Community-Based Energy Development

History of Community-Based Energy Development in Minnesota

Community-based wind power development in Minnesota grew significantly in the past 12 years as a result of a series of regulatory incentives in which community participation was directly involved.

Xcel Energy's Wind Mandate

In 1994, Xcel Energy (aka Northern States Power) was mandated to purchase 825 MW of wind capacity in exchange for the ability to store nuclear waste at its Prairie Island nuclear facility. The original 1994 mandate required Xcel to own or acquire power from 425 MW of wind capacity by the end of 2002, along with an additional 400 MW by 2006.

It became clear that additional transmission capacity would be required to meet the mandated 400 MW due in 2006. As a result, Xcel applied for, and in early 2003 was granted, a Certificate of Need to construct four new high-voltage transmission lines. The Minnesota Public Utilities Commission (MPUC) also required that at least 60 of that 400 MW come from small, locally-owned, aggregated wind generation projects - a requirement strongly advocated by community groups in Minnesota.

Xcel’s wind mandate was increased in May 2003, with an additional 300 MW of wind capacity required by 2010, again in exchange for extended nuclear waste storage rights. Of this 300 MW, 100 MW were mandated to come from small wind projects of 2 MW or less, bringing the total mandated capacity specifically for Xcel to 1125 MW.

To facilitate its mandated purchase of wind generation from small wind projects, Xcel offered a standard power purchase agreement (PPA) as well as a special tariff for small distributed wind generation purchases that stands at a fixed nominal price of 3.3¢/kWh for up to twenty years (note: in the context of electric utility sales, a tariff is a set price, not a tax). Standardized interconnection procedures and agreements were also planned. All of the above helped to minimize transaction costs, which otherwise could be disproportionately damaging to small projects.

Renewable Energy Objective

In 2001, the Minnesota legislature enacted a “renewable energy objective” (REO) for all utilities in the state. The objective, for which utilities were required to make a good faith effort to meet, started at 1% of retail sales from eligible renewables in 2005, and increased by 1% per year until reaching 10% in 2015. Xcel’s wind energy mandate, which at the time of enactment of the REO, stood at 825 MW, was not allowed to be used towards the objective.

In May 2003, the legislature amended the renewable energy objective to make it a requirement for Xcel Energy, while keeping it an objective for all other utilities. Unlike its initial 825 MW wind mandate, however, the additional 300 MW of wind by 2010 that was added to Xcel’s wind mandate in the same legislation was allowed be applied towards the objective.

10-year Production Incentive of $0.015/kWh

Enacted in 1997, a production incentive of $0.015 was paid to small (2 MW or less) wind projects for the first 10 years of turbine operation. The production incentive was originally financed through statutory appropriations from the state’s general fund, and was limited to the first 100 MW of small wind capacity to apply. In May 2003, however, the legislature expanded the incentive to cover an additional 100 MW of small wind capacity, to be financed with $4.5 million per year from Xcel Energy’s Renewable Development Fund.

The 200 MW was quickly fully subscribed, and a waiting list was developed for those projects that didn't meet the "rush". Ownership structures were developed that allowed these small projects to capture not only the Minnesota production incentive, but also the federal production tax credit (PTC) of $0.018/kWh.

C-BED: Community-Based Energy Development

The Community-Based Energy Development (C-BED) initiative, passed into law by the 2005 Minnesota Legislature, replaced the 10-year production incentive of $0.015/kWh by establishing a framework for qualifying owners of wind generation projects to negotiate Power Purchase Agreements (PPAs) with all Minnesota electric utilities. The negotiating framework sets a price for electricity that is based on the net present value of energy over a 20 year PPA, thus significantly stabilizing the long-term viability for community-based wind power production in Minnesota.

As a result of the C-BED initiative, ordinary Minnesota residents, main street business associations, local and tribal units of government, school districts, institutions of higher education, and in general, people who live in and consume electricity in Minnesota now have a much better opportunity to develop C-BED projects.