Capacity Compared with
Wind Potential:
[See PDF for image]
Note: The top 18 states for wind resource potential, as measured by
annual energy potential in billions of kWh, factoring in environmental
and land use exclusions for wind class 3 and higher.
[End of figure]
This discrepancy occurs, in part, because of factors that constrain
growth, such as access to transmission lines, as well as factors that
encourage development, such as state incentives. The following factors
constrain the growth of wind power:
* The cost of wind power production in relationship to fossil fuels.
According to AWEA, the cost of electricity from utility-scale wind
power projects was as high as 30 cents per kWh in the 1980s, far
greater than the cost of electricity from alternative technologies
using fossil fuels to generate power.[Footnote 21] Various state and
federal incentives helped overcome wind power's cost disadvantage in
many locations, as did dramatic cost reductions due to improvements in
wind turbine technology. At present, DOE estimates the cost of
generating electricity from wind power ranges from 3 to 6 cents per
kWh. Cost reductions also occurred in fossil-fuel power generation
technologies, but recent increases in natural gas fuel costs may result
in further market penetration by wind power. For example, if natural
gas prices continue to be substantially higher than average levels in
the 1990s, wind power is likely to be competitive in parts of the
country with good wind resources and transmission access. However, wind
power will continue to be too expensive to compete with fossil-fuel
generation in parts of the country with poor wind resources. Although
cost reductions due to technological improvements affect all segments
of the electric industry, they tend to be particularly important for
newer power generation technologies such as wind power in comparison to
fossil-fuel generation technologies. Furthermore, continued federal
and state actions that promote renewable energy power generation or
raise the cost of emissions from fossil-fuel technologies could also
play a significant role in improving the competitiveness of wind power.
* Connection to the power transmission grid. In general, frequent,
strong winds tend to be found in sparsely populated areas, which may be
far from transmission lines or lines with adequate capacity to bring
power to consumers. For example, renewable energy generators in the
wind-rich areas of the Upper Midwest, such as North Dakota, may want to
transmit electricity to heavily populated areas in other states.
However, as with any remotely located power source, a renewable energy
generator can incur transmission pricing mechanisms that charge
according to the distance covered or according to the number of utility
territories crossed. In addition, transmission capacity is limited in
many areas of the nation for all electric power sources. According to
AWEA and industry sources, transmission congestion policies generally
allocate limited capacity on a "first-come, first-served" basis and
discriminate against recent market entrants. Moreover, interconnection
policies are often controlled by utilities that make it difficult for
new entrants, such as wind power projects, to have timely
interconnection at reasonable rates. The Federal Energy Regulatory
Commission, which is responsible for approving rates for the
transmission of electricity--and overseeing the sale of electricity--in
competitive wholesale markets, is currently developing market standards
for new entrants, such as wind and other renewable sources, to connect
to the transmission grid. DOE is also conducting research to develop
efficient, lower-speed wind turbines for deployment in less windy areas
of the nation; such turbines would enhance the ability of industry to
bring cost-effective wind power closer to population centers and avoid
already congested long-distance transmission lines.
* Intermittency of wind power. Renewable energy sources such as wind
power have unique technical characteristics that can constrain their
use in an existing transmission system that was built to accommodate
large central-station power plants located near population centers.
This system relies on precisely predicting and controlling power plant
output to avoid blackouts and other disruptions. As a result, with this
system, the value of electricity is determined in part by the time of
day at which the electricity is delivered to the grid and also by the
probability that it will be available when needed. In general, fossil
fuel and nuclear power generation plants can be run without
interruption and are consistently available when called upon, except
when idled by equipment problems or for maintenance. However, wind
power is an intermittent source in that wind speed and availability can
vary from day to day, and thus the amount of electricity produced
varies. On average, wind power turbines operate the equivalent of less
than 40 percent of the peak hours in a year due to the intermittency of
wind. While penalties may apply whenever energy deliveries vary from
scheduled amounts, the possibility of penalties is of particular
concern for intermittent sources. As a result, utilities that derive
part of their electricity generation from wind power may have to
develop or purchase costly reserve capacity in case wind power is not
available on demand. However, some federal and wind industry officials
downplayed the importance of this factor, noting that if wind power
constitutes less than 20 percent of a utility's generating capacity,
the remaining capacity may be sufficient to meet demand during periods
of low winds. Furthermore, according to DOE, recent studies show that
in cases where wind power constitutes up to 10 percent to 20 percent of
a utility's generating capacity, the additional operating cost of
integrating wind power is only up to 0.5 cents per kWh. Specifically,
this amount represents the ancillary cost due to the variability of
wind.[Footnote 22]
* Barriers to marketplace entry. As emerging technologies, renewable
energy sources such as wind power face market entry barriers. For
example, developing new renewable facilities requires high up-front
costs to build the necessary infrastructure, such as construction costs
to connect power lines to the transmission grid. According to DOE, the
average cost of building new power lines to connect wind turbines to
the transmission grid could be $100,000 or more per mile, depending on
such factors as the size of the wind project, terrain, and the
transmission line rating. In addition, manufacturers produce renewable
energy components on assembly lines, where mass production can reduce
costs. As long as relatively few units are produced, prices will remain
high. Economies of scale would likely lead to cost reductions for wind
and other renewable technologies. Furthermore, small renewable energy
projects have high transaction and other costs at various stages of the
development cycle. For example, lending institutions charge more to
evaluate the creditworthiness of many small projects than one large
one. These institutions also are generally unfamiliar with new
technologies and are more likely to perceive them as riskier, causing
the institutions to lend money at higher interest rates. Higher
financing costs are especially significant for the competitive position
of renewable energy sources such as wind power because these sources
generally require higher initial investments per unit of electricity
produced than fossil fuel plants, even though renewable sources have
lower operating costs.
* Impacts on visual landscape, bird deaths, and noise issues. Although
wind power turbines do not emit pollutants, they do present some
environmental issues. According to AWEA and industry sources, wind
power project developers must gauge a local community's receptivity to
the placement of wind turbines in scenic areas that may have high wind
potential, such as ridge lines, mountain passes, or off-shore coastal
areas, or else risk expensive litigation. Regarding birds that die when
they collide with turbine blades, these sources said that developers
should study the numbers and species of birds (and bats) present at
various times of the year at potential site locations. In general, if
the locations are commonly used by endangered or threatened avian
species or are in bird migration pathways, they may be unsuitable for
wind power development. New construction techniques and technologies
may help to reduce bird deaths,[Footnote 23] such as switching from
latticework towers that entice birds to perch to smooth-sided
cylindrical towers that do not offer perches. In addition, the longer
blades on newer, larger turbines turn more slowly--about 21 to 23
revolutions per minute in optimum wind conditions--than earlier
turbines with shorter blades, making these longer blades more visible
to birds in daylight. Concerning noise, new turbine designs and
engineering as well as the use of appropriate setbacks from residences
have helped to decrease the importance of this issue. For example,
aerodynamic noise has been reduced by adjusting the thickness of the
turbine blades' trailing edges and by orienting blades upwind of the
turbine tower.
Several factors help promote wind power's growth. First, according to
federal and industry officials, direct public sector support programs
have been important to increasing the demand for wind power in the
United States because of wind power's competitive disadvantages in most
domestic markets. For example, the federal production tax credit,
established by the Energy Policy Act of 1992, as amended, is available
to tax-paying owners of wind or "closed loop" biomass energy generation
systems.[Footnote 24] The act provides a credit of 1.5 cents per kWh
for the first 10 years from initial plant operation, indexed for
inflation, for electricity generated by renewable energy sources such
as wind turbines; it was 1.8 cents per kWh during 2003. According to
our analysis, using this incentive, a moderate-sized wind farm with 30
MW of generating capacity could receive up to $1.6 million a year in
tax credits. In addition, in some cases this tax credit may be combined
with the 5-year depreciation schedule allowed for renewable energy
systems under the Economic Recovery Tax:
Act of 1981, as amended.[Footnote 25] In conjunction with the tax
credit, this accelerated depreciation allows an even greater tax break
for renewable projects facing high initial capital costs. The authority
for new facilities to qualify for the production tax credit expired at
the end of calendar year 2003;[Footnote 26] as of August 2004,
legislation was pending in Congress that would reauthorize this tax
credit.[Footnote 27]
At the state level, the states with the most installed wind power
capacity generally have implemented strong policies providing
regulatory, financial, or tax incentives to wind power development. For
example, 17 states have implemented renewable portfolio standards.
Under these standards, utilities must derive a certain percentage of
their overall electric generation (on a sales basis) from renewable
energy sources, such as wind power. California and Texas--2 of the 17
states that have instituted these standards--also are the leading
states with installed wind power capacity. California requires that 20
percent of the state's electric generation be derived from renewable
sources by 2017. In Texas, the requirement is 2.7 percent by 2009.
Figure 7 shows the states that have enacted these standards, including
the target amount of generation from renewable sources and the
associated dates for achievement.
Figure 7: Renewable Portfolio Standards for 17 States, as of August
2004:
[See PDF for image]
[A] Minnesota law requires utilities to make a good faith effort to
generate or procure 10 percent of the electricity they generate by 2015
from eligible renewable energy technologies, including wind.
Minnesota's Public Utilities Commission required each utility to
develop formal plans as to how they would meet this objective. In
addition, Minnesota law requires one utility operating in the state,
Xcel Energy, to develop 1,125 MW of wind power by December 31, 2010.
[B] In 1991, Iowa enacted legislation requiring investor-owned
utilities operating in the state to purchase a combined total of 105 MW
of the generation from renewable sources. According to an Iowa Public
Utilities Board official, this represented about 2 percent of the total
electricity generated by those utilities at that time.
[C] Illinois enacted legislation creating the Illinois Resource
Development and Energy Security Act. The legislation adopted a
statewide renewable energy goal of at least 5 percent of total energy
by 2010, and at least 15 percent by 2020. However, the legislation does
not include an implementation schedule, compliance verification, or
credit trading provisions.
[D] In December 1999, the Public Utility Commission of Texas issued a
renewable energy mandate rule establishing the state's renewable
portfolio standard. In addition to the 880 MW of existing renewable
generation in Texas at that time, the standard called for 2,000 MW in
new renewable generation to be installed by 2009. If this goal is met,
an official in the Texas Office of Public Utility Counsel estimated
that renewable generation will represent about 2.7 percent of total
electricity demand in the state by 2009.
[End of figure]
Multiple states have taken other, similar actions to support renewable
energy sources, including wind power. Specifically, according to the
Database of State Incentives for Renewable Energy compiled by the
Interstate Renewable Energy Council in August 2004:
* Thirty-two states and the District of Columbia have implemented net
metering laws, which allow customers with their own power generating
units, such as small wind turbines, to sell power that is excess to
their needs back to the power grid, enabling the flow of electricity to
and from the customer through a single meter.[Footnote 28]
* Twenty states offer property tax exemptions or special assessments
for renewable energy sources, and 6 states allow localities to offer
this exemption.
* Fifteen states allow sales tax exemptions for renewable energy
sources.
* Twenty states offer personal or corporate income tax incentives for
renewable energy sources.
* Many states have grant (20), loan (18), and rebate (12) programs to
promote renewable energy sources. Utilities or private sources offer
these types of financial incentives in many of these states as well.
* Fifteen states have public benefit funds for renewable energy
sources. In these states, a surcharge is assessed to all customers on
utility bills. The money generated goes into a public benefit fund to,
among other things, support renewable energy research and development
and education programs.
Some states promote wind power creatively. For example, California has
formed a collaborative--known as the California Wind Energy
Collaborative--to promote wind power's growth in the state. The
collaborative includes officials from federal and state government
agencies, wind energy developers, electricity suppliers, environmental
groups, and the academic community. Its primary purpose is to
coordinate statewide activities related to wind power and to recommend
policies to support its growth. The collaborative has developed a
number of recommendations, such as (1) simplifying the permitting
process for establishing a wind project in California and (2) focusing
research and development on, among other things, improving turbine
performance and reliability, addressing transmission grid and
interconnection challenges, and enhancing wind forecasting. The
California State Energy Commission funds the collaborative, providing
about $350,000 annually for its activities.
A second factor helping to further wind power's expansion is
environmental benefits. Wind power is considered a green technology
because it has only minor impacts on the environment.[Footnote 29] In
contrast, fossil fuel power plants are a significant source of air
pollution. In general, these plants produce harmful emissions, such as
carbon dioxide, nitrogen oxides, sulfur dioxide, mercury, and
particulate matter, which can pose human health and environmental
risks, such as acid rain and global warming.[Footnote 30] In some
cases, these emissions may increase as electricity generated by fossil
fuels increases to meet growing demand.[Footnote 31] For example, EIA
forecasts that if this generation increases by 42 percent from 2000
through 2020--from 3.5 trillion kWh in 2000 to almost 5 trillion kWh in
2020--annual emissions of carbon dioxide and mercury from these plants
will rise nationwide by about 800 million tons (or 35 percent more) and
4 tons (or 9 percent more), respectively.[Footnote 32] To some extent,
these anticipated increases could be offset by an increasing reliance
on nonpolluting, renewable sources such as wind power. For example,
according to DOE, by 2020, the growth of wind power could eliminate
millions of tons of atmospheric carbon that would otherwise be released
by fossil fuel power plants, thereby reducing greenhouse gas emissions.
Fossil fuel power plants are also the nation's second largest user of
water resources after agriculture.[Footnote 33] Specifically, power
plants use about 48.2 trillion gallons of fresh water from rivers,
lakes, and other sources each year, primarily to produce steam to turn
turbines and for cooling, according to the U.S. Geological Survey. This
amount represents nearly 40 percent of the nation's total water usage.
Power plants' water requirements will likely rise as demand for
electricity grows over the next 2 decades. Although state and local
authorities protect certain water uses, such as for drinking water,
when approving the construction of new power plants, these plants
nevertheless can affect aquatic ecosystems. For example, drawing water
into a plant can kill fish, and discharging water with elevated
temperatures back to its source can damage aquatic organisms or
habitats. Wind power, as an alternative energy source, does not use
water to generate electricity.
In addition, increasing environmental consciousness has created "green
consumerism"--a segment of consumers who are willing to pay more for
products, including wind-generated electricity, whose production,
application, and disposal are less harmful to the environment. Thus,
utilities may offer customers the option of paying a higher rate for
electricity produced from renewable sources such as wind power in lieu
of electricity produced from fossil resources, arrangements often
referred to as green pricing programs. For example, in the program
sponsored by Xcel Power in Colorado, known as Windsource®, customers
pay a premium of $2.50 per 100 kWh for wind-generated electricity.
According to some sources, customer interest in this program was an
important factor in the installation of more than 230 MW of wind power
capacity in the state.[Footnote 34] In Texas, Austin Energy has a green
pricing program, known as GreenChoice®, for wind power, which accounts
for about 4 percent of its annual electricity sales. Although
participating customers generally pay a premium for this wind-generated
electricity, demand is such that this utility is currently negotiating
to add an additional 91 MW of wind power capacity. As an added
inducement, this utility offers its wind power customers the choice of
locking in a rate for a period of 10 years, while regular customers are
subject to possible rate increases if the costs for fossil fuels
increase.
A third factor is energy security. This could help promote wind power
and other renewable energy sources in order to reduce the nation's
dependence on foreign fossil resources, including oil and natural gas.
For example, the United States currently imports about 65 percent of
the oil and 15 percent of the natural gas it uses. Natural gas, in
particular, is increasingly used to produce electricity,[Footnote 35]
and according to DOE, the anticipated growth in demand for this fossil
fuel will lead to an increasing reliance on imports. According to DOE,
this dependence harms the U.S. trade balance and exposes our economy to
potential supply disruptions.[Footnote 36] In light of these concerns,
federal legislative and regulatory initiatives have encouraged a
diversified energy portfolio. For example, the Public Utilities
Regulatory Policies Act of 1978, as amended, was enacted in part to
encourage the development of alternative energy resources.[Footnote 37]
More recently, the administration's National Energy Policy, issued in
May 2001, states that sound energy policy should encourage a diverse
portfolio of domestic energy supplies and that renewable energy can be
a reliable source of energy at a stable price because it does not
depend on the availability of fossil fuels. Furthermore, while the
nation's transmission grid and central power plants remain vulnerable
to terrorist attack, renewable sources, such as wind power, are
geographically more dispersed and contain no volatile or radioactive
fuel stocks.
Fourth, government and industry experts expect that improvements in
wind power technology and forecasts for higher fossil fuel prices will
continue to help wind power compete with other sources of electric
power generation. For example, technology improvements in turbine
design and components have dramatically increased the efficiency and
cost competitiveness of wind power generation, and continuing research
and development will likely lead to further improvements. Regarding
forecasts for higher prices, EIA projects that 69 percent of the
235,000 MW of new generating capacity needed in the United States by
2020 will be fueled by natural gas and another 9 percent by
coal.[Footnote 38] In recent years, prices for natural gas have, at
times, spiked dramatically, and the market for natural gas remains
volatile, with small shifts in the supply of or demand for gas likely
to cause wide price fluctuations.[Footnote 39] In addition, DOE and
industry sources anticipate that as domestic and international demand
for natural gas increases in the electric and other industrial and
commercial sectors, the prices for natural gas will rise, making
alternative energy sources such as wind power more competitive.
Growth of Wind Power Will Depend on Continued Government Financial
Incentives and Prices for Fossil Fuels:
According to EIA forecasts prepared at our request, future wind power
capacity could increase to 48,000 MW or more by 2025--enough to power
about 13 million homes based on current usage rates--if the federal
production tax credit were to remain available through 2010. On the
other hand, if this credit is not available after December 31, 2003
(its authorization expired after that date and it had not been
reauthorized as of August 2004), capacity will increase to only about
11,000 MW by 2025.[Footnote 40] According to EIA and other DOE
officials, these forecasts are likely conservative estimates because
the assumptions used were conservative.[Footnote 41] Other stakeholders
have offered larger estimates. For example, AWEA estimates that wind
power capacity could grow to 100,000 MW by 2020, representing about 6
percent of total U.S. production. In another case, the National
Petroleum Council estimates that renewable capacity--primarily wind
power--will grow to between 73,000 MW and 155,000 MW by 2025, with the
larger number dependent in part on proactive public policies to promote
renewable sources. Despite these varying estimates, DOE and industry
sources agreed that the key to the potential future growth of the wind
industry is the continued availability of the production tax credit or
other subsidy support, although expected increases in fossil fuel
prices, particularly for natural gas, also will be an important factor.
DOE and industry sources noted that prior periods of uncertainty about
the availability of the production tax credit led to a boom-and-bust
cycle in the installation of new wind power capacity. For example, in
years in which the authorization for the credit expired and its renewal
was delayed,[Footnote 42] the installation of new capacity fell
dramatically compared with the years in which it was available without
interruption. Figure 8 provides information on this cycle.
Figure 8: Fluctuations in the Installation of New Wind Power Capacity
Related to the Changing Availability of the Production Tax Credit
(PTC):
[See PDF for image]
Note: Authorization for the credit for new facilities lapsed on Dec.
31, 2003. In 2003, the administration's proposed energy bill would have
extended the authorization for 3 years, but this legislation was not
enacted. As of August 2004, legislation was pending before Congress
that would reauthorize this credit for 3 years.
[End of figure]
According to DOE and wind industry sources, the expiration of the
production tax credit at the end of 2003 has significantly reduced wind
power expansion. Potential developers are reluctant to commit resources
to the planning and construction of new capacity without the certainty
that the tax credit will be reauthorized. For example, AWEA estimates
that the uncertainty over the reauthorization of the tax credit has
caused the loss of over 2,000 manufacturing and construction jobs
related to wind power and put about 2,000 MW of new wind energy
production and nearly $2 billion in economic activity on hold. Thus,
industry sources expect a significant drop in the installation of new
capacity in 2004 from 2003 levels--capacity expansion in 2003 was a
near record 1,700 MW, attributable in large measure to the availability
of the tax credit.
According to EIA, without the production tax credit, wind power will be
relegated to a niche resource whose expansion will depend largely on
long-term trends in natural gas prices.[Footnote 43] Furthermore, in
the view of some stakeholders, the most stable, predictable production
tax credit would have a long-term or permanent authorization that would
not induce market booms and busts but would facilitate steady market
development for wind power and other renewable sources. Other
stakeholders note, however, that to the extent this credit would be
used, tax revenues would be lost to the federal government that could
be used for deficit reduction or other purposes. For example, the
Congressional Joint Committee on Taxation estimates that if the
authorization for the production tax credit were extended through 2006,
its cost to the Treasury for the 10-year period ending in 2013 would be
$3 billion, or about $300 million annually. On the other hand, some
stakeholders believe that renewable energy sources require subsidies
such as the production tax credit to level the playing field because
various subsidies for fossil fuel and nuclear technologies have made it
difficult for renewable energy sources to compete, even when renewable
technologies become cost competitive with these conventional
technologies. In general, it is difficult to quantify all of the
subsidies provided to the fossil fuel and nuclear power industries, and
there is sometimes disagreement on how to define a subsidy.
