State incentives: Impact on wind energy costs and policy development

Wind energy presents significant opportunities for states to foster economic growth, generate tax revenue and aid the transition from fossil fuels. Policymakers considering new incentives to attract wind energy projects are challenged by a lack of modern information on the relative cost of wind development and how it is impacted by such policies. Previous research regarding the impact of incentives is limited, dated and often contradictory. This study addresses this information gap by developing a detailed cost model to evaluate wind development costs across the western United States. Despite nearly equivalent wind resources, results indicate New Mexico has costs between 11.7 and 15.9 percent lower than Montana, Colorado and Wyoming, the next lowest-cost states. This advantage occurs due to a unique bonding incentive and despite a tax burden higher than all but Wyoming's. Cost patterns are consistent with observed development patterns over the past decade, suggesting understanding state incentive impacts on relative development costs can aid design of more effective programs to attract development. Findings also suggest understanding the cost structure of wind developments is crucial to resolving contradictions in previous econometric studies. Examples are presented to demonstrate how cost models can serve as testbeds to identify more attractive development policies while avoiding reduced state revenues, and how lesser used programs like bonding can significantly reduce development costs to attract greater wind energy development. The methodology presented can be adapted to other regions, providing a tool for policymakers to increase renewable energy development and aid in achieving sustainable development goals.