By Philip Baron, MBA
Decreased mineral tax revenue has led Wyoming lawmakers to consider raising the tax on wind energy from $1 a Megawatt Hour to $5 a Megawatt Hour. Wyoming is the only state that has a true "Wind Tax" of $1 per kilowatt-hour. When compared to other wind producing states in the West, Wyoming has had a lack of wind development since 2010. This is due to a low demand for power from the small resident population of Wyoming and the lack of transmission line infrastructure to sell the power to other states. Most of the power that Wyoming generates now from wind is sold to other states.
Researchers at the University of Wyoming are concerned that raising the wind tax in Wyoming would make the state less attractive to wind developers. In a research paper published in The Electricity Journal, Robert Godby et al.said, "The state does need to consider and attempt to determine the likelihood such policy changes could result in project cancellation before implementing such decisions to avoid potentially very significant unintended impacts." There are costs associated with the benefits of increasing the wind tax. Increased cost of development in Wyoming could push developers to build in lower-cost states that also have ideal wind conditions, such as Montana or New Mexico.
Some businesses have a lower profit margin and are hurt more as the result of a tax increase. An additional tax on wind energy increases the operating costs of wind turbines, and it could make it too costly for wind developers to consider building in Wyoming. There is a tradeoff between the amount of tax revenue that Wyoming could generate from increasing the "Wind Tax", and the additional economic activity that would happen in the state as the result of lower, restructured taxes on wind.
In 2019 New Mexico had the lowest cost of western states to develop wind energy. In second and third place were Montana and Colorado respectively. Wyoming came in fourth, with costs that were 10% higher than New Mexico. An increase in Wyoming's wind tax from $1 to $5 would make wind development cost 21% higher than New Mexico. This would be the highest tax burden in the western states.
In another report for the Center for Energy Economics and Public Policy at the University of Wyoming, Benjamin Cook and Robert Godby write that Wyoming should reduce the disincentives to wind development in the state. They suggest eliminating the sales and production tax on wind and replacing them with a gross receipts tax on revenues from wind generation. This could lower the cost of development by 1.5%, while keeping revenues the same or even increasing tax revenue in wind energy.
Taxes are a significant cost of doing business in any state. They are just one of the many factors considered when developing wind energy. Wyoming does not need to raise its taxes on wind, and it needs to restructure the taxes so that the cost of development stays competitive with other states.