Nevertheless, many stakeholders maintain that these subsidies are
substantial--measuring in the billions of dollars annually. For
example, EIA estimates that the federal subsidies to the oil, natural
gas, coal, and nuclear power industries totaled about $2.8 billion in
fiscal year 1999, the most recent year for which EIA compiled these
data.[Footnote 44]
Wind Power Does Not Contribute Significantly to Total Farm Income, but
Some Individual Farmers and Communities Have Benefited:
Wind power does not currently contribute significantly to total farm
income in the 10 states with the highest installed wind power capacity,
although some individual farmers and rural communities have benefited
considerably from this energy source. However, wind projects located on
farmland have increased some individual farmers' income significantly,
according to our site visits and analysis. In addition, large wind
power projects established in some of the poorest rural counties in the
United States have generally benefited these counties through the tax
revenues they produce and the employment opportunities they provide.
Wind Power Accounts for Only a Very Small Amount of Total Farm Income,
but Provides Substantial Income to Some Farmers and Communities:
In the 10 states we examined, total net farm income exceeded $14
billion in 2002, but total direct income to all U.S. farmers from wind
power ranged from only $10 million to $45 million, representing only a
fraction of 1 percent of net farm income in these states. Nevertheless,
wind projects located on privately owned farmland--the majority of U.S.
wind power projects, according to AWEA--have increased individual
farmers' income by as much as tens of thousand of dollars annually,
according to our analysis and site visits. In most cases, the farmers
do not have an ownership interest in the projects. Rather, they receive
lease payments from energy development companies for the use of the
land and the associated "wind rights." According to AWEA and other
sources, the compensation a farmer receives for leasing land for wind
power turbines effectively amounts to between $2,000 and $5,000 per
year per MW of installed capacity. However, actual compensation
received varies widely, depending the following factors:
* The number of turbines. One California project includes turbines with
a total generating capacity of approximately 60 MW. Based on data
developed from our site visit to this project, we estimate that one of
the landowners has enough turbines on his land to have generated over
$200,000 in annual lease payments from the project owner. In another
case, an Iowa project consisting of about 260 turbines has a total
generating capacity of approximately 190 MW. However, the turbines are
spread out over separate properties owned by 65 farmers. According to
the project owner and one of these farmers, the average annual lease
payment is about $2,000 per turbine, with each farmer's total payments
depending on the number of turbines located on that farmer's land.
* The value of electric power generated by the project. Land lease
income is often linked to wind power project revenues. For example,
land lease income may be a percentage of the gross revenues from the
sale of the project's wind power. Thus, the higher the sale price of
power, the higher the lease income to the landowner. The price paid by
utilities for the electricity produced from wind power projects has
varied by location and over time. Nationwide, these prices currently
range from $20 to $35 per MW hours (MWh). However, power purchase
contracts signed in California in the early 1990s tended to be well
above this range. For example, the price currently received for
electricity from one California wind power project is about $70 per
MWh.
* The terms of the lease payments. The lease payments may include a
single lump sum payment, fixed annual fees per turbine or per unit of
power generation capacity, or a percentage of the project's gross
revenues. The farmer may receive additional lease payments for other
structures or considerations related to the wind project, such as
substations, operations and maintenance buildings, and rights-of-way,
including roads leading to and from the project and transmission poles
and lines to connect the project to the local power grid. In cases in
which the farmer has an ownership interest in the project, the
potential financial benefits may be even greater per turbine. However,
farmer-owned wind projects tend to be smaller, because farmers
generally do not have the financial resources of an energy development
company to establish larger projects with more turbines.
Whatever the lease arrangements, the income farmers receive from wind
projects located on their land is relatively stable compared with the
income they derive from crop and livestock production, according to
some farmers and other sources. Although the income from wind projects
may be modest, these individuals said, it serves as an important hedge
against possible fluctuations in income from crop and livestock
production.[Footnote 45] Furthermore, income from wind turbines located
on a farmer's land generally does not fluctuate significantly, although
higher or lower average wind speeds from one year to another can affect
the amount of royalty payments a farmer receives. Royalty payment
rates--for example, 4 percent of gross revenues for electric power
generated--are generally negotiated for a period of years. In addition,
contracts between a landowner and a wind project owner often have a
provision for minimum payment per turbine per year to protect a
landowner's income in cases of unusual low-wind periods or if a turbine
is out of operation because of weather-related damage or maintenance.
In some cases, a farmer said the additional income from the wind
project helps keep the farm solvent and the farmer's family on the
farm.
Wind Power Benefits Rural Communities by Providing Additional
Investment, Employment Opportunities, and Tax Revenues:
The construction and operation of a large wind project in a rural
county is likely to increase the county's general level of economic
activity and wealth. Constructing a large wind power project with
several dozen turbines requires the services of multiple businesses and
scores of skilled and unskilled workers, as well as the purchase of
equipment and material, such as turbines, towers, asphalt, cement,
concrete, and electrical cables. In these activities, wind power
project developers and operators have directly benefited rural
communities by hiring local people and purchasing locally some of the
goods and services needed to construct and operate a project.
Furthermore, according to DOE, increasing the proportion of the
nation's energy generation attributable to wind power to 5 percent by
2020 would add about $60 billion in capital investment in rural
America; provide an estimated $1.2 billion in new income to farmers,
Native Americans, and rural landowners; and create approximately 80,000
new jobs. (To determine the overall economic benefits of increasing
wind power to farms and rural communities, any losses to the fossil
fuel industry need to be counted as an offsetting factor.)
In general, a county with a larger, more diversified economic base can
more likely provide these services and supplies, thereby retaining more
of the project's direct economic benefits. For example, according to
the developers of a large wind project--High Winds in Solano County,
California--they obtained much of the services and supplies needed to
construct this project within the county, which has over 400,000
residents and a diversified business community. However, if a county
cannot provide some of the services and supplies needed, other nearby
counties or cities that can provide these services and supplies may
benefit. In Pipestone County, Minnesota, for example, wind power
developers purchased some supplies locally, such as concrete, but had
to contract with a firm in Fargo, North Dakota, for a crane large
enough to erect the turbines and with a firm in Minneapolis to do the
electrical wiring. Pipestone County, located in southwestern Minnesota,
has about 9,800 residents and a small business community.
Furthermore, businesses and individuals directly employed by the wind
project are likely to spend part of their income at local businesses,
such as restaurants, hotels, and gas stations, and hardware, clothing,
and food stores. In some cases, the benefits from these activities may
exceed the level of a project's direct benefits. For example, according
to the Fort Stockton Economic Development Corporation in Pecos County,
Texas, the county experienced a 10 percent increase in gross sales
during the construction of several wind power projects.
The property tax revenues resulting from the establishment of a wind
power project in a county creates additional revenues that support
schools, hospitals, fire protection, and other public services.
Following are some examples:
* Lincoln County, Minnesota, with a population of about 6,200, obtained
about $470,000, or 18 percent of its property tax revenues, in 2003
from local wind power projects with a combined capacity of 156 MW.
* Pipestone County, Minnesota, obtained about $660,000, or 8 percent of
its property tax revenues, in 2001 from wind projects with a combined
capacity of 113 MW.
* In Pecos County, Texas, with a population of about 16,000 the school
districts received about $5 million in 2002 from property tax revenues
directly associated with wind power projects in that county. For
example, the Iraan-Sheffield School District, obtained one-third of its
property tax revenues from wind power projects that year. These
projects also added about 30 to 35 full-time permanent jobs to operate
and maintain the projects.
For some counties, tax benefits may have to be deferred to attract wind
power developers. These counties have offered generous tax abatements,
forgoing part or much of the tax revenues that would have otherwise
been collected for the period covered by the abatement. For example, to
attract wind power developers, Texas's Upton County offers a tax
abatement of 10 years, waiving all property taxes during this period
with the exception of taxes collected for schools.
In terms of other taxes, counties that have sales taxes or that receive
a share of state sales tax revenues are likely to realize income from
the sale of taxable goods and services connected with the construction
and operation of a wind power project. In addition, in states that have
a personal or corporate income tax, the increased employment and
business opportunities associated with a wind power project are likely
to increase these tax revenues, which are then shared with counties in
the state or used for public projects that benefit county residents.
To better gauge the significance of general increases in economic
activity, we asked NREL to use its Wind Impact Model to estimate these
benefits, as well as direct benefits, for the counties we visited. NREL
developed a number of estimates, varying the size of the wind project
but otherwise keeping key model assumptions constant. In general, the
results of NREL's analysis confirm our observations from our site
visits. For example, NREL estimates that the operation of a 150 MW
project located in Alameda County, California--a county with a large
population and diversified economic base--would result in the creation
of 65 new jobs in the county and increase total income in the county by
$5.4 million. However, the same size project located in Upton County,
Texas, which has a much smaller population and economic base, would
result in only 47 new jobs and an increase in total county income of
$2.75 million. This is because in the case of Upton County, more of the
staff needed to operate the project would be hired from outside the
county. Nevertheless, the impact of the local hires on employment in
Upton County may be greater than in Alameda County because the
population of Upton County is so much smaller. A detailed discussion of
this model and NREL's analysis is contained in appendix III.
Leasing Land for Wind Power Projects Is Easier Than Owning, and Most
Farmers Do Not Qualify for Tax Credit:
Ownership of a wind power project may be more profitable to a farmer
than leasing, based on our fieldwork and analysis. For example, whereas
lease payments per turbine may provide several thousand dollars a year
to the farmer, ownership may double or triple that income per turbine
as the profits are not shared with an energy company. On the other
hand, a farmer may only be able to afford to construct 1 or 2 turbines,
as the cost per MW of installed capacity is about $1 million. In
contrast, leasing land to an energy development company could result in
the installation of a dozen or more turbines. In the latter case,
although the farmer's income per turbine is less, the total income
received by the farmer would be substantially greater. In addition,
farmers and other small investors generally lack sufficient tax
liability to take full advantage of the federal renewable energy
production tax credit. However, some states offer incentives that help
landowners develop wind power projects.
Farmers Find Leasing Is Easier Than Owning Wind Power Projects:
Nationwide, farmers and other landowners own less than 1 percent of
utility-scale wind power capacity. We found that farmers generally find
leasing their land for wind power projects to be easier than owning
projects because of the complexity of, and risk associated with,
developing a wind power project. In general, development of a project
may take 2 years or more from conception to completion, especially when
multiple turbines are involved. Table 1 summarizes the major steps in
project development. These steps are also discussed in greater detail
in appendix V.
Table 1: Major Steps in the Wind Power Project Development Process:
Step: 1;
Conditions generally considered or required: Detailed wind
data for the proposed project site: local wind data from airports or
meteorological stations; wind data on an hourly basis at varying
heights for about 1 year; a minimum annual average wind speed of 11 to
13 miles per hour.
Step: 2;
Conditions generally considered or required: As applicable,
information on the potential effects on birds--particularly endangered
or protected species; receptivity of neighbors and local communities;
possible obstruction of air traffic by the turbines; interference with
aerial crop dusting; possible need for environmental impact
assessment.
Step: 3;
Conditions generally considered or required: A lease or
easement agreement negotiated with the farmer that grants the developer
(1) a right of access to and across the property to construct, operate,
and maintain the project; (2) a right to transmit the electricity from
the property; and (3) a term sufficient for financing the project,
usually 25 years or more.
Step: 4;
Conditions generally considered or required: Permission to construct
and operate the project from local permitting authorities, including
land use and construction permits.
Step: 5;
Conditions generally considered or required: Easement rights of access
to interconnect to transmission lines.[A].
Step: 6;
Conditions generally considered or required: A power purchase agreement
between the project owner and the utility that will buy the electricity
produced.[B].
Step: 7;
Conditions generally considered or required: Project financing from a
bank or other lending institution; and federal or state assistance
programs for renewable energy sources.
Step: 8;
Conditions generally considered or required: Services and supplies
related to site preparation, construction of turbines, substations,
and access roads, and operation and maintenance of the project.
Source: GAO analysis of AWEA, NREL, and National Wind Coordinating
Committee information.
Note: These steps are not necessarily sequential or mutually exclusive
or inclusive.
[A] The cost of adding connecting lines from the project to high
voltage transmission lines can be expensive, adding substantially to a
project's cost.
[B] The power purchase agreement guarantees that the buyer will
purchase the energy from the seller at a negotiated price for a
specified period of time, thereby creating a predictable long-term cash
flow. This agreement is considered an asset of the project and is
usually critical to obtaining financing for it.
[End of table]
The associated capital costs for a wind power project could also be
daunting to an individual landowner--approximately $1 million per MW of
generating capacity installed. Thus, even purchasing just one or two
utility-scale wind turbines can be a substantial investment for even a
large farm or ranch.
Leasing land to a wind power developer relieves a farmer of many of the
formidable challenges of developing a wind power project, but the
benefits of leasing may depend on the type of the lease arrangement
offered. Table 2 summarizes information on lease payment options.
Table 2: Four Types of Lease Payment Options:
Option type: Lump sum payment;
Advantages and disadvantages to landowner: A one-time payment for all
turbines placed on the land, with no ongoing royalties. Advantage:
provides substantial cash to pay a debt or purchase farm equipment.
Disadvantages: precludes benefits from future increases in wind power
value and may complicate the sale of the land because a prospective
buyer stands to gain nothing from the turbines.
Option type: Fixed annual payment;
Advantages and disadvantages to landowner: A fixed dollar amount per
turbine per year. Advantage: minimizes risk of income fluctuation.
Disadvantages: prohibits the landowner from benefiting from future
increases in wind power value.
Option type: Fixed payment plus percentage of revenue;
Advantages and disadvantages to landowner: A fixed payment per turbine
per year, plus a percentage of the turbines' gross generated revenue.
Advantage: The fixed payment holds even when the wind is low or the
turbines do not operate.
Option type: Percentage of revenue only;
Advantages and disadvantages to landowner: A larger percentage of the
turbines' gross generated revenue. Advantage: more profits if wind
power values increase. Disadvantage: more risk of not receiving
revenue.
Source: Oklahoma Wind Power Initiative.
[End of table]
A landowner may need expert advice--from an attorney to ensure the
lease protects the landowner's interests and from a financial adviser
to understand the income and tax implications of various lease payment
options. For example, University of Texas officials indicated that
legal and technical resources available to the university were critical
to negotiating a favorable lease agreement for a wind project on
university property.
Landowners may also face other problems in leasing land for wind power
projects, as illustrated in the following examples:
* A Minnesota wind developer went bankrupt before completing the
project. Unable to collect from the developer, the construction
contractor that poured the concrete foundations for the turbines placed
a lien on the farmer's land. In the end, the farmer assumed
responsibility for completing the project.
* In California, a landowner who leased land to wind developers for 200
turbines had to renegotiate leases with the tenant farmers who also use
this land. These farmers charged that they were disadvantaged by the
wind power project because (1) the turbines prevented them from using
aerial crop dusting; (2) the project created obstacles, such as the
turbines, substations, and access roads, that the farmers had to drive
their equipment around, causing their fuel costs to rise; and (3) the
turbines and associated structures had reduced the acreage available
for cultivation (by approximately 40 to 50 acres out of a total of
1,100 acres). Although he lost some revenue from the renegotiated lease
agreements with the tenant farmers, the landowner indicated he had more
than recouped these losses from the income associated with the lease
agreement for the wind turbines. The landowner also said the tenant
farmers ultimately benefited by the adjusted (lower) rents for the land
they farm.
During our fieldwork, some farmers indicated it was difficult to make
informed decisions about owning a wind power project or leasing their
land to a commercial wind power developer because of a lack of readily
accessible information. One farmer also noted it would be helpful to
have a forum in which farmers could exchange relevant information and
experiences. A number of entities offer information on wind power,
including the pros and cons of ownership versus leasing. These include
AWEA, NREL, the Union of Concerned Scientists, Wind Powering America,
and Windustry. They also include state-based groups such as the
California Wind Energy Collaborative, Iowa Policy Project, Minnesota
Sustainable Energy for Economic Development Coalition, Oklahoma Wind
Power Initiative, and Texas Renewable Energy Industries Association.
However, federal and industry officials said that while access to
information is important, it is not enough. According to these
officials, given the complexity of owning a wind project or leasing
land to a wind power developer, farmers and other rural landowners
should seek legal, financial, and technical advice, as appropriate,
before making a commitment to a project.
Farmers Generally Cannot Use the Production Tax Credit:
Farmers generally cannot use the federal renewable energy production
tax credit, which many stakeholder groups view as crucial to making
wind energy projects economically viable for project owners because of
these projects' high capital costs. According to Department of Treasury
officials, for a farmer who does not materially participate in a wind
power project to make use of the production tax credit,[Footnote 46]
the farmer must have tax liability attributable to passive income
(e.g., rental income or income from businesses in which the farmer
participates only as an investor) against which to claim the
production tax credit. Passive income does not include income from the
farmer's active farming business, wage income, or interest and dividend
income. Unless a farmer materially participates in the production of
wind power, the production tax credit cannot offset tax liability
attributable to income from these sources. Since many farmers do not
have passive income and do not materially participate in wind power
production, this passive versus nonpassive income distinction limits
the number of farmers that are able to take advantage of the renewable
energy production tax credit.
Furthermore, even in a case where a farmer materially participates in
and operates a wind project, the value of the tax credit is usually
greater than the income tax on the revenue earned by the project for
wholesale electricity generation as well as from other relevant
sources, such as revenue from the farming business and wage income
related to off-farm employment.
Although an individual farmer may not be able to use the full amount of
the production tax credit, farmers can benefit from this tax credit in
other ways. For example, in Rock County, Minnesota, some farmers
interested in wind power have formed two limited liability companies,
pooling their individual passive incomes and associated tax liabilities
in order to make use of the production tax credit. These arrangements
have led to the establishment of two wind power projects, Minwind I and
II. Each company has rules similar to a traditional farmer cooperative,
[Footnote 47] although legally they are not cooperatives.[Footnote 48]
Each company sold stock to more than 30 individuals and required that
85 percent of the shares be owned by farmers; the remaining 15 percent
of the shares are available to local residents and investors. No
single person can own more than 15 percent of the shares. These
projects started operating in late 2002, and each has a capacity of
1.9 MW. Furthermore, seven additional Minwind projects (III through
IX) are under development in Rock County. When complete, these projects
will have 200 local owners and a combined capacity of 12 MW.
In addition, some individual farmers in Minnesota have entered into
equity partnerships with an investor in order to benefit from the
production tax credit indirectly. In these cases, the investor owns
nearly all of the interest in the project for the first 10 years,
receiving most of the net cash from the project and the benefits of the
production tax credit and accelerated depreciation. After this 10-year
period, the ownership switches, or "flips," to the farmer and the
farmer receives most of the project income. For example, at one wind
project we visited in Pipestone County, an equity partner owns a 99
percent interest in a 1.5 MW project (two 750 kilowatt turbines) for
the first 10 years of the project's operation. The farmer who provided
the land for the project has the other 1 percent interest. The equity
partner provided most of the up-front capital needed to establish the
project, and the project's assets provide the collateral for the
remaining required debt. However, the equity partner also reaps most of
the profits and the benefits of the federal production tax credit.
During these first 10 years, the farmer receives lease payments of
about $2,000 per year per turbine, plus management service payments of
about $30,000 per year, based on a percentage of the revenues
associated with the electricity production. After the 10th year,
majority ownership of the project will be transferred to the farmer,
who will start earning about $120,000 per year through the end of the
project's expected lifetime (an additional 10 years or more). Thus,
beginning with the 11th year, the farmer's annual income from the
project will more than triple.
Minnesota Offers Renewable Energy Cash Payments and Other Incentives to
Promote Landowner-Owned Wind Power Projects:
In addition to the federal tax credit, landowners may benefit from
state incentives. For example, Minnesota offers several incentives to
promote farmer, rural landowner, and rural business ownership of small
wind power projects. Federal and industry officials often cited
Minnesota as being particularly proactive in this regard. Table 3
summarizes these incentives.
Table 3: Minnesota Initiatives That Promote Small Landowner-Owned Wind
Projects:
Incentive: Renewable Energy Production Incentive;
Description: Begun in 1997, this incentive provides payments for 10
years of 1.5 cents per kWh of electricity generated by new renewable
projects such as wind with less than 2 MW capacity.[A] Projects must
begin generating electricity within 18 months after approval. The
incentive was available only for the first 200 MW of approved projects.
Planned capacity for new wind power projects reached the 200 MW goal
in November 2003.
Incentive: Agricultural Improvement Loan Program;
Description: The state's Rural Finance Authority provides low-interest
loans to farmers for improvements or additions to permanent facilities.
Beginning in 1995, the installation of wind power equipment qualifies
as an improvement.
Incentive: Value-Added Stock Loan Participation Program;
Description: The state's Rural Finance Authority provides low-interest
loans to farmers to assist them in buying into wind generation
cooperatives--45 percent of total loan principal up to $24,000. The
maximum size of an individual project is 1 MW.
Incentive: Interconnection Standards Law;
Description: The Minnesota Public Utilities Commission is developing
uniform interconnection requirements for distributed power generation,
including generation from renewable sources such as wind power,
applicable to all state utilities. These standards will be available
to all qualifying sources of 40 kilowatt generating capacity or less.
The law specifies that uniform applications must be developed and that
utilities must report annually on the number of distributed systems
interconnected.
Incentive: Standard Power Purchase Agreement;
Description: In June 2000, Xcel Energy, as part of a state merger
stipulation, agreed to work with the state and other interested
parties to develop a tariff (surcharge) to benefit renewable energy
systems of up to 2 MW generating capacity. In December 2000, the
company proposed a wind energy tariff to encourage the development of
small wind power projects within the company's service territory. In
August 2001, the commission approved the company's proposal to
purchase power from a qualifying wind power facility at a price of 3.3
cents per kWh for a term of up to 20 years.
