SD hopeful tax changes will boost wind industry

SIOUX FALLS, S.D. (AP) -- South Dakota's new economic development incentives are making the state more competitive with neighbors on large wind projects, but other industry challenges are keeping South Dakota from tapping its potential.

Though it's the nation's fifth-windiest state, South Dakota produces just 784 megawatts in wind energy — a number more than doubled by North Dakota, nearly quadrupled by Minnesota and surpassed more than six-fold by Iowa. But officials hope a change in the state's tax structure will boost the state's wind industry.

A bipartisan bill passed by the Legislature and signed by Gov. Dennis Daugaard earlier this year gave the state's economic board the ability to refund part or all of the sales tax to developers on projects over $20 million, said Pat Costello, commissioner of the Governor's Office of Economic Development.

Previously, large wind farm projects in the state had been subject to sales tax, a contractor's excise tax and a production tax.

"With the tax structure that we had on wind we were adding millions of dollars to the cost of their projects," Costello said. "This gets us a lot closer to where they're at in their opportunities with other states."

The law change at least has put South Dakota back on the map for wind development, said Ron Rebenitsch, executive director of the South Dakota Wind Energy Association.

"It removed one of the major barriers," he said. "There are others that remain, but we're working on those and there's still great potential."

Wind farm developers still need to find customers for the energy they'll produce, and they need to make sure they have access to transmission lines to get the power to their customers, Rebenitsch said.

"Our big markets are to the east — Minneapolis, Chicago — and we've got to get to the markets," he said. "It's a little like having grain to sell and no farm-to-market road."

The transmission system out of South Dakota is being updated, but it's a slow process.

Costello said four major transmission line projects are in the works, but three of them aren't slated to go online until at least 2017. And South Dakota, which produces more than 20 percent of its electricity from wind, doesn't have sufficient demand to tap its potential.

"We've got tremendous resources but not a lot of load, not a lot of demand," Costello said. "Ideally, in the wind industry you'd like to have your resources right next to your demand to cut down on transmission costs."

Another factor hampering wind development, advocates say, is uncertainty each year about the production tax credit, a federal incentive that helps offset the cost of electricity production during a wind farm's first 10 years of operation.

The credit, which provides a 2.2-cent tax break for every kilowatt-hour of electricity produced from large-scale wind farms, traditionally is given a one-year extension by Congress as it's set to expire. A three- to five-year commitment to the program would give wind developers confidence to move forward on projects, Rebenitsch said.

"You need it long term so you can plan it," he said. "It takes two to three years to develop a wind project."

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