The nation s energy sector is undergoing substantial

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1 SOUTHERN LEGISLATIVE CONFERENCE Copyright May 2017 by Anne Roberts Brody, Policy Analyst I can t change the direction of the wind, but I can adjust my sails to always reach my destination. Jimmy Dean The nation s energy sector is undergoing substantial changes, as political and economic factors converge to encourage diversification in generation. Aided by state and federal tax credits, renewable energy generation technologies are experiencing unprecedented growth as production costs decline and implementation increases. As the renewable energy sector continues to grow, concerns that such expansions could lead to widespread job losses in traditional energy sectors, such as coal, have proliferated. Southern states are rich in traditional energy resources; thus, many state economies have long depended on these resources. Because of the importance of these industries to the region, both in terms of economic development and employment opportunities, legislators often are faced with balancing business interests with the need for environmental protection and conservation. Renewable energy production often is viewed as a competitor of fossil fuels. However, renewable energy sources such as wind can provide tremendous economic and environmental benefits to states, while adding to the diversification of a state s energy portfolio. This SLC Special Series Report, the first in a series exploring the myriad impacts of wind energy expansion on SLC states, examines the benefits of wind energy in the Southern region. Forthcoming reports present case studies from three SLC states, examine SLC states capacity for wind energy generation and utilization, analyze state incentives, and explore the challenges of wind energy generation in the region. Overview The wind industry had a banner year in 2016, with thousands of new turbines installed across the country, supporting a growing number of jobs. The United States had 82,183 megawatts (MW) of installed wind capacity by the end of 2016, surpassing hydropower for the first time. 1 Nationally, installed wind energy capacity grew by 8,203 MW over the previous year and now generates about 5.5 percent of the country s electricity, enough to power 24 million homes. 2 Although coal and natural gas currently account for approximately 66 percent of the country s electric generation, the U.S. Department of Energy (DOE) estimates that, by 2030, wind will provide one-fifth of the nation s electricity. Southern Legislative Conference and SLC are trademarks registered in the U.S. Patent and Trademark Office.

2 The many benefits of wind energy include long-term cost competitiveness, economic development, support for rural, agrarian communities and reductions in energy-related water use. The growth in the nation s wind industry has had ripple effects across the American economy. The DOE estimates that 101,738 workers were employed at wind farms in the United States in 2016, representing an employment increase of 32 percent, up from approximately 77,000 in Additionally, technological advancement, coupled with the falling cost of natural gas, have yielded cost-competitive deployment in optimal locations, making utility-scale wind power a cost-effective source of low-emissions power generation. Finally, the overwhelming majority of wind farms in the United States operate in rural areas where landowners and local communities reap financial benefits. Cost Competitiveness Through the aforementioned innovations in technology and historically low natural gas prices, wind power generation has become an economically compelling means of energy production. This shift is evidenced by the growing demand for wind energy from major corporations. In recent years, companies such as Facebook, Amazon Web Services, Procter & Gamble, General Motors and Walmart have signed contracts to purchase increasing amounts of wind energy. This trend suggests that wind power no longer is a mere signifier of the private sector s commitment to sustainability. Rather, these corporations increasingly are investing in wind power because it is fiscally prudent. Due to low natural gas prices, unprecedented fuel switching from coal to natural gas has been occurring in the energy sector. Gas-fired generation is more flexible than coal-fired generation, facilitating the integration of variable renewable generation sources, such as wind. This, in turn, drives down the cost of integrating these alternative energy resources, further encouraging increased implementation. Wind is a free but variable resource. The annual energy production of a turbine is highly dependent on wind resource characteristics at a given site and the technical specifications of the turbine itself. 