Legislators again study change in wind tax
July 4, 2019
CHEYENNE — Wyoming’s wind is a highly desirable commodity in renewable energy. But trying to increase revenue from the industry might drive investors away from the state and into the arms of Wyoming’s three biggest competitors for wind.
There has been a drive in recent years at the Legislature for Wyoming to increase taxes on wind energy production. As coal loses its value in the marketplace, and more states in the western part of the country push for their energy portfolio to consist only of renewables, state lawmakers and advocates have argued Wyoming should take advantage of the demand.
Wyoming now taxes companies $1 for every megawatt hour of wind energy produced after the first three years a project is operational. And those advocating for higher rates have pushed the state to increase the amount it taxes to $5 per megawatt hour.
During a Monday meeting of the Joint Revenue Interim Committee in Cheyenne, lawmakers heard about the potential impacts increasing taxes on wind could have in the pursuit of higher returns. Instead of raising the price on production, a March study by the University of Wyoming’s Center for Energy Economics and Public Policy showed a potential avenue for Wyoming to increase the amount of money in state coffers without killing new development.
Instead of just increasing the rate on the amount of energy produced, the study found Wyoming would benefit from moving toward a tax tied to how much money companies made off selling wind energy produced in the state.
Due to the inefficiency and lack of transmission infrastructure available that isolates the West from eastern wind energy production, Wyoming is only in competition with Montana, Colorado and New Mexico as the prime spots for wind energy development. The argument goes that since Wyoming has the wind, the space and not many competitors, it makes sense for the state to not subsidize production and make sure energy users in places like Washington and Oregon pay for the impacts on Wyoming.
Currently, Wyoming has about 8,400 megawatts worth of projects being constructed, developed or in the early planning stages across the state. Those projects represent about four times the amount of wind energy currently being produced in Wyoming.
Right now, the cost of producing wind energy in Wyoming is more expensive than its western competitors, even with Wyoming’s lack of an income tax. But Wyoming is just behind the other three states by a few percentage points, which isn’t dissuading developers from entering the market here.
Because of the ability for local governments to help bond the cost of construction of projects, wind energy projects in New Mexico are 10% cheaper than Wyoming. Colorado and Montana are only 3% cheaper, meaning developers aren’t being driven away from Wyoming in droves.
While raising the per-megawatt-hour cost could bring in a substantial amount of tax revenue on those new projects, it also could drive away future investments, said Robert Godby, director of the Center for Energy Economics and Public Policy.
Increasing the fixed cost by $4 a megawatt hour would drive up the cost of doing business in Wyoming by 10%, and could result in development money flowing into those other states, Godby said.
“We should expect some effect on the decision to develop. If your raise taxes too much, it’s exactly what we expect – we expect some developers to go to jurisdictions where they can effectively lower their cost,” Godby said during the meeting. “If you develop in a lower-priced jurisdiction, you’re more likely to be able to sell that power.”
Godby said the study found that by eliminating sales tax on wind projects and the current production tax and replacing it with a 6% royalty charge on all energy sold, Wyoming could lower the cost of development and increase by about 8% the amount of revenue collected off of a megawatt-hour of energy generated.
Committee co-chairman Sen. Cale Case, R-Lander, has been a major proponent of an increase in the wind tax. While he was interested in the potential of changes to the state’s wind tax structure, he didn’t think Wyoming needed to worry about its competitiveness with its western neighbors.
Considering Wyoming’s placement geographically, Case said developers looking to feed Washington and Oregon with renewable energy wouldn’t be able to stay out of the state, despite a higher cost of development.
While the Revenue Committee didn’t consider any draft legislation Monday, the discussion could eventually lead to a committee bill for sponsorship during the 2020 legislative session.