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United States

Utah sends wind to California -- State PTC in action

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Utah has joined the small handful of US states that have introduced their own production tax credit (PTC) for wind power to support the federal PTC. So far, however, the state PTCs in New Mexico, Ohio, Iowa, Oklahoma and now Utah are limited in scope, or value, or both. Iowa's is targeted to locally owned and developed projects, Ohio's is backed with limited funds of roughly $5 million, and New Mexico's PTC, while relatively strong, is applicable to only the first 400,000 MWh in each of ten consecutive years. New Mexico is offering $0.01/kWh, roughly half the federal PTC running at $0.019/kWh.

While state PTCs may be helpful in getting projects off the ground that would not otherwise have happened, they are not being seen as an alternative to the more usual model of state support -- the setting of a minimum standard for the volume of renewables power in supply portfolios. A state PTC is a second tier policy behind a Renewables Portfolio Standard (RPS), says Ryan Wiser, who analyses renewable energy policies for the Lawrence Berkeley National Laboratory.

In Utah, RPS efforts have garnered little support from lawmakers in the conservative and coal intensive state, which has yet to see a commercial wind plant in operation. They view their new PTC as an alternative and more palatable method for enticing wind development. It provides a $0.0035/kWh incentive for the first four years of activity from renewable energy projects. That is one-twelfth the value of the federal PTC. The incentive law also requires a company to have a tax liability in Utah to qualify.

Clever strategy

Despite its limited scope, the Utah PTC is providing enough of an incentive for one large project to move forward. "The wind resource in Utah is not as high as other places in the West and this is a way to compensate," says Paul Gaynor of UPC Wind. "What Utah did is provide incentive for us to build a wind farm and bring a heck of a lot of economic development into the state. It puts Utah on the map as a significant wind player. I think it's a pretty clever strategy."

UPC plans to complete a 200 MW first phase of its Milford Wind Corridor project by December 2008. The project could eventually reach 400 MW through subsequent phases that would stand a better chance if Utah were to adopt an RPS, admits Gaynor. "I'm not sure what level the RPS debate has reached in Utah," he continues. "But in order to build out the rest of the Milford Wind Corridor we think that some kind of RPS would accelerate things."

For the first stage of the project, a Utah RPS was not needed. UPC, based in Massachusetts, inked a 20-year power purchase agreement to send the output of all 200 MW to the Southern California Public Power Authority to help its members meet their California RPS goals. The Los Angeles Department of Water and Power will take 92.5% of the power, with the remainder going to nearby Burbank and Pasadena.

"You wouldn't think that selling Utah-generated wind power into Los Angeles makes any sense but it really does," Gaynor says. "It's about a 500 mile run with very little loss because it will use a DC line rather than an AC line. It's fundamentally being driven by what's going on in California with its RPS requirements. For us it still makes economic sense."

State PTC backfire

Wiser points out, however, that Utah's taxpayers do not get the green power they have partially paid for through the Utah PTC. Both the California RPS and the Utah PTC have shortcomings, he says. The goal of state renewables policies is usually to ensure new projects are located in a given state and that there are benefits to deliver in-state. But the California RPS ensures green power without ensuring the project is located in the state, while Utah's PTC law ensures a project is located in-state, but does not ensure the green power goes to Utah and its taxpayers, who ultimately pay for the state PTC.

Others take a different view. "I think it's a step in the right direction," says Craig Cox, of the Interwest Renewable Energy Alliance. He says it is ideal to have local buyers for wind projects, but since Utah does not have an RPS to create in-state demand, then it is still valuable for a Utah project to help meet California's RPS requirements while bringing some economic development to Utah. "It's good to be able to cater to the export market," Cox says. "I don't want Balkanization in our markets any more than we have already with a patchwork of state incentives."

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