3 The cost of a turbine Glossary Hub height: The hub height is the distance from the turbine platform to the rotor of an installed wind turbine and indicates how high a turbine stands above the ground. Nacelle: a covering that houses all generating components of a wind turbine, including the gearbox, low- and high-speed shafts, generator, controller, and brake. Rotor: a wind turbine component that, with the help of the rotor blades, converts the energy of wind into rotating mechanical movement. Utility-scale: wind energy projects capable of generation greater than 1 megawatt. Wind farm: a group of wind turbines in the same location used to produce electricity. increases rapidly in proportion to its height. 4 This creates a trade-off between tower cost and the value of added energy production, further emphasizing the importance of strategic site selection. However, wind turbine prices have fallen between 20 percent and 40 percent since 2008, when prices peaked. The 2014 Wind Technologies Market Report by DOE found that wind projects built in 2014 had an average installed cost of $1,710/kW, down almost $600/kW from a peak in 2009 to Recent technological improvements have played an important role in the declining cost of wind generation. A 2015 report by the DOE found that through continued innovation in technology, the deployment of incremental wind power in the United States is both feasible and economically viable. 6 Since 1998, hub heights have increased by approximately 50 percent, to an average of 82.7 meters (271.3 feet) for new turbine installations. 7 Over the same period of time, rotor diameters have increased more than 100 percent, with some on newly installed turbines averaging approximately 99.4 meters (326.1 feet) in These advancements increase the amount of electricity a turbine can generate, allowing a turbine to capture wind at higher speeds. Meanwhile, larger rotors enable greater energy generation at lower wind speeds. This trend toward heightened efficiency is projected to continue increasing benefits and lower costs. 9 2 BLOWN AWAY: WIND ENERGY IN SOUTHERN STATES (PART 1)

3 Wind-Related Jobs by State in 2016 State Wind-related jobs Alabama 1,077 Arkansas 825 Florida 3,584 Georgia 483 Kentucky Not Available Louisiana 132 Mississippi 103 Missouri 1,035 North Carolina 594 Oklahoma 1,789 South Carolina 1,415 Tennessee 142 Texas 24,374 Virginia 1,260 West Virginia 460 Source: 2017 U.S. Energy and Jobs Report State Charts, U.S. Department of Energy. Lower turbine prices and installation costs, along with enhanced turbine productivity, have led to competitive wind power pricing. 10 In turn, this competitive pricing has stimulated demand for wind energy, both from traditional electric utilities and non-utility purchasers such as corporations, municipalities and universities. Wind energy s hedge value also has made it increasingly cost-competitive. On average, and in real dollar terms, buyers of wind energy, through power purchase agreements (PPAs), will pay no more per megawatt hour 20 or 25 years from now than they do today, whereas it can be difficult to lock in low fossil fuel prices over long periods of time. 11 Although fossil fuel prices, particularly natural gas, remain low, by adding wind power to existing portfolios, buyers can effectively minimize the long-term risk of increasing fossil fuel prices. Though currently low, natural gas prices are historically volatile. For this reason, the resource rarely is sold on a long-term, fixedprice basis. Instead, it frequently is sold with variable pricing, and utilities must hedge fuel prices in order to simulate stability. 12 Conversely, because wind PPAs can provide predictable pricing for up to 20 or 25 years, they become an attractive option for industrial buyers, for whom electricity ranks among the top operational expenses. In selecting wind PPAs, companies can guarantee long-term, stable energy costs, removing one of the many variables in operational expenses. Economic Development The implementation of wind power stimulates economic development and contributes to the creation of jobs related to development, siting, manufacturing, transportation and other industries. In fact, wind generation accounts for the third largest share of electric power generation employment. 13 A 2015 report by the DOE found that the nation s wind industry supported an average of 73,000 total jobs between 2010 and 2014, and an estimated 560 domestic manufacturing facilities operating in 43 states. 14 In 2016, that number grew to 101,738 workers nationwide. 