Can Solar Catch Up to Wind in South Dakota?

In Brief

CEFF spoke to South Dakota Public Utilities Commission Vice Chairman Chris Nelson about the status of clean energy in the state.

"What's happening currently is a real push by developers and utility companies to develop a lot of new projects," Nelson said. "The thing that's driving all of that is the impending expiration of the production tax credit."

"After the tax credit expires, we’re not going to see as much wind development as we are currently seeing. And frankly I think we're going to see a shift, maybe, more towards solar development rather than wind," Nelson said.

Chris Nelson headshot

Chris Nelson

South Dakota is a national leader in the proportion of its electricity mix coming from wind energy, with wind generating 24% of the state’s electricity in 2018, according to the Energy Information Administration. The state’s incentives for renewables are limited, though. Most utilities have met a voluntary 10% renewable portfolio target; the state also offers some property tax incentives for renewable technologies.

CEFF spoke to South Dakota Public Utilities Commission Vice Chairman Chris Nelson about the status of clean energy in the state. He contends that the rise of wind in the state is traceable to federal incentives and a business-friendly policy landscape, and argues that solar may be better positioned for future growth. This transcript has been lightly edited.

CEFF: What are the biggest successes and challenges for wind energy in South Dakota at the moment?

Nelson: I'll talk just a little bit about where South Dakota is currently and the transition that’s happening. We've got about a gigawatt of wind capacity right now, and most of that was installed probably around eight to 10 years ago. That generation, as a percentage of the total generation in South Dakota, typically ranks us maybe second-, third- or fourth-highest in the nation for percentage of electricity generated from wind.

What's happening currently is a real push by developers and utility companies to develop a lot of new projects. The thing that's driving all of that is the impending expiration of the production tax credit — that combined with a real emphasis from both utilities and corporate customers to add wind to their portfolio. And so if all of the projects that have either gone through permitting or are currently in permitting or being talked about — if all of those come to fruition — we're going to quadruple the amount of wind energy in South Dakota in about a two-year period. So it's just a tremendous rush right now to get these projects done.

From a corporate perspective this is certainly driven by consumer interest in renewable energy. From a utility perspective that is also true to some extent, but utilities are also certainly looking at it from an economic perspective. When you've got the production tax credit incentive, that makes wind energy pretty cheap, so they're simply looking at it as ‘hey, we can add a whole lot of very cheap electric production with that production tax credit paying about half the freight.’ 

After the tax credit expires, we’re not going to see as much wind development as we are currently seeing. And frankly I think we're going to see a shift, maybe, more towards solar development rather than wind.

That's what I foresee happening — once we get past 2020 I think you're going to see a real backing off of the wind development and a focus on solar for a couple of reasons. 

We’re starting to see some opposition to new wind projects from folks in local areas. I'd say five years ago everyone loved wind, today not everyone loves wind. There is beginning to be some of that significant local opposition so I think that's going to drive developers to look at other options. 

Secondly, we all know the costs of solar production continue to come down. I think utility companies are looking at things that will broaden their portfolio so they're not exclusively developing wind, and that they've got some other options. Obviously solar has a different generation curve than wind, if you will, so far as when the electricity is generated. For that variability utilities are going to start to look more at solar.

CEFF: Are there any state-level factors that have been particularly influential in promoting or hindering the growth of wind energy?

Nelson: There isn't any one silver bullet that I would put my finger on. I see this crescendo that we're going through right now simply being a combination of those things I’ve mentioned.

If I were to make one overall comment: South Dakota is known for being business-friendly, so as developers come here and want to work, we make sure that we are protecting the areas that these facilities are going into. By the same token, state statute is written such that those companies know that they can come here and have a reasonable chance of doing business. 

South Dakota has always been that way. It doesn't matter if it's wind or any other type of business — we have a fairly low regulatory burden in the state, we don’t have a state income tax, and the state is looking for new businesses to come here. That's an overall philosophy with how the state is run. 

From a corporate perspective this is certainly driven by consumer interest in renewable energy. From a utility perspective that is also true to some extent, but utilities are also certainly looking at it from an economic perspective.

CEFF: Can you summarize the status of the solar market in the state? What are the most important current successes and challenges?

