Wind Energy Production: Legal Issues and Related Liability Concerns for Landowners
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Wind Energy Production: Legal Issues and Related Liability Concerns for Landowners 2321 N. Loop Drive, Ste 200 Ames, Iowa 50010 www.calt.iastate.edu Updated June 20, 2011 ‐ by Roger A. McEowen* Overview Current Emphasis On Wind-Generated Electricity Farmers have long used the wind. Beginning in the 1800’s, farmers in the United States installed In large part, the current push for wind- several million windmills across the Midwest generated electricity (and other forms of and Plains to pump water and (later) generate “renewable” energy) is based in power for lights and radios. Those windmills fit environmentalism.4 Concerns over the nicely into the existing landscape and generally environment began to be raised in the U.S. did not create problems for others. Today, during the 1960s and the 1970s. These concerns however, the wind energy industry is using the have had a profound impact on the political wind in a different manner by virtue of large- debate surrounding the belief by some in “global scale aerogenerators1 that have a tremendous climate change.”5 Proponents of wind energy impact on the visual landscape and the rural claim that wind generated electricity reduces culture.2 In some communities, wind energy emissions of carbon dioxide, which they claim development has raised issues between (contrary to a scientific study by the U.S. neighbors, between private landowners and wind National Academy of Sciences) is a significant energy development companies, and between contributor to “global warming.”6 local officials and development companies.3 Note: The National Research Council of Some farmers and other rural landowners have the National Academies concluded in a 2007 entered into long-term agreements with wind study that even under the most optimistic energy companies for the placement and conditions, the U.S. carbon dioxide savings operations of aerogenerators on their property. by 2020 will be approximately 1.755 percent Generally, those agreements are drafted in favor – a trivial amount. Specifically, the authors of the wind energy company and require of the report estimated that by 2020, wind negotiation and modification of numerous energy will offset approximately 4.5 percent provisions to make them fair from the of the carbon dioxide that would otherwise be landowner’s perspective. emitted by other electricity sources. In 2005, electricity generation accounted for In this article we provide an historical 39 percent of the nation’s total CO2 background behind the current emphasis on emissions. Thus, 4.5 percent of 39 percent wind-generated electricity, address taxpayer is 1.755 percent.7 subsidies that support the wind energy industry and detail the legal issues surrounding wind Coupled with (and substantially aided by) the energy production and landowner agreements. politics of “renewable energy” was a wind industry push for the utilization of wind energy 1 for various reasons. The emphasis focused on wind generated electricity as not generating Note: Without the forced purchase of pollution or radioactive waste, having a smaller “renewable energy” (such as via an environmental impact upon installation and not RPS – which 29 states have adopted as consuming non-renewable resources. While of October 2010) that government those points are true, the financial opportunities imposes on electrical distribution for wind energy companies and related investors networks, and federal and state (both private and public) may have been (and subsidies, the wind energy industry may still be) the driving force behind the push would not exist. Wind energy is very for wind energy. In the 1990s, Enron (an energy ineffective when compared to fossil- company based in Houston, TX) lobbied the based energy production, with the cost Congress with a friendly “renewable energy” of producing wind energy exceeding project, and packaged it with their “electricity that of fossil-fuel based energy deregulation” lobbying and political efforts. production. Their efforts were successful in getting laws passed at both the federal and state levels that The Potential for Wind Energy Development would permit them to tie into the grid, require Nationally utilities to buy unreliable and unpredictable electricity (i.e., electricity generated by wind) Wind power stations are clusters of under Renewable Portfolio Standards (RPS), aerogenerators designed for the production of allow them to sell “renewable energy electricity generation. They tend to be located in certificates” separate and apart from the areas with reliable and favorable wind speeds electricity, and utilize a newly created that are near electric power transmission lines production tax credit and take advantage of a and, in some instances, large cities.12 Private special accelerated depreciation rule. Without companies are developing most of the wind those favorable laws, the wind energy industry power stations in the U.S., typically by obtaining would likely not exist. easements or