Minnesota farmers structure wind business to keep
more energy dollars close to home
Harvesting the Prairie Wind
By Dan Campbell, editor
dan.campbell@wdc.usda.gov
urrounded by fields of corn swaying in an
early autumn breeze, Mark Willers makes his
way to a wind turbine soaring more than 240
feet into the blue Minnesota sky. After
pointing out to a visitor the surprisingly
small “footprint” of the turbine — corn grows to within a few
yards all around the tower — he unlocks the access door in
the base and examines the computer that is both the brain
and nerve center of the turbine.
On the outside, the turbine looks deceptively simple: a
mammoth, three-bladed fan twirling on the end of a sleek,
cream-colored tower. But modern wind mills such as this are
works of technological genius — a 21st Century harness for
one of the oldest forms of power known to mankind. The
result is the generation of wind energy at levels unimagined
even a decade or two ago. This two-megawatt turbine, as tall
as a 30-story building, can produce 6 million kilowatts of
electricity annually, enough to light up 600 homes.
But it is not a simple process. The computer constantly
adjusts the tilt of the blades, based on fluctuations in the
wind currents.
This turbine is one of 11 that comprise the Minwind
Energy wind farm near Luverne, in the southwest corner of
Minnesota. The turbines, built between 2002 and 2004, look
no different than most of the modern turbines that now
produce more than 11,600 megawatts (MW) of electricity in
the United States (74,200 MW worldwide) each year.
But this wind farm is unusual in one very critical aspect: it
is owned and operated by about 300 area farmers and other
community members. Most other wind farms in the United
States are owned by private power companies. Willers and his
fellow members in Minwind — an LLC that operates on
cooperative principles — feel that this absentee ownership
pattern represents a lost opportunity for rural America.
Owning the wind
When farmers and other rural landowners sell wind power
rights to their land for only land lease payments, “it’s a little
like colonialism in reverse,” says Willers, a fourth-generation
Minnesota grain farmer. His great grandfather in Germany
made his living in the late 1800s exporting German and
Russian wheat to the United States at a time when it was still
wheat deficient.
The real money to be made from wind power comes not
from land rental, but from the generation of electrical power,
says Willers, who is also CEO of Minwind.
With southwest Minnesota being such a high-wind area,
and the nation hungry to develop renewable energy, there is
little doubt that wind power is going to continue to grow
here and in other windy regions of the United States –
primarily the Upper Midwest, Eastern Slope of the Rocky
Mountains and Great Plains states.
“These wind projects are going to get done — either by
big corporations or by producer and community groups,”
says Tom Arends, a Minwind member and a semi-retired
grain and hog farmer. But there is no doubt where his heart
is. “With community ownership, it is going to keep more
money circulating locally and create more jobs. It’s easy to
lease land to a power company, but how many in your
community will really benefit from that? Very few.”
A new vision for wind power in rural America is needed.
“We must find ways to keep more of these wind-energy
dollars within our state and within the Midwest — and we
need to collaborate to make it happen,” says Willers.
New spin on wind
Farmer and community ownership of wind power is a new
spin on the rapidly evolving renewable energy scene. One
does not need an advanced degree in economics to see why
local ownership matters.
For starters, landowners must understand what percent of
gross wind power revenue
they are getting for leased
land. Most wind lease
payments are running 0.5 to
1.5 percent of gross value,
says Willers. “Farm land is
certainly not being rented
for one-half percent of the
gross.” Nor do the iron ore
or timber industries lease
land for such a minimal fee,
he observes.
“Our goal has always
been to invest in businesses
that support a growing
community, and that means
we need to have the land
lease revenue, the gross power production revenue and the
tax revenue all stay in our local community,” Willers says.
“If someone is going to be making money off my land, it
should be me — not some power company, and especially not
an Australian or Spanish company,” adds Arends, who is
concerned about growing levels of foreign ownership of U.S.
wind rights.
Local governments and schools in Minnesota benefit from
wind power via a production tax leveled per kilowatt of
power generated. It is copied after a Danish model, so that
bigger turbines pay more. For each 100 MW of wind power
generated in Minnesota, about $1 million in tax revenue is
paid to local governments and schools, according to
Windustry, a nonprofit organization that provides technical
support for rural landowners and communities pursuing wind
energy projects.
Wind power is certainly not a “get-rich-quick” technology,
and farmers thinking they might reap fast “windfall profits”
should think again, Arends advises. “A lot of people really hit
it big for a few years with ethanol, but this is quite different.
The goal with wind is a slow, steady stream of income.”