Nelson: We're really on the front end of starting to develop solar. When you look at the southwestern part of the country, they've obviously been in solar for a long time. Our first utility-scale solar project went in just two years ago, and that was just a one-megawatt (MW) project. 

We've got another 110 MW project that is going through the permitting process now. We can't speculate on whether they'll get their permit, but that’s really the first larger project. I don't see that being the end — I think there will be others, particularly once to push towards wind wanes, folks are going to take another harder look at some solar projects. 

As far as residential solar, there's really very little. The folks that are doing it, they are folks that are doing it not necessarily for the economics of it, but because they want to experiment with it, or they truly believe that that’s how they want to power their house. There’s a little bit of that going on. One of the things that maybe hinders that residential-type development a little bit is the fact that our electricity rates are relatively low compared to elsewhere in the country. It makes it a little bit tougher actually pay for a residential or business project. 

CEFF: What about the role of state policy for solar? Are there any policies that incentivize or stand in the way of its use at any scale?

Nelson: There really isn't, other than in the last legislative session, there was a bill that was passed to remove some of the regulatory burden for permitting projects over 100 MW. There were some provisions in existing law that really didn’t apply to solar projects, and yet all of that regulatory burden was in place just because of the way the law was written. The Public Utilities Commission did introduce a bill and it was passed and signed to roll back some of the regulatory burden, so that should make permitting those facilities a little easier in the future. 

One other interesting development: One of our investor-owned utilities, Black Hills Energy, has a relatively new program. They saw some of their larger commercial customers starting to talk about doing their own solar facilities, maybe their own wind facilities. Black Hills said ‘you know, perhaps we could just do a large utility-scale project and let each of you customers buy into that project.’ 

The Public Utilities Commission has given them permission to do that, so they're going to build a 40 MW wind facility. It's going to be located in Wyoming, but it will serve Black Hills commercial customers both in Wyoming and South Dakota. They can essentially sign up for their share of that wind project for the next 25 years and lock in what their electric rate will be over that time. What that does is allows those customers to say ‘yeah, we're getting our electricity from renewable wind’ and also lock in their price. On the side of the utility company, they're still involved in the project and they haven't lost that business. Rather, they’re partnering with what the customer wants to do and I just think that's a really unique thing that's being done and maybe we'll see some more of that.

CEFF: What is the current state of the energy-efficiency market in South Dakota?

Nelson: Where the Public Utilities Commission intersects with that is that most of our investor-owned utilities have energy-efficiency programs where there is a surcharge on every kilowatt-hour that they sell that can be drawn on by their customers for various energy-efficiency projects. The commission annually approves the program that utility companies operate and authorizes the amount of dollars per kilowatt-hour customers are going to have to pay to fund it.

Compared to energy-efficiency programs that you might see in other states, I think you would call South Dakota's program pretty modest. We are very insistent that whatever mechanisms that are in the program, they have to be cost-effective. We're not going to take ratepayer money and just pay for any kind of efficiency project just because somebody happens to think it's a good idea. The numbers have to show that it's actually fiscally beneficial.

Several years ago, lots of people were asking me what we needed to do to incentivize wind, what we needed to do to incentivize more solar. My answer always was — and remains today — when it becomes economical it will happen.

We're pretty harsh on that as a commission, and so that means the ratepayers get the very best bang-for-the-buck. They put a relatively small amount of money into the pot, but the things that are done with that money really pay benefits for everybody.

Common examples of how those funds are spent would be rebates for high-efficiency furnaces, rebates for energy-efficient appliances, lighting programs incentivizing moving towards LED lighting, geothermal heat pumps, those kinds of things. A lot of that is directed at residential customers. Some of the utility companies also allow businesses to come up with custom programs.

CEFF: What are the most important decisions stakeholders can make to continue to promote the growth of energy-efficiency and renewable energy programs in South Dakota?

Nelson: It all comes down to sound economics, and that’s something I talk about frequently when people ask that kind of question. Several years ago, lots of people were asking me what we needed to do to incentivize wind, what we needed to do to incentivize more solar. My answer always was — and remains today — when it becomes economical it will happen. And that's what we're seeing today. Obviously we’re seeing it in wind in a big way, and we’re just on the front end of seeing the same thing in solar. Because it's becoming economical, it's going to take care of itself. We want to make sure we don't have any unnecessary regulatory roadblocks, but beyond that really the market is going to take care of those things. 

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