Wind Energy Taxation – Minnesota

As part of the 2002 Omnibus Tax Bill(Laws of Minnesota 2002, Chapter 377) the legislature has changed the way wind energy projects are taxed. From now on, wind energy projects in Minnesota will be exempt from property taxes and instead will be required to pay local taxing districts a direct payment based on the electricity production from the wind turbines. The tax is on a sliding-scale based on the size of the wind energy project.

Summary of the Minnesota Wind Energy Production Tax Provisions

Imposes a production tax on the production of electricity from wind energy conversion systems that were installed after January 1, 1991. Rates of tax are established based on the size of the wind energy conversion system.

  • Large Scale Wind Energy Conversion System – nameplate capacity of more than 12 megawatts. Payment of 0.12 cents per kilowatt hour.
  • Medium Scale Wind Energy Conversion System – nameplate capacity of between two and 12 megawatts. Payment of 0.036 cents per kilowatt hour.
  • Small scale Wind Energy Conversion System – nameplate capacity of between two megawatts and more than 250 kilowatts. Payment of 0.012 cents per kilowatt hour.
  • NOTE: Small Scale Wind Energy Conversion systems with a capacity of 250 kilowatts or less and small scale systems owned by a political subdivision would be exempt from the production tax.

The production payment taxes would be paid to the county at the time and in the manner in which personal property taxes would be paid, and the revenues would be distributed among the taxing jurisdictions in proportion to their tax rates.

For wind project systems that were installed or contracted for before January 1, 2002, the owners are allowed to negotiate directly with the counties and local governments a payment in lieu of wind energy production taxes.

Minnesota’s system of energy taxation could be improved by stopping what appears to be the annual adoption of property tax exemptions for most new proposed power projects. For example, in the 2002 Tax bill containing the wind energy production payment, other provisions give complete personal property tax exemptions to a natural gas turbine electric generation facility of between 43 and 46 megawatts in Waseca County, a simple-cycle natural gas combustion-turbine electric generation facility of more than 40 megawatts but less than 50 megawatts in Beltrami County, a 3.2 megawatt run-of-the-river hydroelectric generation by Crown Hydro in Minneapolis, a biomass power facility less than 25 MW in Shakopee, and for at least a 500 MW electric generation facility sited on an energy park that has direct rail access to a Great Lakes port (and can be up to 1000 MW).

Th idea of placing a production-based payment on energy resources in place of property taxes was originally proposed by the Institute for Local Self-Reliance in a 1995 report, Taxing Wind Energy in Minnesota. The report concluded that a fair rate of production payment would be 0.3 cents per kilowatt-hour based on a 25 percent capacity factor. This system would have provided significant revenues to local communities and also provided a built in incentive for wind projects to be operated efficiently. Since the release of ILSR’s report, the taxing of wind energy in Minnesota has gone through many iterations. The 2002 changes replace a complicated system of property valuation that increased the amount of wind energy property subject to taxation based on the size of the wind energy project.

The New Rules Project likes the new system and likes Minnesota’s efforts to keep in place policies that encourage small-scale distributed wind projects. However, the utility tax policy in Minnesota is not comprehensive in that they continue to provide fossil fuel power projects with tax exemptions.