15 Of that, an estimated 50,000 jobs were supported by onsite and direct supply chain investments. According to the American Wind Energy Association, an industry trade group, in 2016, the nation s wind energy supply chain included eight utility-scale blade facilities, nine tower facilities and four turbine nacelle manufacturing facilities spread across 14 states. Furthermore, approximately 95 percent of the wind power capacity installed in 2016 used a turbine manufacturer with at least one domestic manufacturing facility, many of these in SLC member states. To meet the growing demand for wind power installations, manufacturers have increased production, creating new jobs and strengthening the domestic manufacturing base. As of 2014, the South was home to approximately 227 companies and 300 facilities involved in the full value chain of the wind energy industry. 16 Opportunities for job creation extend beyond manufacturing and can include operations and logistics, data analysis, communications and safety and technical workforce training. The deployment of wind power also can stimulate indirect job creation and economic development. As an example, the town of Pryor, Oklahoma, has experienced these benefits first-hand. In 2012, Google announced a second data center at Pryor s MidAmerica Industrial Park. 17 Mr. Andrew Silvestri, head of public policy and BLOWN AWAY: WIND ENERGY IN SOUTHERN STATES (PART 1) 3

4 Active Wind-Related Manufacturing Facilities and Installed Wind Power Capacity by State at End of 2016 Source: U.S. Wind Industry 2016 Annual Market Update, American Wind Energy Association. external affairs for Google in Oklahoma, said the company built its Pryor data center in part because of the availability of wind energy. 18 This data center represents a $2 billion investment in the community, including more than $1.5 million in science and technology grants; free public Wi-Fi; workforce development grants; and technology resources for nonprofits. Google employs approximately 400 people at this facility, 70 percent of whom are hired from the local area. 19 This strategic decision, fueled in part by access to affordable wind energy, has been a tremendous boon to the local economy. Support for Rural Communities For rural communities with strong and consistent wind resources, wind power can provide a vital economic boost. This is particularly true for rural, agricultural communities. Though wind developers own the turbine itself, they rarely own the land on which it is located. Instead, they often enter into long-term leases to site the turbine on the landowner s property. Farmers and ranchers can tap into this market by leasing land to wind developers. Large wind turbines typically use between half an acre and two acres of land, including access roads, allowing farmers to continue planting crops and graze livestock up to the base of the turbines. 20 Payments for land leases typically range from $2,000 to $5,000 per turbine, per year. For some, this can mean the difference between keeping or losing the family farm. The American Wind Energy Association estimates that, in 2016, domestic wind farm companies paid approximately $245 million to farming families and other rural landowners. 21 In 2015, more than $156 million was paid to landowners in counties with below average incomes. 22 Collectively, landowners in seven states, including the SLC member states Texas and Oklahoma, currently receive an excess of $10 million in annual lease payments BLOWN AWAY: WIND ENERGY IN SOUTHERN STATES (PART 1)

5 U.S. Wind Energy Industry Employment at End of 2016 Source: U.S. Wind Industry 2016 Annual Market Update, American Wind Energy Association. The structure of land-lease agreements can take several forms, including a fixed annual payment; one-time, upfront payment; revenue sharing; or some combination of the three. Revenue sharing can offer the highest rate of compensation, but also the highest risk, particularly if a project is unsuccessful. Fixed annual payments often are lower than revenue sharing agreements, offer less risk to landowners and a more predictable source of income. A one-time, up-front payment also may be attractive, but this option can complicate the terms of sale if the property is sold during an active lease agreement. When considering a land-lease agreement, property owners may choose to consult with legal counsel. Further, farmers and ranchers should consider the terms of the lease in relation to the potential impact on farm operations. In 2014, a University of Michigan survey of farmers in the state sought to understand the impact of wind turbines on landowners in wind farm communities by comparing their experiences to landowners in non-wind farm communities. While this survey was conducted outside the Southern region, the results nevertheless provide relevant insight. When compared to neighbors who did not host wind farms or turbines, the survey found that those community members with turbines on their property invested twice as much capital in their farms; purchased more farmland over a five-year period; were more likely to believe their land would be farmed in the future; and reported it was neither easier nor more difficult to farm around turbines. 