TRAVERSE CITY, MI., July 12 — This time of year, the fields on the high bluff west of Traverse City begin to yield all sorts of crops —cherries, peaches, cucumbers and corn. Seven weeks ago, though, Terry Lautner’s alfalfa field sprouted something the neighbors still haven’t stopped talking about — a giant electric power windmill.

But it isn’t just the windmill’s enormous spinning blades or its prodigious size — it’s the nation’s largest — that has people in this upper Great Lakes community buzzing. It’s also how it was financed. Traverse City Light and Power, a city-owned utility, readily convinced 145 families and 20 businesses to agree to spend 20 percent more for their electricity — an average of $7.58 per month — in order to gain a clean source of energy. It’s the first time, say energy industry experts, that an electric windmill has been built in the United States by charging customers a premium or "green rate."

"I’ve always been interested in tapping the wind energy in that field," said Mr. Lautner, a 39-year-old dairy farmer whose family has tilled the ground here since 1865. "It’s real neat. I became so interested I killed a day watching them put it up when I should have been planting corn."

Indeed, if there is a place where some people would gladly pay a little more for a cleaner source of power, it’s here in Northwest Michigan. Though the Traverse region is politically conservative and votes heavily Republican, it is also developing a reputation as one of the most innovative areas in the Great Lakes basin for trying new ideas that join environmental and economic goals.

Two years ago, for instance , residents of nearby Old Mission Peninsula voted to increase their property taxes in order to raise at least $2.6 million. The extra revenue, generated in the teeth of national anti-tax sentiment, is now being used to protect thousands of acres of scenic orchards and crop land by paying farmers not to develop their land.

"It really wasn’t hard to attract customers to the program," said Steven B. Smiley, a private energy economist here who guided the windmill project. "We wrote a letter to all of Traverse City Light and Power’s customers in early June, 1994, and told them it would cost a little more each month to put up a windmill. Within a few weeks, we had more customers than we ended up needing."

There was a brief period, in the late 1970’s and early 1980’s, when wind power seemed to be an exceptionally promising alternative. Under the Carter Administration tax credits were established to encourage innovators. California, which had even more attractive state incentives, became a center of the industry, producing and building hundreds of windmills which today produce between 1 and 2 percent of the state’s electricity.

The Reagan Administration ended the Federal tax credit in 1985, and the air began to go out of the domestic industry. The snow-white machine here, erected at a cost of $670,000, is a Danish-built VestasV-44 600. It’s rotors are 144 feet long and spin at 28 revolutions per minute, fast enough for the blade tips to slice through the air at 145 miles per hour. The bluff where the machine stands is buffeted by winds from Lake Michigan that average 14.5 miles per hour. It is expected that the windmill will generate 1.2 million killowatt hours of electricity a year, roughly what is needed to supply 200 homes in Traverse City.

The windmill, which turns with a gentle whoosh like the sound of the summer breeze in a screen , is a monument to the vision and perseverance of Mr. Smiley who first introduced the idea to local utility executives in 1989. "One of the big reasons we did it is that in the coming age of deregulation in the utility industry giving the customers what they want is going to be the determing factor in our survival." said Charles Fricke, executive director of TCL&P. "A number of our customers said they wanted environmentally-friendly energy resources and our board responded."

Mr. Smiley explained that at a cost of 7 cents per kilowatt hour, the windmill produces the lowest priced electricity of just about any new power source. But it can not compete with old coal-fired power plants whose costs have been amortized over decades.

Traverse City Light and Power, as a result, produces and buys electricity for under 3 cents a kilowatt hour. The utility’s executives assured Mr. Smiley they would support a windmill if he could come up with a means for making up the difference. So he did.

As part of its energy policy, the Bush Administration enacted a tax credit in the early 1990’s that is now worth 1.6 cents per kilowatt hour. At Mr. Smiley’s urging, the state Public Utility Commission awarded TCL&P a $50,000 grant. Mr. Smiley calculated that customers interested in supporting the windmill would have to pay 1.58 cents more per kilowatt hour. Some 263 of the utility’s more than 9,000 customers signed green rate contracts; 80 are on a waiting list.

Ever since the windmill went up over Memorial Day weekend, the utility and Mr. Smiley have been receiving fan mail from across the country. Randy Udall, director of the Community Office for Resource Efficiency, a non-profit advocacy group in Aspen, Colorado, sent one of Mr. Smiley’s favorites. "Traverse City, we salute you," wrote Mr. Udall. "Taking energy decisions into your own hands. Putting money where your heart is. Cleaning the air. Saving fossil fuels for our grandkids. Why that’s almost un-American."