For some time, South Dakotans noticed the wind blowing and wondered when, if ever, wind farms would be built here to put that wind to use. In studying why wind farms were being built elsewhere but not here, it appeared that the availability of electricity transmission and state tax policy were two impediments to wind energy development. Fortunately, both areas received attention in past years. Transmission has been planned and built. State tax policy has been addressed to allow wind farm development to succeed.
Back in 2011, the Legislature created the Wind Energy Competitive Taskforce to review the state’s wind energy tax structure compared with surrounding states. The task force determined that South Dakota’s wind farm tax burden was considerably higher than neighboring states. For instance, the task force found that without changes to the state’s tax laws, a 200-megawatt project would pay approximately $25 million more in state taxes than in neighboring states. That disparity drove development to occur elsewhere in our region.
In order to address this disparity, the Legislature approved the Governor’s Office of Economic Development (GOED) reinvestment payment program in 2013. Under the program, part of the sales and use taxes collected by the state on large construction projects is refunded to the project in order to keep us competitive with North Dakota, Minnesota and Iowa. This, combined with new transmission infrastructure that has been built in the past five years, is driving our state’s wind development and the jobs and economic development that comes along with it. The current development we are seeing is in direct response to these policy changes and would have been unlikely without them.
The reinvestment program has been successful. In 2010, South Dakota had only 709 megawatts of wind energy installed. Today, the state has 1,109 megawatts of installed wind power and ranks fifth in the nation for the share of electricity coming from wind. An additional 1,267 MW of wind energy is currently under construction and slated to be operational by the end of 2020. Wind farms are being built here in South Dakota because we made ourselves cost competitive with surrounding states. Those wind farms still pay significant production taxes annually to the state, schools, and counties, in addition to the sales and use and contractors excise taxes.
Earlier this month, the South Dakota GOED reversed its pro-development position by rejecting a reinvestment payment for a wind farm and notifying others in development that they should expect the same. This policy change jeopardizes South Dakota wind development going forward. Most concerning is that the policy change came without input from stakeholders. Wind projects, like other large capital investment projects, make business decisions based on state policies and need the economic certainty that such policies provide.
South Dakota has a small population and vast natural resources to offer, which makes us an export state. Wind energy is a commodity that can be exported, just like corn, soybeans and beef. It is a mistake to think that this level of capital investment will continue in South Dakota without tax parity. Let us not waste our opportunities to use our abundant natural resources by backing out of incentives that have successfully attracted broad economic development to our state.
Tom Paulson of Watertown is the outreach coordinator for Clean Grid Alliance, a nonprofit organization working to advance renewable energy in the Midwest.