By the same token, since wind operates on long-term
power purchase agreements with set prices, the industry
should not be subject to the rapid market plunges that the
fuel industry experiences.
Launching Minwind
Minwind was formed in 1999, but its roots go back to the
1970s, “When Midwest agriculture became a mature
industry,” says Willers. “If we didn’t export our grain or
livestock products, we didn’t have much of a market for it. So
we started looking at new ways to add value.”
Most of the initial investors in Minwind also invested
many years earlier in Luverne’s ethanol plant (Agri-Energy
LLC) and other value-added businesses, including soybean
crushing and biodiesel plants. With the formation in 1999 of
the five-member Minwind
board of directors — all of
whom shared a deep-seated,
value-added business
philosophy — the co-op
began to pursue a feasibility
study.
A letter was sent out to
potential local backers,
asking them to invest $500
each for a feasibility study.
That’s all it took to get 66
farmers and other
community members to
send in checks. That money
was used to hire a
consultant and launch the
study. By 2001, the board had decided to move forward with
the project, and shares were offered at $5,000 each to erect
four, one-megawatt wind turbines. Total cost was just under
$4 million.
The original 66 members bought all the shares. A limit
was established so that one member could not own more
than 20 percent of the shares. As with a new-generation coop,
members can sell their shares, but to date no one has sold
any.
There was virtually no opposition to the Minwind project.
“That is the beauty of a community project. When neighbors
all own part of it and will get a return from it, it really makes
a difference,” says Willers.
Minwind began negotiating a power contract in 2001, and
the first four turbines were up and operating in 2002. The
co-op was able to take advantage of several Minnesota
programs that provide financial incentives to develop wind
power.
When it was decided to expand the wind farm in 2004
with an additional seven, two-megawatt turbines, Minwind
looked to USDA Rural Development’s 9006 Renewable
Energy Program for help. Willers wrote the grant
applications, which netted the co-op $178,000 toward the
cost of each of those turbines.
Membership was expanded by 240, “but it was still pretty
much local, and all in-state,” says Willers. Indeed, the
company charter requires that investors be Minnesota
residents. Minwind raised several million dollars toward the
total cost of $12.5 million, financing the balance locally.
“We never traveled more than two and a half miles to
borrow money,” Willers says. “Our goal is to support as
many local jobs as possible, and that means using local
concrete people, local electricians, local banks and others.”
Turbine placement
In choosing the site for a
wind farm, not only is a
thorough study of an area’s wind resources crucial, but so too
is proximity to transmission lines. Since farmers with the
turbines earn extra fees if they own the land the turbines are
sited on, there were some “internal politics” to be dealt with.
“Some farmers will say, ‘My farm is on the highest
elevation in my township, and it was real windy last week, so
this is where the tower should go.’ But it’s a little more
complicated than that,” says Willers. Having a neutral
engineering consultant make the decision where to site the
wind farm helps avoid any appearance of favoritism.
“I don’t have any turbines on my land — not even any
close,” says Arends. But as a member of Minwind, he says he
benefits no matter where the towers are located, and thus he
supports placing them wherever they will generate the most
consistent energy.
Negotiating a power purchase contract is definitely a job
for an attorney who specializes in such matters, they advise.
“The utility is naturally going to try to buy power from you
as cheaply as it can,” Willers says. Minwind negotiated with a
couple of possible buyers, ultimately opting to sell power to
both Alliant Energy and Xcel Energy.
Transmission, tax credit concerns
Lack of transmission infrastructure is by far the biggest
overall limiting factor for wind power development in the
United States. “Our wind resources are mostly in the eastern
Rockies and northern plains, but most of our people are on
the two coasts,” Willers says. “If you are going to transport
all that electricity to the places it is needed, there needs to be
substantial expansion in our transmission system.”
The biggest obstacle to promoting more local ownership
of wind power is the way the federal production tax credit
(PTC) law is written, he says.
The value of these tax credits can be huge. Over a 10-year
period, they may even be equal to the lion’s share of the
initial cost of a turbine, says Arends. But the tax credits must
be used as an offset to passive income — the kind of income
big power companies have in plenty, but not small businesses
like Minwind or its members.
Minwind financed its wind farm without reliance on
PTCs, which instead flow back to the individual
shareholders. But some of them are unable to use the PTCs.
“Why do we have legislation that prevents individuals
from being able to use production tax credits?” asks Arends.
Willers sees the situation in even starker terms: “The
production tax credit law is very anti-agriculture. It moves
revenue out of the Midwest to the coasts, and even offshore. I
have a real problem with a tax system that promotes removal
or revenue from a given area (the Midwest) to another region
of the country (the coasts).”