Source: GAO analysis of information from the Database of State
Incentives for Renewable Energy, the Minnesota Public Utilities
Commission, and other sources.
[A] The renewable energy systems eligible for incentive payments in
Minnesota include wind, small hydroelectric, and biomass digester
technologies.
[End of table]
According to Minnesota and wind industry officials, the most important
of these incentives is the state's Renewable Energy Production
Incentive program. As of December 2003, this program had benefited
about 170 renewable energy projects in the state, including 130 wind
power projects that are collecting incentive payments and another 43
that have secured eligibility but are not yet operational. According to
a Windustry official, more than one-third of the beneficiaries have
been farmers and rural small businesses over the life of the program.
This official also said that because of current difficult fiscal
conditions, it is uncertain whether Minnesota will expand the program
beyond the 200 MW cap to assist additional projects.
USDA Can Do More to Promote Wind Power:
USDA has not fully utilized all of the farm bill's renewable energy
provisions to promote wind power development on farms and in rural
communities, although it has provided some funding through other
provisions of the farm bill. In particular, USDA had not issued a
regulation for loans and loan guarantees under the farm bill's key wind
power assistance program--the Renewable Energy Systems and Energy
Efficiency Improvements Program (Renewable Energy Program). As a
result, although grants are available, farmers and other applicants
cannot obtain loans and loan guarantees under this program, which
limits the ability of the program to promote renewable energy sources.
In addition, USDA may be missing opportunities to leverage information,
resources, and expertise available from EPA in implementing the
Renewable Energy Program and to simplify the program's application
process.
Farm Bill Provisions Promote Renewable Energy Systems, Including Wind
Power, but USDA Has Not Made Full Use of These Provisions:
Among other things, the 2002 farm bill promotes the use of renewable
energy systems, such as wind turbines, on the nation's approximately
900 million acres of farmland and rangeland.[Footnote 49] According to
USDA and other sources, these farm bill provisions will create economic
opportunities in rural communities, give farmers a means to earn
additional income, diversify the nation's energy production, reduce its
dependence on imported fossil fuels, and help protect the environment.
Table 4 summarizes information on the farm bill provisions for
promoting renewable energy systems, including wind power.
Table 4: Farm Bill Provisions to Further Wind Power's Growth:
Pub. L. No. 107-171 Section: 2101 (a) (1) (B);
Section title or relevant program: Conservation Reserve Program;
Provisions: Biomass and wind turbine installations are now allowed on
lands retired in this program. Turbine installation is subject to USDA
approval, taking into account the proposed site location, habitat, and
purposes of the program, including protection of environmentally
sensitive land. Installations do not reduce program payments.
Pub. L. No. 107-171 Section: 6013;
Section title or relevant program: Rural Development Title;
Provisions: Extends loans and loan guarantees under the Consolidated
Farm and Rural Development Act to renewable energy systems, including
wind power projects.
Pub. L. No. 107-171 Section: 6017;
Section title or relevant program: Business and Industry Direct Loan
and Loan Guarantee Program;
Provisions: Expands program for rural development, and includes
farmer/rancher equity ownership in wind power projects. Limits range
from $25 million to $40 million per project.
Pub. L. No. 107-171 Section: 6401 (a) (2);
Section title or relevant program: Value-Added Agricultural Product
Market Development Grants;
Provisions: Expands the definition of the term "value-added
agricultural product" to include farm-and ranch-based renewable
energy. Competitive grants are available to assist producers with
feasibility studies, business plans, marketing strategies, and start-up
capital. Maximum grant amount is $500,000 per project.
Pub. L. No. 107-171 Section: 9005;
Section title or relevant program: Energy Audit and Renewable Energy
Development Program;
Provisions: Competitive grants are available for organizations to
assist farmers, ranchers, and rural small businesses by conducting and
promoting energy efficiency audits and renewable energy assessments.
Pub. L. No. 107-171 Section: 9006;
Section title or relevant program: Renewable Energy Systems and Energy
Efficiency Improvements (Renewable Energy Program);
Provisions: Offers low-interest loans, loan guarantees, and grants to
farmers, ranchers, and rural small businesses to purchase and install
renewable energy systems, including wind projects. Grants may fund up
to 25 percent of the cost of the project. Combined grants and loans or
loan guarantees may fund up to 50 percent of the cost of the project.
Provides that $23 million of the funds of the Commodity Credit
Corporation be made available each year--for fiscal years 2003 through
2007--for this program.
Source: Pub. L. No. 107-171 (2002 farm bill).
[End of table]
During fiscal year 2003 and through August 2004, USDA has made limited
progress in using the farm bill provisions to further the use of
renewable energy systems. Table 5 shows the status of USDA's efforts.
As the table shows, in several cases these provisions have not been
used yet. In other cases, the provisions cannot be fully used until
USDA has developed relevant regulations. USDA officials told us that
the newness of these provisions--the farm bill was enacted in May
2002- -and the lead time needed to train its staff, disseminate
information to the farm community, and develop regulations and publish
them in the Federal Register for comment, as appropriate, has slowed
the agency's ability to fully use these provisions.
Table 5: Status of USDA's Implementation of Farm Bill Provisions That
Support Wind Power's Growth:
Pub. L. No. 107-171 Section: 2101 (a) (1) (B);
Section title or relevant program: Conservation Reserve Program;
Fiscal year 2003 status: Farm Service Agency issued policy guidance
stating that farmers with land enrolled in this program may lease this
land for renewable energy purposes without affecting the program
payments they receive;
Fiscal year 2004 status, as of August 2004: Only a few farmers have
contacted the agency to discuss the placement of wind turbines on land
enrolled in the program.
Pub. L. No. 107-171 Section: 6013;
Section title or relevant program: Rural Development Title;
Fiscal year 2003 status: Definition of "rural development" changed in
draft interim final rule to include renewable energy systems, such as
wind power. This rule was being reviewed by OMB as of August 2004.
USDA anticipates its publication in the Federal Register by December
2004. No wind power systems financed;
Fiscal year 2004 status, as of August 2004: No wind power systems
financed.
Pub. L. No. 107-171 Section: 6017;
Section title or relevant program: Business and Industry Direct Loan
and Loan Guarantee Program;
Fiscal year 2003 status: Program guidelines amended to include
renewable energy systems, such as wind power. No wind power systems
financed;
Fiscal year 2004 status, as of August 2004: No wind power systems
financed.
Pub. L. No. 107-171 Section: 6401 (a) (2);
Section title or relevant program: Value-Added Agricultural Product
Market Development Grants;
Fiscal year 2003 status: Four wind projects received grant funds
totaling about $600,000;
Fiscal year 2004 status, as of August 2004: No awards had been made.
Pub. L. No. 107-171 Section: 9005;
Section title or relevant program: Energy Audit and Renewable Energy
Development Program;
Fiscal year 2003 status: Program was not funded;
Fiscal year 2004 status, as of August 2004: Program was not funded.
Pub. L. No. 107-171 Section: 9006;
Section title or relevant program: Renewable Energy Systems and Energy
Efficiency Improvements (Renewable Energy Program);
Fiscal year 2003 status: $23 million in mandatory funds available. Of
this amount, $21.7 million in grants offered, including about $7.4
million for wind power, supporting 35 projects. No loans or loan
guarantees offered pending USDA's publication of program regulation.
The budget authority for the remaining $1.3 million lapsed because the
remaining project applications lacked technical merit;
Fiscal year 2004 status, as of August 2004: $23 million in
discretionary funds appropriated by Pub. L. No. 108-199. However, this
amount was reduced by $136,000 due to rescission under Div. H. § 168(b)
of Pub. L. No. 108-199. USDA issued a Notice of Funds Availability on
May 5, 2004, to solicit grant proposals. No loans or loan guarantees
offered pending USDA's publication of program regulation.
Source: The 2002 farm bill and USDA information.
[End of table]
Many stakeholders consider the Renewable Energy Program as the key USDA
program for promoting renewable energy sources, including wind power,
on farms, ranches, or other rural lands. The program focuses on
promoting renewable energy generation and energy efficiency
improvements and was authorized a total of $115 million--$23 million
yearly--for fiscal years 2003 through 2007 for its
implementation.[Footnote 50] This funding can be used for loans, loan
guarantees, or grants to farmers, ranchers, or rural small
businesses.[Footnote 51] Eligible projects include those that derive
energy from a wind, solar, biomass, or geothermal source.[Footnote 52]
Since passage of the farm bill, USDA has undertaken a number of actions
to begin to implement the Renewable Energy Program.
* In November 2002, USDA formed a rural energy working group--with
representatives from several USDA agencies as well as DOE and EPA--to
strengthen interagency relationships and to leverage information,
resources, and expertise to assist in implementing the Renewable Energy
Program. This group met again in December 2002 and January 2003.
* In November 2002, USDA issued a Federal Register notice announcing a
public meeting to solicit comments and suggestions from stakeholder
groups on how to implement the Renewable Energy Program. This meeting
was held on December 3, 2002.
* In February 2003, the Under Secretary for Rural Development requested
that all Rural Development State Directors designate a Rural Energy
Coordinator to, among other things, coordinate the implementation of
the Renewable Energy Program.
* In April 2003, USDA issued a Notice of Funds Availability (NOFA) in
the Federal Register inviting applications for grant assistance under
the Renewable Energy Program for fiscal year 2003. According to this
notice, $23 million was available for this program. Applications were
initially due by June 6, 2003. In May 2003, USDA issued another NOFA
extending the application deadline to June 27, 2003, and clarifying
information regarding requirements for financial information and
utility interconnection agreements.
* In August 2003, USDA signed an Interagency Acquisition Agreement with
DOE to obtain its assistance in implementing the Renewable Energy
Program. Among other things, this agreement calls for DOE to assist
USDA in evaluating the technical aspects of proposals submitted for
renewable energy projects or energy efficiency improvements. In part,
this agreement also helps to fulfill the farm bill's requirement that
USDA consult with DOE in implementing the Renewable Energy Program.
USDA's Rural Development mission area made about $162,000 available for
this purpose.
* In August 2003, USDA signed a contract with MACTEC Federal Programs
(MACTEC), a consultant, to develop a regulation for the program,
including proposed and final regulations to be published in the Federal
Register. USDA's Rural Development mission area made about $317,000
available for this purpose.
* In May 2004, USDA issued a NOFA in the Federal Register inviting
applications for grant assistance under the Renewable Energy Program
for fiscal year 2004. According to this notice, $22.8 million is
available for this program in fiscal year 2004.[Footnote 53]
Applications were to be postmarked by July 19, 2004. As of August 2,
2004, USDA indicated that it received a total of 56 applications for
wind projects totaling about $10.8 million.[Footnote 54]
In fiscal year 2003, wind power projects represented about one-third of
the projects selected and grant funds awarded under the Renewable
Energy Program, or 35 of the 114 grantees selected and $7.4 million of
the $21.7 million awarded. The applicants selected for wind projects
included four farmers and 31 rural small businesses located in eight
states. Table 6 summarizes the grant assistance provided for renewable
energy projects, including wind power, under the program in fiscal year
2003.
Table 6: USDA Grant Assistance for Renewable Energy and Energy
Efficiency Projects in 2003:
Renewable technology: Biomass--anaerobic digester;
Number of awards: 30;
Agricultural producers: 25;
Rural small businesses: 5.
Renewable technology: Biomass--bioenergy;
Number of awards: 17;
Agricultural producers: 11;
Rural small businesses: 6.
Renewable technology: Total biomass;
Number of awards: 47;
Agricultural producers: 36;
Rural small businesses: 11;
Total amount awarded: $11,475,535.
Renewable technology: Wind--large;
Number of awards: 24;
Agricultural producers: 1;
Rural small businesses: 23.
Renewable technology: Wind--small;
Number of awards: 11;
Agricultural producers: 3;
Rural small businesses: 8.
Renewable technology: Total wind power;
Number of awards: 35;
Agricultural producers: 4;
Rural small businesses: 31;
Total amount awarded: $7,412,118.
Renewable technology: Geothermal/hybrid systems;
Number of awards: 2;
Agricultural producers: 0;
Rural small businesses: 2;
Total amount awarded: $589,762.
Renewable technology: Solar;
Number of awards: 6;
Agricultural producers: 5;
Rural small businesses: 1;
Total amount awarded: $725,566.
Renewable technology: Building/industrial energy efficiency;
Number of awards: 24;
Agricultural producers: 13;
Rural small businesses: 11;
Total amount awarded: $1,504,252.
Renewable technology: Hydrogen;
Number of awards: 0;
Agricultural producers: 0;
Rural small businesses: 0;
Total amount awarded: 0.
Total;
Number of awards: 114;
Agricultural producers: 58;
Rural small: businesses: 56;
Total amount awarded: $21,707,233.
Sources: NREL and USDA.
Note: The distinction between large and small wind projects depends on
the capacity of the turbines to be installed. Small projects include
installation of a turbine with a capacity of up to and including 100 kW
and a generator hub height of 120 feet or less. Any turbine above this
threshold is considered large.
[End of table]
Notwithstanding the above actions, USDA's implementation of the
Renewable Energy Program in fiscal year 2004 remains incomplete.
Although USDA has issued a NOFA, it will again offer only grants, as
was done in fiscal year 2003. According to USDA officials and
documents, the Rural Business-Cooperative Service (RBS)--the USDA
agency responsible for implementing the program--had planned to issue
proposed and final versions of the program regulation during fiscal
year 2004 and to make awards of loans and loan guarantees, as well as
grants, during the year based on the final regulation. However, RBS was
not able to hold to this schedule. According to RBS officials, they
underestimated the time that would be needed to develop and process the
regulation. In this regard, they cited several factors that have
contributed to the time needed.
First, these officials said the Office of Management and Budget (OMB)
designated the regulation as "significant" according to Executive Order
12866, as amended.[Footnote 55] A regulation designated as significant
is subject to OMB review. Specifically, the executive order provides
that significant regulations are subject to review by OMB's Office of
Information and Regulatory Affairs. This office may take up to 90 days
for its reviews at the proposed and final regulation stages before
publication of the regulation in the Federal Register.[Footnote 56] In
addition, the executive order provides that agencies should afford the
public a meaningful opportunity to comment on any proposed regulation,
which in most cases should include a comment period of not less than 60
days.
Second, USDA has opted to apply the Administrative Procedure Act's
notice of proposed rule making and public comment requirements in
certain instances where not required by law. This policy, promulgated
by former Secretary of Agriculture Clifford Hardin, was published in
the Federal Register in 1971.[Footnote 57] The policy is known
informally as the "Hardin memo." Specifically, this memo provides, in
part, that the public participation requirements prescribed by the
Administrative Procedure Act, 5 U.S.C. 553 (b) and (c), will be
followed by all agencies of the department in rule making relating to
public property, loans, grants, benefits, or contracts. Thus, while the
act does not require notice and public comment for regulations related
to these matters, USDA's policy is to follow the public participation
requirements of the act for these types of regulations as well. USDA
officials noted that the Hardin memo is consistent with the
recommendations of the Administrative Conference of the United States,
and although the memo was promulgated more than 30 years ago, it
remains in effect.
Third, delays occurred in contracting with MACTEC. This contract was
signed in August 2003, about 15 months after the farm bill's enactment
(May 13, 2002). Specifically, delays occurred with GovWorks, a federal
contract acquisition and administration office used by USDA to handle
the contract solicitation and administration.[Footnote 58] According to
USDA officials, GovWorks took longer than expected to complete the
solicitation phase--including advertising the solicitation and
performing the initial evaluation of applicants--due to staffing
shortages and its responsibilities for other major federal contracts.
The solicitation produced a number of applicants, from which four were
selected for interview by RBS staff. USDA officials indicated that it
took additional time to arrange these interviews. MACTEC was selected
from among the final four firms.
Fourth, USDA officials noted that the draft proposed program regulation
is a very large document--over 200 pages. Thus, the time needed for
review is longer. In early June 2004, USDA officials noted that the
draft had been under review within USDA since February and was now in
final departmental clearance. Among other offices, the Rural
Development mission area, the Office of General Counsel, and the Office
of Budget and Program Analysis have reviewed the draft. USDA officials
noted that as much as possible, the draft was reviewed concurrently by
relevant offices and that the Office of General Counsel assigned one of
its attorneys virtually full time to review the regulation in order to
expedite that office's review.
Finally, USDA officials described the Renewable Energy Program as a new
and unique program. These officials said that neither USDA nor DOE had
a grant or loan program similar to it before its creation in the energy
title of the farm bill. Thus, USDA did not have an existing program to
use as a model for developing the program regulation. In addition,
these officials said that RBS staff were generally not familiar with
renewable energy technologies and thus needed to reach out to other
agencies, such as DOE and EPA, to obtain technical assistance. They
also noted that consultation with DOE is required in section 9006 of
the farm bill.
Although USDA officials maintain that the agency's development in early
2004 of an emergency pilot program for developing renewable energy
systems from the use of diseased livestock as a process raw material
for energy generation was not a source of delay, it may have been a
contributing factor. This pilot program was announced in a NOFA
published in the Federal Register on May 18, 2004. According to the
NOFA, this program is a further action to support USDA's efforts to
address the risks associated with bovine spongiform encephalopathy
(BSE), also known as mad cow disease. The NOFA states that RBS expects
projects to be constructed that will produce energy through the
destruction of diseased cattle.
Under the pilot program, USDA plans to provide guaranteed loans
totaling up to $50 million for up to three project proposals. USDA
estimates the cost of the pilot to be about $3.1 million, needed to
fund the credit subsidy costs. According to USDA officials, these funds
will come from the fiscal year 2004 appropriation for the Renewable
Energy Program, reducing the funds available to make grant awards under
this program by an equivalent amount. Although it will use funds from
the Renewable Energy Program, these officials said the pilot program is
a distinct 1-year program that will not be addressed in the regulation
for the Renewable Energy Program. Instead, the NOFA indicates that the
program regulation for USDA's Business and Industry Loan Guarantee
Program is being used as the basis for the delivery of the pilot
program, with certain provisions of that regulation revised to
accommodate the pilot's purpose. For example, changes to the guaranteed
fee and the percent of guarantee were made to provide a further
incentive to lenders to participate in the pilot program.
MACTEC, the same contractor that USDA is using to develop the proposed
regulation for the Renewable Energy Program, was also used to develop
the NOFA for the pilot program. The original contract with MACTEC was
modified for this purpose. Specifically, a contract amendment signed in
February 2004 provided for additional payments of about $25,000 for
this purpose, increasing the total value of the contract to about
$342,000. According to the amendment, MACTEC was to begin work on the
NOFA in late February 2004. USDA officials indicated that MACTEC had
delivered the draft proposed program regulation for the Renewable
Energy Program to USDA for review prior to beginning work on the pilot
program, and thus the work on the pilot did not delay the work on the
proposed program regulation. However, progress reports prepared by
MACTEC in March and April 2004 indicate that there was overlap between
the two efforts, although the reports do not make clear whether work on
the pilot delayed progress on the program regulation.
USDA's Inability to Offer Loans and Loan Guarantees under the Renewable
Energy Program Limits This Program's Potential:
USDA's continuing inability to offer loans and loan guarantees under
the Renewable Energy Program, as specified in the farm bill, limits the
agency's ability to achieve a much higher program level. For example,
according to USDA's fiscal year 2005 Budget Summary, the Consolidated
Appropriations Act for 2004 and the administration's budget proposal
for 2005 provide sufficient funding for the Renewable Energy Program--
about $23 million in 2004 and about $11 million in 2005--for $200
million in program level each year, based on a combination of loans,
loan guarantees, and grants.[Footnote 59] This is possible because for
direct loans and loan guarantees, program funds would be needed only
for the credit subsidy cost.[Footnote 60] Otherwise, direct loans are
made from funds borrowed from the U.S. Treasury, and guaranteed loans
are made by private lending institutions. Thus, a greater number of
renewable energy projects could be financed. In addition, providing
loans or loan guarantees in conjunction with grants could provide
individual recipients with a greater level of assistance. That is,
while grants can be used to pay up to 25 percent of the eligible
project costs, a combination of grants and loans or loan guarantees may
be used to pay up to 50 percent of the eligible costs.[Footnote 61] In
addition, loans may be a more cost-effective way to provide federal
assistance than outright grants, as the funds used for loans are repaid
by the recipient.
USDA's continuing inability to offer loans and loan guarantees under
the Renewable Energy Program also limits the program's potential
benefits and the agency's ability to achieve one of its performance
goals: to increase economic opportunity in rural areas. For example,
USDA's fiscal year 2005 Budget Explanatory Notes indicate that the
$21.7 million in grant awards made in fiscal year 2003 under the
Renewable Energy Program resulted in an estimated 736 jobs created or
saved and 100 million kWh of electricity generated. However, the agency
estimates that the addition of loans and loan guarantees in fiscal year
2004 would result in (1) a program of about $200 million, (2) an
estimated 7,169 jobs created or saved, and (3) 888 million kWh of
electricity generated.[Footnote 62] Jobs created or saved and
electricity generated are identified as key performance measures in the
Budget Explanatory Notes.
