Wind Energy Fees As A Source of State Revenues?
November 29, 2022
By Christelle Khalaf, Associate Director of the Government Finance Research Center at the University of Illinois Chicago
Currently, all revenue collected from leasing public land from wind and solar projects is retained by the federal government. But this practice is not the same as for a number of other energy-producing activities. In fact, half of the revenue from fees associated with coal, geothermal, natural gas, and oil operations on public land is transferred to the states (and counties) where these activities occur.
In recent years, there have been efforts to pass legislation to alter the current state of affairs, which would allow the states to become more significant beneficiaries of the revenues from wind and solar projects. As time passes and these alternative sources of energy become increasingly common, this has significant ramifications.
A little background: The Federal Land Policy and Management Act of 1976 asserts that the United States (U.S.) shall receive “fair market value” for the use of public land and their resources unless otherwise provided for by statute. Among other examples, this applies to the use of public land for extractive purposes such as coal mining, as well as leasing for renewable energy facilities (e.g., wind projects).
A major change in the way these revenues are allocated is contained in the Public Land Renewable Energy Development Act of 2021, which was introduced in the House of Representatives in May of 2021. It proposed federal revenue sharing of wind and solar energy related fees, in line with the current arrangement for mineral fees. The Act postulated that instead of the U.S. Treasury retaining the entirety of the revenue collected, it would only retain 25%, and then deposit 25% into a “Renewable Energy Resource Conservation Fund,” which would be established to restore and protect wildlife affected by the land disruption. The state where the project development occurs would also receive 25%. The remaining 25% would be paid to the county (or counties) where a project is operating.
If this bill becomes law, wind and solar projects on federal land will provide significant additional fiscal revenue to states and counties. To illustrate, I calculated hypothetical returns from federal revenue sharing of wind energy fees across 11 states (i.e., Arizona, California. Colorado, Idaho, Montana, Nevada, New Mexico, Oregon, Utah, Washington, and Wyoming).
These states contain public spaces managed by the Bureau of Land Management (BLM) with developable areas containing abundant wind resources. Focusing solely on lands with a moderate level of siting considerations, as opposed to those with a high level of siting considerations, I calculated the acreage rent associated with the leasing of 35 million acres for wind energy projects, as identified in the West‐Wide Wind Mapping Project. Examples of areas that are labeled “moderate level of siting considerations lands” are ones that might include habitat areas for animals not deemed endangered (for example, the bald eagle, which was taken off the endangered species list in 2007), or Department of Defense restricted airspace and military training routes.
Next, I calculated the corresponding installed capacity fee. Assuming that each wind turbine which can produce two megawatts (MW) of power (or the equivalent amount of power required to run twenty automobiles) requires 120 acres of land, these lands with developable wind resources and a moderate level of siting considerations can site 588,598 MW – or 588.6 gigawatts (GW) – of wind. This assumption is based on the current land footprint of wind projects that have been permitted on public land as of October 2021, as provided by the BLM. The figure, at the bottom of the page, illustrates the potential yearly fiscal revenue (sum of acreage rent and installed capacity fee), expressed in 2022 dollars, accruing to states and counties if federal revenue sharing was implemented.
Over the lifespan of a wind energy project, usually noted by the U.S. Energy Information Administration to range from 20 to 25 years, fiscal revenue accruing to Western states (and counties) would annually range from about $5M in Washington to over $119M in Wyoming. Hovering over a state in the figure will display the corresponding estimate. These sizeable potential fiscal impacts of wind and solar energy projects could shift the narrative in rural communities where the acceptance of projects is sometimes hotly debated.
Selective revenue sharing of fees from extractive industries, but not wind and solar projects, creates a perverse incentive to which communities and local policymakers respond by being more supportive of industries that fund their local public services. Therefore, there may be a need to align federal land-related incentives with the Federal Government’s stated goal of deploying clean energy across the country. While public land is certainly not the only suitable option for wind and solar energy development, it can play a significant role in attaining the current administration’s goal of 80% clean energy by 2030 and 100% by 2035, which, according to analysis, would require 630 GW of wind and 450 GW of solar.
The contents of this blog post reflect those of the author, and not necessarily those of the GFRC.