At last month’s People’s Climate March, among the most popular signs were ones supporting renewable energy like wind and solar as the best way to avoid a climate catastrophe. And because of the urgency of the situation, it’s easy to think that we should be building up renewables as much as we can.
But, from an economic point of view, it turns out that not all renewable energy is created equal.
Locally owned projects are more likely to use local labor and materials, and borrow from local banks.
One main difference is between energy generators that are locally owned and ones owned by some faraway entity, and a new report from the Institute of Self-Reliance presents the details. The report, written by Senior Researcher John Farrell, makes two main points: Locally owned renewable energy projects create more economic benefits than absentee-owned projects, and they are less likely to encounter community opposition. By enacting policies to support local renewables, Farrell argues, states and counties stand to gain thousands of jobs and millions of dollars.
Farrell’s report presents striking data from an earlier study by the National Renewable Energy Laboratory, which showed that wind power projects often provide twice as many jobs when they are locally owned. Farrell provides this example:
A 20-megawatt wind energy project built in Minnesota but owned by Spanish firm Iberdrola would add $20 million to the state’s economy and create about 10 long-term jobs. But if that same project were owned by Minnesota farmers or Kandiyohi Power Cooperative, it would create 20 long-term jobs and generate as much as $68 million in economic activity for the state.
The benefit to a local economy depends on various aspects of a project, such as its size, location, and the amount of local labor and materials used.
Why do locally owned projects create more jobs per megawatt? The National Renewable Energy Laboratory gives three reasons: They are more likely to use local labor and materials, provide benefits to local shareholders, and borrow from local banks.
A program in 2009 made it easier for projects to grow because it cut down the need for investors who take a cut of the profits.
These economic benefits could also be the reason that neighboring communities are more likely to support renewable energy projects when they are locally owned. Farrell points to a study published in the journal Energy Policy in 2011 that looked at two German towns, each with a wind farm on its outskirts. The locally owned wind farm received far friendlier reception from neighbors than the absentee-owned wind farm.
Farrell says that seeing locally owned projects get built changes residents’ impression of renewables and encourages them to think about how they can use renewable energy in their own lives.
“They realize this is real; it’s not a fanciful notion,” Farrell said. “People ask themselves ‘I wonder if I could do that?’”
Barriers to local ownership
With all these benefits on the table, you would think local entrepreneurs would be starting up wind and solar projects across the country. Yet, in 2007, just 2 percent of wind projects in the United States were locally owned, according to the National Renewable Energy Laboratory.
It turns out that federal and state policies make it difficult for locally owned projects to get off the ground. The federal Solar Investment Tax Credit, for example, rewards developers of solar projects by lowering the amount they owe in taxes. But because the program doesn’t provide any money up-front, it essentially requires entrepreneurs to have access to large amounts of capital before beginning a project.
While that may work for California’s BrightSource Energy, which receives financing from companies like Google, Morgan Stanley, and Chevron Technology Ventures, it leaves most community owned projects behind. They can attempt to work around the rule by bringing in partners to provide capital—but these partners generally take a cut of the project’s revenue and diminish its ability to grow.
Locally owned projects create more economic benefits, and they are less likely to encounter community opposition
Congress took a step forward in 2009 with the 1603 Treasury Program. This took the Section 48 Investment Tax Credit, which rewarded larger renewable energy businesses, and converted the tax credits into cash grants. That made it easier for locally owned renewable energy projects to grow, but then the program expired in 2011.
In some cases, policies are better at the state level. In Minnesota, the Community Based Energy Development statute (CBED) requires utilities to support locally owned renewable energy projects. The statute allows qualified candidates to charge higher rates for electricity in their first 10 years. This gives them the opportunity to get off the ground and has accelerated the growth and development of 100 MW of community-owned wind energy in Minnesota over the last nine years, Farrell reports.
Further west, a Colorado law established “community solar gardens” and obligated utilities to buy power from them. These “gardens” are arrays of solar panels that utility customers can own a share of. If the solar garden produces more energy than its shareholders can use, they get a share of the earnings after the excess power is sold to the utility.
Ultimately, Farrell’s report points to exciting economic opportunities that are not too far out of reach. By enacting policies that encourage locally owned renewable energy projects, lawmakers can boost local and state economies while laying the foundation for a more stable climate.