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KUFM Commentary- November 2008 --------------------------------------------------------- Local Renewable Energy – It Just Makes Sense Federal and state government has always been active in encouraging and developing energy. First with the New Deal that brought us rural electrification to the production tax credit. Federal policies have helped to determine what got developed and where. As we look to an Obama presidency, how will renewable energy development be encouraged? And what sort of development will we see? For over ten years, the United States federal government has encouraged the development of renewable energy, including wind, solar, and geothermal, through a complicated mechanism called the Production Tax Credit, or PTC for short. Originally used to encourage the development of affordable income housing projects, the credit became the default tool to fuel wind development. The credit, which is currently around 1.9 cents per kWh, allows for companies that own the projects to deduct the value of the credit against taxes from other activities. So, companies like Caterpillar or General Motors own wind projects on paper in order to capture the tax benefits, and in return subsidize the development. Though the PTC faces its share of criticism, on balance it has been necessary to getting the wind industry started in the United States. The industry is projected to install over 5000 MW of capacity this year. That is double what was installed two years ago. Congress extended the Production Tax Credit in September as part of the infamous bailout, but the current bill is set to expire at the end of 2009. Several large wind farms in Montana – including Judith gap and the new Glacier wind farm by Shelby – rely on this credit to provide competitive prices. Judith Gap sells power to Northwestern Energy at around 4 cents per KWh. Coincidently, this is the cheapest form of long-term contract power for its customers. The election of Barack Obama, and the democratic wave of elections across congress, will undoubtedly change the way we encourage renewable energy. Carbon will likely be front and center. Renewable energy is virtually carbon-free, so it makes sense to reward it for that attribute through a subsidy. Given this change in the political consensus, how should we best prioritize renewable energy development? In the upcoming discussion of how we account for the cost of emitting carbon dioxide, I would like to add another consideration to the political milieu: who will own the energy? We Montanans are all too aware of how important this question is. Starting with the deregulation of Montana power, we have seen our direct consumer interest in the production of our electricity slip away. Barely ten years ago, the majority of the generation assets in our state (that produced power for in-state use) – such as dams in the Missouri basin and portions of coal at Colstrip -- were owned by Montana Power, which was largely held by Montana citizens. The legacy of deregulation saw these assets chopped up and sold to out of state entities. All Montana got was higher electricity rates. Today our state boasts over 350 MW of Judith Gap type wind energy production; but only 9 MW is owned in-state: the six turbines outside of Great Falls that are owned by United Materials. The rest is owned by corporations in Chicago, Spain and North Dakota. Who owns these projects is important, because that is what determines who gets the long-term benefits. We need to take a lesson from our hydro infrastructure. Most of the dams built across the west were funded with public money and remain in public hands, managed by either the Western Area Power Administration or Bonneville. The consumers that receive power from these projects pay some of the lowest rates for electricity in the nation. The dams were paid off decades ago, but continue to produce energy at next to nothing. Wind and other renewables are similar. Though they have high upfront costs, the projects begin to produce virtually free energy once the loan is paid off. Will it be large, absentee corporations that own these projects and receive their long-term benefits? Or Montana communities that are looking for the environmental benefits and financial security of renewable energy? A recent report entitled Harvesting Clean Energy detailed how the production tax credit has failed to subsidize what is called: “community wind”. These are projects that are small in nature (20-40 MW, one-fifth the size of Judith Gap) and are owned by consumers. It is time to look for new ways to encourage this type of renewable energy development. The Schweitzer Administration and the next Montana Legislature need to make steps to prioritize the development of Montana-owned renewable energy projects. Often in America we tend to focus on large-scale projects. We like big. But a growing body of evidence is demonstrating that, at least for renewables, smaller may be better. Wind farms in the Columbia River basin in eastern Washington have sprung up in great numbers. With almost 1000 MW installed in this area, Bonneville Power has struggled to manage its grid. The problem: The wind is either on or off. There is no diversity in the nature of the wind resource. But by incentivizing small wind projects that are scattered around a state, we can actually reduce the costs of integrating them into the transmission system, based on the simple idea that the wind is probably blowing somewhere all the time. Further, if wind projects help power the communities they are adjacent to, there is less need to build massive transmission lines to deliver power to distant communities. What might this look like? The city of Missoula, with just under 60,000 people, would need to have about 50 MW of wind capacity installed to provide the quantity of power the city needs for 25% of its energy. That is a $125 million dollar investment, 30 long-term jobs, and a secure source of energy for the community.Let's not miss this opportunity to own a renewable source of power for our community and future generations. I'm Ross Keogh for the Alternative Energy Resources Organization. My commentary is one of the many conversations that AERO is having. AERO is a grassroots membership organization that's been building communities by linking people with sustainable agriculture and energy solutions for 35 years. To join the conversation and become part of the solution, call us in Helena at (406) 443-7272.
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