24 Beyond the benefits to landowners, wind farms also contribute to rural communities through tax revenues. In most states, taxes assessed on energy production equipment are collected by local, rather than state, governments. These funds may then be utilized to improve public services or to reduce the local property tax burden on all landowners. In a recent study, the BLOWN AWAY: WIND ENERGY IN SOUTHERN STATES (PART 1) 5

6 Oklahoma Chamber of Commerce found that owners of existing and planned wind farms will pay an aggregate of $948.5 million in ad valorem taxes through A 2012 study by the University of Nebraska quantified the empirical impacts in counties hosting wind power projects that were installed between 2000 and This study found an average increase in county-level per capita income of $11,000/MW of installed capacity and an average increase in countylevel employment of approximately 0.5 jobs/mw. 26 In this way, wind energy production may boost the economic prosperity of both rural communities and farming families. Environmental Benefits Perhaps the most widely cited benefits of wind energy are environmental. When combined with other forms of electric generation, wind energy reduces energy sector water consumption, greenhouse gas emissions, sulfur dioxide and nitrogen oxide emissions. The reduction in water use can be particularly important for rural and farming communities that depend on significant use of freshwater to raise livestock or grow crops. Unlike fossil fuel power plants, wind energy production does not require water for cooling. The American Wind Energy Association estimates that, in 2016, wind energy helped avoid the consumption of approximately 87 billion gallons of water. 27 As water resources become increasingly scarce, this characteristic becomes progressively beneficial. Like other renewable resources, wind energy is a clean source of fuel. The DOE estimates that wind energy may reduce cumulative greenhouse gas emissions by 14 percent, translating to a savings of $400 billion in avoided global damage by Further, a 2015 study by the DOE found that, in 2013, wind energy contributed to emissions reductions in greenhouse gasses (115 billion metric tons), sulfur dioxide (157,000 metric tons) and nitrogen oxide (97,000 metric tons). 29 Continued integration of wind power, as part of a diverse energy portfolio, can encourage further reductions, resulting in cleaner air and reduced water consumption. Conclusion Wind has become an increasingly compelling means of energy generation, given its stimulation of job creation, support of rural communities, and ability to reduce the power sector's water consumption and greenhouse gas emissions. These are compelling variables for state and local governments, along with the private sector, in the calculus for preparing a 21 st century workforce; budgeting for potential cost-savings in utility rates; and off-setting expenditures in other areas due to the farreaching impact that the development of wind resources can have on communities and the environment. As technological advancements drive down the cost of wind energy generation, this renewable resource likely will become an increasingly advantageous driver of fiscal decisions, allowing companies to lock in long-term, stable energy pricing. Wind energy can support reductions of water consumption and harmful emissions. In addition, as states, utilities and companies seek to diversify their generation portfolios, wind energy will play an increasingly important role. The deployment of wind power also stimulates economic development and contributes to the creation of jobs related to development, siting, manufacturing, transportation, construction, transmission and other industries even in states that do not have optimal wind resources. Further, the availability of low-cost wind energy, whether on-site or through PPAs, can attract companies to rural communities, spurring indirect job creation. In states with strong wind resources, individual landowners may benefit from land-lease agreements that can provide additional income and promote investments in family farms, ranches and other facilities. While this SLC Special Series Report reviewed the many benefits of wind energy, subsequent reports will examine SLC states capacity for wind energy generation and utilization, analyze state incentives, and explore the challenges of wind energy generation in the region. Part II of this Special Series Report will study the impact of wind energy generation in Texas, Oklahoma and Virginia, specifically the installed capacity, transmission, economic impact and available state incentives. 6 BLOWN AWAY: WIND ENERGY IN SOUTHERN STATES (PART 1)

