Wind Power Energizing Rural America

Increasing share of U.S. wind energy sector held by community and producer groups

Alan Borst, Agricultural Economist
USDA Rural Development

ind energy is a bright spot on the rural economic development horizon. Wind power projects across rural America contribute to local and regional economic growth and development. The wind energy industry creates new jobs and new sources of revenue for farmers and ranchers, and it increases the local tax base of rural communities.

Wind turbines generate homegrown energy that helps secure America’s energy future during uncertain times while reducing pollution and conserving water resources. Wind energy is the fastest growing energy source in the world, and numerous rural communities are reaping the benefits.

Why wind power?
Among the major benefits our nation derives from wind energy are:

Wind power is a clean energy source. Its fuel is the wind and it produces no pollution. Wind power is a renewable energy source created every day by the heating and cooling of the earth.
The price of wind power is not affected by fuel price increases or supply disruptions. It improves both America’s trade balance and energy security by reducing our dependence on fossil fuel imports.
Wind power creates jobs — more jobs per watt than all other energy sources, including oil and coal. Wind turbines can be produced domestically (although most are not, at this time).
Due to technological advances, wind power can cost as little as four to six cents per kilowatt hour, making it competitive with conventional energy sources.
Wind power can promote rural development by providing steady, ongoing income for farmers and other landowners whose other income is often cyclical, subject to the sharp ups and downs of farm commodity markets. Land used for wind turbines can also be used for other purposes, such as grazing and farmland.
There are enough reliably windy areas in the United States to produce three times as much electricity as the nation uses today.

Wind industry trends in ‘07
There are several important trends in the U.S. wind energy sector that will shape its near term future, including:

High growth — U.S. wind-power capacity grew by 26 percent in 2006, and similar growth is expected in 2007 and beyond;
Turbine supply shortage — Some wind project developers have been waiting up to two years or longer for wind turbine orders;
Bigger wind turbines — Larger and more costly, but also more efficient, wind turbines have become increasingly popular and have driven down the cost of wind-generated electricity;
Wind project developer consolidation — Globalization and the maturing of the domestic industry have resulted in increasing concentration of wind-power ownership;
Policy incentives continue to drive the industry — The Federal Production Tax Credit, Clean Renewable Energy Bond program, Renewable Energy Production Incentive program and USDA Rural Development’s Renewable Energy and Energy Efficiency program (also called the “9006 program”) have each helped to spur investments in wind projects.

The trend of most immediate importance to smaller community wind projects is the turbine shortage, which has been pushing up development costs. A recent study by the U.S. Department of Energy found that average turbine costs rose 17 percent in 2006, and they are projected to rise another 14 percent this year. This has forced wind project developers to work out deals years before beginning construction.

Larger developers have used their size and buying power to aggressively secure large numbers of turbines. Smaller, community wind developers, however, have had to delay projects when they found that turbine suppliers were either out of stock or not interested in filling comparatively small orders. There are positive signs, however, that more manufacturers are entering the industry, and that existing suppliers are expanding their production to better meet increasing demand.

Windustry is a Minneapolis-based nonprofit organization working to increase wind energy opportunities for rural landowners and communities by providing technical support and creating tools for analysis. Marin Byrne, a Windustry associate, outlined several strategies that community wind developers have been using to secure turbines in the current tight market. They have worked out “piggyback” deals with large wind developers under which a few turbines are set aside for smaller wind projects. Small wind projects may also aggregate their turbine orders into a single, larger-volume order.

Developers of smaller projects have purchased refurbished wind turbines that have been recycled from other projects. Much like buying a used car, however, caution is required in the purchase of used turbines. Turbine manufacturers who are newer to the U.S. market may also be more willing to negotiate with community wind developers. There are also several investment firms that have secured supplies of turbines and may be willing to supply turbines in exchange for a significant stake in the project, although these deals should be weighed carefully.

Externally-owned and community-owned wind energy
According to Windustry, “the key feature of community wind power is that local community members own and have a significant financial stake in the project beyond just land lease payments and tax revenue.” Community wind has a small but growing share of the U.S. wind energy sector.

Externally-owned wind: Traditional wind ownership structures generally include large-scale wind projects, often 50 megawatts (MW) in capacity or larger, that are developed, installed and operated by large corporate owners with headquarters in distant locations.
Community wind: locally-owned and operated projects that can be any scale, but are typically smaller.

Of 11,603 MW of wind energy installed in the United States, 11,182 MW has traditional ownership while 421 MW is community owned. Community-owned wind power has grown from almost nothing in 2000 to a 3.6 percent share of national wind power today, and it is growing at an accelerating rate.

Benefits of community ownership
Lisa Daniels of Windustry says community-owned wind power has all the benefits of corporate wind, plus:

Greater stimulation of local economies;
Increased local energy independence;
Delayed need for new transmission lines;
Increased competition in energy markets;
Greater acceptance of wind power.

