The Iowa state legislature is moving forward with a bill that would create the first U.S. feed-in tariff specifically for wind generation. If the bill is enacted, Iowa would join Vermont, and the cities of Los Angeles, and Gainesville, Florida as the U.S. jurisdictions currently offering a feed-in tariff. While it may seem like investors need little inducement to invest in wind capacity in Iowa, which already ranks third in wind capacity among U.S. states, the new incentive is aimed at mid-sized facilities, a neglected market in that state.
Under a feed-in tariff, a utility sets a long-term price for renewably generated electricity. A feed-in-tariff benefits generators by providing a standard offer contract and favorable rates, often based on a generous estimate of production costs. Feed-in tariffs are generally credited as one of the main reasons for large increases in renewable generation in several European countries. In the U.S., feed-in tariffs have been less popular. Under the Public Utilities Regulatory Policy Act (PURPA) of 1978, California offered a feed-in tariff in the 1980s that led to a proliferation of wind generation. While other states also offered similar programs under PURPA, none were as successful as California’s.
In Iowa, a state senate committee passed a bill earlier this month that would provide a feed-in tariff to wind facilities smaller than twenty megawatts in capacity and located on agricultural land. Under the standard offer contracts, the rate will be based on each utility’s cost, including a rate of return, for the new development of wind generation, and the term will be 10 years or until construction and financing costs have been recovered, whichever is earlier.
The new tariff is designed to address a gap in the state’s wind portfolio. As of the end of 2011, about 85 percent of the state’s wind capacity was from facilities larger than 100 megawatts (19 total installations). The state had only five facilities sized between 2 and 20 megawatts, which accounted for less than two percent of capacity. Smaller-scale projects may be easier to site and could attract a different class of investors unable or unwilling to develop a utility-scale project.
Other windy states have actively developed this mid-range market. Minnesota’s community wind program, launched in 2005, focuses on local ownership and provides front-loaded tariffs for facilities up to 50 megawatts. As of 2011, nearly 400 megawatts of capacity have been deployed under the program. Nebraska followed suit in 2007, but the program has failed to take off. That state, which has the fourth best wind for energy production, ranks just 23rd in total installed capacity.© 2014 McDermott Will & Emery