7 Endnotes 1) Monies, Paul. Oklahoma Moves up to Third Place in State Rankings for Wind Power. NewsOK.com. February 10, (accessed February 13, 2017). 2) Ibid. 3) Zayas, Jose et al. Enabling Wind Power Nationwide (U.S. Department of Energy. May 18, 2015). 4) Ibid. 5) Wiser, Ryan, and Mark Bolinger Wind Technologies Market Report (U.S. Department of Energy. August 2015). 6) Wind Vision: A New Era for Wind Power in the United States (U.S. Department of Energy. March 12, 2015). 7) Mooney, Chris. The U.S. Wind Energy Boom Couldn t Be Coming at a Better Time. Washington Post. August 10, (accessed January 19, 2017). 8) Ibid. 9) Wind Vision: A New Era for Wind Power in the United States. 10) Wiser, Ryan, and Mark Bolinger Wind Technologies Market Report. 11) Bolinger, Mark. Revisiting the Long-Term Hedge Value of Wind Power in an Era of Low Natural Gas Prices ) Ibid. 13) U.S. Energy and Employment Report (United States Department of Energy. January 2017). 14) Zayas, Jose et al. Enabling Wind Power Nationwide. 15) U.S. Energy and Employment Report. 16) Southeast Wind Energy Fact Sheet. (The Southeastern Wind Coalition. December 2014). 17) Google Growing Its Oklahoma Data Center - Article Photos - Photo Gallery. NewsOK. (accessed February 9, 2017). 18) Ellis, Randy, and Paul Monies. Tax Incentives for Oklahoma Wind Farms Are Getting Scrutiny. NewsOK. April 24, (accessed January 23, 2017). 19) Google Growing Its Oklahoma Data Center - Article Photos - Photo Gallery. 20) Farming the Wind: Wind Power and Agriculture. Union of Concerned Scientists. smart-energy-solutions/increase-renewables/farming-the-wind-wind-power.html (accessed February 9, 2017). 21) U.S. Wind Industry 2016 Annual Market Update. American Wind Energy Association. April 13, ) U.S. Wind Industry 2015 Annual Market Update. American Wind Energy Association. April 12, ) U.S. Wind Industry 2016 Annual Market Update. AWEA. 24) Mills, Sarah. Farming the Wind: The Impact of Wind Energy on Farming (University of Michigan Gerald R. Ford School of Public Policy. n.d.). 25) Ellis, Randy, and Paul Monies. Tax Incentives for Oklahoma s Are Getting Scrutiny. 26) Brown, J.P; Pender, J.; Wiser, R.; Lantz, E.; and B. Hoen. Ex Post Analysis of Economic Impacts from Wind Power Development in U.S. Counties. Energy Economics (34:6), 2012; pp Accessed February 10, 2017: 27) U.S. Wind Industry 2016 Annual Market Update. American Wind Energy Association. April 13, ) Wind Vision: A New Era for Wind Power in the United States. 29) Zayas, Jose et al. Enabling Wind Power Nationwide. BLOWN AWAY: WIND ENERGY IN SOUTHERN STATES (PART 1) 7

8 REGIONAL VIEW NATIONAL REACH This report was prepared by Anne Roberts Brody, policy analyst and committee liaison of the Energy & Environment Committee of the Southern Legislative Conference (SLC), chaired by Representative Lynn Smith of Georgia. This report reflects the body of policy research made available to appointed and elected officials by the Southern Office of The Council of State Governments (CSG). Opened in 1959, the Southern Office of CSG fosters intergovernmental cooperation among its 15 member states, predominantly through the programs and services provided by its Southern Legislative Conference. Legislative leadership, members and staff utilize the SLC to identify and analyze government policy solutions for the most prevalent and unique issues facing Southern states. Meanwhile, SLC member outreach in state capitols and coordination of domestic and international delegations, leadership development and staff exchange programs, meetings, and fly-ins support state policymakers and legislative staff in their work to build a stronger region. Established in 1947, the SLC is a member-driven organization and the largest of four regional conferences of CSG, comprising the states of Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, Missouri, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, Virginia and West Virginia. The Annual Meeting of the Southern Legislative Conference, convened as the focal point and apex of its activities, is the premier public policy forum for Southern state legislators and the largest regional gathering of legislative members and staff. The Annual Meeting and a broad array of similarly well-established and successful SLC programs focusing on both existing and emerging state government challenges provide policymakers diverse opportunities to ask questions of policy experts and share their knowledge with colleagues.