Nebraska and South Dakota: new notches in the US Wind Belt
At the end of last year, Nebraska had installed 1.42GW and South Dakota just 977MW — placing them 17th and 19th in the country for cumulative wind capacity — compared to 5.1GW and 7.5GW in Kansas and Oklahoma. Even North Dakota — the second-largest crude oil-producing state and an unapologetic consumer of coal — has erected more wind capacity than the two states to its south put together.
However, change is afoot. Nebraska and South Dakota are now expected to be among the fastest-growing states for wind through to 2020 — several gigawatts of projects are now lined up, and both state governments are pushing to build a whole lot more over the next decade.
Holding back
To understand how the two states are now helping their wind industries grow, you first have to understand why the sectors were being held back.
To start with, Nebraska and South Dakota are among the least densely populated states in the union, with limited demand for new power. Unlike a large proportion of US states, Nebraska has no renewable portfolio standard to stipulate that a certain amount of its power must come from clean energy, while South Dakota’s voluntary 10% renewables goal was easily met by local utilities back in 2014.
Another reason for the modest expansion of wind power is the two states’ relatively low national profile. Iowa, Minnesota, Oklahoma and Texas were more aggressive in marketing themselves with wind developers and in financial centres where deals are made. These and other states also offered more fiscal incentives and sometimes easier project permitting regimes to entice investment.
“I do think we’ve been overlooked at times, not to anybody’s fault but maybe a little bit of our own, the way we tooted our horn,” says David Bracht, director of the Nebraska Energy Office and a member of Governor Pete Ricketts’ cabinet. “We are starting to break through some of that.”
The unique structure of Nebraska’s utility sector — where electricity is provided by non-profit organisations called public power districts — also held back development. These entities are not taxed, so they have not been able to make use of the production tax credit (PTC), the main federal subsidy supporting the wind industry. And because publicly-owned power companies are not allowed to make a profit, electricity prices have been both low and relatively stable in the state for a long time.
The public power suppliers were also resistant to wind for fear that their coal-fired and nuclear power plants would become “stranded” by being undercut by cheaper wind. On top of this, state law actually prevented them from buying wind power from independent developers.
In South Dakota, electricity rates have also been below the national average reasons and there simply is not that much demand for power. It is the fifth-least-populated state in the union, with the fifth-lowest population density. So while it has only installed 977MW of wind, this still accounts for more than 30% of its electricity consumption.
Opening up
National attention turned to Nebraska last year when Facebook surprised the energy and IT industries by announcing that its next data centre would be built in a suburb of Omaha — and be powered by 200MW (later increased to 320MW) from the previously dormant Rattlesnake Creek wind project in the northeast of the state.
“We were very aware that Nebraska has a strong wind resource, so we just needed to find the right utility partner to help us access that renewable energy,” Bobby Hollis, Facebook’s director of global energy, tells Recharge.
“We as a state continue to see how wind can support our local economies.”
That was Omaha Public Power District, which created a green tariff that enabled Facebook to buy Rattlesnake Creek’s clean energy, plus the project’s tradeable renewable-energy credits.
Landing Facebook has been rural Nebraska’s biggest success so far in marketing the so-called Silicon Prairie to technology giants by touting access to plentiful low-cost wind power. That approach is now part of the state’s economic development strategy.
“We as a state continue to see how wind can support our local economies,” says Bracht. With agricultural commodity prices presently low, “having an additional natural resource that we can use, develop and export for value is a great opportunity”.
Ricketts and South Dakota governor Dennis Daugaard are fully on board as salesmen-in-chief for the wind industry in their states — a task made easier by both of them having had careers in the finance industry.
There is now greater co-ordination between state agencies and officials when chasing and cultivating wind-related investment leads — and critically, with business and economic development groups and elected officials locally. That is where project siting and zoning decisions are driven.
The Facebook deal was a “big team effort”, says Ricketts.
Officials in both states point out that their slow initial development means that many of the windiest sites remain available — unlike certain other regions in the Wind Belt.
The Nebraska legislature has now passed laws allowing the public power districts to contract wind energy from private developers with PTC-eligible projects and allow energy exports through the regional grid operator Southwest Power Pool (SPP). It has also helped that more transmission capacity is becoming available as electricity providers gradually transition away from coal and nuclear, which currently provide about 85% of the state’s power.
