By Heather Richards
Via Wyoming News Exchange
CASPER — Wyoming wind is relentless, and anyone who lives in the state knows that the perpetual irritant that makes sagebrush shiver and wind socks live horizontally is also something that can be harnessed for power.
But the widespread belief that the wind here makes Wyoming the most economic place for a company to raise a turbine is not quite correct.
The four best wind states – in terms of the value of the wind and the cost of developing it – are New Mexico, Montana, Colorado and Wyoming, in that order.
Wyoming ranks fourth, but the three states that follow New Mexico are actually quite close, noted Rob Godby, the coauthor of a recent study that investigates how tax policy influences the economics of Western wind development. Godby is also the executive director of the Center for Energy Economics and Public Policy at the University of Wyoming.
The talk of cost is timely, as this year lawmakers again proposed increasing the state’s wind tax. Though that attempt has repeatedly failed, its persistence has rattled wind supporters and developers.
Tax proponents maintain the wind is so good in Wyoming, and development of wind is so cheap, that the increase is a fair deal. The UW study’s authors argue that increasing the existing wind tax may be a bad deal for economic diversification, scaring off development.
But they also offer a compromise.
The study considers Wyoming’s wind competitiveness beside its peers – the other states in the Western grid. That includes the really expensive places to develop wind, like California, and the really cheap spots, like New Mexico.
The ranking worked like this. Researchers considered the best of the best in terms of wind sites in these states. For the best locations — the top 5 percent of developable land — researchers considered the cost of development over the lifetime of a hypothetical wind farm. That includes costs like a state’s tax policy, construction and logistics. That adds up to the cheapest or most economic wind development. On the other end of the spectrum are the least favorable conditions. That’s wind producing at the bare minimum acceptable for developers, which researchers set as a 35 percent gross capacity factor.
The UW cost comparison is not the first performed for the state. The Legislature commissioned a study by a private company in 2010. Godby said he and his partner had originally tried to simply replicate that model, but found it clunky for their purposes. However, the results from the early replication of the 2010 study compared to the final remodeling both put Wyoming in fourth place, he said.
There’s a group of lawmakers that talk pretty regularly about raising Wyoming’s wind tax. They note the long-term impact of wind farms on Wyoming’s landscape, clean-up of steel towers down the line or point out that traditional energy industries contribute more, in revenue and in jobs, than the wind industry.
The desire to force wind to pay a “fair share” has led to annual bills in the Wyoming Legislature to increase the wind tax. This year, multiple measure raising the tax came into play, though none survived the session.
Sen. Cale Case, R-Lander, is an ardent supporter of raising wind taxes. He has noted that developers can afford an increase, in part because of the value of Wyoming’s resources, and in part because of how cheap it is to develop.
Case has gathered a group of citizens who will attempt to bring a wind tax to a popular vote. Getting a referendum on the ballot is an uphill battle by Wyoming rules, but supporters say it will put the matter to bed in Wyoming once and for all.
Another frequent supporter of raising taxes is retired state lawmaker Mike Madden, R-Buffalo, who noted in a recent column in the online news magazine Wyofile that lawmakers appeared to be coming around to his point of view.
Madden said in an interview that the approaches he’s witnessed to increase the tax have all been an attempt to make wind’s per megawatt hour contribution to Wyoming the same as other power sources like coal and natural gas.
“If I thought that wind was being curtailed because of Wyoming tax policy I would certainly be against it,” said Madden, who had not yet read the Godby study. “I just want it on terms that we are used to.”
Madden has noted, particularly during the recent economic downturn, that wind is a way for the state to diversify its economy, a necessity given the sharp downturns that occur when crude prices fall.
For Godby, the flat tax increase that’s been proposed would likely hurt the prospects of growing the wind industry here.
A $5 per megawatt hour wind tax, which is four dollars more than the current tax, was proposed in the 2019 session. Godby ran those numbers in his model and the results were unsurprising.
The tax would raise Wyoming’s wind costs, by 10 percent, making Wyoming about 21 percent more costly for development than New Mexico.
“Our conclusion is that this would make a meaningful difference in developer’s willingness to consider Wyoming for wind development … especially given other challenges in the state like its distance from major markets and need to develop transmission, as well as other concerns such as sage grouse,” Godby wrote in an email, noting the chicken-sized bird whose crucial habitat is off limits to new wind development under state standards.
At its most expensive, Wyoming wind development with a $5 wind tax is more costly than all Western states except Nevada and California. At its best, Wyoming remains in fourth place, behind Colorado, Montana and New Mexico.
One curious fact that rises from the model is that while Wyoming ranks fourth, New Mexico is actually set up to make more money from its wind than the Cowboy State. In fact, quite a bit more.
Taxes paid per megawatt hour in Wyoming range between $3.05 and $4.21.
In New Mexico, taxes paid at the best sites would contribute $2.94 per megawatt hour. On the other end of that band, companies are paying the state $5.61 per megawatt hour. Yet, New Mexico is the most cost-effective overall, the most economic place to develop wind in the Western grid.
This struck Godby as an important lesson, one he noted as an aside on his preliminary data as the “NW moral.”
You can impose high tax rates if you can also pull down the total cost for the developer – keeping your state competitive in the race for wind development. That could just mean a cleverer approach to taxes than the blunt force of the production tax.
Wyoming’s current wind tax approach is stolid in a cost environment that is falling.
As the cost of wind goes down, with technology improvements – a trend happening rapidly in the U.S. – that tax cost in Wyoming stays static. As that happens, the tax burden becomes a bigger piece of the overall cost.
According to Godby, a more flexible, and perhaps more palatable tax, could be a gross receipts tax — one similar to a sales tax but levied on the seller rather than the buyer of a product. In this case, it would be a tax on the amount of money a wind developer is making from the electricity it is selling.
“If you tax sales you are much closer to the economy activity that that project creates,” Godby said. “You are actually then thinking about what you are trying to encourage or discourage.”
Wyoming hasn’t been able to decide for itself, torn between communities like Carbon County, which are seeking the economic benefit of wind, to landowners adjacent to wind farms, who feel they’ve been affected negatively by something out of their control. The study’s researchers note they hope their work provides more data to inform Wyoming’s ultimate decision on taxing its wind companies.
The UW study was supported by a research contract with Carbon County and a Department of Energy grant.