Biomass Feasibility Project Final Report - Xcel Energy

Chapter VII: Government Policies, Incentives, and Financing
The story of bio-power policy in Minnesota begins with the so-called “Prairie Island” legislation of
1994. It ordered Xcel Energy to create specific amounts of energy from a list of renewable fuels,
including wind, biomass, solar, and geothermal, in return for permission to store nuclear waste on
land at its Prairie Island plant. Unfortunately, because the law was so prescriptive, rigid, and
overly ambitious (it demanded, for example, that biomass fuel come from dedicated “closed
loop” energy crops that didn’t exist then, and still don’t), not a single biomass project could be
built to meet it. By dint of many patchwork amendments, the biomass mandate finally was
fulfilled thirteen long years later.
Minnesota has taken a huge step forward in promoting renewable electricity with the
Renewable Energy Standards law of 2007. It requires utilities operating in the state to make
gradual additions to their portfolios of renewable energy until 2025, at which point renewables
will make up 25% of their total sales. Xcel Energy is held to a higher standard because of preexisting
renewable energy mandated by the Prairie Island Agreement. Xcel Energy’s
requirement is to provide 30% of retail sales through renewable resources by 2020.
The utilities are expecting to meet the Standards mostly with wind power. Xcel Energy has even
announced a new policy of developing its own wind farms in addition to its established practice
of signing Power Purchase Agreements (PPAs) with independent developers. Wind farms may
be easier to develop than biomass plants, but a world-wide shortage of wind turbines is
complicating matters. All utilities, including Xcel Energy, probably will be interested in
purchasing power from biomass developers with well-conceived plans and good track records.
Government incentives. The most lucrative incentive offered by the State of Minnesota is called
JOBZ. It exempts local property, state corporate, and sales taxes, including taxes on
construction materials, until 2016. Since the statute excludes only retail from eligible projects, a
power plant would be eligible. A project that expensive would save millions of dollars under
JOBZ if the amendment is adopted.
A federal program, New Markets Tax Credits, can help developers raise equity capital for
projects because it offers investors a return 39% higher than the face value of dividends. A
power plant with a guaranteed income in the form of a PPA could be attractive to investors.
In 2007 the legislature extended Minnesota’s Community-Based Energy Development (C-BED)
legislation, which formerly applied only to wind projects, to any type of renewable energy
project. This should be a boon to biomass projects because their relatively modest scale and
dependence on local biomass resources are appropriate to community projects.
The NextGen act that also emerged from this energy-intensive session provides funding for
renewable energy projects.
Beyond those programs are a multitude of smaller programs, some aimed at businesses in
general and some at energy projects in particular. A number of these might be stitched
together to fill financing gaps. If a project involves development of a new technology, the
federal Small Business Innovation and Research (SBIR) program housed at the Minnesota
Department of Employment and Economic Development might provide a grant.
Identifying Effective Biomass Strategies:
Quantifying Minnesota’s Resources and Evaluating Future Opportunities
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