Nebraska also made its fiscal policies more competitive for wind. For example, it instituted a $3,518/MW annual capacity tax for wind farms over a 20-year period in lieu of a personal property tax.
South Dakota reduced its energy production tax from $6.50/MWh to $4.50 for new projects (while keeping its existing $3,000/MW annual capacity tax) to make the state more attractive to wind developers. The Mount Rushmore state is also one of only two in the union that has no corporate income tax, which has already encouraged some developers and wind supply-chain companies to establish operations there.
Equally importantly, South Dakota has revamped and streamlined project permitting at the state level. “We have an open-door policy meeting with developers, working with them to ensure our regulation is reasonable and responsible,” says Hunter Roberts, energy policy adviser to Governor Daugaard.
South Dakota law now requires regulators to rule on a completed wind farm application of 100MW or larger within six months — the quickest time frame nationwide (smaller projects are decided by county commissions).
“It’s very fast and a challenge for us to do that,” says Gary Hanson, vice-chairman of the state’s Public Utilities Commission, whose staff have been scrambling to process wind applications, particularly those where there may be protracted hearings.
“From a policy perspective, officials are right to believe that their states now have equal footing with neighbouring states,” says Rob Freeman, chief executive of Tradewind Energy, developer of Rattlesnake Creek, which it earlier sold to Enel Green Power.
The fact that Oklahoma has backtracked on previously agreed tax incentives for existing wind farms and Wyoming has repeatedly sought to extract more tax revenue from projects have also helped make Nebraska and South Dakota more attractive to some wind developers.
Oklahoma abruptly eliminated state tax breaks for wind last year — more than three years ahead of schedule — and tried to cap payments from earlier ones.
“We don’t have a bunch of tax incentives that are now jeopardized because we are going through budget problems,” says Rich Lombardi, public policy director for Nebraska at The Wind Coalition, a regional advocacy group.
Deals struck
In addition to the Rattlesnake Creek project, Sempra Renewables is developing the 220MW Prairie Hills wind farm in central Nebraska, Invenergy is building the 202.5MW Upstream Wind Energy Center in the north of the state, and Dallas-based Tri Global Energy is advancing the 100MW Sugar Loaf project in western Nebraska.
South Dakota, meanwhile, has seen a string of recent wind farm announcements.
Xcel Energy will acquire, build or buy electricity from four projects totalling nearly 1GW. Apex Clean Energy and the Sioux Nation have formed a unique joint venture to develop the largest wind projects on Native American lands — an initial 570MW, which could increase to more than 2GW.
Avangrid Renewables has signed an off-take deal with Google for the entire output from two planned projects totalling 198MW, while developer sPower has unveiled a 220MW transaction with an unnamed customer for its first project in the state.
“I would not be surprised if over the next three years we see up to 2,000MW of new wind power here,” says Roberts.
Transmission constraints
If they want to enter the big leagues for wind development, Nebraska and South Dakota will need new high-voltage, inter-regional transmission lines to carry gigawatts of low-cost power to major eastern load centres. Their economies are simply too small — Nebraska $123bn and South Dakota $52bn — to absorb tens of gigawatts of new capacity.
Shipments within SPP would help somewhat, but the nearby MISO grid and PJM’s further to the east — which will both see a wave of upcoming coal-fired power plant retirements that could add substantial demand for wind power — are much larger markets.
Freeman says it is not currently cost-effective to export wind energy from SPP to bordering MISO because of the former’s transmission charges. And in any case, transmission capacity is constrained.
An ideal solution would be a dedicated high-voltage direct-current export line, such as Clean Line Energy Partners’ proposed 3.5GW Rock Island line, which would deliver power from a region in Iowa bordering Nebraska and South Dakota to Illinois and 11 eastern states. The project, however, is on hold due to “regulatory hurdles”, the Houston-based company says.
How best to move large quantities of wind power across “seams” between grid operators is an ongoing discussion at the federal and state levels. Yet for now, the mood is upbeat in Nebraska and South Dakota for wind growth. “It’s going to be an exciting three, four, five years,” says Bracht.