USDA's ability to offer loans and loan guarantees is also important
because of uncertainty regarding the Renewable Energy Program's future
funding. Although the program was fully funded in fiscal years 2003 and
2004, the administration's budget proposal for fiscal year 2005
provides only $10.77 million of the $23 million authorized in the farm
bill. If enacted as proposed, this level of funding would represent
less than 50 percent of the resources authorized for the program. Since
direct loans and loan guarantees require appropriations for only the
credit subsidy cost, not their full face value, they may result in
making more financing available at less cost to the government than
outright grants. Also, the ability to leverage greater amounts of
private financing with loan guarantees would take on added importance.
Many stakeholder organizations, including AWEA, the Environmental and
Energy Study Institute, the American Council for an Energy-Efficient
Economy, and the Environmental Law and Policy Center, have expressed
concerns regarding this proposed cut.
USDA's Ability to Offer Loans and Loan Guarantees under the Renewable
Energy Program in Fiscal Year 2005 Is Uncertain and Questions Remain:
In June 2004, USDA officials indicated that they anticipate publishing
the final regulation for the Renewable Energy Program in late spring
2005. Specifically, documentation related to the agency's contract with
MACTEC indicates that the final regulation will be published in the
Federal Register on May 31, 2005. Assuming this schedule is met, only 4
months in fiscal year 2005 would remain for (1) USDA to issue a notice
in the Federal Register announcing the availability of funds for loans,
loan guarantees, and grants; (2) program applicants to prepare project
proposals and applications, including obtaining professional
assistance from an engineer, financial adviser, or environmental
consultant; and (3) USDA to receive and analyze program applications
and to consult with DOE or EPA, as appropriate, regarding the technical
merit of the proposals. USDA officials acknowledged that this would be
a very tight schedule, but expressed the view that they could offer
loans and loan guarantees in fiscal year 2005 if this schedule is met.
However, questions remain as to when the proposed and final program
regulation will be published. The proposed regulation completed final
departmental clearance on June 23, 2004, and was sent to OMB for
review. As noted, OMB may take up to 90 days for its review. USDA must
then make revisions to the proposed regulation to address OMB's
comments before its publication in the Federal Register for public
comment. USDA has already revised its target date for publishing the
proposed regulation several times--from November 17, 2003, to May 24,
2004, to the fall of 2004. Similarly, it has revised its target date to
publish the final regulation from June 7, 2004, to May 31, 2005.
USDA officials said that 60 days would be allowed for public comment on
the proposed regulation after its publication. In addition, they said
they expect a large volume of comments and that it will take time to
review these comments and consider revisions to the regulation. These
officials said they would consider options to speed up the agency's
review, including detailing additional staff to assist with this work.
Once USDA has completed its review of the comments and revised the
regulation, as appropriate, the agency will submit the final regulation
to its internal clearance process and then to OMB for review. Regarding
its internal clearance process, USDA officials said they would consider
doing concurrent reviews to speed up this process. However, these
officials noted that RBS lacks the authority or control to compel other
offices in USDA to expedite their reviews of the program regulation.
These officials noted that USDA's Office of Budget and Program Analysis
is responsible for overseeing the timely completion of this clearance
process. Regarding OMB's review, this agency again may take up to 90
days for its review.[Footnote 63]
Any unanticipated problems could affect USDA's current plan to issue
the proposed regulation by the fall of 2004 and the final regulation by
May 31, 2005. As noted, many delays already have been experienced in
developing this regulation. Further delays, possibly pushing the
publication date for the final regulation beyond May 31, 2005, would
likely preclude USDA from offering loans and loan guarantees in fiscal
year 2005, as was the case in fiscal years 2003 and 2004. The Renewable
Energy Program was authorized for 5 years--fiscal years 2003 through
2007. If USDA is unable to offer loans and loan guarantees again in
fiscal year 2005, only 2 years will remain to utilize all of the
financial mechanisms provided by the legislation. As noted, utilization
of these mechanisms would increase the program level and benefits. In
this regard, eight members of the Senate Agriculture Committee sent a
letter to USDA in June 2004 noting that a third year without a final
regulation in place could impede and undermine the full potential of
the Renewable Energy Program. Accordingly, they urged USDA to issue the
proposed and final rules as soon as possible.
Another concern is staffing. RBS's Processing Branch has lead
responsibility for implementing the Renewable Energy Program. This
branch is also responsible for administering five other national grant
or loan programs.[Footnote 64] According to USDA officials, the branch
has been able to implement the Renewable Energy Program as a grant
program to date without the need for additional staff. However, these
officials said that once USDA starts to offer loans and loan guarantees
under the Renewable Energy Program, staffing could become an issue.
Currently, the branch has four program specialists in addition to the
Branch Chief. According to the Chief, administering a loan program is
more complicated than a grant program, and therefore a loan program
requires more staff resources and time. For example, administering a
direct loan program requires agency resources to handle loan
origination, processing, and servicing functions.
USDA Has Taken Some Actions to Promote Wind Power through Other
Programs:
Aside from its actions to implement specific provisions of the 2002
farm bill to promote wind power, USDA has provided additional
assistance for this purpose under several of its programs. For example:
* From May 1997 through March 2004, USDA provided about $13.3 million
in grant and loan assistance to 25 rural electric cooperatives or small
businesses to procure or manufacture small wind turbines for on-farm
use.
* In 2001, the Animal and Plant Health Inspection Service entered into
an agreement with a local utility to purchase 25 percent of the
electricity used at its National Wildlife Research Center in Colorado
from wind-generated sources.
* In fiscal year 2003, USDA provided a $2.5 million grant under its
High Energy Cost Program to the Alaska Village Electric Cooperative to
address high energy costs in Chevak, Alaska, an impoverished community
of about 800 residents. Among other things, the funds will be used for
a wind generation system.
* In October 2003, USDA signed a memorandum of understanding with the
National Rural Electric Cooperative Association to increase the use of
renewable resources to generate electricity. The agreement provides for
cooperation in conducting renewable energy technology research and for
conducting education and outreach to promote the use of renewable
energy resources, such as biomass, solar, and wind power, in rural
areas.
* The Agricultural Research Service conducts research and development
to lower the costs of wind generation for isolated farms, ranches, and
rural communities that lack access to affordable and reliable
electrical energy. Currently, the service is conducting research with
Sandia National Laboratories on lowering the costs of wind turbine
blades, which account for more than 50 percent of the cost of new wind
turbines.
USDA May Have Opportunities to Obtain Additional Assistance from EPA:
In implementing the Renewable Energy Program, USDA may also be missing
opportunities to obtain further assistance from EPA. USDA's rural
energy working group included a representative from EPA's AgStar
Program, but this program is focused solely on the production of power
from the anaerobic digestion of biomass such as livestock
manure.[Footnote 65] According to EPA officials, other EPA offices also
may be able to offer information, resources, and expertise to assist
USDA's implementation of the Renewable Energy Program for other
renewable sources, including wind power. For example, an official in
EPA's Office of Air and Radiation said that this office has extensive
contacts with the electric power utilities through its Green Power
Partnership Program, and could therefore help Renewable Energy Program
applicants find buyers for the electricity they will generate and
negotiate related power purchase agreements. In addition, this office
could help answer applicants' questions on project site selection and
permitting for environmental impacts, where applicable.
USDA officials said they recognize that other EPA offices may be able
to offer assistance and that they would welcome such assistance.
However, these officials noted that the rural energy working group has
not met since January 2003, having identified at that time the
information, resources, and expertise available from the group's
participants to assist USDA's implementation of the Renewable Energy
Program. There are no plans for the group to meet again. More recently,
USDA officials indicated that they are considering an interagency
acquisition agreement with EPA to obtain technical assistance from the
AgStar program in reviewing project proposals for anaerobic digestion.
This agreement would be similar to the agreement USDA has with DOE
regarding the review of project proposals for other renewable energy
technologies. According to the Chief of RBS's Processing Branch, he has
had discussions with the lead EPA official for the AgStar program as to
whether other EPA offices should be included in this agreement; as of
June 2004, USDA officials said this matter was still under discussion.
Stakeholders Are Concerned about the Complexity and Short Time Frames
for Submitting Applications under the Renewable Energy Program:
Various stakeholders have expressed concerns about the complexity and
short time frames for submitting grant applications under the Renewable
Energy Program. For example, in the course of our fieldwork during
2003, we heard a number of concerns from farmers and others about the
complexity of this application process and the short time frames for
completing and submitting applications. The applications must include
economic feasibility studies, tentative agreements with an electricity
buyer, financial information demonstrating need under the program, and
information for completing environmental assessments. USDA officials
acknowledged some of these concerns and indicated they have been and
continue to look for ways to simplify the application process. However,
these officials also cautioned that renewable energy projects are, by
their nature, legally, technically, and financially complicated
ventures, and, consequently, it is not surprising that applicants might
find the application process difficult and need the assistance of an
attorney, engineer, or financial consultant.
Regarding the complexity of the application process, USDA officials
noted they have applied lessons learned from the agency's experience
under the fiscal year 2003 grant program to the fiscal year 2004
program. The NOFA for the fiscal year 2003 program invited comments
from applicants and other stakeholder groups. USDA officials said they
considered these comments and other subsequent comments that have been
received from various stakeholders over the past year. As a result, the
NOFA for the fiscal year 2004 grant program is about three times as
long as the one for the previous year. Among other changes, the 2004
NOFA contains specific application guidance for each renewable energy
technology covered by the program.
Regarding time frames, USDA initially gave applicants 2 months to
submit their applications under the fiscal year 2003 grant program.
Specifically, USDA issued a NOFA in the Federal Register on April 8,
2003, with a requirement that applications be postmarked no later than
June 6, 2003. However, in part because of complaints from applicants
and other stakeholders regarding the short time frame, USDA issued a
subsequent notice in the Federal Register on May 19, 2003, to extend
the application deadline to June 27, 2003.[Footnote 66] As for the
fiscal year 2004 program, USDA issued the NOFA on May 5, 2004, with a
requirement that the applications be postmarked no later than 75
calendar days after the date of the published notice (July 19, 2004).
Although USDA's issuance of the 2004 NOFA fell a month later in the
fiscal year than the 2003 NOFA's issuance and the time frame allowed
under the 2004 NOFA is shorter than that allowed under the 2003 NOFA
(including the extension), USDA officials said they believed the time
allowed in 2004 is sufficient. They noted that the guidance in the 2004
NOFA is more detailed than the 2003 NOFA. They also said that the
agency's rural energy coordinators encouraged potential program
applicants to begin pulling together information needed for
environmental assessments even before the 2004 NOFA was published.
In June 2004, USDA officials also said they expect to receive further
detailed comments on the application process and other aspects of the
program when the proposed program regulation is published in the
Federal Register for comment later in 2004. These officials indicated
they would use these comments to consider further refinements to the
application process. Also in June 2004, we discussed with these
officials the potential advantages of surveying program applicants, the
agency's rural energy coordinators, and other stakeholders, as
appropriate, regarding their views as to how the application process
could be improved and streamlined. We suggested that a survey would
comprehensively document problems and related suggestions to better
inform USDA as to the severity or extent of the problems cited and
whether corrective actions are warranted. USDA officials indicated they
did not think a survey is needed in addition to the comments already
received and those expected after publication of the proposed
regulation. They also noted the rural energy coordinators often provide
information on problems or concerns related to the application process
during monthly conference calls with USDA's Rural Development state
offices.
Conclusions:
USDA has yet to utilize all of the financial mechanisms of the farm
bill's Renewable Energy and Energy Efficiency Improvements Program.
Among other things, USDA has not issued the final program regulation
yet that would allow it to offer loans and loan guarantees, as well as
grants. The addition of loans and loan guarantees would allow USDA to
achieve a much higher level of program activity, potentially increasing
the number of projects financed and providing benefits such as
increased economic opportunities in rural areas. Loans may also be a
more cost-effective way to provide federal assistance than outright
grants. In addition, the provision of loans or loan guarantees in
conjunction with grants would enable USDA to offer a greater level of
assistance to program applicants.
While USDA has taken a number of actions to coordinate its efforts to
implement the program internally and externally, it may be missing
opportunities to leverage information, resources, and expertise that
may be available from EPA, such as from EPA's Office of Air and
Radiation.
Finally, applicants and other stakeholders have raised concerns
regarding the complexity of the application process for the program, as
well as the limited time frame provided for submitting these
applications. USDA's continued collection and consideration of these
concerns may identify ways to improve and streamline this process.
Recommendations:
To ensure USDA's timely and effective implementation of the farm bill's
Renewable Energy Systems and Energy Efficiency Improvements Program, we
recommend that the Secretary of Agriculture direct the Rural Business-
Cooperative Service to take the following actions:
* Work with other USDA offices, such as the Office of General Counsel
and the Office of Budget and Program Analysis, to identify possible
ways to accelerate the development of the program regulation to ensure
that all of the funding mechanisms required by the farm bill, including
loans and loan guarantees, be made available as expeditiously as
possible.
* Work with EPA to identify other EPA offices, such as the Office of
Air and Radiation, which may be able to offer information, resources,
and expertise to assist USDA in its implementation of this program.
* Continue to examine ways to simplify, improve, and streamline the
application process for the program, and as part of that effort,
consider the views of program applicants, the agency's rural energy
coordinators, and other interested stakeholders.
Agency Comments:
We provided a draft of this report to USDA for review and comment. We
received written comments from USDA's Acting Under Secretary for Rural
Development, which are reprinted in appendix VI. USDA also provided us
with suggested technical corrections, which we have incorporated into
this report, as appropriate.
USDA agreed with our recommendations and provided information on how it
planned to implement them. Specifically, the Acting Under Secretary for
Rural Development stated that the agency is continuing to expedite the
development of the program regulation, noting that it is in the best
interests of all parties to expedite the rule making process. This
official stated further that the agency would work with EPA officials
to identify EPA offices that could provide USDA with information,
resources, or expertise to implement the program and that a draft
interagency agreement, which it planned to execute before the end of
the fiscal year, would allow USDA to fund specific support activities
provided by EPA. Finally, this official stated that the agency would
continue to examine ways to simplify the program application process
through consultation with DOE, EPA, and other interested stakeholders,
including those commenting on the proposed rule making during its 60-
day comment period.
We also provided a draft of this report to DOE and EPA for review and
comment. These agencies provided us with suggested technical
corrections, which we incorporated into the report, as appropriate.
As agreed with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days
from the date of this letter. We will then send copies to interested
congressional committees; the Secretary of Agriculture; the Secretary
of Energy; the Administrator, Energy Information Administration; the
Director, Office of Management and Budget; and other interested
parties. We will also make copies available to others on request. In
addition, the report will be available at no charge on GAO's Web site
at [Hyperlink, http://www.gao.gov].
If you have any questions about this report, please contact me at (202)
512-3841. Key contributors to this report are listed in appendix VII.
Sincerely yours,
Signed by:
Lawrence J. Dyckman:
Director, Natural Resources and Environment:
[End of section]
Appendixes:
Appendix I: Objectives, Scope, and Methodology:
At the request of the Ranking Democratic Member, Senate Committee on
Agriculture, Nutrition, and Forestry, we agreed to examine (1) the
amount of wind power generation in relation to all U.S. electricity
generation and the prospects for wind power's growth, (2) the
contribution of wind power generation to farmers' income and to the
economic well-being of rural communities in the 10 states with the
highest wind power generation capacity, (3) the advantages and
disadvantages for farmers and rural communities of owning a wind power
project or leasing their land to a commercial wind power developer, and
(4) the efforts of the U.S. Department of Agriculture (USDA) to promote
the development of wind power on farms and in rural communities.
To determine the amount of wind power generation in relation to all
U.S. electricity generation and the prospects for wind power's growth,
we interviewed officials or reviewed the documentation they provided at
the Department of Energy's (DOE) Energy Information Administration
(EIA), Office of Energy Efficiency and Renewable Energy, National
Renewable Energy Laboratory (NREL), and Wind Powering America program.
We also interviewed officials or reviewed documentation from the
American Wind Energy Association (AWEA), Bonneville Power
Administration, Edison Electric Institute, Electric Power Research
Institute, Environmental and Energy Study Institute, Interstate
Renewable Energy Council, Windustry (a rural-based, wind stakeholder
organization), Union of Concerned Scientists, Energy Foundation,
California Wind Energy Collaborative, and National Corn Growers
Association. From these sources we were able to determine the extent of
wind power capacity installed in the United States, including a state-
by-state breakdown, and information on the wind potential of various
parts of the United States.
These sources also provided information on prospects for wind power's
growth, including factors that may either constrain or promote it.
Regarding these factors, we also reviewed our own past work, relevant
publications of the Congressional Budget Office and the Congressional
Research Service, and applicable laws, regulations, and executive
orders. Concerning one of these factors--production tax credits--we
spoke with staff of the Congressional Joint Tax Committee and the
Department of Treasury, as well as two tax lawyers and a certified
public accountant who specialize in these tax issues. In addition, we
reviewed relevant literature addressing the growth potential of wind
power and discussed data related to these projections with DOE
officials.
We also asked EIA to use its National Energy Modeling System to
forecast wind power's growth by 2025 under two scenarios. EIA uses this
computer-based model to annually forecast future energy supply, demand,
and prices, typically over a 20-year period.[Footnote 67] The model
uses assumptions regarding economic growth; changes in world energy
prices; technology, demographic, and other trends; and the possible
changes to current laws and regulations. In short, the first scenario-
-EIA's reference case--assumed that the authorization for the federal
production tax credit would expire and not be available after December
2003. The second scenario assumed that authorization for the production
tax credit would continue through December 2010.[Footnote 68] Other
assumptions, including those for demographic and other trends, price
increases for fossil resources, and current laws and regulations, were
held constant in modeling these scenarios. In addition, EIA assumed
that further design and technological improvements in turbines--known
as the "learning effect"--would occur in both scenarios. However, the
agency assumed that this effect would be greater in the second scenario
due to the continued availability of the production tax credit.
Specifically, the continued availability of this credit would lead to
greater interest in wind power, spurring further design and
technological improvements. These improvements would result in more
efficient and productive turbines, making wind power more competitive
with fossil fuels.
To determine the contribution of wind power generation to farmers'
income and to the economic well-being of rural communities in the 10
states with the highest wind power generation capacity, we started with
the information collected above to identify the relevant states. In
particular, we used data developed by DOE and AWEA to determine the 10
states with the largest amount of wind power generating capacity as of
December 2002; these states represented about 90 percent of the
nation's wind generating capacity at that time.[Footnote 69] From this
list of 10 states, we selected 5 states to visit: the 4 states with the
largest generating capacity--California, Texas, Minnesota, and Iowa--
and the state--Colorado--that had the 10th largest capacity. We chose
Colorado as a point of contrast--unlike the top four states, Colorado
had few state programs to promote wind power. For each state, we
collected information on the number of farms; the types of agriculture
crops produced; total farm income; farm, ranch, and rural lands
acreage; wind energy generation sources; and state policies and
financial and tax incentives designed to encourage wind power
development. We obtained this information from a variety of sources,
including USDA's Farm Services Agency, Economic Research Service, and
National Agricultural Statistics Service, and state and local taxing
authorities.
In the five states, we then visited nine wind projects in 10 counties
to obtain information on specific wind power projects.[Footnote 70] In
addition, we visited two other wind projects during the course of our
work, but we did not obtain detailed information on these projects. To
select the projects visited, we compared lists of wind projects for
each state; we obtained these lists from AWEA, Windustry, and the
states of California, Iowa, and Minnesota. From these lists we selected
a mixture of leased, farmer-owned, and community-operated wind projects
that also were geographically dispersed within a state. In addition to
operating projects, we sought information on projects that may have
failed in the past 5 years; however, federal, state, and local
officials were unaware of any such failures in these states.
Our work focused on utility-scale wind power projects--projects that
generate at least 1 megawatt (MW) of electric power (from one or more
turbines) annually for sale to a local utility. Utility-scale wind
power accounts for over 90 percent of wind power generation in the
United States. In addition, we defined "community projects" as those
operated by a municipal or rural utility or by a school district. At
the project locations, we generally met with landowners, project owners
and investors, state and local taxing authorities, community leaders,
and electric utility officials. To some extent, our work was limited
because we did not have access to cost and income data of a proprietary
nature. In other cases, we were able to obtain this information but
used it only to develop ranges.
In addition, we asked NREL to model the economic impact of wind power
projects on the counties we visited. Specifically, we asked NREL to use
its Wind Impact Model to assess the employment and income impacts of
three hypothetical scenarios on the 10 counties included in our visits.
The scenarios were (1) a 150 MW project that is owned by an out-of-
state firm, (2) a 40 MW project that is owned by an out-of-state firm,
and (3) several small projects with total capacity of 40 MW that are
owned by county residents. This modeling work, including related
assumptions, is discussed in greater detail in appendix III.
To determine the advantages and disadvantages for farmers and rural
communities of owning a wind power project or leasing their land to a
commercial wind power developer, we interviewed officials or reviewed
documentation from DOE's NREL and Wind Powering America program; AWEA;
the Environmental and Energy Study Institute; the National Wind
Coordinating Committee; Windustry; the Izaak Walton League of America;
and the Union of Concerned Scientists. The documentation we reviewed
covered issues such as wind project economics and development,
research, technology, site selection, electricity transmission,
economic and legal constraints, and various federal and state
incentives. We also discussed these issues with farmers, landowners,
wind project investors, state and local government officials, including
local taxing authorities, and others during the course of our site
visits.
