South Dakota and Wind Energy – Friend, Foe or Passenger At the Back of the Bus
South Dakota has enormous potential for wind energy development. It ranks sixth in the United States for potential in generating electricity from wind, according to a laboratory associated with the Department of Energy. Just step out onto the plains and observe. The state is using only less than a fraction of a percent of this total capacity (.17% to be exact). This fraction of a percent produced 26% of all electricity produced in South Dakota in 2013 – only Iowa produces a larger share of its total electricity from wind.
Facts suggest South Dakota is wind’s friend. It is a simple reality that wind is available. In 2014, it is estimated that wind paid out $2.4 million in lease payments to landowners. Assuming this payout is steady throughout growth, if South Dakota maximized its wind generation, it could expect lease payouts to reach $1.395 billion annually to landowners alone. An article published in the Argus Leader, covering a study by a national laboratory concluded that during the time studied “each megawatt of installed wind power led to an additional $11,000 in personal income and .5 jobs per county.” While this may be too optimistic, it highlights the benefits the state stands to gain by embracing wind.
Wind energy development has been impeded by an uncertain and stupid taxation environment in the nation. For 23 years, the federal government has provided a tax credit for wind development, but it is always uncertain if the credit will be renewed from year to year. The tax credit expired in 2000, 2002, 2004 and 2014, for example, but was then renewed retroactively. In yet other years, whether the credit would be renewed was a question Congress left on the table until the very last minute. This uncertainty causes what some call the “boom-bust” cycle. When developers know the tax credit is secure, they develop, but when they are uncertain, they stop. In 2013 for example, uncertainty in the credit’s renewal was accompanied by a 92 percent decline in new wind projects. Similarly, in 2014, Congress didn’t enact a statute extending the credit until December 2014, but the effective date was retroactive to January 1, 2014. Wind developers then had no assurances from Congress for almost the entire 2014 year. 2015 may be no different: the credit has not yet been extended for new projects. For all we know, it may not be.
During this past legislative session the South Dakota legislature revised the taxing procedure for wind production. This was a good first step. The prior taxation scheme was complicated and had a provision to increase the tax rate each year. In 2014, the last effective year of the old scheme, wind was taxed at $.0551 per kilowatt hour (pkh), but projects within their first 10 years of production could file for a rebate on this tax. There were two levels of rebate: in a project’s first 5 years, it was eligible for a 90% rebate, while in years 6-10, it was eligible for a 50% rebate. Under the new scheme, the legislature eliminated the entire rebate program and established two different tax rates – one for projects existing before April 1st, 2015 ($.00065 pkh) and one for projects existing after ($.00045 pkh). This new scheme is steadier (there is no rate variation based on either mandated increases or project year), and also supposedly cheaper in the long run for wind projects (particularly new wind projects). The Rapid City Journal reports that without this tax break, wind projects were paying about $5 million more over their life spans to operate in South Dakota rather than elsewhere.
While the tax break is helpful, another difficulty wind projects face is the relatively low price of purchased electricity in South Dakota. The region has comparatively little demand for electricity and new projects would only drive prices lower. Some states resolve this by requiring utilities purchase and distribute energy produced by wind. South Dakota’s program is only voluntary, so wind does not have a guaranteed feasible market here. For good or ill, governments are integrally involved in the promotion, taxation and regulation of wind energy development. Taking a minimal role, which South Dakota is now doing, does not cut the mustard if the state wishes to become a real wind energy state. If projects could get access to high demand markets like Chicago or the eastern seaboard, development would make more sense. This is the purpose of the proposed Rock Island Clean Line – essentially a gigantic transmission line across Iowa that would connect electrical providers in South Dakota to the Chicago market. If the project goes online successfully (estimated at 2017 presently), this could be a major boon for wind development in South Dakota.
These issues haven’t stopped some developers from hazarding a shot in South Dakota however. Major projects under development in the state suggest developers are bullish about the market. For example, the Lincoln County Dakota Power Community Wind (DPCW) project seeks to add 500 turbines in what would be the single largest wind farm in South Dakota. Depending on how many landowners agree to participate, the project could add 50% to the state’s wind generating capacity.
This project, like others, has run into difficulties from local citizens. The DCPW project put up a single meteorological tower to assess wind conditions in the area and then sought to place four more, but was denied permits from the local county zoning commission. This opposition was led, in part, by an organization called “WE-CARE.” WE-CARE’s website states “We are not opposed to renewable energy, simply the placement of turbines too near our homes, farms, parks, and families.” Immediately under this, the website notes “Our Goal: WE-CARE is actively working to stop Dakota Power Community Wind from erecting a proposed commercial wind farm.” The complaints raised at the meeting ranged from noise and strobe lighting effects from the turbines operation, to reduction of property values, to driving away young families, presumably because they may dislike turbines and their purported effects. Other groups opposed to wind turbines have also complained that turbines result in disturbances of sleep, exhaustion, headaches, nausea, tinnitus (ringing in the ear), and an increased death rate among birds. Proponents of wind argue that proper set-backs from residential properties eliminate most of these concerns (since most stem from the noise and strobe effects that turbine’s create as their blades rotate between the sun and the home owner), while birds face danger from the erection of almost any structure – as any homeowner who has seen a bird run into their living room window will note. Whatever the case, it is clear that at least some communities consider these concerns enough to halt an otherwise impressive and lucrative project.
There are other questions not typically raised in these community events that bear on the development of wind. The legal rights of wind resources have not been well defined. Wind flows over the land similar to how minerals are found under the land. It is well established that mineral rights can be separated from the land under which they are found, but it is not as clear whether wind rights can be separated from the land over which they flow. A resolution to this question may have a significant impact on the sort of wind development and living arrangements we see develop in South Dakota.
One must always be careful to separate fact from fiction as regulatory agencies and non-governmental organizations have a vested interest in being optimistic about their unique sector. Job growth is often a cited benefit, but typically whatever jobs come to a project area are temporary: once a project is completed, it takes substantially fewer workers to maintain a billion dollar wind project than it would to maintain a billion dollar shopping mall.
David Ganje. David Ganje of Ganje Law Offices practices in the area of natural resources, environmental and commercial law in South and North Dakota.