leases from private landowners and assigning the rights obtained to power Note: An RPS is a mandate that requires marketers, electric utilities, and, in some a certain amount a state's energy needs to instances, directly to specific companies or be met by "renewable" technologies government agencies. Presently, wind generates regardless of the cost of producing such less than two percent (1.3 percent as of 2008) of energy. The RPS is very profitable for total electricity generation in the U.S., but the energy companies. Indeed, British wind industry claims that by 2020, six percent of Petroleum and Shell are substantial the nation’s power will be generated by wind.13 investors in U.S. wind energy projects. That claim seems highly suspect. For instance, Such investment provides these after 30 years of development, wind produces companies excellent public relations and only 2.3 percent of electricity generation in lightens their tax burden on oil profits. California. In addition, even if the 6 percent is achieved, due to the intermittency of wind- In recent years, the Congress has continued to generated electricity, the amount of annual reward the wind energy industry with favorable electricity consumption generated by wind will tax breaks even though such tax breaks have likely be far less. For instance, while Denmark been categorized as a waste of taxpayer dollars.8 derives about 20 percent of its electricity from Examples include the production tax credit for wind, Denmark’s annual electricity consumption renewable energy (which includes wind).9 This satisfied by wind averaged only 9.7 percent from credit has been renewed several times. Also, 2004-2009. five-year depreciation for aerogenerators is available.10 In addition, many states have joined Note: As of March 2011, biomass, in with tax exemptions, credits and other geothermal, solar, wind and other 11 subsidies of their own. miscellaneous energy sources generated 2 only 5.2 percent of U.S. electric power. Wind blade construction facilities have been Petroleum energy sources generate only 0.8 established in Newton and Fort Madison, Iowa.22 percent of U.S. electric power.14 Indeed, the These businesses are subsidized by the Iowa U.S. exports more oil than is used to Economic Development Board via incentives generate electricity. Thus, claims that wind including forgivable loans, state tax credits and energy will help reduce dependence on sales tax refunds provided to those companies foreign oil are completely bogus. seeking to invest in wind energy production in Iowa.23 That prediction, however is in sharp contrast to the forecast of the U.S. Energy Information Taxpayer Subsidies for Wind Energy Administration’s Annual Energy outlook for Production 2006 which concluded that wind power supplied only 0.4 percent of U.S. energy requirements in Federal. Both the federal government and 2006, and that by 2030 wind power will supply numerous states have provided taxpayer no more than 1.2 percent of U.S. energy needs subsidies to encourage wind energy and that percentage will only be achieved if the development.24 The federal Renewable Energy “current incentives and subsidies remain in Production Tax Credit provides an income tax place.”15 credit per kilowatt-hour for the production of electricity from a qualified wind energy facility Because aerogenerators require large areas of placed in service after December 31, 1993, and land16 with strong, steady winds, certain parts of before January 1, 2012.25 Beginning in 2011, the country have the potential to draw significant the credit is 2.20 cents per kilowatt-hour.26 The interest from developers seeking the tax benefits credit applies to each kilowatt-hour of electricity associated with wind farming.17 produced from wind that is sold to unrelated parties during the first 10 years after a wind Wind Energy Development In Iowa energy facility is placed in service.27 Likewise, the Renewable Energy Production Incentive Currently, Iowa is the second largest producer of Program provides financial incentive payments wind energy in the United States, ranking behind for electricity produced and sold by new only Texas,18 and is seventh among the states in qualifying renewable energy generation wind energy potential19 with most of that facilities. For depreciation purposes, renewable potential in the northwest and north central part energy systems placed in service after 1986 are of the state. In 1996, the Iowa legislature classified as 5-year property utilizing the approved the creation of the Alternative Energy double-declining balance method.28 Revolving Loan Program (AERLP), a program designed to promote the development of wind In lieu of claiming the renewable production tax energy production across the state.20 Since its credit, owners of wind energy facilities can creation, the AERLP has provided nearly $10.5 claim a 30 percent investment tax credit for million of financing for renewable energy property placed in service in 2009-2012.29 production, including financing of ten independent owners of wind turbines across Note: Frank Hoffman, an Indianapolis, Iowa.