To determine USDA's efforts to promote the development of wind power on
farms and in rural communities, we interviewed officials or reviewed
documentation from USDA's Agricultural Research Service, Economic
Research Service, Office of Energy Policy and New Uses, Natural
Resources Conservation Service, Rural Business-Cooperative Service,
Rural Utilities Service, and Office of General Counsel. In particular,
we reviewed USDA's efforts to implement the Renewable Energy Systems
and Energy Efficiency Improvements Program (Renewable Energy Program)
provided for in section 9006 of the 2002 Farm Security and Rural
Investment Act (farm bill). We also spoke with USDA officials and
reviewed documents they furnished to determine the extent to which USDA
provided assistance under other rural development loan or grant
programs for wind project research, planning, or construction. In
addition, regarding USDA's implementation of the Renewable Energy
Program, we discussed USDA's consultation with DOE and the
Environmental Protection Agency (EPA) with officials from all three
agencies. Furthermore, during our site visits in the selected states,
we discussed with farmers, ranchers, and rural small business officials
the financial or technical assistance they may have received from USDA
or other federal agencies in developing their wind power projects. We
also discussed with them their experiences with the application process
for seeking assistance under the section 9006 program, including
obtaining information on the program and completing the application, as
well as obtaining information and assistance from USDA or other sources
on the factors--economic, technical, and legal--that need to be
considered before embarking on a wind project. Finally, we reviewed
written comments submitted to USDA in response to a December 2002
public meeting to solicit suggestions from interested stakeholders
about USDA's implementation of the section 9006 program.
Finally, to get a better sense of what the federal government is doing
more generally to promote wind power generation and how these efforts
may be coordinated with USDA's efforts to foster its development on
farms and in rural communities, we spoke with officials or reviewed
documentation from DOE, USDA, the Department of Defense, the Department
of the Interior, and EPA.
We conducted our review from February 2003 through August 2004 in
accordance with generally accepted government auditing standards. We
did not independently verify the data obtained from the sources noted
above. However, as appropriate, we discussed with these sources the
measures they take to ensure the accuracy of these data. These measures
seemed reasonable. Appendix II provides further information on the
sources used in our work.
[End of section]
Appendix II: Sources for Information on Wind Power Generation:
Following are the names, addresses, and Web sites for sources of
information on wind power generation used in our work.
American Wind Energy Association
122 C Street, NW, Suite 380
Washington, DC 20001
(202) 383-2504
www.awea.org:
California Wind Energy Collaborative
University of California, Davis
One Shields Avenue
Davis, CA 95616
(530) 752-7741
www.cwec.ucdavis.edu:
Edison Electric Institute
Alliance of Energy Suppliers
701 Pennsylvania Avenue, NW
Washington, DC 20004-2696
(202) 508-5652
www.eei.org/alliance:
Electric Power Research Institute
3412 Hillview Avenue
P.O. Box 10412
Palo Alto, CA 94304
(800) 313-3774
www.epri.com:
Energy Information Administration
U.S. Department of Energy
Forrestal Building
1000 Independence Avenue, SW
Washington, DC 20585
(202) 586- 6582
www.eia.doe.gov:
Environmental and Energy Study Institute
122 C Street, NW, Suite 630
Washington, DC 20001
(202) 628-1400
www.eesi.org:
Interstate Renewable Energy Council
P.O. Box 1156
Latham, NY 12110-1156
(518) 458-6059
www.irecusa.org:
Izaak Walton League of America
Midwest Office
1619 Dayton Avenue, #202
St. Paul, MN 55104
(651) 649-1446
www.iwla.org:
Minnesota Department of Commerce
Energy Information Center
121 7th Place East, Suite 200
St. Paul, MN 55101
(800) 657-3710
www.commerce.state.mn.us:
National Renewable Energy Laboratory
National Wind Technology Center
1617 Cole Boulevard
Golden, CO 80401
(303) 384-6979
www.nwtc.nrel.gov:
National Rural Electric Cooperative Association
4301 Wilson Boulevard
Arlington, VA 22203
(703) 907-5500
www.nreca.org:
National Wind Coordinating Committee
1255 23rd Street, NW
Washington, DC 20037
(888) 764-WIND
www.nationalwind.org:
Union of Concerned Scientists
Energy Program
2 Brattle Square
Cambridge, MA 02238
(617) 547-5552
www.ucs@ucsusa.org:
Utility Wind Interest Group
2111 Wilson Boulevard, Suite 323
Arlington, VA 22201-3001
(703) 351-4492, ext. 121
www.uwig.org:
U.S. Department of Agriculture
Agricultural Research Service
Conservation and Production Research Laboratory
P.O. Drawer 10
2300 Experiment Station Rd.
Bushland, TX 79012
(806) 356-5734
www.cprl.ars.usda.gov:
U.S. Department of Agriculture
Rural Business-Cooperative Service
Renewable Energy and Energy Efficiency Program
1400 Independence Avenue, SW
Washington, DC 20250
(202) 720-1497
www.rurdev.usda.gov/rbs/farmbill/index.html:
U.S. Department of Energy
Wind Energy Program
Forrestal Building
1000 Independence Ave., SW
Washington, DC 20585
(202) 586-5348
www.eren.doe.gov/wind:
Windustry
2105 First Avenue S.
Minneapolis, MN 55404
(612) 870-3461
www.windustry.org:
[End of section]
Appendix III: Results of NREL Modeling on Potential Economic Impacts of
Wind Power on Rural Communities:
We asked NREL to model the economic impact of wind power projects on
the counties we visited during our review. This appendix describes the
model used for the analysis, including the key data inputs and
parameters. It also describes the model results.
NREL has retained the services of MRG & Associates, a consulting firm
(the firm) that specializes in energy economic analysis. The firm
developed the Wind Impact Model (the model) to assess the impact of
wind power investments on employment, earnings, and economic output at
the state and local levels. Economic output as defined in the model is
a measure of economic activity (value of production) on the state or
local level that is similar to the measure of the gross domestic
product on the national level. For simplicity, this appendix refers to
economic output as "income."
We asked NREL to assess the employment and income impacts of three
hypothetical scenarios on 11 counties in the five states we visited.
The scenarios are: (1) a 150 MW project that is owned by an out-of-
state firm, (2) a 40 MW project that is owned by an out-of-state firm;
and (3) several small projects totaling 40 MW of capacity that are
owned by county residents. Table 7 lists the 11 counties for which the
firm conducted the analysis. We selected these counties because we
determined that the NREL analysis would be an appropriate complement to
our visits. We also believed that our visits would give us some general
sense of the economic conditions of the counties, helping us judge the
differences in assumptions regarding the counties in NREL's modeling.
Table 7: Counties Included in NREL's Economic Analysis:
State: California;
County: Alameda;
Wind project visited: Altamont Pass.
State: California;
County: Solano;
Wind project visited: High Winds.
State: Colorado;
County: Weld;
Wind project visited: Ponnequin.
State: Iowa;
County: Buena Vista;
Wind project visited: Storm Lake.
State: Iowa;
County: Cherokee;
Wind project visited: Storm Lake.
State: Iowa;
County: Dickinson;
Wind project visited: Spirit Lake.
State: Minnesota;
County: Pipestone;
Wind project visited: Woodstock, Kas Brothers.
State: Minnesota;
County: Rock;
Wind project visited: Minwind I and II.
State: Texas;
County: Pecos;
Wind project visited: Indian Mesa.
State: Texas;
County: Upton;
Wind project visited: Southwest Mesa[A].
State: Texas;
County: Crocket;
Wind project visited: Southwest Mesa[A].
Source: GAO.
[A] We did not visit the Southwest Mesa project, but it is close to
Indian Mesa, and we discussed it with the common owner, FPL Wind.
[End of table]
The Wind Impact Model:
The model provides a tool that can be used by wind power developers,
decision makers, and others to identify the local economic impacts
associated with constructing and operating wind power projects. The
model, based on a spreadsheet, emulates, on a small scale, the basic
function of an input-output model. It relies on input-output
multipliers that, in this case, estimate how much a dollar of
expenditures injected into an economy will generate in total employment
or income. Employment and income multipliers for a given sector of a
state's or a county's economy depend on the spending patterns and the
specific economic structure of the jurisdiction in question. The source
of the multipliers used in the model is Minnesota IMPLAN Group Inc.,
whose databases and modeling system are used by many government
agencies, academic institutions, and other researchers worldwide for
economic impact modeling and analyses.
Input-output models are used to trace supply linkages in the economy.
For example, an input-output model of wind power would show how
investments in wind turbines benefit turbine manufacturers as well as
fabricated metal industries and others businesses supplying inputs to
those manufacturers. An input-output analysis of local benefits
generated by wind power project expenditures would depend upon how much
of those expenditures are spent locally and the structure of the local
economy. Different levels of expenditures support varying levels of
employment, income, and output, consistent with the spending pattern
and local economic structure.
"Inputs" into the model include cost data for a given wind power
project and parameters that characterize the particular state-or
county-level economy being analyzed. Multipliers are used on the input
data to calculate the "outputs," which are the estimated employment and
income impacts of the project.
The model is designed to examine economic impact on the state or county
levels, and it does so separately for the "construction period" and
"operating years" of a wind power project. Construction phase impacts
are reported as a 1-year equivalent of the incremental change to state
or county employment, earnings, and income attributable to a new
project. For example, if a project results in full-time employment of
200 workers for 6 months, the model will "see" this effect as 100 full-
time jobs added for 1 year. On the other hand, a model output of 25
jobs for the operating years of a project means that this project is
expected to employ (directly at the plant and indirectly) 25 full-time
equivalent workers annually over its lifetime.
The model divides a state or county economy into 14 sectors.[Footnote
71] For each sector, the model has three sets of employment, earnings,
and income multipliers. One set is for direct effects, another for
indirect effects, and a third for induced effects. In the case of a 150
MW wind power project, for example, the construction period direct
employment effect includes the on-site jobs of the contractors and
crews hired to build the project and jobs at the manufacturing plants
that produce the turbines. In the operating years, the direct
employment effect includes all of the workers who are employed directly
by the project (field technicians, administrative staff, and project
managers) as well as employment directly supported by expenditures for
goods and services used by the plant. The indirect employment effect
includes employment that results because suppliers of goods and
services to the project also procure goods and services from others.
The contractor who builds the project, for example, procures goods and
services from bankers, accountants, suppliers of construction and other
materials, and others. Finally, the induced employment effects refer to
the change in employment that occurs due to the spending of those
persons directly and indirectly generating income associated with the
project. Direct, indirect, and induced income effects follow the same
logic.
Model Inputs:
A major portion of the required "inputs" into the model are cost data,
including the following:
* construction costs--for materials and labor, for example;
* equipment costs for such things as turbines, rotors, and towers;
* other construction period costs, such as for interconnection to the
electric grid, engineering services, land easements, and permitting;
* annual operating and maintenance costs, including payroll of direct
employees, material, and various services; and:
* financing and lease costs and taxes.
Other inputs include estimates of "local share value" for certain
dollar expenditures and labor. For example, a 10 percent local share
value for construction material expenditures for Pecos County, Texas,
means that, for a wind project being built in this county, the model
assumes that only 10 percent of the value of project expenditures on
construction materials accrues to local vendors. The relatively low
number means that Pecos County has a limited economy and much of the
construction material needed for the project would have to be obtained
from outside the county--possibly from neighboring urban centers, such
as the cities of Midland-Odessa and Lubbock, or from out-of-state
locations. Similarly, for Pecos County, the model assumes that only 10
percent of the labor used for laying the foundations for the project's
turbines would be hired locally. In contrast, the corresponding
percentages for Alameda County, California--a county with a much larger
population and larger and more diversified economic base--would be 90
percent for the local share of construction material expenditures and
100 percent for the local share of labor used for foundation work.
The Interaction between Local Share Values and Multipliers:
The local share values and multipliers used in the model determine how
an expenditure of a particular type translates into employment and
income impacts on a county's economy. The interaction between the model
inputs may be partly illustrated by comparing Rock County, Minnesota,
with Weld County, Colorado.
* For Rock County, the model assumes the local share value for
construction expenditures is 4 percent. The model also uses a direct
employment multiplier of 10.1 jobs for every $1 million spent on
construction in the county.
* For Weld County, the model assumes the local share value for total
construction expenditures is 76 percent, and the direct employment
multiplier is 8.3 jobs for every $1 million spent on construction in
the county.
The differences in the local share values and multipliers for these two
counties are attributable to the differing population and economic
characteristics of these counties. Rock County is rural, with a small
population and economic base, and thus the project developer must
obtain much of the construction material, equipment, and labor needed
from outside the county. In contrast, Weld County has a much larger
population and economic base capable of fulfilling more of the
developer's material and labor needs.
On the other hand, the direct construction employment multiplier for
Rock County, at 10.1 jobs per million dollars of expenditure, is
somewhat higher than the corresponding multiplier of 8.3 for Weld
County, reflecting a more labor-intensive local economy in the former.
The difference in local share values and employment multipliers for
Rock County, Minnesota, and Weld County, Colorado, results in bigger
employment impacts of a wind power project in the latter. For example,
the model assumes that the construction of a 150 MW project will cost
about $15 million in each county.[Footnote 72] However, in the case of
Rock County, only about $600,000 of this amount will be spent within
the county, while the corresponding local share for Weld County will be
$11.5 million. Consequently, according to the model results, the $15
million construction project results in direct construction phase
employment for Rock County of only 16 jobs compared with 141 jobs for
Weld County.
Model Results:
We have not summarized all model results--to do so would involve
publishing 33 large tables. However, those we do include are
illustrative of the results we found. Overall, the model results showed
that employment and income impacts:
* tend to be greater for counties that are more highly populated and
have a larger economic base, and:
* are considerably greater for projects that are locally owned than for
projects that are owned by out-of-area firms.
As discussed, the model estimates economic impacts for the construction
period separately from impacts during the years of the project's
operation. Tables 8 and 9 summarize the model's estimates of economic
impacts for the construction period, while tables 10 through 12
summarize the estimates for the years of operation. Estimates for the
construction period are 1-year impacts.
Construction Period Impacts:
Table 8 shows the economic impacts of constructing a 150 MW wind power
project owned by an out-of-area energy company (a company headquartered
outside the county). Table 9 depicts the impacts of constructing a 40
MW project owned by an out-of-area company. As depicted in these
tables, the economic impacts during the construction period are bigger
for counties that have a larger population and economic base. For
example, the impacts of constructing a 150 MW project on Weld County,
Colorado, would include the creation of the equivalent of 349 full-time
jobs for 1 year. Weld County has a population of over 200,000. In
contrast, the construction of a 150 MW project in Pecos County, Texas,
would create the equivalent of only 36 full-time jobs for 1 year in the
county. Pecos County has a much smaller population--about 16,000
people--and economic base. Thus, most of the labor and professional
staff resources needed to construct the project would be hired from
outside the county.
Table 8: Economic Impacts during Construction Period of 150 MW Wind
Power Project Owned by Out-of-Area Energy Company:
Alameda, Calif;
2003 population (thousands): 1,501;
2003 personal income (billions): $60.52;
Model results: Direct impacts: Jobs: 130;
Model results: Direct impacts: Income (millions): $19.09;
Model results: Indirect impacts: Jobs: 76;
Model results: Indirect impacts: Income (millions): $10.99;
Model results: Induced impacts: Jobs: 108;
Model results: Induced impacts: Income (millions): $12.67;
Model results: Total impacts (direct, indirect, induced): Jobs: 314;
Model results: Total impacts (direct, indirect, induced): Income
(millions): $42.75.
Solano, Calif;
2003 population (thousands): 420;
2003 personal income (billions): $11.71;
Model results: Direct impacts: Jobs: 139;
Model results: Direct impacts: Income (millions): $19.09;
Model results: Indirect impacts: Jobs: 78;
Model results: Indirect impacts: Income (millions): $10.62;
Model results: Induced impacts: Jobs: 105;
Model results: Induced impacts: Income (millions): $10.64;
Model results: Total impacts (direct, indirect, induced): Jobs: 321;
Model results: Total impacts (direct, indirect, induced): Income
(millions): $40.35.
Weld, Colo;
2003 population (thousands): 211;
2003 personal income (billions): $4.68;
Model results: Direct impacts: Jobs: 141;
Model results: Direct impacts: Income (millions): $17.47;
Model results: Indirect impacts: Jobs: 91;
Model results: Indirect impacts: Income (millions): $12.48;
Model results: Induced impacts: Jobs: 117;
Model results: Induced impacts: Income (millions): $10.82;
Model results: Total impacts (direct, indirect, induced): Jobs: 349;
Model results: Total impacts (direct, indirect, induced): Income
(millions): $40.77.
Buena Vista, Iowa;
2003 population (thousands): 20;
2003 personal income (billions): $0.52;
Model results: Direct impacts: Jobs: 23;
Model results: Direct impacts: Income (millions): $1.95;
Model results: Indirect impacts: Jobs: 11;
Model results: Indirect impacts: Income (millions): $1.44;
Model results: Induced impacts: Jobs: 13;
Model results: Induced impacts: Income (millions): $1.15;
Model results: Total impacts (direct, indirect, induced): Jobs: 47;
Model results: Total impacts (direct, indirect, induced): Income
(millions): $4.54.
Cherokee, Iowa;
2003 population (thousands): 13;
2003 personal income (billions): $0.33;
Model results: Direct impacts: Jobs: 17;
Model results: Direct impacts: Income (millions): $1.28;
Model results: Indirect impacts: Jobs: 6;
Model results: Indirect impacts: Income (millions): $0.67;
Model results: Induced impacts: Jobs: 10;
Model results: Induced impacts: Income (millions): $0.83;
Model results: Total impacts (direct, indirect, induced): Jobs: 33;
Model results: Total impacts (direct, indirect, induced): Income
(millions): $2.78.
Dickinson, Iowa;
2003 population (thousands): 17;
2003 personal income (billions): $0.53;
Model results: Direct impacts: Jobs: 23;
Model results: Direct impacts: Income (millions): $1.95;
Model results: Indirect impacts: Jobs: 7;
Model results: Indirect impacts: Income (millions): $0.48;
Model results: Induced impacts: Jobs: 10;
Model results: Induced impacts: Income (millions): $0.65;
Model results: Total impacts (direct, indirect, induced): Jobs: 40;
Model results: Total impacts (direct, indirect, induced): Income
(millions): $3.09.
Pipestone, Minn;
2003 population (thousands): 10;
2003 personal income (billions): $0.28;
Model results: Direct impacts: Jobs: 18;
Model results: Direct impacts: Income (millions): $1.28;
Model results: Indirect impacts: Jobs: 3;
Model results: Indirect impacts: Income (millions): $0.23;
Model results: Induced impacts: Jobs: 7;
Model results: Induced impacts: Income (millions): $0.41;
Model results: Total impacts (direct, indirect, induced): Jobs: 28;
Model results: Total impacts (direct, indirect, induced): Income
(millions): $1.92.
Rock, Minn;
2003 population (thousands): 10;
2003 personal income (billions): $0.25;
Model results: Direct impacts: Jobs: 16;
Model results: Direct impacts: Income (millions): $1.28;
Model results: Indirect impacts: Jobs: 4;
Model results: Indirect impacts: Income (millions): $0.50;
Model results: Induced impacts: Jobs: 6;
Model results: Induced impacts: Income (millions): $0.52;
Model results: Total impacts (direct, indirect, induced): Jobs: 27;
Model results: Total impacts (direct, indirect, induced): Income
(millions): $2.30.
Crockett, Tex;
2003 population (thousands): 4;
2003 personal income (billions): $0.07;
Model results: Direct impacts: Jobs: 14;
Model results: Direct impacts: Income (millions): $1.28;
Model results: Indirect impacts: Jobs: 3;
Model results: Indirect impacts: Income (millions): $0.22;
Model results: Induced impacts: Jobs: 4;
Model results: Induced impacts: Income (millions): $0.27;
Model results: Total impacts (direct, indirect, induced): Jobs: 21;
Model results: Total impacts (direct, indirect, induced): Income
(millions): $1.76.
Pecos, Tex;
2003 population (thousands): 16;
2003 personal income (billions): $0.24;
Model results: Direct impacts: Jobs: 24;
Model results: Direct impacts: Income (millions): $1.95;
Model results: Indirect impacts: Jobs: 4;
Model results: Indirect impacts: Income (millions): $0.30;
Model results: Induced impacts: Jobs: 8;
Model results: Induced impacts: Income (millions): $0.53;
Model results: Total impacts (direct, indirect, induced): Jobs: 36;
Model results: Total impacts (direct, indirect, induced): Income
(millions): $2.77.
Upton, Tex;
2003 population (thousands): 3;
2003 personal income (billions): $0.06;
Model results: Direct impacts: Jobs: 18;
Model results: Direct impacts: Income (millions): $1.28;
Model results: Indirect impacts: Jobs: 1;
Model results: Indirect impacts: Income (millions): $0.13;
Model results: Induced impacts: Jobs: 2;
Model results: Induced impacts: Income (millions): $0.17;
Model results: Total impacts (direct, indirect, induced): Jobs: 22;
Model results: Total impacts (direct, indirect, induced): Income
(millions): $1.57.
Source: NREL.
