Wind Energy Projects Move Ahead in Illinois, But Face Headwinds Wind Energy Projects Move Ahead in Illinois, But Face Headwinds

Wind Energy Projects Move Ahead in Illinois, But Face Headwinds

The production of electricity from wind turbines is growing nationally and in Illinois. In addition to providing an alternative source of energy, the wind energy industry produces other economic benefits. Tax credits and other governmental assistance play a significant role in driving this business, and uncertainty about the continuation of governmental support has generated some concern about the prospects for its growth.
Wind turbines installed in the U.S. have a current capacity exceeding 45,000 megawatts, according to the American Wind Energy Association. That capacity ranks second in the world to China. Illinois is among the leading states in wind energy production with 2,743 megawatts currently on line, according to the Illinois Wind Energy Association. That association reports that Illinois added capacity of 692 megawatts in 2011, second only to California, and that additional capacity of over 600 megawatts is expected to come on line in 2012. It has been estimated that the current Illinois wind energy capacity could provide electricity for 1,000,000 Illinois homes.
The wind energy industry brings other benefits to Illinois. Project developers make payments to landowners and pay property taxes on the land used for turbines. Each project generates temporary construction jobs and some permanent maintenance jobs. Chicago is home to several major producers and developers of wind energy, including Invenergy, LLC, Midwest Wind Energy and U.S. Mainstream Renewable Power. Other Illinois companies, such as Broadwind Energy in Naperville, Trinity Structural Towers in Clinton and Winenergy Drive Systems in Elgin, manufacture wind turbines and components. Developing and financing a wind energy project is a complex process, involving a matrix of regulatory requirements and legal relationships. A considerable commitment of time and resources is required to commence a project. Developers must enter into easements and leases with landowners, power purchase agreements with distributors of electricity, interconnection agreements with utilities and equipment purchase agreements with manufacturers. Compliance with governmental regulation is also a  significant factor. Federal agencies, such as the Federal Energy Regulatory Commission, the Army Corp of Engineers, the Fish and Wildlife Service and the Federal Aviation Administration are part of the regulatory environment and permits and approvals from these agencies may be necessary. On the state and local level, a variety of approvals and permits may be required. Many counties have adopted wind energy ordinances that govern matters such as the size of wind turbines, the use of roads for transporting turbines, the distance turbines must be located from residences, shadow flicker affects, noise, performance bonds and the decommissioning of turbines if the project is terminated.
Financing sources require verification of all required approvals and study cost data and financial projections to insure repayment of loans made to finance the projects. Lenders will usually require collateral in the form of mortgages on the real property interests held by the project developer and perhaps liens on other assets of the developer. Financing terms, including interest rate, term of the loan, reporting requirements and covenants regarding performance of the project are carefully negotiated and can be quite complex.
The cost and risk of developing a wind energy project is offset in part by governmental support. Federal and state tax credits are a significant driver in the development of wind energy. The Federal Renewable Energy Tax Credit pays 2.2 cents per kilowatt hour of electricity produced by wind energy. In many projects, a financial investor will acquire the tax credits as part of the overall financing plan. Illinois offers several grant and tax incentive programs for wind energy projects. Many projects are included in enterprise zones to obtain tax benefits available to businesses located in those areas. Illinois has also established a Renewable Portfolio Standard for electric utilities that mandates that 25 percent of electric energy come from alternative sources by 2025 and that 75 percent of that be from wind power. Recently, Illinois joined a partnership with four other states to develop a plan for speeding up approval of off-shore wind energy projects in the Great Lakes.
The governmental support that has been critical to the emergence of the wind energy business cannot be assumed to be permanent. The Federal Renewable Energy Tax Credit is scheduled to expire at the end of 2012. Extension of the credit was recently rejected by the Senate and its future is the subject of debate in Washington. It is not clear whether the failure to extend the credit would seriously impair wind energy projects in Illinois and around the country, but the industry will need to enter a new stage in its development to be less reliant on government support.
For more information about wind energy and economic benefits, contact Ice Miller partner David Hight at (630) 955-5821, or at 2300 Cabot Drive, Suite 455, Lisle, IL 60532.
This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.
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