Community wind ownership is diverse, and includes cooperatives and LLCs, with the core of the membership often being farmers and ranchers. A look at the structure of U.S. community-owned wind power in 2004 shows the following, according to the Environment Law & Policy Center:

Private 67 percent
Municipal utilities 21 percent
Rural electric cooperatives 7 percent
Schools 5 percent
Tribal .2 percent

Co-op model traits and wind power
Traditional types of cooperatives have great potential to develop wind energy resources in rural America. These include:

Marketing cooperatives — A cooperative that markets products for its farmer members. Rural landowners with good wind resources could cooperatively market the electricity generated from their turbines.
Supply cooperatives — A cooperative that provides supplies or inputs for its farmer members. Rural landowners with good wind resources could cooperatively purchase turbines and services and supplies to maintain them.
Bargaining cooperatives — A cooperative that bargains with buyers for price and other terms of trade on behalf of its members as its sole or principal function. Rural landowners with good wind resources could cooperatively bargain with competing wind project developers for the best leasing and revenue deals.
Consumer cooperatives — A purchasing organization formed for the benefit of the consumer. Rural resident members of an electric utility wanting to purchase wind-generated electricity could direct their co-op to operate a turbine.

Why cooperative wind?
Reasons for promoting cooperative ownership of wind power include:

Few individual rural residents can afford the more efficient and cost-effective larger turbines, while cooperatives provide a familiar structure for local participation and joint investment.
Market power — Co-ops can help ensure that their landowner-producer or utility-consumer members receive more equitable treatment in the marketplace through centralizing and coordinating deals.
Competitive yardstick — A co-op offers a way for members to compare the prices and terms of competing wind project developers or rural utilities with which members could potentially deal.
Patient capital — Cooperatives are owned by their local members rather than by outside investors, and thus may develop or maintain a wind-energy project that would not meet the expectations of outside investors.
Local benefits maximized — Several studies confirm that community wind provides greater local economic returns and employment. Co-ops return surplus revenues to members and the local community.
Local leadership — Co-ops produce informed and committed community leaders who are better able to contribute to local development efforts.

Utility co-op wind ownership
Some electric cooperatives own wind projects, ranging in size from one turbine up to large wind farms. These windproject owners include Basin Electric Power Cooperative in the Dakotas (see page 20), Minnkota Power Cooperative Inc. in North Dakota, Kotzebue Electric Association in Alaska, Alaska Village Electric Cooperative, Great River Energy in Minnesota and Illinois Rural Electric Cooperative.

Many rural electric co-ops also support wind power by making long-term power purchase agreements with large wind project developers.

In recognition of these cooperatives’ contributions to the wind industry, a “Wind Cooperative of the Year” award has been established by U.S. Department of Energy’s Wind Powering America effort, the National Rural Electric Cooperative Association and the Cooperative Research Network. The 2006 recipient was Associated Electric Cooperative Inc. in Missouri, while the Alaska Village Electric Cooperative was also recognized. Previous awardees have included the Illinois Rural Electric Cooperative, Western Farmers Electric Cooperative in Oklahoma, Holy Cross Energy in Colorado, Basin Electric Power Cooperative and Great River Energy.

Rural electrics are likely to be more active in wind energy because:

Wind energy is becoming more economically competitive;
More rural electric co-op members are beginning to demand renewable energy;
Federal incentive programs applicable to community wind, such as USDA Rural Development’s Section 9006 and Value-Added Producer Grant programs, are being used by utility co-ops to reduce their wind development costs;
Some rural electric cooperatives are now covered by state Renewable Portfolio Standards, which mandate the share of renewable energy that co-ops must purchase or generate for their members.

Rural electric co-ops will be more involved in supplying wind energy for their members, both as purchasers from large corporate wind farms and as developers of community wind projects.

Landowner wind cooperatives
There are no major examples of U.S. wind energy projects owned by landowners with strong wind resources that are formally incorporated as cooperatives. Several wind energy projects have producers as their majority owner-members, but they are organized as limited liability companies (LLC), although they usually operate according to cooperative principles. All were located in Minnesota until June 2007, when two farmer group wind projects were commissioned in Iowa.

From Trimont Area Wind Farm’s (see page 14) active role in a wind project pre-development process, to Minwind Energy’s (see page 4) outright development and ownership of wind projects, several farmer groups in Minnesota have led the way in cooperative wind. Minnesota’s energy policy environment uniquely fosters cooperative wind through power purchase requirements, standard agreements and power production incentives.

Nebraska and Iowa are considering versions of Minnesota’s Community-Based Energy Development program — the pillar of its supportive community wind environment. Iowa and Illinois also have incentive programs for community wind that can be used by rural groups. Landowner bargaining groups for negotiating with wind developers have been organized at several sites across rural America. With examples of farmer group wind business models that work and increasingly supportive federal and state policy environments, landowner group wind projects are likely to continue to be developed.

November/December Table of Contents