Note: Totals are subject to rounding.
[End of table]
Table 9: Economic Impacts during Construction Period of 40 MW Wind
Power Project Owned by Out-of-Area Energy Company:
Alameda, Calif;
2003 population (thousands): 1,501;
2003 personal income (billions): $60.52;
Model results: Direct impacts: Jobs: 35;
Model results: Direct impacts: Income (millions): $5.09;
Model results: Indirect impacts: Jobs: 20;
Model results: Indirect impacts: Income (millions): $2.93;
Model results: Induced impacts: Jobs: 29;
Model results: Induced impacts: Income (millions): $3.38;
Model results: Total impacts (direct, indirect, induced): Jobs: 84;
Model results: Total impacts (direct, indirect, induced): Income
(millions): $11.40.
Solano, Calif;
2003 population (thousands): 420;
2003 personal income (billions): $11.71;
Model results: Direct impacts: Jobs: 37;
Model results: Direct impacts: Income (millions): $5.09;
Model results: Indirect impacts: Jobs: 21;
Model results: Indirect impacts: Income (millions): $2.83;
Model results: Induced impacts: Jobs: 28;
Model results: Induced impacts: Income (millions): $2.84;
Model results: Total impacts (direct, indirect, induced): Jobs: 86;
Model results: Total impacts (direct, indirect, induced): Income
(millions): $10.76.
Weld, Colo;
2003 population (thousands): 211;
2003 personal income (billions): $4.68;
Model results: Direct impacts: Jobs: 42;
Model results: Direct impacts: Income (millions): $5.09;
Model results: Indirect impacts: Jobs: 27;
Model results: Indirect impacts: Income (millions): $3.54;
Model results: Induced impacts: Jobs: 34;
Model results: Induced impacts: Income (millions): $3.19;
Model results: Total impacts (direct, indirect, induced): Jobs: 103;
Model results: Total impacts (direct, indirect, induced): Income
(millions): $11.81.
Buena Vista, Iowa;
2003 population (thousands): 20;
2003 personal income (billions): $0.52;
Model results: Direct impacts: Jobs: 6;
Model results: Direct impacts: Income (millions): $0.52;
Model results: Indirect impacts: Jobs: 3;
Model results: Indirect impacts: Income (millions): $0.38;
Model results: Induced impacts: Jobs: 3;
Model results: Induced impacts: Income (millions): $0.31;
Model results: Total impacts (direct, indirect, induced): Jobs: 13;
Model results: Total impacts (direct, indirect, induced): Income
(millions): $1.21.
Cherokee, Iowa;
2003 population (thousands): 13;
2003 personal income (billions): $0.33;
Model results: Direct impacts: Jobs: 4;
Model results: Direct impacts: Income (millions): $0.34;
Model results: Indirect impacts: Jobs: 2;
Model results: Indirect impacts: Income (millions): $0.18;
Model results: Induced impacts: Jobs: 3;
Model results: Induced impacts: Income (millions): $0.22;
Model results: Total impacts (direct, indirect, induced): Jobs: 9;
Model results: Total impacts (direct, indirect, induced): Income
(millions): $0.74.
Dickinson, Iowa;
2003 population (thousands): 17;
2003 personal income (billions): $0.53;
Model results: Direct impacts: Jobs: 6;
Model results: Direct impacts: Income (millions): $0.52;
Model results: Indirect impacts: Jobs: 2;
Model results: Indirect impacts: Income (millions): $0.13;
Model results: Induced impacts: Jobs: 3;
Model results: Induced impacts: Income (millions): $0.17;
Model results: Total impacts (direct, indirect, induced): Jobs: 11;
Model results: Total impacts (direct, indirect, induced): Income
(millions): $0.82.
Pipestone, Minn;
2003 population (thousands): 10;
2003 personal income (billions): $0.28;
Model results: Direct impacts: Jobs: 5;
Model results: Direct impacts: Income (millions): $0.34;
Model results: Indirect impacts: Jobs: 1;
Model results: Indirect impacts: Income (millions): $0.06;
Model results: Induced impacts: Jobs: 2;
Model results: Induced impacts: Income (millions): $0.11;
Model results: Total impacts (direct, indirect, induced): Jobs: 7;
Model results: Total impacts (direct, indirect, induced): Income
(millions): $0.51.
Rock, Minn;
2003 population (thousands): 10;
2003 personal income (billions): $0.25;
Model results: Direct impacts: Jobs: 4;
Model results: Direct impacts: Income (millions): $0.34;
Model results: Indirect impacts: Jobs: 1;
Model results: Indirect impacts: Income (millions): $0.13;
Model results: Induced impacts: Jobs: 2;
Model results: Induced impacts: Income (millions): $0.14;
Model results: Total impacts (direct, indirect, induced): Jobs: 7;
Model results: Total impacts (direct, indirect, induced): Income
(millions): $0.61.
Crockett, Tex;
2003 population (thousands): 4;
2003 personal income (billions): $0.07;
Model results: Direct impacts: Jobs: 4;
Model results: Direct impacts: Income (millions): $0.34;
Model results: Indirect impacts: Jobs: 1;
Model results: Indirect impacts: Income (millions): $0.06;
Model results: Induced impacts: Jobs: 1;
Model results: Induced impacts: Income (millions): $0.07;
Model results: Total impacts (direct, indirect, induced): Jobs: 6;
Model results: Total impacts (direct, indirect, induced): Income
(millions): $0.47.
Pecos, Tex;
2003 population (thousands): 16;
2003 personal income (billions): $0.24;
Model results: Direct impacts: Jobs: 6;
Model results: Direct impacts: Income (millions): $0.52;
Model results: Indirect impacts: Jobs: 1;
Model results: Indirect impacts: Income (millions): $0.08;
Model results: Induced impacts: Jobs: 2;
Model results: Induced impacts: Income (millions): $0.14;
Model results: Total impacts (direct, indirect, induced): Jobs: 10;
Model results: Total impacts (direct, indirect, induced): Income
(millions): $0.74.
Upton, Tex;
2003 population (thousands): 3;
2003 personal income (billions): $0.06;
Model results: Direct impacts: Jobs: 5;
Model results: Direct impacts: Income (millions): $0.34;
Model results: Indirect impacts: Jobs: 0;
Model results: Indirect impacts: Income (millions): $0.03;
Model results: Induced impacts: Jobs: 1;
Model results: Induced impacts: Income (millions): $0.04;
Model results: Total impacts (direct, indirect, induced): Jobs: 6;
Model results: Total impacts (direct, indirect, induced): Income
(millions): $0.42.
Source: NREL.
Note: Totals are subject to rounding.
[End of table]
Operations Period Impacts:
Tables 10, 11, and 12 provide annual estimates of the economic impacts
during the operations period of various size projects. Table 10 shows
the impacts of a 150 MW project owned by an out-of-area energy company.
Table 11 depicts the impacts of 40 MW project owned by an out-of-area
company. Table 12 shows the combined impacts of 20 small projects--
each 2 MW--that are locally owned. Together, these 20 projects would
constitute 40 MW of generating capacity. A comparison of tables 11 and
12 shows that local ownership can generate significantly higher
economic impacts for a county. For example, a single 40 MW project
built in Pipestone County, Minnesota, would generate about $650,000 in
new income for the county annually. In contrast, 20 locally owned
projects that are 2 MW each (40 MW total) would generate about $3.3
million annually in the same county.
Table 10: Economic Impacts during Operations Period of 150 MW Wind
Power Project Owned by Out-of-Area Energy Company:
Alameda, Calif;
2003 population (thousands): 1,501;
2003 personal income (billions): $60.52;
Model results: Direct impacts: Jobs: 37;
Model results: Direct impacts: Income (millions): $2.00;
Model results: Indirect impacts: Jobs: 6;
Model results: Indirect impacts: Income (millions): $0.94;
Model results: Induced impacts: Jobs: 21;
Model results: Induced impacts: Income (millions): $2.49;
Model results: Total impacts (direct, indirect, induced): Jobs: 65;
Model results: Total impacts (direct, indirect, induced): Income
(millions): $5.43.
Solano, Calif;
2003 population (thousands): 420;
2003 personal income (billions): $11.71;
Model results: Direct impacts: Jobs: 37;
Model results: Direct impacts: Income (millions): $2.00;
Model results: Indirect impacts: Jobs: 6;
Model results: Indirect impacts: Income (millions): $0.78;
Model results: Induced impacts: Jobs: 20;
Model results: Induced impacts: Income (millions): $2.05;
Model results: Total impacts (direct, indirect, induced): Jobs: 64;
Model results: Total impacts (direct, indirect, induced): Income
(millions): $4.83.
Weld, Colo;
2003 population (thousands): 211;
2003 personal income (billions): $4.68;
Model results: Direct impacts: Jobs: 40;
Model results: Direct impacts: Income (millions): $2.00;
Model results: Indirect impacts: Jobs: 8;
Model results: Indirect impacts: Income (millions): $0.99;
Model results: Induced impacts: Jobs: 29;
Model results: Induced impacts: Income (millions): $2.67;
Model results: Total impacts (direct, indirect, induced): Jobs: 76;
Model results: Total impacts (direct, indirect, induced): Income
(millions): $5.66.
Buena Vista, Iowa;
2003 population (thousands): 20;
2003 personal income (billions): $0.52;
Model results: Direct impacts: Jobs: 33;
Model results: Direct impacts: Income (millions): $1.67;
Model results: Indirect impacts: Jobs: 9;
Model results: Indirect impacts: Income (millions): $1.15;
Model results: Induced impacts: Jobs: 44;
Model results: Induced impacts: Income (millions): $3.91;
Model results: Total impacts (direct, indirect, induced): Jobs: 86;
Model results: Total impacts (direct, indirect, induced): Income
(millions): $6.74.
Cherokee, Iowa;
2003 population (thousands): 13;
2003 personal income (billions): $0.33;
Model results: Direct impacts: Jobs: 33;
Model results: Direct impacts: Income (millions): $1.61;
Model results: Indirect impacts: Jobs: 9;
Model results: Indirect impacts: Income (millions): $1.02;
Model results: Induced impacts: Jobs: 51;
Model results: Induced impacts: Income (millions): $4.08;
Model results: Total impacts (direct, indirect, induced): Jobs: 93;
Model results: Total impacts (direct, indirect, induced): Income
(millions): $6.71.
Dickinson, Iowa;
2003 population (thousands): 17;
2003 personal income (billions): $0.53;
Model results: Direct impacts: Jobs: 34;
Model results: Direct impacts: Income (millions): $1.67;
Model results: Indirect impacts: Jobs: 9;
Model results: Indirect impacts: Income (millions): $0.77;
Model results: Induced impacts: Jobs: 39;
Model results: Induced impacts: Income (millions): $2.57;
Model results: Total impacts (direct, indirect, induced): Jobs: 81;
Model results: Total impacts (direct, indirect, induced): Income
(millions): $5.01.
Pipestone, Minn;
2003 population (thousands): 10;
2003 personal income (billions): $0.28;
Model results: Direct impacts: Jobs: 33;
Model results: Direct impacts: Income (millions): $1.61;
Model results: Indirect impacts: Jobs: 4;
Model results: Indirect impacts: Income (millions): $0.36;
Model results: Induced impacts: Jobs: 7;
Model results: Induced impacts: Income (millions): $0.45;
Model results: Total impacts (direct, indirect, induced): Jobs: 45;
Model results: Total impacts (direct, indirect, induced): Income
(millions): $2.42.
Rock, Minn;
2003 population (thousands): 10;
2003 personal income (billions): $0.25;
Model results: Direct impacts: Jobs: 32;
Model results: Direct impacts: Income (millions): $1.61;
Model results: Indirect impacts: Jobs: 5;
Model results: Indirect impacts: Income (millions): $0.57;
Model results: Induced impacts: Jobs: 7;
Model results: Induced impacts: Income (millions): $0.61;
Model results: Total impacts (direct, indirect, induced): Jobs: 45;
Model results: Total impacts (direct, indirect, induced): Income
(millions): $2.79.
Crockett, Tex;
2003 population (thousands): 4;
2003 personal income (billions): $0.07;
Model results: Direct impacts: Jobs: 32;
Model results: Direct impacts: Income (millions): $1.61;
Model results: Indirect impacts: Jobs: 8;
Model results: Indirect impacts: Income (millions): $1.00;
Model results: Induced impacts: Jobs: 19;
Model results: Induced impacts: Income (millions): $1.20;
Model results: Total impacts (direct, indirect, induced): Jobs: 60;
Model results: Total impacts (direct, indirect, induced): Income
(millions): $3.82.
Pecos, Tex;
2003 population (thousands): 16;
2003 personal income (billions): $0.24;
Model results: Direct impacts: Jobs: 32;
Model results: Direct impacts: Income (millions): $1.67;
Model results: Indirect impacts: Jobs: 4;
Model results: Indirect impacts: Income (millions): $0.47;
Model results: Induced impacts: Jobs: 30;
Model results: Induced impacts: Income (millions): $1.98;
Model results: Total impacts (direct, indirect, induced): Jobs: 67;
Model results: Total impacts (direct, indirect, induced): Income
(millions): $4.12.
Upton, Tex;
2003 population (thousands): 3;
2003 personal income (billions): $0.06;
Model results: Direct impacts: Jobs: 33;
Model results: Direct impacts: Income (millions): $1.61;
Model results: Indirect impacts: Jobs: 2;
Model results: Indirect impacts: Income (millions): $0.30;
Model results: Induced impacts: Jobs: 12;
Model results: Induced impacts: Income (millions): $0.83;
Model results: Total impacts (direct, indirect, induced): Jobs: 47;
Model results: Total impacts (direct, indirect, induced): Income
(millions): $2.75.
Source: NREL.
Note: Totals are subject to rounding.
[End of table]
Table 11: Economic Impacts during Operations Period of 40 MW Wind
Power Project Owned by Out-of-Area Energy Company:
Alameda, Calif;
2003 population (thousands): 1,501;
2003 personal income (billions): $60.52;
Model results: Direct impacts: Jobs: 10;
Model results: Direct impacts: Income (millions): $0.53;
Model results: Indirect impacts: Jobs: 2;
Model results: Indirect impacts: Income (millions): $0.25;
Model results: Induced impacts: Jobs: 6;
Model results: Induced impacts: Income (millions): $0.67;
Model results: Total impacts (direct, indirect, induced: Jobs: 17;
Model results: Total impacts (direct, indirect, induced: Income
(millions): $1.45.
Solano, Calif;
2003 population (thousands): 420;
2003 personal income (billions): $11.71;
Model results: Direct impacts: Jobs: 10;
Model results: Direct impacts: Income (millions): $0.53;
Model results: Indirect impacts: Jobs: 2;
Model results: Indirect impacts: Income (millions): $0.21;
Model results: Induced impacts: Jobs: 5;
Model results: Induced impacts: Income (millions): $0.55;
Model results: Total impacts (direct, indirect, induced: Jobs: 17;
Model results: Total impacts (direct, indirect, induced: Income
(millions): $1.29.
Weld, Colo;
2003 population (thousands): 211;
2003 personal income (billions): $4.68;
Model results: Direct impacts: Jobs: 11;
Model results: Direct impacts: Income (millions): $0.53;
Model results: Indirect impacts: Jobs: 2;
Model results: Indirect impacts: Income (millions): $0.26;
Model results: Induced impacts: Jobs: 8;
Model results: Induced impacts: Income (millions): $0.71;
Model results: Total impacts (direct, indirect, induced: Jobs: 20;
Model results: Total impacts (direct, indirect, induced: Income
(millions): $1.51.
Buena Vista, Iowa;
2003 population (thousands): 20;
2003 personal income (billions): $0.52;
Model results: Direct impacts: Jobs: 9;
Model results: Direct impacts: Income (millions): $0.45;
Model results: Indirect impacts: Jobs: 2;
Model results: Indirect impacts: Income (millions): $0.31;
Model results: Induced impacts: Jobs: 12;
Model results: Induced impacts: Income (millions): $1.04;
Model results: Total impacts (direct, indirect, induced: Jobs: 23;
Model results: Total impacts (direct, indirect, induced: Income
(millions): $1.80.
Cherokee, Iowa;
2003 population (thousands): 13;
2003 personal income (billions): $0.33;
Model results: Direct impacts: Jobs: 9;
Model results: Direct impacts: Income (millions): $0.43;
Model results: Indirect impacts: Jobs: 3;
Model results: Indirect impacts: Income (millions): $0.27;
Model results: Induced impacts: Jobs: 13;
Model results: Induced impacts: Income (millions): $1.09;
Model results: Total impacts (direct, indirect, induced: Jobs: 25;
Model results: Total impacts (direct, indirect, induced: Income
(millions): $1.79.
Dickinson, Iowa;
2003 population (thousands): 17;
2003 personal income (billions): $0.53;
Model results: Direct impacts: Jobs: 9;
Model results: Direct impacts: Income (millions): $0.45;
Model results: Indirect impacts: Jobs: 2;
Model results: Indirect impacts: Income (millions): $0.21;
Model results: Induced impacts: Jobs: 10;
Model results: Induced impacts: Income (millions): $0.69;
Model results: Total impacts (direct, indirect, induced: Jobs: 22;
Model results: Total impacts (direct, indirect, induced: Income
(millions): $1.34.
Pipestone, Minn;
2003 population (thousands): 10;
2003 personal income (billions): $0.28;
Model results: Direct impacts: Jobs: 9;
Model results: Direct impacts: Income (millions): $0.43;
Model results: Indirect impacts: Jobs: 1;
Model results: Indirect impacts: Income (millions): $0.10;
Model results: Induced impacts: Jobs: 2;
Model results: Induced impacts: Income (millions): $0.12;
Model results: Total impacts (direct, indirect, induced: Jobs: 12;
Model results: Total impacts (direct, indirect, induced: Income
(millions): $0.65.
Rock, Minn;
2003 population (thousands): 10;
2003 personal income (billions): $0.25;
Model results: Direct impacts: Jobs: 9;
Model results: Direct impacts: Income (millions): $0.43;
Model results: Indirect impacts: Jobs: 1;
Model results: Indirect impacts: Income (millions): $0.15;
Model results: Induced impacts: Jobs: 2;
Model results: Induced impacts: Income (millions): $0.16;
Model results: Total impacts (direct, indirect, induced: Jobs: 12;
Model results: Total impacts (direct, indirect, induced: Income
(millions): $0.75.
Crockett, Tex;
2003 population (thousands): 4;
2003 personal income (billions): $0.07;
Model results: Direct impacts: Jobs: 9;
Model results: Direct impacts: Income (millions): $1.35;
Model results: Indirect impacts: Jobs: 2;
Model results: Indirect impacts: Income (millions): $0.27;
Model results: Induced impacts: Jobs: 5;
Model results: Induced impacts: Income (millions): $0.32;
Model results: Total impacts (direct, indirect, induced: Jobs: 16;
Model results: Total impacts (direct, indirect, induced: Income
(millions): $1.94.
Pecos, Tex;
2003 population (thousands): 16;
2003 personal income (billions): $0.24;
Model results: Direct impacts: Jobs: 9;
Model results: Direct impacts: Income (millions): $0.45;
Model results: Indirect impacts: Jobs: 1;
Model results: Indirect impacts: Income (millions): $0.12;
Model results: Induced impacts: Jobs: 8;
Model results: Induced impacts: Income (millions): $0.53;
Model results: Total impacts (direct, indirect, induced: Jobs: 18;
Model results: Total impacts (direct, indirect, induced: Income
(millions): $1.10.
Upton, Tex;
2003 population (thousands): 3;
2003 personal income (billions): $0.06;
Model results: Direct impacts: Jobs: 9;
Model results: Direct impacts: Income (millions): $0.43;
Model results: Indirect impacts: Jobs: 1;
Model results: Indirect impacts: Income (millions): $0.08;
Model results: Induced impacts: Jobs: 3;
Model results: Induced impacts: Income (millions): $0.22;
Model results: Total impacts (direct, indirect, induced: Jobs: 13;
Model results: Total impacts (direct, indirect, induced: Income
(millions): $0.73.
Source: NREL.
Note: Totals are subject to rounding.
[End of table]
Table 12: Economic Impacts during Operations Period of 20 Locally
Owned Wind Power Projects, Each with a 2 MW Capacity:
Alameda, Calif;
2003 population (thousands): 1,501;
2003 personal income (billions): $60.52;
Model results: Direct impacts: Jobs: 21;
Model results: Direct impacts: Income (millions): $2.47;
Model results: Indirect impacts: Jobs: 6;
Model results: Indirect impacts: Income (millions): $0.86;
Model results: Induced impacts: Jobs: 11;
Model results: Induced impacts: Income (millions): $1.34;
Model results: Total impacts (direct, indirect, induced): Jobs: 38;
Model results: Total impacts (direct, indirect, induced): Income
(millions): $4.68.
Solano, Calif;
2003 population (thousands): 420;
2003 personal income (billions): $11.71;
Model results: Direct impacts: Jobs: 18;
Model results: Direct impacts: Income (millions): $2.47;
Model results: Indirect impacts: Jobs: 6;
Model results: Indirect impacts: Income (millions): $0.74;
Model results: Induced impacts: Jobs: 10;
Model results: Induced impacts: Income (millions): $1.03;
Model results: Total impacts (direct, indirect, induced): Jobs: 34;
Model results: Total impacts (direct, indirect, induced): Income
(millions): $4.23.
