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Study Says Bigger Renewables Not Always Better

By Maria Surma Manka • August 20, 2007

Photo Source: National Renewable Energy Laboratory

A thought-provoking new study by the Institute for Local Self-Reliance (ILSR) has found that locally-owned renewable energy projects generally hold more local economic benefits than large-scale ones.

The “Economies and Diseconomies of Scale” concludes that bigger is not always better. The Minneapolis-based ILSR analyzed the costs and return of wind power and ethanol, both major renewable energy sources in the Upper Midwest. While they are both less expensive to produce on a large scale, the costs of having to transmit the energy across long distances can negate those savings. That, coupled with the fact that large projects are generally owned by corporate or out-of-state interests, makes smaller, local projects more beneficial for the immediate community.

ILSR recommends that states follow Minnesota’s example, where law provides a favorable tariff for locally owned renewable energy projects, requires 51 percent ownership by Minnesota residents, and designates 51 percent of financial benefits to local owners. In addition, the federal production tax credit (PTC) for wind should be changed to allow it to be taken against ordinary income rather than only applying to passive income (such as from rent). This would allow greater access to the tax credit and open it up to more individuals to be renewable energy investors.

A carbon-constrained world presents us with many options for change. Do we want to create – and is it realistic – a totally new energy system, one that is locally owned, producing energy for the local area, with the majority of economic benefits going to the local community? Or does the urgency of global warming demand as much renewable energy as possible, as fast as possible, owned by whomever possible?

Institute for Local Self-Reliance
Minneapolis Star Tribune

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2 Responses to “Study Says Bigger Renewables Not Always Better”

1. John Farrell Says:
   August 23rd, 2007 at 6:54 pm

   Dear Maria,

   You wrote:

   Do we want to create – and is it realistic – a totally new energy system, one that is locally owned, producing energy for the local area, with the majority of economic benefits going to the local community? Or does the urgency of global warming demand as much renewable energy as possible, as fast as possible, owned by whomever possible?

   I think this is a bit of a false dichotomy.

   1. Local ownership is not the only appropriate manner of renewable energy development. However, since local ownership of wind or ethanol combines energy policy with rural development, it’s very efficient public policy.
   2. Local ownership may be more sustainable than absentee ownership. Many large investors are looking for a quick return on their capital, and will sell in a few years. This has happened with ethanol: last year farmer-owned cooperatives had numerous buyout offers from Wall Street bankers seeing gold. Less than 10% took the offer because these plants are a natural hedge against the highly variable farming business. Local owners are committed to their energy production long-term.

   In short, we can do both.

   Fighting global warming takes all the resources we can muster, and leveraging the wind and financial resources in rural areas via local ownership helps maximize our potential.

   -JF

2. Maria Surma Manka Says:
   August 23rd, 2007 at 10:47 pm

   Thanks for your comment, John, and good point. Marrying large renewable energy projects with smaller, locally owned projects that bring in revenue to rural areas is the best of both worlds I believe. This is an exciting time - Deliberate planning and a thoughtful process can create a whole new energy economy.

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