Can Wyo get out of its own way in courting renewables?

Wyoming wind energy proponents dodged a bullet last week when a legislative committee shot down yet another proposal to increase taxes on the industry.

But some are worried that having a tax debate about renewable energy year after year is taking its toll on wind projects and harming the industry’s chances of capitalizing on a robust 2020. It may not matter if any of these repeated broadsides actually land; the uncertainty alone can scare off investors and eliminate the state’s chance to thrive.

I don’t think it’s necessarily a case of direct assault on wind power in Wyoming. It’s more like a steady drumbeat of opposition led by two groups with divergent interests — one that genuinely wants equity in taxes on renewable resources and fossil fuels, and a second simply unwilling or unable to accept the end of coal’s glory days.

The first scenario leads to a fundamental problem, because tax parity can’t exist for industries that use such different resources to generate electricity. How does a state assign equal values to a finite product like coal when it’s ripped from the ground, and an infinite one like wind that must be captured as it blows across our landscape for it to have any value?

The traditional apples-to-apples comparisons don’t exist for wind and coal. The challenge for legislators, then, is to create policies that will allow an upstart industry like wind to compete without being taxed out of existence.

For lawmakers intent on propping up the coal industry at all costs, it doesn’t matter whether the competition comes from wind, solar, battery storage or some Earth-saving, peace-love-and-harmony-inducing miracle energy technology from outer space. If coal doesn’t win, these legislators think everyone in the state loses. They are true believers, frustrated that an industry that has brought so much revenue to Wyoming is the victim of what they view as environmental political correctness.

Even so, by a vote of 7-2 last Thursday, the House Revenue Committee wisely killed House Bill 108 – Wind energy production tax. The measure would have doubled the wind tax — adding $1 per megawatt hour to the $1 per MW hour that has been enforced since the state began taxing wind generation in 2009.

That initial wind tax has worried me since it was enacted, because of its potential to slow growth in a renewable energy industry. Wyoming and the world need that industry if we’re going to have a prayer of fighting climate change by ending carbon emissions. That’s the big picture, and it packs just as much of a punch locally as it does globally.

HB 108 would have inflicted further damage on the wind industry by ending the three-year tax exemption on power generation once a project goes online now in effect.

Initially, the minerals industry denigrated wind and solar power as inconsistent and expensive. Renewables could never overtake coal, oil and natural gas, they claimed. And as renewable resources became cheaper and gained a larger share of the energy market, a backlash grew.

Matt Micheli, a Cheyenne attorney and former chair of the Wyoming Republican Party, has street cred on this issue because he’s represented both coal and wind interests. He testified against HB 108, in part because Micheli realizes that raising taxes on any industry does not guarantee more revenue to state or local governments.

There’s a good reason why Wyoming mines more than 10 times the amount of coal than Montana does in the Powder River Basin, Micheli told the Revenue Committee. Unlike its northern neighbor, he said, the Equality State kept coal taxes low enough to encourage investment in the industry so it could flourish.

In 2010, Micheli recalled, Wyoming had 30 industrial wind farms on the drawing boards. Zero of those were built after the wind generation tax went into effect, which is precisely what the industry warned would happen.

After losing the momentum it had gained prior to the wind tax, the industry struggled until last year, when Wyoming’s online wind capacity statewide increased by nearly 1,000 megawatts. That is second only to Texas in new construction.

The wind industry’s gains coincided with the decline of both coal production and state tax revenues. Some coal companies declared bankruptcies due to market forces, including cheaper natural gas and renewables. The COVID-19 pandemic also led to lower coal usage and mining job losses.

“Now we have $10 billion worth of wind projects that are once again in the pipeline, ready to come to this state,” Micheli said. “We’re hearing [legislators make] the same arguments from more than a decade ago — we’ll get more revenue if we put another dollar [wind generation tax] on top of these contracts.”

Randy Fitzpatrick of NextEra Energy Resources, the world’s largest developer of wind and solar projects, told the panel that in the highly competitive world of renewable energy, the difference between winning or losing a contract often comes down to pennies per megawatt hour.

The tax structures in different states are plugged into companies’ bid formulas, he said. Wyoming lost aNextEra project to Colorado over a mere 40 cents per MW hour, Fitzpatrick said. Doubling the current $1 per MW hour tax means Wyoming wind companies might as well just close up shop.

Wyoming is the only state in the nation that requires the wind industry to pay three forms of taxes, Micheli noted: on electricity generation, sales and property. If all of the state’s wind projects come to fruition, he said, it would mean almost $1.5 billion in state tax revenue over the next 20 years.

But a 100% increase in the wind generation tax that renders Wyoming unappealing would result in no new tax revenue, period.

“If we force these projects to other states, where is that money going to come from?” Micheli asked. “I don’t want to increase sales taxes and property taxes. I don’t want an income tax.”

Some proponents of higher wind taxes are tired of the extractive industries’ claim that if Wyoming increases severance taxes, wind projects will pull up stakes and leave the state.

But these critics know they’ve been lied to for years, because the state has an abundance of fossil fuels. If corporations want access to these riches, there are few other places they can go to get them.

But while Wyoming also has exceptional wind resources, it’s not the only game in town. 

Lawmakers should realize there’s nothing to gain by punishing the wind industry simply because the tax realities it faces are so markedly different than coal’s situation.

Wyoming Business Alliance President Cindy DeLancey also testified against HB 108. “This is where our money is going to come from,” she said of wind energy. “We’re at a point where we are thinking about our revenue challenges, how we broaden our tax base … [Instead of] adding additional barriers to produce non-mineral revenue, we need to be opening our doors.”

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Indeed, Wyoming’s major energy competitors, including Colorado and Utah, have paved the way for their success by offering property tax abatements and sales tax exemptions for wind projects. 

Neither wind nor solar projects are likely to ever fully compensate for the loss of tax revenues earned by coal, oil and gas at their peak, but renewable energy represents one of the best ways for Wyoming to reform its tax base and diversify the state’s economy. 

It won’t take long for lenders and utilities to get jittery about Wyoming’s lack of commitment to its renewable energy sector and shut off the money tap. Wind companies have spent the last decade trying to overcome the negative effects of the state’s initial electricity generation tax, while successfully pushing back against some legislative efforts to raise the tax up to four times its current rate. 

Micheli closed his testimony by asking if Wyoming legislators will be able to resist making the kind of harmful tax decisions that have hampered the growth of the state’s wind industry until now.

Their vote proved they are able. That’s good news, but the state is lagging. Voters should ask why Wyoming is still having this conversation in 2021.