Weld, Colo;
2003 population (thousands): 211;
2003 personal income (billions): $4.68;
Model results: Direct impacts: Jobs: 23;
Model results: Direct impacts: Income (millions): $2.47;
Model results: Indirect impacts: Jobs: 7;
Model results: Indirect impacts: Income (millions): $0.94;
Model results: Induced impacts: Jobs: 15;
Model results: Induced impacts: Income (millions): $1.42;
Model results: Total impacts (direct, indirect, induced): Jobs: 46;
Model results: Total impacts (direct, indirect, induced): Income
(millions): $4.83.
Buena Vista, Iowa;
2003 population (thousands): 20;
2003 personal income (billions): $0.52;
Model results: Direct impacts: Jobs: 22;
Model results: Direct impacts: Income (millions): $2.34;
Model results: Indirect impacts: Jobs: 8;
Model results: Indirect impacts: Income (millions): $0.94;
Model results: Induced impacts: Jobs: 18;
Model results: Induced impacts: Income (millions): $1.61;
Model results: Total impacts (direct, indirect, induced): Jobs: 48;
Model results: Total impacts (direct, indirect, induced): Income
(millions): $4.88.
Cherokee, Iowa;
2003 population (thousands): 13;
2003 personal income (billions): $0.33;
Model results: Direct impacts: Jobs: 23;
Model results: Direct impacts: Income (millions): $2.34;
Model results: Indirect impacts: Jobs: 8;
Model results: Indirect impacts: Income (millions): $0.89;
Model results: Induced impacts: Jobs: 20;
Model results: Induced impacts: Income (millions): $1.63;
Model results: Total impacts (direct, indirect, induced): Jobs: 52;
Model results: Total impacts (direct, indirect, induced): Income
(millions): $4.85.
Dickinson, Iowa;
2003 population (thousands): 17;
2003 personal income (billions): $0.53;
Model results: Direct impacts: Jobs: 24;
Model results: Direct impacts: Income (millions): $2.34;
Model results: Indirect impacts: Jobs: 8;
Model results: Indirect impacts: Income (millions): $0.72;
Model results: Induced impacts: Jobs: 16;
Model results: Induced impacts: Income (millions): $1.06;
Model results: Total impacts (direct, indirect, induced): Jobs: 48;
Model results: Total impacts (direct, indirect, induced): Income
(millions): $4.12.
Pipestone, Minn;
2003 population (thousands): 10;
2003 personal income (billions): $0.28;
Model results: Direct impacts: Jobs: 24;
Model results: Direct impacts: Income (millions): $2.34;
Model results: Indirect impacts: Jobs: 6;
Model results: Indirect impacts: Income (millions): $0.54;
Model results: Induced impacts: Jobs: 7;
Model results: Induced impacts: Income (millions): $0.42;
Model results: Total impacts (direct, indirect, induced): Jobs: 36;
Model results: Total impacts (direct, indirect, induced): Income
(millions): $3.29.
Rock, Minn;
2003 population (thousands): 10;
2003 personal income (billions): $0.25;
Model results: Direct impacts: Jobs: 23;
Model results: Direct impacts: Income (millions): $2.34;
Model results: Indirect impacts: Jobs: 7;
Model results: Indirect impacts: Income (millions): $0.73;
Model results: Induced impacts: Jobs: 8;
Model results: Induced impacts: Income (millions): $0.65;
Model results: Total impacts (direct, indirect, induced): Jobs: 38;
Model results: Total impacts (direct, indirect, induced): Income
(millions): $3.71.
Crockett, Tex;
2003 population (thousands): 4;
2003 personal income (billions): $0.07;
Model results: Direct impacts: Jobs: 23;
Model results: Direct impacts: Income (millions): $2.34;
Model results: Indirect impacts: Jobs: 5;
Model results: Indirect impacts: Income (millions): $0.58;
Model results: Induced impacts: Jobs: 9;
Model results: Induced impacts: Income (millions): $0.55;
Model results: Total impacts (direct, indirect, induced): Jobs: 37;
Model results: Total impacts (direct, indirect, induced): Income
(millions): $3.47.
Pecos, Tex;
2003 population (thousands): 16;
2003 personal income (billions): $0.24;
Model results: Direct impacts: Jobs: 22;
Model results: Direct impacts: Income (millions): $2.34;
Model results: Indirect impacts: Jobs: 5;
Model results: Indirect impacts: Income (millions): $0.49;
Model results: Induced impacts: Jobs: 12;
Model results: Induced impacts: Income (millions): $0.80;
Model results: Total impacts (direct, indirect, induced): Jobs: 39;
Model results: Total impacts (direct, indirect, induced): Income
(millions): $3.63.
Upton, Tex;
2003 population (thousands): 3;
2003 personal income (billions): $0.06;
Model results: Direct impacts: Jobs: 25;
Model results: Direct impacts: Income (millions): $2.34;
Model results: Indirect impacts: Jobs: 3;
Model results: Indirect impacts: Income (millions): $0.28;
Model results: Induced impacts: Jobs: 5;
Model results: Induced impacts: Income (millions): $0.34;
Model results: Total impacts (direct, indirect, induced): Jobs: 32;
Model results: Total impacts (direct, indirect, induced): Income
(millions): $2.96.
Source: NREL.
Note: Totals are subject to rounding.
[End of table]
Caveats to and Reliability of the Modeling Effort:
We did not expect a high level of accuracy in the model results because
data sources on costs and expenditures are limited, in part because
companies may consider these data to be proprietary. Rather, we
expected the model's analysis to illustrate the differences between
counties that have different economic structures. The cost data and
assumptions for local share values seemed reasonable and consistent
with what we found during our visits regarding economic conditions in
these counties. The model's results also generally conform to what we
found during our visits, especially for employment effects.
[End of section]
Appendix IV: Summary of Visits to Wind Power Projects in Five States:
This appendix summarizes key information for the nine wind power
projects we visited in 10 counties in five states (California,
Colorado, Iowa, Minnesota, and Texas). At each site, we discussed the
planning, development, construction, and operation of the project with
landowners, project developers and owners, and local government
officials.
Projects in California:
Altamont Pass:
Figure 9: Horizontal Axis Wind Turbines, Altamont Pass, California:
[See PDF for image]
[End of figure]
Figure 10: Vertical Axis Wind Turbines, Altamont Pass, California:
[See PDF for image]
Project location: Alameda and Contra Costa Counties, California;
Project owners and locations: FPL Energy (Florida), Global Renewable
Energy Partners (Denmark), and several other partners;
Year operations started: 1983 through 1990;
Number of turbines: 2,526;
Total installed generation capacity: 268.7 MW;
Annual generation estimate: 392.2 million kWh;
Power purchaser: Pacific Gas & Electric (PG&E);
Number of landowners: 43;
Six wind power projects are located in Altamont Pass, near Livermore,
California. Collectively, these projects are among the oldest and
largest utility-scale wind power projects worldwide (based on installed
generating capacity). The projects have been controversial because of
associated bird deaths, particularly for golden eagles. Eagles present
in Altamont Pass may be attracted to the perches offered by the
latticework towers used for older turbines. This project was also
among the last in the United States to use vertical axis turbines.
This technology has largely fallen into disuse in favor of modern,
horizontal-axis turbines mounted on towers to access better winds
available at heights of 100 feet or more. In June 2004, an FPL Energy
official said that the vertical axis turbines have been decommissioned
and are being removed. (These turbines were operative at the time of
our site visit in August 2003.)
The projects are located on about 100 square miles of mostly
agricultural land used for cattle grazing;
The projects pay a total of about $280,000 in property taxes annually
to Alameda and Contra Costa Counties. Although important, these
property taxes are not a significant source of revenue for these
counties. For example, Alameda County reported about $215 million in
property tax revenues for the tax year ending 2002. Furthermore, the
property taxes assessed for these projects have fallen considerably as
the value of the projects has declined with depreciation;
In general, the Altamont projects were not eligible for the federal
production tax credit because they began operation before this tax
credit was initially authorized in legislation. However, because the
power purchase contracts for the projects were negotiated under
favorable conditions in the 1980s, the projects sell power to the
local utility at rates higher than the range of 2 to 3.5 cents per kWh
that has been common for wind power projects in recent years;
Overall, the projects employ 53.7 full-time equivalent employees.
[End of figure]
High Winds Energy Center, Solano County:
Figure 11: Wind Turbines, Solano County, California:
[See PDF for image]
Project location: Solano County, California;
Project owners and locations: FPL Energy (Florida);
Year started operating: Phase I: August 2003;
Phase II: December 2003;
Number of turbines: Phase I: 81;
Phase II: 9;
Total installed generation capacity: 162 MW;
Annual generation estimate: 480 million kWh;
Power Purchaser: PPM Energy Inc;
Number of landowners: 8;
The High Winds Energy Center project is located in the Montezuma Hills
region of Solano County. This region has average annual wind speed of
between 18 and 20 miles per hour. The project is the largest single
wind farm in California;
The project extends over approximately 6,500 acres of agricultural
land. However, project facilities, such as the turbines, substations,
and access roads, occupy only about 60 acres of the total leased. The
project has no effect on the primary uses of the land; crops are grown
and cattle are grazed right up to the base of the turbines. The project
owner estimates that it will pay about $21.5 million in lease payments
to the landowners over the life of the project (25 years);
Because the project only began operating in late 2003, actual data on
property taxes paid are unavailable. However, the project owner
estimates that the project will pay approximately $1.8 million in
direct property taxes to Solano County in 2004. It will also pay
approximately $70,000 in property taxes for the landowners in 2004.
Furthermore, the project owner estimates that the project will pay
about $24 million in property taxes over the life of the project;
The project will employ 6 to 8 full-time equivalent employees. During
its construction, the project generated about 250 construction-related
jobs.
[End of figure]
Projects in Colorado:
Ponnequin Wind Farm:
Figure 12: Wind Turbines, Weld County, Colorado:
[See PDF for image]
Project location: Weld County, Colorado;
Project owners and locations: Xcel Energy (Colorado) and Energy
Unlimited/Ponnequin Acquisitions (Pennsylvania);
Year started operating: Phase I: 1998;
Phases II-IV: 1999;
Phases V-VI: 2001;
Number of turbines: 44;
Total installed generation capacity: 31.65 MW;
Annual generation estimate: 71 million kWh;
Power purchaser: Xcel Energy;
Number of landowners: 2;
The Ponnequin wind farm is the first utility-scale wind power project
in Colorado. A key factor in the development of wind power in Colorado,
including the Ponnequin wind farm, is the Windsource® program offered
by Xcel Energy, the state's largest electric utility. This program
offers customers the option of signing up for 100 kWh blocks of
electric power produced by wind power or other renewable sources at a
premium of $2.50 per block over regular rates;
About half--23 of 44--of the Ponnequin turbines are located on 942
acres of land belonging to the state of Colorado. According to the
state land board, Colorado received $40,763 from this project for the
use of the land in 2003.[A] The remaining turbines are located on 420
acres of a privately owned cattle ranch. According to the ranch owner,
the lease income from the turbines is significant and constitutes a
much larger share of the ranch's total income than the earnings from
cattle production. Xcel Energy, which owns 37 of the 44 turbines,
indicated that it paid about $100,000 for the two land leases and
related rights-of-way in 2001.
Weld County officials told us that the property taxes paid by the
Ponnequin project do not constitute a significant share of the county's
total property taxes. For 2003, the project's property taxes were about
$53,000; the county's total property taxes collected in 2002 were
almost $200 million;
The project employs 2.33 full-time equivalent employees for maintenance
and operations.
[A] The state receives $1.50 per acre for the 942 acres leased to the
project. The lease is for a period of 52 years. The state also receives
an annual payment per MW of installed capacity. Per the lease
agreement, every 5 years the state has the option to adjust the latter
payment for inflation, based on the producer price index for commercial
electric power. For example, in 2003--5 years after phase I of the
project began operations--the state increased the payment to $2,475
per MW, about 13 percent higher than the year before.
[End of figure]
Projects in Iowa:
Spirit Lake Community School District:
Figure 13: Wind Turbine, Dickinson County, Iowa:
[See PDF for image[
Project location: Spirit Lake, Dickinson County, Iowa;
Project owners and locations: Spirit Lake Community School District
(Iowa);
Year started operating: Phase I: July 1993;
Phase II: October 2001;
Number of turbines: 2;
Total installed capacity: 1 MW;
Annual generation estimate: 2.1 million kWh;
Power Purchaser: Alliant Energy;
Number of landowners: 1;
The Spirit Lake Community School District was one of the first school
districts in the nation to own a wind power project. The project
consists of two turbines, a 250 kW turbine constructed in 1993 and a
750 kW turbine constructed in 2001. The school district justified the
project based on its estimated savings in electricity costs;
The turbines supply most of the electricity needed for school
facilities in the district, including school buildings, a maintenance
facility, and the lights for baseball and football fields. A local
utility purchases electricity generated by the turbines that exceeds
the school district's needs. Although the turbines generate more
electricity than the district uses in some months, the school district
is a net user of the utility-provided electricity on an annual basis.
A DOE grant and a low-interest loan from the Iowa Department of
Natural Resources financed the first turbine. A combination of low-
interest and no-interest loans obtained through the Iowa Department of
Natural Resources and the Iowa Energy Center, respectively, financed
construction of the second turbine. School district funds normally
budgeted for electrical fees are used to pay the principal and
interest on the loans;
The turbines are located on school district property; thus no lease
payments are involved. In addition, because the turbines are owned by
a local government entity, no property taxes are levied or collected.
The school district also does not qualify for the federal production
tax credit.
[End of figure]
Storm Lake:
Figure 14: Wind Turbines, Buena Vista County, Iowa:
[See PDF for image]
Project location: Buena Vista and Cherokee Counties, Iowa;
Project Owners and locations: GE Wind (California), Edison Capital
(California), and Waverly Light and Power (Iowa);
Year started operating: 1999;
Number of turbines: 259;
Total installed generation capacity: 194.25 MW;
Annual generation estimate: 490 million kWh;
Power purchaser: Alliant Energy and MidAmerican Energy;
Number of landowners: 65;
The Storm Lake I and II projects are located in Buena Vista and
Cherokee Counties, Iowa. These projects benefited from Iowa's
renewable portfolio standard (RPS), which served as an impetus to wind
power development in the state. This standard required the state's two
major utilities to generate, on average, 105 MW of electric power from
renewable energy sources each year, starting in 1992. The projects
also benefited from a partial property tax abatement offered by Buena
Vista and Cherokee Counties, including a full abatement for the first
year of operation. Thereafter, property taxes are assessed, gradually
increasing to 30 percent of the taxable value of the projects by the
beginning of the seventh year of operation.
The Storm Lake projects paid a total of about $500,000 in property
taxes to Buena Vista and Cherokee Counties and associated local
jurisdictions in the tax year ending 2004. Buena Vista collected the
majority of these taxes ($451,000) because most of the Storm Lake
turbines (232 of 259) are located in that county. According to Buena
Vista officials, this tax income is particularly important for the
school district in the town of Alta, located near the projects,
providing about 16 percent of the school district's property tax
revenues;
The Storm Lake projects employ about 23 people for operations and
maintenance.
[End of figure]
Projects in Minnesota:
Kas Farms, Minnesota:
Figure 15: Wind Turbines, Pipestone County, Minnesota:
[See PDF for image]
Project location: Pipestone County, Minnesota;
Project owners and location: Richard and Roger Kas (Minnesota);
Year started operating: December 2001;
Number of turbines: 2;
Total installed generation capacity: 1.5 MW;
Annual generation estimate: 4.5 million kWh;
Power purchaser: Xcel Energy;
Number of landowners: 1.
The Kas brothers wind project was the first farmer-owned, commercial-
scale wind power project in the United States. The turbines are
located on agricultural land used for crop production. The brothers
did much of the construction work themselves, reducing their
construction costs below the national average of $1 million per MW of
installed capacity. A local bank financed the project;
In order to take full advantage of the federal production tax credit,
the Kas brothers--who did not qualify for full use of the credit--
found an equity investor who could use the credit. Under this
arrangement, the investor owns most of the equity interest in the
project for the period of time (10 years) that the production tax
credit is available. After this period, the Kas brothers will have
majority ownership. Because the project has less than 2 MW of capacity,
it also qualified for Minnesota's renewable production incentive
payment of 1.5 cents for each kWh of electricity it produces for the
first 10 years of the project's operations.
[End of figure]
Minwind I and II, Minnesota:
Figure 16: Wind Turbine, Rock County, Minnesota:
[See PDF for image]
Project location: Rock County, Minnesota;
Project owners and locations: Minwind I and II (Minnesota);
Year started operating: October 2002;
Number of turbines: Minwind I: 2 turbines;
Minwind II: 2 turbines;
Total installed generation capacity: 3.8 MW;
Annual generation estimate: 11.1 million kWh;
Power purchaser: Alliant Energy;
Number of landowners: 1;
Minwind I and II are limited liability companies that function in a
manner similar to farmer cooperatives.[A] Minwind I has 32 shareholders
and Minwind II has 34. Farmers must own 85 percent of the company
shares; the remaining 15 percent of the shares are available to local
residents and investors. Each share gives the owner one vote in the
company, and no single person can own more than 15 percent of the
shares.
Through Minwind I and II, the shareholders are able to pool their
incomes and tax liabilities to take advantage of the federal
production tax credit. This tax provision provides a credit for
electricity generated by renewable energy sources such as wind
turbines--about 1.8 cents per kWh during 2003. In addition, the
projects benefit from Minnesota's renewable production incentive. This
incentive is available to renewable energy projects up to 2 MW of
capacity, offering a payment of 1.5 cents per kWh of power produced
for the first 10 years of a project's operation;
According to Minwind I and II officials, the impetus behind the
projects was to bring economic development to Rock County by
emphasizing local ownership, providing farmers with a return on their
investment, and using local businesses and contractors to construct
and operate the projects. As of April 2004, seven additional Minwind
projects are being constructed in Rock County. In total, these
projects will have 200 local owners and have a combined capacity of
nearly 12 MW.
[A] In general, a cooperative is an organization formed for the
purpose of producing and marketing goods or products owned
collectively by members who share in the benefits.
[End of figure]
Woodstock Wind Energy Project:
Figure 17: Wind Turbines, Pipestone County, Minnesota:
[See PDF for image]
Project location: Woodstock, Pipestone County, Minnesota;
Project owners and locations: DanMar Associates (Minnesota) and Edison
International (California);
Year operations started: 1999;
Number of turbines: 17;
Total installed generation capacity: 10.2 MW;
Annual generation estimate: 29 million kWh;
Power purchaser: Xcel Energy;
Number of landowners: 1;
The Woodstock Project employs an innovative funding arrangement.
DanMar Associates partnered with a large corporate investor, Edison
International, so that this company could take advantage of the federal
production tax credit. Specifically, Edison International provided the
majority of the equity capital for the project in return for being
able to take advantage of the tax credit during the project's first 10
years of operation. At the end of this period, Edison International
will transfer majority ownership of the project to DanMar Associates.
With the assistance of DanMar Associates, other wind power projects in
Minnesota have used a similar funding arrangement, also known as the
"equity flip."
The Woodstock project turbines are located on a soybean and cattle
farm. The landowners receive an annual cash payment per turbine.
According to the landowners, this payment is a significant supplement
to their farm income.
In 2001, Woodstock paid about $15,000 in property taxes to Pipestone
County. DanMar Associates has 4 employees, but its work supports other
business interests as well as the management and operation of the
Woodstock Project.
[End of figure]
Projects in Texas:
Indian Mesa Wind Energy Project:
Figure 18: Wind Turbines, Pecos County, Texas:
[See PDF for image]
Project location: Pecos County, Texas;
Project owners and locations: FPL Energy (Florida);
Year started operating: May 2001;
Number of turbines: 125;
Total installed capacity: 82.5 MW;
Annual generation estimate: 250 million kWh;
Power Purchaser: Lower Colorado River Authority and Texas Utilities
Company;
Number of landowners: 4;
The Indian Mesa wind farm is located in West Texas, an area with
strong, sustained wind resources;
The project is located on 34,000 acres situated on a mesa. One of the
four landowners of this acreage is the University of Texas. About
7,000 of these acres are leased for the project. The uses of the land
include grazing livestock--primarily sheep--and hunting. The project
does not limit these uses.
As an incentive for locating the project in Pecos County, the county
provided the project with a full property tax abatement for 5 years.
[A] In return, the project owner (at that time) agreed to donate funds
in an amount equivalent to about 10 percent of the abated taxes to a
regional technical training center. The owner also agreed to hire and
use local companies and labor for the construction of the project, to
the extent possible. In addition, the project paid about $930,000 in
local school district taxes in 2003;
The project owner currently employs 43 people to operate and maintain
the four wind projects the company owns in the area, including the
Indian Mesa project. In the future, the owner plans to hire 4
additional people after the warranty and maintenance agreement with
the turbine manufacturer expires.
[A] Because one of the four landowners was a county commissioner,
property taxes were assessed for this landowner's parcel to avoid the
appearance of a conflict of interest.
