The next twenty years could see up to US $1 trillion of investment in renewable energy in rural areas. Wind and solar power will be harnessed; and non-food crops will provide the fuel for a new generation of biofuels. But will rural areas reap the benefits of this massive investment or will communities merely observe the remaking of rural economies?The conventional wisdom is that renewable resources should be developed en masse, because huge wind farms, large concentrating solar plants and big biorefineries drive down the cost of harnessing renewable power. Federal energy policy is premised on this hypothesis, but the evidence suggests otherwise. The benefits of building big are small; the benefits of building small, on the other hand, are quite large. The key to sustainable rural economic development and the renewable energy future of America is a series of modest sized, locally owned wind farms, solar plants and biofuel refineries.
For many years, rural economies have depended upon the land: agriculture and forestry, minerals and fossil fuel resources, beautiful landscapes. But not everyone can farm. Minerals and fossil fuels vary widely in price and are finite. Beautiful landscapes may remain pristine, but tourism is a fickle business.
Renewable energy development may be the catalyst for changing the rural economy. The boom in corn ethanol and soy biodiesel has provided many farmers with a market price above the cost of production for the first time in a generation. Large wind projects are providing steady lease payments to farmers who surrender a small portion of their land to the turbines.
These benefits are sustainable because the resource is limitless. Wind will blow no matter how many turbines harness its energy and the sun will shine on rooftops and fields whether they’re bare or lined with solar panels. Simply put, the rural renewable resource is vast: the wind in just the Dakotas could supply 80 percent of U.S. electricity, the sun in Nevada could power the entire country. We could fuel half the nation’s cars with biofuel made of non-food biomass.
This renewable resource can be harnessed in a centralized fashion or a decentralized one. But the rewards of harnessing it will mirror the style of development. A massive wind farm in the Dakotas and a big solar plant in Nevada may provide enough electricity to power the nation, but they will do so only with a massive investment in long-distance power transmission and use of eminent domain. The beneficiaries of this development will not be rural residents and farmers, but instead will be the same big investors that dominate existing electricity markets.
If our vision is grand — to get to 100 percent renewable power — some centralized power production is inevitable. But a decentralized network of modest wind farms and biorefineries can harness the vast renewable resource of rural areas and bring home the economic benefits as well. The success of homegrown renewable energy lies in two key findings. Very large renewable power plants and biorefineries cannot be locally owned past a certain size because the capital costs are beyond the community’s wherewithal. Typically this occurs when the facilities have reached a scale such that the cost savings of “bigness” are minimal. But the rewards of local ownership are significant, delivering anywhere from 25 to 300 percent more economic impact to rural communities from identically sized absentee owned facilities.
Federal renewable energy policy tends to disregard these facts. Renewable power tax credits limit the opportunities for local ownership by requiring investors to have significant tax liability and hampering the ability of cooperatives, nonprofits, units of government and other aggregators of average people from becoming investors. Some incentives, such as accelerated depreciation, are only provided to commercial projects, with no comparable incentive for residential projects. The result is few locally owned projects, except in states with strong policies favoring such development. It’s as though the federal nutrition programs were designed to fight hunger with McDonald’s coupons – providing plenty of calories – when supporting home cooked meals would do a lot more for nutrition and the overall health of the nation.
There are policy alternatives that do much more for energy and economic security. Renewable energy payments (also known as feed-in tariffs) provide stable, long-term incentives without bias against local ownership. They also wouldn’t expire regularly, as federal tax credits are threatening to do yet again.
The coming US $1 trillion investment in rural renewable energy will help secure America’s energy future, but it also requires a choice. Will we build large, centralized power plants and biorefineries that bypass the rural communities whose resources we tap? Or will we change our policies to disperse the development of renewable energy and its financial benefits more broadly, securing our economic future, as well?
Readers can find more on confluence of rural economic development and renewable energy policy in ILSR’s latest report: Rural Power: Community-Scaled Renewable Energy and Rural Economic Development.
John Farrell is a research associate at the Institute for Local Self-Reliance, where he examines the benefits of local ownership in renewable energy. His latest paper, Wind and Ethanol: Economies and Diseconomies of Scale, uncovers why bigger isn’t necessarily better. He’s a graduate of the University of Minnesota’s Humphrey Institute of Public Affairs and currently resides in Minneapolis, Minnesota.