Local ownership urged for energy projects in Minnesota

By H.j. Cummins



A legislator’s plan to encourage small, local energy projects in Minnesota borrows from Germany’s experience.

By H.J. CUMMINS, Star Tribune

A Northfield legislator wants Minnesota to take a more European approach to renewable energy.

Rep. David Bly, DFL-Northfield, is expected to announce Thursday that he’ll sponsor a bill to encourage local ownership of small energy projects. The measure would be a counterpoint to other tax incentives, including a federal production tax credit, that typically benefit large, corporate investors.

The proposed model, known as “feed-in tariffs,” has worked in countries such as Germany, increasing both renewable-energy capacity and the role of small owners. Other states looking at feed-in tariffs include Michigan and California, although no state yet has such a program.

The proposal raises two issues likely to surface along with other renewable energy bills expected in the 2008 legislative session: What are the relative roles of government and the free market, and if clean energy costs more, who should pay that cost?

The proposed measure promises renewable-energy developers that utilities will buy their electricity at a price that covers their costs plus a “reasonable rate of return” — the same terms now used for setting the price utilities charge their rate payers, said John Farrell, a research associate specializing in renewable energy at the Institute for Local Self-Reliance in Minneapolis.

That opens the system to very small projects — even single wind turbines, or homeowners with enough solar panels on their roofs to sell a few extra kilowatts to the power company — promoting more, and more-dispersed, local ownership, Farrell said. Under its system, Germany expanded its wind capacity 70 percent every year for a decade, and its solar capacity 70 percent a year from 1999 to 2005, he said.

That energy costs utilities more, but they blunt the effect by spreading the increase across all their customers. Germany’s renewable expansion costs its households an average of $2 a month, Farrell said.

Where it fits

Minnesota policymakers and renewable-energy advocates have said their aim is to generate more renewable energy and to promote local ownership of those projects.

At the end of last year, Minnesota was in roughly a three-way tie with Iowa and Washington for third place in overall production, behind Texas and California, according to the American Wind Energy Association.

But the portion of small, local ownership in Minnesota has dropped from more than a quarter last November to around 22 percent, Farrell said.

Minnesota already has a variety of development models with different levels of local ownership, said Dan Yarano, a Minneapolis attorney who specializes in renewable-energy projects.

With one, called the “Minnesota Flip Model,” projects are developed and owned by large investors for about 10 years, but then “flip” to local ownership. Others are straight lease agreements, or royalty payments, to the local landowners.

“I think you need that variety,” Yarano said. “It’s like people choosing their investments, each landowner has a different tolerance for risk and reward.”

Also, Minnesota officials said the state already has several programs that support small, local ownership of renewable energy projects, including favorable pricing on their electricity sales, and rebates for solar development.

One drawback to government incentives is that they come and go, subject to political shifts, Farrell said.

The feed-in tariff model, on the other hand, promises a 20-year purchase commitment from utilities, providing the kind of reliable income small projects need, he said.

H.J. Cummins • 612-673-4671