[End of figure]
[End of section]
Appendix V: The Wind Project Development Process:
[See PDF for image]
[End of figure]
[End of section]
Appendix VI: Comments from the U.S. Department of Agriculture:
DEPARTMENT OF AGRICULTURE:
OFFICE OF THE SECRETARY:
WASHINGTON, D.C. 20250:
AUG 20 2004:
Mr. Lawrence J. Dyckman:
Director:
Natural Resources and Environment:
United States Government Accountability Office:
441 G Street, NW
Washington, DC 20548:
Dear Mr. Dyckman:
Thank you for providing the United States Department of Agriculture
(USDA) Rural Development with a draft of your report on Wind Power's
Contribution to Electric Power Generation and Impact on Farms and Rural
Communities, Audit No. GAO-04-756, related to Section 9006 of the 2002
Farm Bill, "Renewable Energy Systems and Energy Efficiency Improvements
(Section 9006)." I would like to offer the following comments for your
consideration and ask that a copy of this response be included in your
final report.
Rural Development is continuing to expedite the regulatory process at
every opportunity. We recognize that it is in the best interest of all
parties to expedite the rulemaking process.
We will work with the Environmental Protection Agency (EPA) to identify
other EPA offices, such as the Office of Air and Radiation, which may
be able to offer information, resources, and expertise to assist USDA
in its implementation of this program. We are in the final stages of
implementing an Interagency Agreement with EPA's Office of Air and
Radiation to provide resources, consultation, and expertise in the
deployment of Section 9006. Initial activities include technical
reviews of applications and outreach activities through the Ag Star
program. The draft Interagency Agreement is structured to allow funding
of specific support activities if needed in other areas. Rural
Development has set aside funds to support the agreement for fiscal
years (FY) 2004 and 2005. We expect that the agreement will be executed
before the end of the fiscal year.
We will continue to examine ways to simplify the application process
for the program, while still collecting sufficient project information
to allow us to make informed and consistent project decisions
throughout the Nation. We will consult with the Department of Energy
(DOE) and EPA. We will consider the views of program applicants, the
Agency's rural energy coordinators, and other interested stakeholders,
regarding ways the process could be improved and streamlined. When the
proposed rule is published, the public will be afforded a 60-day
comment period. Once the 60-day public comment period ends, all
comments will be carefully reviewed
and considered before publication of the final rule, including any
comments for simplifying the application process. In addition, Rural
Development is working with DOE and EPA to provide applicants with even
better tools with which to consider options and prepare applications.
Thank you for this opportunity to comment on the report. If you have
any questions, please contact John M. Purcell, Director, Financial
Management Division, at (202) 692-0080.
Sincerely,
Signed for:
GILBERT G. GONZALEZ:
Acting Under Secretary Rural Development:
[End of section]
Appendix VII: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Lawrence J. Dyckman, (202) 512-3841 James R. Jones Jr., (202) 512-9839:
Staff Acknowledgments:
In addition to the individuals named above, Jacqueline Cook, Philip
Farah, William Roach, and Carol Herrnstadt Shulman made key
contributions to this report. Important contributions were also made by
Carol Bray, Oliver Easterwood, Richard Kasdan, and Lynn Musser.
We also wish to give special recognition to our dear friend and
colleague, Patricia Gleason, who passed away during the course of our
work. Pat's distinguished career with GAO was characterized by her
strong desire to make government programs more effective and efficient.
Furthermore, her courage, humor, and determination to keep working even
as her health declined were an inspiration to her co-workers who held
her in the highest esteem and miss her greatly.
[End of section]
Related GAO Products:
Federal Energy Management: Facility and Vehicle Energy Efficiency
Issues.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-545T]
Washington, D.C; March 12, 2003.
Air Pollution: Meeting Future Electricity Demand Will Increase
Emissions of Some Harmful Substances.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-49]
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Natural Gas: Analysis of Changes in Market Price.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-46]
Washington, D.C; December 18, 2002.
Restructured Electricity Markets: Three States' Experiences in Adding
Generating Capacity.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-427]
Washington, D.C; May 24, 2002.
Renewable Energy: DOE's Funding and Markets for Wind Energy and Solar
Cell Technologies.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-99-130]
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Department of Energy: Solar and Renewable Resources Technologies
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[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-97-188]
Washington, D.C; July 11, 1997.
Energy Security: Evaluating U.S. Vulnerability to Oil Supply
Disruptions and Options for Mitigating Their Effects.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-97-6]
Washington, D.C; December 12, 1996.
Federal Research: Changes in Electricity-Related R&D Funding.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-96-203]
Washington, D.C; August 16, 1996.
Energy Research: Opportunities Exist to Recover Federal Investment in
Technology Development Projects.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-96-141]
Washington, D.C; June 26, 1996.
Electricity Supply: Consideration of Environmental Costs in Selecting
Fuel Sources.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-95-187]
Washington, D.C; May 19, 1995.
Electricity Supply: Efforts Under Way to Develop Solar and Wind Energy.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-93-118]
Washington, D.C; April 16, 1993.
(360307):
FOOTNOTES
[1] Wind power is fueled by the kinetic energy of the wind, which is
continually replenished through atmospheric processes. The power
available in the wind is proportional to the cube of its speed:
doubling the wind speed increases the potential available power by a
factor of eight.
[2] A watt is the basic unit used to measure electric power. A kilowatt
(kW) equals 1,000 watts and an MW equals 1,000 kW or 1 million watts.
[3] Electricity production and consumption are measured in kilowatt-
hours, while generating capacity is measured in kilowatts or megawatts.
If a power plant that has 1 MW of capacity operates nonstop during all
8,760 hours in the year, it will produce 8,760,000 kWh. An average U.S.
household consumes roughly 10,000 kWh a year. However, on average, wind
power turbines typically operate the equivalent of less than 40 percent
of the peak (full load) hours in the year due to the intermittency of
wind.
[4] Wind power also can contribute to the nation's energy diversity and
security. The administration's National Energy Policy states that sound
energy policy should encourage a diverse portfolio of domestic energy
supplies and that renewable energy can be a reliable source of energy
at a stable price. Furthermore, with regard to national energy
security, while the nation's transmission grid and central power plants
remain vulnerable to terrorist attack, renewable sources are
geographically dispersed and contain no volatile or radioactive fuel
stocks.
[5] Pub. L. No. 107-171, § 9006, 116 Stat. 134, 482 (2002).
Specifically, section 9006 of the farm bill provides that the Secretary
of Agriculture shall make available $23 million from the funds of the
Commodity Credit Corporation each fiscal year--for fiscal years 2003
through 2007--for renewable energy systems and energy efficiency
projects. These funds are to be used to make loans, loan guarantees,
and grants to farmers, ranchers, and rural small businesses. Grants are
to be made based on demonstrated financial need. Grant amounts must not
exceed 25 percent of the cost of the activity funded, and the combined
amount of the grant or loan made or guaranteed must not exceed 50
percent of the activity's cost.
[6] Most U.S. electricity generation is made with fossil fuel and
nuclear technologies--coal (52 percent), nuclear (20 percent), natural
gas (16 percent) and oil (3 percent). There are about 5,000 major power
plants in the United States, with a generating capacity of about
800,000 MW.
[7] With approximately 3.3 billion square feet of facility space and
over 500,000 vehicles, the federal government is the largest single
energy consumer in the nation.
[8] Solar, wind, biomass, and geothermal systems installed after 1990
qualify as renewable resources under the executive order.
[9] The federal government's share of the nation's total surface area
is about 29 percent. Four agencies--the National Park Service, the Fish
and Wildlife Service, and the Bureau of Land Management within the
Department of the Interior, and the Forest Service within the
Department of Agriculture--manage about 655 million acres, or 96
percent of all federal lands.
[10] Most federal lands in the 48 contiguous states are located in 11
western states.
[11] In addition, the Bureau of Land Management tentatively plans to
rent other land it manages for wind power projects. Specifically, the
Bureau anticipates renting land for about 3 gigawatts of wind power
development between 2005 and 2025 in 11 western states. In this regard,
the Bureau plans to publish an environmental impact statement in the
Federal Register in September 2004 seeking comments on this proposal.
[12] National Energy Policy: Report of the National Energy Policy
Development Group, Office of the Vice President, May 2001.
[13] See Department of Energy and Department of the Interior, White
House Report in Response to National Energy Policy Recommendations to
Increase Renewable Energy Production on Federal Lands (Washington,
D.C; Aug. 20, 2002).
[14] See www.windpoweringamerica.gov.
[15] In August 2004, DOE officials indicated that this second goal had
been revised to increase the number of states with at least 20 MW of
installed wind capacity to 32 by 2005 and with at least 100 MW of
installed wind capacity to 30 states by 2010.
[16] While wind power's share of total electric power generating
capacity is small, its share of actual electric power generation is
smaller. Wind power turbines are "on-line"--that is, they are actually
generating electricity--only when wind speeds are sufficiently strong
(i.e., at least 9 to 10 miles per hour) to turn the turbine blades. In
contrast, power plants that use coal, natural gas, or nuclear fuel
generally operate without interruption, except when idled by equipment
problems or for maintenance.
[17] Worldwide, installed wind power capacity increased by about 500
percent between 1997 and 2003. As of December 2003, this capacity was
estimated at 37,220 MW; Europe accounts for about 73 percent of this
capacity. Germany (14,000 MW) has the most capacity; the United States
(6,374 MW) is second. Other leading countries include Spain (5,780 MW),
Denmark (3,094 MW), and India (1,900 MW).
[18] An average U.S. household uses about 10,000 kWh of electricity
each year. One MW of wind power capacity can generate between 2.4
million and 3 million kWh annually. Therefore, one MW of wind generates
about as much electricity as 240 to 300 households use each year. The
level of U.S. wind power capacity as of December 31, 2003--6,374 MW--
provides as much electricity as is used by 1.5 million to 1.9 million
households annually.
[19] According to DOE, 37 states have wind resources that would support
utility-scale wind power projects.
[20] Wind power developers also are evaluating the potential for
offshore wind energy production on the U.S. outer continental shelf.
[21] The cost of electricity from a particular power generation
technology depends on the capital costs of the associated equipment,
the projected lifetime of the equipment, the amount of energy produced
each year, and the cost of borrowing money to construct the power
generation plant. Simply stated, the cost of energy is the sum of
various costs (e.g., capital and operations and maintenance) divided by
the annual energy generation.
[22] Ancillary costs are the costs of transmission and generation
services necessary to support the transmission of capacity and energy
from resources to loads.
[23] According to wind industry sources, bird deaths resulting from
collisions with cars, airplanes, windowpanes, tall buildings, and
transmission lines, as well as from hunting, predators, and accidental
poisoning, far exceed bird deaths associated with wind turbines.
However, the number of bird deaths attributable to wind power may grow
as more turbines are installed.
[24] Pub. L. No. 102-486, 106 Stat. 2776, 3020 (1992), codified at 26
U.S.C. § 45. Closed-loop biomass refers to plants grown exclusively to
provide fuel for electric power generation. Closed-loop biomass
excludes forest biomass, mill waste, or urban waste.
[25] Pub. L. No. 97-34, 95 Stat. 230 (1981), codified at 26 U.S.C. §
168(e)(3)(B)(vi).
[26] To qualify for the tax credit, the facility was required to have
been placed in service before January 1, 2004.
[27] See H.R. 4520 and S. 1637, 108TH Cong. (2004).
[28] Net metering laws typically include a limit on the size of the
generating units, usually ranging from 1 kW to 1,000 kW. Some states
that have net metering provisions do not qualify wind power for this
incentive.
[29] The raw material acquisition, manufacture, transportation, and
installation of wind turbines may result in minor environmental
effects. For example, fossil fuel resources may be used in the
production and transport of wind turbines and their components. In
addition, the preparation of the foundation and construction of the
turbine on site may result in some pollution due to soil erosion and
engine exhaust until heavy equipment such as cranes, bulldozers, and
backhoes are removed and ground cover is re-established around the base
of the turbine. However, the operation of the turbine to produce
electricity does not cause air or water pollution.
[30] EPA data for 2000--the most recent available--indicate that
conventional power plants were the single greatest industrial source of
certain pollutants, emitting 40 percent of the nation's carbon dioxide,
37 percent of its mercury, 22 percent of its nitrogen oxides, 63
percent of its sulfur dioxide, and 21 percent of its particulate
matter.
[31] GAO, Air Pollution: Meeting Future Electricity Demand Will
Increase Emissions of Some Harmful Substances, GAO-03-49 (Washington,
D.C; Oct. 30, 2002).
[32] Carbon dioxide emissions have been linked to global climate
change, among other effects, and exposure to mercury can lead to
nervous system disorders and birth defects. EIA projects slight
decreases in emissions of nitrogen oxides and sulfur dioxide, sources
of acid rain and smog, due to technology improvements and regulatory
measures. Specifically, EIA forecasts that by 2020, power plants' total
emissions of nitrogen oxides and sulfur dioxide will decrease
nationwide by about 100,000 tons (2 percent) and about 2 million tons
(19 percent), respectively.
[33] Power plants consume only about 3 percent of the water they draw
from a particular source during the process of generating electricity.
In contrast, agriculture consumes about 61 percent.
[34] According to DOE officials, Colorado's Public Utility Commission
also deemed wind power to be a cost effective alternative under least
cost planning.
[35] The United States used about 23.5 trillion cubic feet of natural
gas in 2000 in five sectors: residential, commercial, industrial,
electric generation, and transportation. DOE expects the country's
consumption of natural gas will increase to 33.8 trillion cubic feet
per year by 2020. More than half of this increase is predicted to come
from gas-fired electric generation.
[36] According to the National Energy Policy Initiative, even in
peacetime, the United States pays tens of billions of dollars a year
for the readiness costs of military forces whose primary mission is
intervention in the Persian Gulf region. A significant portion of those
costs can be attributed to protection of oil production sites and
transport routes. The economic, diplomatic, and military cost of
foreign oil dependence is likely to increase as low-cost reserves
become increasingly concentrated in that region, further increasing the
potential market power of a few Middle Eastern countries.
[37] 16 U.S.C. §§ 2601 et seq. The act requires utilities to purchase
power output from nonutility facilities at prices not exceeding the
utilities' "avoided cost" of generating it or purchasing it from
another source if the facilities are (1) generators that produce
electricity using solar, wind, waste, or geothermal sources; or (2) co-
generators that produce both electricity and heat or steam for
industrial or commercial purposes.
[38] These percentages exclude electricity that is generated by
industrial and other facilities that is then sold to electric
utilities.
[39] GAO, Natural Gas: Analysis of Changes in Market Price, GAO-03-46
(Washington, D.C; Dec. 18, 2002).
[40] In its Annual Energy Outlook 2004, EIA projects that wind capacity
will increase to about 16,000 MW by 2025 without the production tax
credit, primarily due to expected higher natural gas prices and an
increase in known, near-term wind projects that are being planned.
[41] These assumptions are discussed in appendix I.
[42] In the past, when the authorization for the production tax credit
expired and its renewal was delayed, the credit's renewal was made
retroactive to the prior date of expiration.
[43] NREL officials noted that if the states continue to expand
requirements for renewable portfolio standards, then further expansion
of wind power and other renewable sources may occur even in the absence
of the production tax credit and regardless of fossil fuel prices.
[44] Stakeholders also cite additional, hidden subsidies resulting from
the fact that the full environmental and health costs of the fossil
fuel and nuclear industries are not accounted for. For example,
according to the Department of Labor, the federal government has paid
about $40 billion over the past 33 years to cover the medical expenses
of coal miners who suffer from "black lung disease." These subsidies
mean that the true cost of coal is not reflected in its market price.
In addition, according to the Department of Health and Human Services,
air pollution is estimated to be associated with 50,000 premature
deaths and an estimated $40 billion to $50 billion in health-related
costs annually. Fossil fuel power plants account for much of this
pollution.
[45] Various federal farm programs also help to protect farmers from
fluctuations in commodity prices. For example, between 1999 and 2002,
farmers received about $60 billion in farm program payments--averaging
$15 billion annually--from USDA to help support the production of major
commodities, such as corn, cotton, rice, soybeans, and wheat. According
to USDA, in 2002, about 2.1 million farms produced and sold
agricultural products. From these farms, aproximately 1.3 million
producers received farm payments. Large farming operations get the most
payments because the payments are based primarily on the amount of crop
produced or the historical acres farmed.
[46] Internal Revenue Service Publication 925 defines criteria for
material participation in a trade or business activity. For example, an
individual materially participates in a trade or business activity if
the individual participates more than 500 hours during the tax year.
[47] In general, a cooperative is an organization formed for the
purpose of producing and marketing goods or products owned collectively
by members who share in the benefits.
[48] Rural electric cooperatives and publicly owned municipal utilities
are not eligible for the federal production tax credit. However, they
may qualify for the federal Renewable Energy Production Incentive that
provides cash payments based on electricity production from renewable
sources on a per kWh basis. See 10 C.F.R. part 451 (DOE's regulations
setting out its policies and procedures for implementing the incentive
program).
[49] According to USDA, this farm bill was the first one to include an
energy title.
[50] USDA is to carry out this program from the funds of the Commodity
Credit Corporation, a government-owned corporation within USDA.
[51] A rural small business must operate with 500 or fewer employees
and $20 million or less in total annual receipts and must be
headquartered in a rural area.
[52] Projects using energy from these sources to produce hydrogen
derived from biomass or water are also eligible.
[53] USDA's fiscal year 2004 appropriations act provided $23 million in
discretionary funding for the Renewable Energy Program--Consolidated
Appropriations Act of 2004, Pub. L. No. 108-199, Div. A, tit. III, 118
Stat. 24 (2004). However, an across-the-board rescission of 0.59
percent applicable to all discretionary programs reduced the amount of
funds available by $136,000--Pub. L. No. 108-199, Div. H. § 168(b).
Funds appropriated to the Renewable Energy Program are considered 1-
year money; i.e., the budget authority for any amount not obligated by
the end of the fiscal year in which the funds were appropriated lapses
at the end of that year and is no longer available for obligation.
[54] After the agency's initial review, including its consideration of
factors such as borrower eligibility, project eligibility, and
financial need, USDA was still actively considering 48 of these 56
applications as of August 2, 2004. However, these applications are
subject to further review, including analysis of their environmental
and technical merit.
[55] Executive Order No. 12866, Regulatory Planning and Review, 58 Fed.
Reg. 51735 (Sept. 30, 1993).
[56] OMB may return a proposed regulation to an agency for further
consideration.
[57] 36 Fed. Reg. 13804 (July 24, 1971).
[58] GovWorks (GovWorks Federal Acquisition Center) is a Franchise Fund
established by Congress and OMB to offer administrative services for
procurement throughout the federal government. Organizationally,
GovWorks is located in the Department of the Interior's Minerals
Management Service.
[59] As discussed, the $23 million appropriated for the Renewable
Energy Program in fiscal year 2004 was reduced by $136,000 per a
rescission, leaving $22.864 million available. Of this amount, the
emergency pilot program will use an estimated $3.1 million, reducing
the funds available to make grants under the Renewable Energy Program
to about $19.8 million. The administration's budget proposal for fiscal
year 2005 includes $10.77 million in discretionary funds for the
Renewable Energy Program.
[60] The credit subsidy cost is the estimated long-term cost to the
government of a direct loan or loan guarantee, excluding administrative
costs. Specifically, it is the present value--over the life of the loan
or guarantee--of payments by the government minus estimated payments to
the government.
[61] In determining the amount of a grant or loan, section 9006 of the
farm bill requires USDA to consider, as applicable, (1) the type of
renewable energy system to be purchased; (2) the estimated quantity of
energy to be generated by the system; (3) the expected environmental
benefits of the system; (4) the extent to which the system will be
replicable; (5) the amount of energy savings expected to be derived
from the activity, as demonstrated by an energy audit; (6) the
estimated length of time it would take for the energy savings generated
by the activity to equal the cost of the activity; and (7) other
factors, as appropriate. In addition, applicants must demonstrate
financial need to receive a grant.
[62] We did not independently assess the validity of these estimates.
[63] According to Executive Order 12866, as amended, if there has been
no material change in the facts and circumstances upon which the
regulatory action is based, OMB's review should be completed within 45
days.
[64] These programs are the Rural Business Enterprise Grant Program,
Rural Business Opportunity Grant Program, Intermediary Relending
Program, Rural Economic Development Loan Program, and Rural Economic
Development Grant Program.
[65] The anaerobic digestion of biomass produces methane gas, which can
be used to power a generator that produces electricity.
[66] USDA also issued the subsequent notice to clarify the financial
requirements for agricultural producers and requirements for utility
interconnection agreements and power purchase arrangements.
[67] The National Energy Modeling System and EIA forecasts made with
this model are discussed in Annual Energy Outlook 2004, with
Projections to 2025, DOE/EIA-0383(2004), January 2004. See also
www.eia.doe.gov.
[68] EIA assumed that the value of the production tax credit is kept at
an inflation-adjusted 1.8 cents per kWh in year 2002 dollars.
[69] As of December 2002, these 10 states were California, Colorado,
Iowa, Kansas, Minnesota, Oregon, Texas, Washington, West Virginia, and
Wyoming.
[70] In some cases, we visited more than one project in a county. In
other cases, a project straddled two counties.
[71] These sectors are agriculture; construction; electrical equipment;
fabricated metals; finance, insurance, and real estate; government;
machinery; mining; other manufacturing; professional services; other
services; retail trade; transportation, communication and public
utilities; and wholesale trade.
[72] The model assumes uniform costs across the United States.
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