(Editor’s note: James Newby, assistant administrator of
Electric Programs for USDA Rural Development, notes that
tax-exempt organizations are not eligible for production tax
credits, which is why Clean Renewable Energy Bonds
(CREBS) were created. He notes that CREBS provide the
same level of financial incentives to cooperatives as does the
PTC.)
Also hurting the U.S. wind industry is the loss of U.S.
core industrial manufacturing capacity. Most wind turbine
manufacturing companies are European, and with the Euro
at record high exchange levels vs. the dollar, it has caused
turbine prices to soar. There is also a backlog of orders,
putting even more upward pressure on prices.
In just the past year, the average cost for a two-megawatt
turbine has climbed from about $2.1 million to $2.5 million.
These cost escalations have a huge impact on the viability of
wind power.
“All of our parts are also going to be costing more,” says
Willers. “And patent laws mean we have to buy parts over
there.” Some growth in blade and tower manufacturing is
occurring in the United States, “but it is growing slowly,”
says Willers.
Congress has been extending the energy law in only oneor
two-year increments, while Europeans are working on 10-
year renewable energy programs, Willers notes. “The United States needs a long-term energy policy that would encourage
factories to be built in this country.”
Expansion coming
Minwind has four more expansion phases on the drawing
board right now, which it hopes to complete over the next
four years. Willers declined to divulge the details, but
stressed that “we will almost certainly be expanding.”
The co-op currently operates with two full-time
employees (Willers and a bookkeeper) and two part-time staff
members. It uses contractors for turbine service and
maintenance, although it will likely hire its own maintenance
employees when growth and the economy of scale justifies it.
Should more producer and community groups consider
building and operating wind farms?
In some case, yes, says Willers. “But it depends on the
group. If you have an aggressive, well thought-out business
plan and people on board who are experienced in starting
companies, you may do well. But if you are thinking that you
are going to own some wind turbines and then just sit back
and collect the checks — and you don’t want to understand all
of the technology — then you probably should not pursue it.”
Willers says farmer co-ops could develop wind ventures
for their members, but because most co-ops cannot use production tax credits, in most cases they would need to form
an LLC subsidiary. “For a lot of co-op boards, it is a struggle
when they have to wrestle with broadening their business
model — and rightfully so; they should struggle with it. This
is something totally different than adding grain storage or a
fertilizer department.”
Be prepared to negotiate some bumps in the road, says
Arends. “You will probably have some rocky roads to travel
— you always do in any industry, especially a new one. So far,
though, Minwind has been doing what it is supposed to.”
Looking back on the past seven years, Willers says: “It’s
been a lot work, but it has also been a fun community
project. We have had fantastic community support and have
benefited from community leaders and board members who
are truly visionary.”
But does all that wind ever create problems for Minnesota
farmers?
“Sure, but we can laugh now when the wind breaks off our
corn, because at least we are making some money from the
wind.”
Energy leadership
development urgently needed
Minwind has been getting an increasing number of
calls from other rural communities and producer groups
wanting to know more about its business model and where
to find the right people to help pursue a wind project. That’s
both good and bad. It indicates strong interest in community
ownership, but also points to a general lack of knowledge
and leadership in how to pursue such projects.
The Midwest badly needs more energy-leader development
programs — and not just for the wind industry, but for
other renewable energy industries as well, including the
next phase of ethanol technology, says Willers. “There is a
real struggle in the Midwest to develop the kind of leaders
who can do this. Communities with strong leaders are
doing dramatically better, and the differences will only get
bigger.”
Willers is a frequent speaker at the state’s colleges,
where he tells graduate students about the economics of
wind power and the skills they will need to run or start
renewable energy companies. “They are the ones who will
determine the future of how these companies will be
owned and operated.”
He emphasizes that all those math and the physics
classes students are taking will help them run a wind farm.
“You need these skills to determine the pitch of the blades,
or to find the best location for a turbine. This is real life!” he
tells them. “If you are going to go school to study engineering
or mathematics or economics, this is what you are
there for.”
Minwind also works with busloads of area high school
students, walking them through the project and trying to
help them understand how their communities can get
involved in renewable energy and to start them thinking
about the studies they will need to pursue to be part of this
industry.
Wind power creates good jobs so more young people
can stay in their home communities, Willers says. “Turbine
service technicians with a few years of experience will
probably make more money than any co-op manager. You
need both a mechanical engineering background and a
computer background, because these turbines are very
technologically complex.”
