This open access article was published in Willamette's Insights magazine.
Abstract:
The efficient production and distribution of electric power has to overcome an increasingly complex marketplace where public policy and economic reality often conflict. In this challenging environment, utility-scale wind farms have proliferated across the American landscape. The fuel to operate commercial wind farms (i.e., the wind) is free. Nonetheless, the capital to build the commercial wind farm is not free. As the wind energy industry matures and the incentives relied on to develop wind farms evaporate, this discussion considers the market value of such commercial wind farms. In particular, this discussion considers whether commercial wind farms are fairly assessed by state and local property authorities. This discussion explores the implications of how wind farms are project-financed. And, this discussion considers two questions that relate directly to ad valorem property tax assessment: (1) But for the economic inconsistencies of production or investment tax credits, most wind farm projects would not be built. Therefore, do these tax credits increase the market value of the wind farms? Or, are the tax incentives a form of economic obsolescence in the wind farm property tax assessment? (2) The relative productivity of a wind farm is a function of its nameplate electric generation capacity, and the “net capacity factor” measures the efficiency of the wind farm electric generation. Does the latter metric (i.e., net capacity factor) serve as a measure of functional obsolescence in the wind farm property tax assessment? These valuation issues are currently being considered in the matter of Lost Creek Wind LLC v. DeKalb County Assessor pending before the State Tax Commission and the Circuit Court of Missouri.